The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Erskine is gas. It's a gas condensate field - one of the first ever HPHT super-duplex projects given sanction in the UK. Gas reservoirs naturally deplete through the reduction in reservoir pressure as opposed to oil reservoirs which when produced creates voidage that needs to be replaced, usually by injected water. You'd need a production chemist and geologist to tell you exactly how long a gas reservoir will produce meaningful volumes of gas for, it's inextricably linked to the composition of the gas which will dictate it's state downhole.
Condensate reservoirs are generally accepted to be longer lasting because the gas has been converted into a liquid state by the effects of the local geology, conditions and time in-situ. Liquid gas will stay liquid until the pressure maintaining it drops below a set point (cricondenbar) or raises above a certain temperature (cricondentherm) and if you know your gas science, you'll appreciate that gas-phase natural gas takes up exponentially more volume that its liquid phase.
Gas production is therefore a lot more bespoke, generally speaking than Oil but it's also a lot more uniform when you don't have to consider sweep & voidage like you do with oil.
A completion assembly is the terminus of a well basically, the point in the reservoir where fluids physically enter the wellbore and make their way to the surface/topsides. Completions can vary widely in their utility, some have liners or sleeves that can be adjusted to increase or restrict fluid ingress or even change the area within the payzone that the fluids are collected at. Completions for oil at least usually provide utility for "gas lift" where natural gas (usually) is injected into the reservoir at the pay-zone - this has the effect of reducing the density of the fluids at the payzone and allowing them to flow more easily. For gas reservoirs like Rhum, they don't need to worry about that - but my point is to highlight that the common element to a completion is its job of collecting well fluids and exerting a very narrow degree of control over it.
I've made the reasonable assumption that R3 should be circa the same flowrate as either R1 or R2 because as you say, it's all tapped off the same field - whether there's full blown communication between the regions they have installed each completions is another matter and something a reservoir engineer can worry about. I will say this, though - we recently undertook an infill drilling campaign and one of our wells hit 20,000 boepd - more than double the rate our previous highest well when we started up. hitting the sweet spot in the reservoir really makes a difference.
So I mentioned before about R3 production being a profound event in the BKR deal but I didn't really illustrate it in a way that explains its significance, so here goes.
If R3 becomes operational this year or next, it would represent an increase in production equivalent to roughly double what SQZ's existing (18%) share of Erskine Produces at the moment (approx 7500 boepd at 60% ownership of Rhum through 2020 & 2021)
In 2022, when Serica takes ownership of 100% of BP's share of Rhum the increase in production relative to today would be closer to 22,500 boepd, which is about 6 x our share of Erskine or put another way, 100% of the total production of the Enquest Magnus platform.
i.e. In 2022 - you are getting the keys to a mid-range producer with no additional decommissioning costs or liabilities and you've already effectively paid for it. This how profound it is and none of it has been factored into the price of the company today.
I'll be holding until at least the September of 2022 unless someone makes a bid, in which case all bet are off.
Personally I think you're giving the market far too much credit. When R3 comes online, it won't be immediately obvious from an RNS - but it will result in a 50% increase in base production from Rhum. At todays gas price (a shade under 30p) That represents a difference of making £47m a year (gross) from our share of Rhum alone, to making closer to £70m
In terms of patience, you'll need to wait until April to see any of that on the balance sheet but when the market does see it, it will react. It's unthinkable that the market has priced this in already and as I already said I think you give them too much credit.
The profundity of R3 coming online cannot be overstated - once Serica owns 100% of BP's stake in Rhum it's worth an extra £40m a year (at todays spot rate) a year - and Serica are only paying 25% of the total cost to make it happen (IOC 50% and BP 25%) This deal keeps on surprising me with how much value it brings and it's baffling why people seem to be oblivious to it.
Serica will seek OFAC licensing every year (or equivalent) as a matter of course and provided nothing changes with how IOC's share of Rhum is administered (By the UK Govt), we can assume the licence will always be forthcoming.
With regard to US Equipment (and services for that matter) - all of the topsides have been replaced with non-US equivalents so it's only the subsea equipment installed prior to the UN/EU Sanctions that really require a US Treasury waiver.
The fact the existing OFAC license was granted for 18 months is not a coincidence when you consider the speculative (as it was at the time) timetable of the R3 intervention.
TAQA (Not Taka) is not Japanese - they are Emirati. TAQA means energy in arabic - they purchased the Cormorant system & a swathe of other non-operated assets in 2008, later buying the harding & another asset I forget the name of from BP.
I forgot to mention, currently, all oil and gas operators are committed to keeping energy flowing through this crisis.
It's anticipated that people staying at home are going to put a lot of demand on electricity generation and gas transit pipelines as Europe, UK and Ireland shutter themselves away in the near to mid term.
Myself and several of my colleagues have been informed that because of this, we will be expected to come offshore even if the rest of the country is locked down. Guys with kids will also be permitted to continue going to a school to complete this year's term so they can come to work.
It is indeed unprecedented, but I can't, even with the most critical mindset - see Serica or other gas producers doing badly out of this.
All in my own opinion.
With over £100m in the bank and the companies net profit for this year and next forecast to still be around the £50-70m mark (even taking into consideration todays depressed spot prices) - I think they'd need a better excuse than whats' happening in the wider (oil) market to shelve the dividend. Serica have waxed lyrical in the past about how 80% of their income is gas and sheltered significantly from the volatility of the crude market.
Against a backdrop of high production efficiency, low lift costs & healthy margins (even at a depressed commodity price) - if Serica shows the market that they can still bank significant profit AND reward their long term holders then they stand to set themselves apart from their peers in almost every regard.
in a wider context, I have my doubts that any responsible company will pay cash for any North Sea asset in the current climate - if they sought to acquire another basket of production - they will more than likely seek a deal that involves refinancing via a placing - and there's no better way of inspiring support for that than first demonstrating it's willingness to reward it's stockholders. Buying goodwill, if you will.
Time will tell.
Is this a serious question? Pre tax? After lift costs? After Dividend? And why your focus on per-barrel?
Serica is 80% gas which hasn't dropped lower than 22p per therm this year - oil makes a difference of only -£20m at $28 per barrel down from the average of $60 seen before the OPEC+ fallout.
My calculations puts 2020-2021 net revenues closer to £80/90m before taxes and lift costs leaving profit of £50/60m
I think if folks didn't take the opportunity to top up sub £1 they won't get the chance again. Caisson repair & removal has become an almost comically routine task in the north sea. I thought at the time a 2 month hit on production was a bit generous given how well versed engineering companies are at them.
Beggars belief - upomega was only too happy to take the upside from Serica, including the BKR deal that's elevated the status of the company to mid-tier with all the value creation that entailed - yet now, for no discernible reason (i.e. He sold-up cheap) he's moralising over the companies ownership of a UK Gas field that just-so happens to be co-owned by NIOC.
Where was this sanctimonious drivel when you were banking profit? Where was the concern and humanity for Iranian citizens when the share price went from 30p to £1.40 inside of 14 months? You're a f*cking charlatan mate - if this wasn't a free board I'd be pushing the owner to kick you off. Scum.
Sorry, NewKOTB - but this " Although like I mentioned recently, there was zero heads up leading to the BKR deal" - is patently untrue.
Jillian Ambrose - who was then Energy Editor at the Torygraph - ran this piece in April '17, nearly 7 months before BKR was announced.
https://www.telegraph.co.uk/business/2017/04/08/serica-energy-eyes-bp-gas-assets-north-sea-hunt/
" By Jillian Ambrose
8 APRIL 2017 • 7:36PM
Oil minnow Serica Energy is eyeing BP assets as part of its hunt for fresh ?acquisitions in the North Sea basin.
City sources have said the firm is circling the energy giant’s older gas fields in the hopes of a second transformational deal after its successful swoop on BP’s share of the Erskine field two years ago.
Serica is one of the few North Sea producers which weathered the oil market downturn to emerge cash-rich and debt-free. "
Serica are not and never have been dependent on an OFAC waiver. The US has sanctioned Iran for most of the last 20-30 years and in that time not a single executive order or law passed in Congress has shut Rhum down. A UN resolution passed in 2010 agreed to curtail Iran's nuclear activity by restricting all state owned apparatus - BP voluntarily shut down Rhum to avoid being caught up in EU sanctions enforcement. The field was restarted in 2014 when the UK govt temporarily nationalised IOC share of Rhum - holding the revenues from Rhum in a sandboxed account.
The executive orders Trump signed back into effect are IDENTICAL to the orders that were active from 2014 through to the lifting of UN sanctions in 2016.
I.e Please stop conflating UN sanctions that shut-down Rhum with a US treasury waiver that permits US companies to do work for Serica. That's ALL that the waiver is for. No OFAC waiver means US companies cannot bid for or provide services to the Rhum field. That's IT.
If I may proffer a technical opinion.
The single biggest restriction to Rhum export will be the turndown ratio and uncertainty of its export metering system. Ignore LP, MP HP and dense phase compression - if the volumes being exported exceed the calibrated range of the meters in situ, you're as good as giving gas away, or worse, paying tax on gas you haven't gotten paid for.
Its perfectly possible that Rhums 3 well processing system is performing near its combined throughput with the two wells that are producing well - it's equally likely that introducing a third well would bring the total throughput dangerously close to the design limit of the metering package.
Seeking to defer Rhum R3 until 2020 predicated on a forecasted drop in total throughput makes complete sense if the above has any relevance to the situation on Bruce.
Just my tuppence.
Just as an FYI - Executive orders are tools of the Office of the President & are used to exercise executive control over the highest echelons of government (In this case, the US treasury). Someone has clearly gotten POTUS attention early doors and this specific EO addresses the concerns of the Shah Deniz partners.
OFAC on the other hand is a federally mandated arm of the Treasury that deals specifically with sanctions enforcement in "sanctioned countries" such as Iran & Cuba. OFAC grant licenses under humanitarian & national security grounds (including energy security, under which Rhum qualified upon its initial application) hence when sanctions were lifted against Iran, BP applied for a license to be exempt from "snap-back" sanctions enforcement on these grounds. I see no reason how Rhums strategic relevance to the UK's energy independence from Russia has changed or will materially change with a change in operator from BP to SQZ.
So in simple terms, the OFAC license renewal is being dealt with by the US treasury directly, while POTUS executive order for Shah Deniz has been used to leap-frog the list of other projects under consideration. Thats all.