Member Info for DennisThePennis

Sometimes there are details a company doesn't want to release into the public domain since it might cause reputational damage (e.g. if they're planning to reduce their tax bill). Sometimes they won't release information since it might impact their competitive advantage.
I'm sure there will be strategic objectives associated with this deal that haven't been disclosed.
At the end of the day, you have to decide whether you trust the company's board and management.

Zebbo, I dearly hope your gut is wrong. In the past 6 months, SQZ has gone from my best investment to my worst investment. I've been topping up all the way down from 450p based on the company's fundamentals prior to this deal. I hope Mitch's confidence in the deal is well founded.

Thanks NewKOTB.
I would hope IIs have done their homework and wouldn't be hoodwinked that easily. No disrespect to anyone here but these guys are doing due diligence for a living.
Agreed about the size of Mercuria's holding and didn't realise they can block resolutions with 25pc. That's a concern.

Cinch: "However, I bet MF has sold this to the big II and will pass through unfortunately."

Call me naive but why would the deal be good for IIs and not PIs? We're all shareholders who will benefit from dividends and SP appreciation.

I've just listened too. Mitch came across well - very knowledgeable and authentic - and gave me some comfort that this deal has been approached with due diligence. He allayed some concerns directly, providing answers to specific questions, but my main takeaway was that he believes these are high quality assets which will provide us with immediate growth, revenue, reserves and resilience.

I was also pleased to hear his responses to questions about Mercuria which gave me some assurance that it won't be possible for them to take control, asset strip or take us private.

I think there will always be some debate about some of the numbers, especially when it comes to the value of tax losses, but if you consider this deal qualitatively I think it makes sense.

After digesting the circular and reviewing the comments here, my original opinion prevails. There are benefits in this deal but we're overpaying to get into bed with Mercuria (which might have some intended consequences in itself). If I was running the company, I'd take more time and find a better deal.

Given all the negative sentiment here and how the share price has been tanking, I'm really hoping the circular instills some confidence. I'm still reserving judgment and waiting with bated breath.

I'm reserving judgment on this deal until I've got to the full facts. When the BOD releases further details in January, I'm expecting answers to the questions below.

Why are we paying so much for Tailwind? Accounting for their debt of £277m, they have been valued at 89% of Serica's market cap (Tailwind £703m vs Serica £792m), even though:
- Tailwind production is 50% of Serica's (15kboepd vs 30kboepd)
- Tailwind 2P reserves are 68% of Serica's (42mboe vs 62mboe)
- Tailwind production is mainly oil which is considerably less profitable than gas at present
Compared to Serica, it seems Tailwind has been overvalued by at least £100m. Why?

Why are Serica shares being diluted by giving away 111 million shares to Mercuria, especially when we have c. £500m cash in the bank?

How will Mercuria add value to Serica's business? What's the growth strategy?

Does the BOD envisage any risks associated with Mercuria holding 25% of shares? If so, what is being done to addresses risks in the interests of other shareholders?

Why are we staying listed on AIM?

How will Tailwind's tax losses be used? Have the risks been fully considered, such as:
- Oil and gas price crash?
- Further changes in taxation?
- Restrictions on how tax losses can be used?

Have the risks and potential costs of the ageing Triton FPSO been considered and factored into this deal?

Why is this deal better than the Kistos deal that was rejected in July?

To be fair, most of the assets in the North Sea have exceeded their design life.
Production deferment is always a risk, especially if extended maintenance/upgrades are overdue, and hopefully this has been factored into production and revenue forecasts. As for FPSO cost liabilities, this will be pinned down in the contract between Tailwind and Dana as operator, so hopefully this has been considered too.

It's amazing what a difference a few months makes. In the summer we were the darling of AIM but now it seems we're desperately scratching around to do an M&A deal at any cost.
Fundamentally, the company is still strong - despite the windfall tax - yet our share price continues drop day-by-day. Surely the board must recognise that the market thinks this is a very poor deal.
The only saving grace is the shareholder vote in January which will determine whether our company should be given away to Mercuria (for whatever reasons). Although private investors such as myself might not have much influence, hopefully institutional investors will exercise due diligence before voting. Hopefully they are getting to see a more convincing business case than the one that's been shared with PIs so far.

I've spent a lot of time trying to understand what's going on here and I can't find any solid justification for this deal. All I see are woolly, unsubstantiated motherhood statements and sketchy numbers rather than objective facts and figures.
I have a lot of concerns but by far my biggest one is Mercuria picking up 25% of ownership, effectively taking control of the company, and diluting shares in the process.
As it stands, and based on the details shared to date, I don't believe this deal is in the interests of existing shareholders. I believe it might only be in the interests of Mercuria and a few Tailwind and Serica board members and executives. If true, that would be very upsetting and financially damaging for everyone posting here.
Unless proper justification for this deal is communicated, I will be voting NO.

The rationale for this deal seems to be based on tax benefits but as far as I can see specific details about these tax benefits haven't been released. It seems shareholders are expected to take it on trust that the BoD have done the maths correctly. Even if their maths is correct, they must be making assumptions about the future tax regime and O&G prices, so there will be a large element of risk.
Ignoring that, it looks like a terrible deal. We're overpaying for Tailwind - especially in the current climate - as well as diluting shares and bringing in a major new shareholder at a bargain price who will have significant control of the company.
At present it doesn't add up. The BoD need to disclose the numbers they're using.

zebbo, it will be 50% of total votes cast with one share entitling you to one vote. If you don't vote, nothing will be counted.

The question at the end about Tailwind tax losses in 2022 wasn't answered at all. It was just stated that Tailwind are in the same boat as others and the EPL is bad.
More assurance is needed on what tax losses can be carried forward and how they can be used.

Just listened to the investor call.

Interesting answer from Mitch Flegg when asked why shares are being issued rather than cash. He said the main reason is that Mercuria are very, very keen to be part of the vehicle going forward.

So what???

It sounds like the CFO is stepping down in 9 months and I wonder what the CEO is planning. Not sure about his motivation for this deal.

If SQZ are proposing to pay $18 per barrel for Tailwind reserves, this is way over the top. However, it seems there are two factors which could reduce this cost due to value elsewhere.

1. Mercuria. They seem to place a lot of weight on forming a strategic partnership with Mercuria, although with c. £500 million sitting in the bank doing nothing I'm not sure SQZ needs such a partnership. I can only assume they want to accelerate their growth significantly. They must already have acquisition plans.

2. Tax benefits. There is a lot of speculation about this and no-one seems to know what tax losses can be used and how they can be applied. Even HMRC don't seem to be able to explain their own rules. This needs to be the crystal clear.

Before voting, all shareholders (big and small) must be satisfied that these uncertainties are resolved and clear answers are provided.

Clearly this is a complex deal and there are lots of uncertainties at present. I trust everything will become clear in due course - ideally before the shareholder vote. In the meantime, and until I see otherwise, I will assume Serica's board and their advisors have done their due diligence. Also I will take some comfort in the fact that Mercuria want to acquire shares, not cash. I presume they're not stupid, and having done their homework they see value in the combined entity.

In the words of Corporal Jones, don't panic...!

@shakeypremis, that's my understanding too. The Tailwind losses can't be used against EPL but can be used against corporation tax and the supplementary charge for the combined entity. I think this makes the deal a lot more attractive. IMO.

Zebbo, agreed although SQZ doesn't have recent experience outside the UK. No operational capability, different regulatory regime, etc. Would be more challenging, but yes, would probably provide better returns if they're prepared to move out of the comfort zone.

It's difficult to imagine the windfall tax being increased any further but given the uncertainty about what might happen with the investment allowance, arguably the safest course of action would be to use the cash pile to acquire rather than develop. There may be more opportunities as multinationals look to exit the UKCS.