RE: BREAKOUT10 Apr 2018 23:44
Kevin Godbold / The Motley Fool Tue, 10th April 2018 - 15:40
North Sea-focused oil and gas production & exploration company Serica Energy (LSE:SQZ) delivered full-year results today following a �transformational� year in 2017. Strengthening oil and gas prices drove operating profit up around 300% to $14.1m, and the firm�s cash balance shot up to $34m from just under $17m a year ago.
Big acquisition
The big news in November was that the company announced the acquisition of BP�s interests in the Bruce, Keith and Rhum fields in a move set to diversify Serica�s revenue and reduce its dependence on the Erskine field. Benefits of the deal will be higher production volumes and reserves, and the ability of the firm to use its prior tax losses to offset profits. The directors say the deal is �structured to control risk and minimise shareholder dilution,� and they expect it to complete during the third quarter of 2018.
The firm�s improved prospects drove the shares up during the year. In November, you could have picked up some of the stock at 27p, but today the shares change hands for around 67p. Yet they�ve been higher, touching 91p or so in January. Chief executive Mitch Flegg said that the firm is working hard towards the transition of the assets from BP as well as looking for new assets to add in the UK North Sea to grow the business, �where there are strategic benefits for Serica.�
City analysts following the firm expect earnings to increase around 512% during 2018 and 27% the year after that, which throws up a tempting forward price-to-earnings ratio of just over two, although the future shareholder dilution resulting from the deal with BP makes the valuation a little muddy for the time being. Nevertheless, I think Serica is an interesting investment proposition that could sit well in a portfolio alongside oil major Royal Dutch Shell (LSE:RDSB).
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