Member Info for Megla

The 4 weeks from December 5th elapsed yesterday, so we really should have had an update this morning. I’ll ask IR if they can clarify what’s happening.

Glass half full…..the dividend is at least sustainable for 3yrs, which takes into account the Parkmead deal and the extension of tax losses that will be utilised against the ex-tailwind assets.

Serica is the least impacted by the clowns in charge due to the limited decomp and interest costs. Essentially, the company would have an effective tax rate comparable with Norway, even without the tax losses.

Any assets purchased in the UK have to reflect the reality (shear stupidity) of the current fiscal regime, which should result in realistic pricing. I do think a merger or acquisition in the UK is inevitable.

FCF ‘should’ be incredibly strong next year due to lower CAPEX, cash taxes and the rolling of certain allowances (Triton FPSO caveat).

Glass half empty……the issues with the FPSO rumble on and the company has to cut the dividend to manage the balance sheet.

Let’s hope for a better 2025.

All the best.

21bln shares post restructuring.

Net debt neutral’ish but with a high cost of finance.

Loss making but scope to turn things around.

21bln shares x 2p would be a £400m market cap, which would seem a reasonable valuation.

Just in my view, DYOR and all that.

The market is in wait and see mode by the looks of it. Which isn’t all that surprising given the production slip ups. Attractive FCF forecasts are all well and good but the obvious concern is the Triton FPSO, especially considering much of this years CAPEX spend is on wells that flow through it. The CEO having an engineering background will should help in getting the right solutions to current issues.

They also need to crack on with another deal. Maybe Harbour’s UK assets or a merger with Kistos would be a good fit.

100% agree DTP.

This is an incredible deal, nothing ground breaking, but it’s increased core NAV by about 15p for a £14m outlay.

The big point is that the acquired tax losses will be immediately available if we buy another producing asset in the UK, which is now inevitable.

What’s also important is that the small caps have basically accepted there’s zero chance of financing these developments, which presents an opportunity for the mid caps to pick up these type of well structured deals.

Obviously the concern is still the Triton FPSO, but a few more deals like this would be more than welcome.

Mistyped, so just to be clear….

The losses cover CT at 30% and SCT at 10%.

So 30% of £200m = £60m

And

10% of £200m = £20m

Total value to Serica is £80m minus upfront cost of £14m.

Investor, the value to Serica is 40% of the £400m, so £80m (assuming we have the production to offset the losses against).

Against an upfront costs of £14m this a great little deal.

Incredible deal for Serica.

Tax losses minus upfront costs are worth about 15p a share to the company, with clear sight to utilisation.

I don’t expect the oil will ever see the light of day, but nice to have options in the portfolio if the UK government come to their senses.

Sekforde, the barrels that are flowing are typically the ones taxed at 78%, the ones stuck in the ground are the ones taxed at 38%. So yes the tax bill will be lower, but not as much as we might expect.

DTP, the company overpaid for the Tailwind assets, even more so when you factor in the recent poor performance, but I do think M&A involving the company is inevitable.

The likes of Serica are just too small to operate in a cyclical industry with such a hostile host government. The recent production issues have reinforced that view (at least for me). We’ve already seen the first wave of consolidation and I do think that will continue.

I would prefer a full sale, at which point I’d try and stop myself from ever investing in UK O&G again. As Rob says, what’s the point in investing when post tax loss utilisation company’s pay effective tax rates of more than 78% - all but nationalised by stealth.

Serica still has value in its tax loss position so I’m sticking around for now, but post tax loss utilisation the only real benefactor from the company’s risky operations is HMRC.

Back in June, Auctus were expecting a year-end net cash position of $120m. They’re now expecting a net-debt position of $80m. $200m gone up in smoke due to the dreadful operational performance.

A 78% tax rate that doesn’t (in part) include interest and decomp as a cost of doing business.

Labour are a clown show.

“one might say it is a matter of delay in production volumes”

Absolutely, the barrels haven’t gone anywhere, the issue is the uptime of the FPSO.

The problem this year is that we just haven’t produced enough barrels, particularly barrels that are only taxed at 38% as opposed to 78%.

No doubt the company will do some massaging of fine debt figure into year-end but it isn’t going to look good when compared to last years healthy net cash position.

Better days ahead, hopefully?!

So the barrels that have a tax rate of 78% are flowing, but the ones that are shielded somewhat from the tax insanity are not.

Great attempt at positive spin from the company.

Absolute garbage.

Zebbo, I agree with your post. When you take a step back, the independents operating in UK were an easy short when Labour first announced it might remove capital allowances. What I can’t get my head around is increasing the short in this price range.

They might already be well in profit, but surely there’s a reasonable chance Serica will execute on a deal, whether that be in the UK to accelerate the tax loss position, or abroad to derisk the company from a hostile labour government.

Hopefully the company has got an ace up its sleeve.

Not a company I tend to worry about (famous last words) but it is interesting timing.

Yes definitely already short, probably made a good few bob out of the clowns in charge putting the industry through so much uncertainly. But why increase now?

Can’t really work this out given the strong’ish balance sheet, fiscal uncertainty reduced and (hopefully) all the bad news out of the way.

You clearly don’t understand the situation. Serica is deeply involved in planning, budget setting, and major decisions. Pointing fingers at one party while ignoring Serica’s shared responsibility is not only naive but completely misleading.

“Not so much Serica, more so Dana.”

Easy option to blame someone else when we’re close to being an equal partner.

Sekforde, I’ve linked their latest update, which is free to view on Serica’s website.

Personally, I have a lot of questions about what Auctus have produced, 2026 tax per barrel looks wrong and their assumption of $36m of CAPEX over two years (2027/2028) is ridiculous. Anyways, as we know, investors should always do their own research.

https://www.serica-energy.com/downloads/research/SQZ%2026.11.2024.pdf

Jefferies think lower than 40k…… “Lowers FY25 production forecast to below 40,000 barrels a day based on facility performance while increasing next year’s capital expenditure estimate.”

Of course, what really matters is the company’s guidance that we’ll get in January. On a positive note, the issues all appear to be topside related, so no issues with the fields, they just need to get their acts together.

Sekforde, it is not possible for the company to produce $1.3bln of FCF (twice the market cap) over 5yrs with those numbers.

If the company can sort its operational problems then FCF will incredibly strong over the next 30months, so I agree with you on that. However, the 45k average is now hugely optimistic, with even paid promoter Auctus coming in at 41k.

After 30months and post tax loss utilisation, FCF drops off a cliff, in part due to the shortsightedness of the Labour government. So the actual upside the investor is buying into will take much longer to materialise.

At one stage there was clear path to an EV negative position, that is now way into the future due to the poor operational performance and associated cash burn.

I remain a holder and the share price should respond next year ‘IF’ the company can get a grip of its operations. The rolling of allowances and tax phasing will help massively and the company could make bucket load of cash in the short-term

In terms of the company’s strategy, my views haven’t changed. The company needs to merge, buy something or be sold. Post tax loss utilisation it becomes a pointless company handing over around 80% of its profits to HMRC, whilst shouldering all the risk.

The company acknowledged in the RNS that the operational performance hasn’t been good enough, so it’s totally bizarre to defend the update.

The tax losses likely saved the company around $100m in cash taxes this year. Without the those losses the cash burn would have been $200m, with does call into question the sustainability of the dividend post tax loss utilisation.