Is the market missing something or am I

15th Nov '23 by Olly Daney

5 comments 625 reads

Hi everyone

I’ve wrote a piece on Serica energy and would love to know people thoughts. Funny timing as I finished my peice the day Roland posted his brilliant in depth article. I’ve come at a slightly different angle, so there Hope you all enjoy it

Many thanks

Olly

Is the market missing something with Serica energy, or am I?

Recently I have spent a lot of time screening for stocks across the london market trying to find high quality bargains. Given the market performance over the last two years there are quite a few about. One company that is coming up time and time again is Serica energy. A North Sea oil and gas producer that seems to be very cheap. They’ve also been a constant feature on quality as well as value screens, with a stock rank at the time of writing of 98. This doesn’t seem to be a ‘cigar butt company’. Throughout this article I’m going to set out why I think North Sea oil and gas isn’t dead like many people think and why Serica could be a long term investment.

A little round up of who serica are…They are a North Sea oil and gas producer that were established in 2005. They directly employ over 200 people in london, Aberdeen and the oil rigs themselves, and are listed in the AIM all share index. They currently operate 11 oil fields and 2 producing Hubs with forecast barrels of oil equivalent per day of 40,000-47,000 with a split of 53% gas and 47% oil.

The case for oil and gas from the North Sea are extremely compelling. Peak global oil demand isn’t even close to happening, in fact it the earliest estimates have it around 2035. But in the west we have started blocking off our oil wells. In fact global supply isn’t growing at the same rate demand is growing, recently we have seen a slow down in oil demand linked to the slowing down of the global economy especially in China. But long term oil is still as vital as ever but it has been underinvested in for over a decade. With growing political tensions and even war in the countries around the world that supply oil and gas such as Russia And Ukraine. The Middle East with war between Israel and Gaza,…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Graham Wells

15th Nov '23

Thanks Olly,

For a brilliant post on Serica Energy (LON:SQZ)

I hold them and have tried to average down but am showing a very slight loss, depending on the day.

Your post is full of very useful information for anyone who hasn't researched this company yet. There are so many fairly short term issues that could allow the SP run up quickly. Namely when the oil price rises due to world conflict, oil supply not meeting general demand, especially when the economic gloom lifts and when people wake up to the fact that renewable energy won't sustain the world in the near future.

Oil and gas use is here to stay for a while until renewable energy becomes cheaper and in more plentiful supply. The weather also plays a large role in renewable energy production and as we haven't yet found a way to manipulate and control the weather, we are at the mercy of the gods where that is concerned. Also replacing gas and oil fired boilers and consumers isn't cheap and is going to take time. The problem for the oil and gas producers atm is the governments around the world and the general public realising this. So for me, it's a very slow gradual decline for many years and they're not going to fall off a cliff anytime soon.

I can only really see upside for SQZ and other companies like this in the medium to long term future. And whilst we are waiting for a re-rating of the SP we can enjoy some very healthy dividends to support the money we've invested.

Graham.

UK_Investor_8888

16th Nov '23

Great commentary above. I hold Serica Energy (LON:SQZ) Seplat Energy (LON:SEPL) and Gulf Keystone Petroleum (LON:GKP) principally encouraged by the StockRank algo and 10% dividends.

My concerns with Serica Energy (LON:SQZ) are:

1. The Eco-Terrorists obstructing The Public and smashing up cherished items of culture, encourage Government to back net zero idiocy, and surrender our oil and gas supplies to non British sources.

2. The current Government is a zombie Government.

3. The clean sweep of an alternative Government will let in some very unpleasant and undesirable factions with very ill thought through ideologies, not tried and tested policies.

4. Red Ed, the future "Climate Change SofS". He's rabid, unhinged, literally foaming at the mouth with his face all screwed up.

We are in danger of a "great reset" or "cultural revolution" that could cause a lot of damage to a small British Oil and Gas producer.

Good luck to all of us.

PS: My diesel vehicle, always driven carefully and considerately, averages 65.5 MPG, +750 miles on a tank, less than £300 to insure, £20 to tax, complies with the latest Euro Cat 6 standards. Just why replace what works with something less efficient? Madness.

KevinS1

18th Nov '23

Great article Olly.

Serica Energy (LON:SQZ) is my largest holding - only kicking myself for not selling some when it reached £4 a while back.

Every time I think about the long-term future of a UK producer in a very hostile political environment I cannot bring myself to sell out when I am getting a 10% dividend and the potential for a significant increase in the SP again.

I have burnt my fingers on too many occasions with my O&G portfolio (Gulf Keystone Petroleum (LON:GKP) & Harbour Energy (LON:HBR) to name two) but will stick with Serica Energy (LON:SQZ) for the time-being as I see the risk/reward being weighted on the upside.

I like the management team and think they have a plan in place for the next few years and the Tailwind losses will help their tax-position for the next couple of years.

Happy to hold on and see where we go for the next few months - the risk of the labour election victory is likely to be holding the SP back, but hopefully common-sense prevails on energy security - plus I am not 100% convinced the election is the done deal most think. Too many twists and turns to play out over the next 12months.

RCTurner

20th Nov '23

One thing not covered here is the future costs involved in closing wells. My understanding is that most of their cash balance is held against this future cost. This is a big negative for legacy type producers like Serica.

Neil81

Just plain wrong.

Is the market missing something or am I

Unlock the rest of this article with a 14 day trial

About the Author

Olly Daney

5 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...