The Board of Serica Energy confirms that it received a revised nonbinding proposal from Kistos on 22 July 2022 regarding a possible cash and share offer for the entire issued and to be issued share capital of Serica.

The Kistos Revised Possible Offer comprises the following:

• 0.4000 new Kistos shares per Serica share; plus
• cash of 213 pence per Serica share, consisting of:
• a capital distribution of 67 pence per Serica share; and,
• cash consideration of 146 pence per Serica share

The Company notes that the Kistos Revised Possible Offer reduces the cash element of the offer by 33 pence per share and increases Serica shareholders’ share of the combined entity from approximately 50% to approximately 58% compared to the first offer that Kistos submitted to the Company on 24 May 2022 and which was publicly announced on 12 July 2022. The First Kistos Possible Offer was rejected by the Board of Serica on 1 June 2022.

The Kistos Revised Possible Offer purports to give an offer value of 425 pence per Serica share and is an 11% increase in the headline value to Serica shareholders when compared to the First Kistos Possible Offer. However, Serica notes that over 60% of this increase in headline value is driven by therise in the Kistos share price from 11 July 20222.

The Kistos Revised Possible Offer proposes that Mr Tony Craven Walker of Serica act as Chairman of the combined entity and Mr Andrew Austin of Kistos be the CEO.

Following careful consideration, the Board of Serica, together with its financial advisers, has unanimously rejected the Kistos Revised Possible Offer for the following reasons:

1. The Kistos Revised Possible Offer significantly undervalues Serica

The Serica Board strongly believes that the Revised Kistos Possible Offer:

• Does not reflect the underlying value of Serica's existing core producing oil and gas assets.
• Takes no account of Serica’s plans and capability for organic investment in its existing fields to increase production, reserves and asset life. For example, the Company has replaced practically all of its produced volumes in the last two years and recently announced positive early results from its LWIV3 campaign which has increased the production from only two wells by over 3,000 barrels oil equivalent per day.
• Results in Serica shareholders funding much of the purported premium themselves: Kistos’ market capitalisation is significantly smaller than Serica’s and the Kistos Revised Possible Offer is approximately 50% in shares.

Is opportunistic given the:

• recent and potentially temporary disconnect between Continental and UK gas prices (noting these gas prices are currently very volatile); and
• North Eigg exploration prospect currently being drilled (Serica working interest 100%) and targeting over 60 million boe of net P50 unrisked recoverable prospective resources

2. The Kistos Revised Possible Offer relies on using Serica’s own cash to partly fund the cash component of the transaction

• The proposed cash payment to shareholders in the Kistos Revised Possible Offer includes a 67 pence capital distribution made from Serica’s own cash resources.
• Serica’s Board has already committed to a combination of profitable reinvestment in its existing assets and returning cash to shareholders, whilst still seeking value accretive acquisitions. This is evidenced by the operational achievements described above, a rising profile of paid and announced dividends along with the recently secured authority for share buy-backs, and a considered M&A strategy.
• The structure proposed in the Kistos Revised Possible Offer is fundamentally unchanged from the First Kistos Possible Offer leaving the combined entity with a weaker balance sheet when compared with Serica currently, thereby compromising the scope for future investments and significantly increasing exposure to inherent business risks.

3. Serica’s management team has an outstanding track record

• The Kistos Revised Possible Offer would result in a change in the Serica leadership during a crucial period for the industry
• Serica’s leadership and organisation has generated outstanding returns for shareholders. Serica’s share price has consistently outperformed its UK-listed E&P peers having risen 1,120% over the past 5 years against an average 66% increase for its UK-listed E&P peers

The Company’s financial performance is underpinned by a strong track record of safe and effective stewardship of its operated assets which are strategically important for the UK, including:

• Successful execution of multiple challenging capital projects.
• Reserve replacement ratio of approximately 100% over last 2 years.
• Maintaining overall production from the Bruce Hub fields close to the level when acquired in 2018.
• Most recently boosting production from the Bruce field by just over 3,000 barrels oil equivalent per day through low cost well interventions.
• Deferring the expected cessation of production from the Bruce Hub fields from 2026 to 2030 and plans to extend Bruce Hub production well into the 2030s.

The Board reiterates its position that it will not recommend any deal on terms which it believes are unattractive to its shareholders and wider stakeholders.

Serica shareholders are strongly advised not to take any action. 

KeyFacts Energy: Kistos UK country profile   l   Serica Energy UK country profile

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