WTI (July) $92.16 +$4.80, Brent (Aug) $94.98 +$3.86, Diff -$2.82 -94c
USNG (July) $3.18 -11c, UKNG (July) 116.48p +.059p, TTF (July) €48.19 +0.49

Oil price

Oil is unchanged today after a rise yesterday which ended slightly off the best of the day, after warmongering in which Iran seemed to have the upper hand despite its own attacks and mine laying and Israel attacking the Hezbollah in Beirut. Indeed it seems that a conversation was had at the highest level between the USA and Israel to try and calm things down.

Serica Energy

Capital Markets Day

Production growth, significant cash generation, and sustainable shareholder returns

Serica is today hosting a Capital Markets Day at which the Company will set out how its enlarged UKCS portfolio, strengthened balance sheet, and organic investment opportunities can support production growth, and deliver significant cash generation and sustained shareholder returns.

The Company will focus on its portfolio of short-cycle projects with the potential to add 30,000 boepd of incremental production, supporting annual average production of over 50,000 boepd into the next decade. The investment programme is expected to be highly tax-efficient and is forecast to be more than covered by free cash flow.

Serica is also announcing a dividend policy targeting 15-30% of post-tax Cash Flow from Operations from FY2026 onwards, supporting shareholder distributions at or above current levels while retaining the flexibility to fund value-accretive organic growth and M&A.

Chris Cox, Serica’s CEO, stated:
“This is an exciting time for Serica. We have a multitude of opportunities in our newly expanded, well-balanced, portfolio set to deliver material cash generation that funds further value-accretive growth alongside sustainable shareholder returns into the next decade. Underpinned by a strong balance sheet and bolstered liquidity, we will share more details today about these growth projects and how we expect to deliver them. Our disciplined approach to capital allocation and value-accretive M&A means Serica is well positioned to continue its track record of creating long-term shareholder value.”

Today’s Capital Markets Day was an opportunity to get some in-depth details from the company, it has been very active in the recent past across all of its portfolio and the company fielded its senior management team in all areas. 

At the CMD they set out how the enlarged UKCS portfolio, strengthened balance sheet, and organic investment opportunities can support production growth and deliver significant cash generation and sustained shareholder returns.

It is important to note that the company has kept guidance unchanged, adding on guidance relating to Cash Flow from Operations (CFFO) this year of $470-520m. Importantly, guidance relating to production of ‘significantly over 40,000 boepd’ remains the same. This is driven by strong current performance, with Triton in the highlights for a positive reason – uptime of over 95% in Q2 has supported production of 49,500 boepd in the period, with current year-to-date production of 43,300 boepd.

Serica has a very strong cash position with a reported $228m and net debt of $72m after the recent highly successful Nordic bond issue. The company are on track to be net cash at the interim stage and retain their undrawn RBL, currently they are in advance stages of renegotiation of the facility, with plenty for all opportunities. 

In support of its organic growth the company detailed a number of short-cycle projects which have the potential to add 30,000 boepd of incremental production which support the guidance, as above, of over 50,000 boepd into the next decade.

Serica has an investment programme that is both highly tax-efficient and is forecast to be more than covered by free cash flow, with organic growth continued across the portfolio and successful M&A activity adding accretive assets the value at Serica has grown significantly.

And to go with this value add the company has announced a new dividend policy designed to ‘deliver attractive and sustainable shareholder returns’ whilst also preserving flexibility in its organic and inorganic operations. The policy means that Serica will target dividends of 15-30% of post tax CFFO which is consistent with historic payout levels and specifically a continuation of the current 16p per share which will effectively be a minimum with ‘potential for additional shareholder returns. 

This was a highly professional and accomplished CMD, it showed that Serica has great organic growth, a robust balance sheet capable of financing significant further accretive acquisitions, made more feasible by their highly favourable tax position and exceptional free cash flow supporting growth across the board. 

The company remains a favourite, maintaining a leading position in the Bucket List and my target price of 400p per share is above analysts consensus but I’m happy with that. Today the shares are 270p up 4% and they are up over 60% in six months and 71% year on year, with this performance I think that they will go higher. 

Short-cycle, tax efficient projects with the potential to grow production into the next decade

Serica is currently tendering for a rig to undertake a multi-well drilling programme targeting infill wells and tie-backs across the broader Serica portfolio. The Company is working towards formally contracting a rig in Q3 2026 to retain the ability, subject to all necessary consents and approvals, to commence drilling in early H2 2027.

Serica’s organic growth projects from which the 2027-2029 drilling programme is set to be selected comprise 34 mmboe of non-producing 2P reserves and 2C resources of quick payback, short-cycle investment projects with the potential to add an incremental 30,000 boepd to production. This would support annual average production of over 50,000 boepd into the next decade, while delivering rates of return of over 40% on average across the programme. Projects with the ability to add near-term production include:

• Bruce infill drilling, targeting the production of 18.6 mmboe of reserves, with first production possible 12-18 months from the start of drilling
• The Kyla field redevelopment, with 10.2 mmboe of reserves, able to be produced via a single horizontal well tied-back to the Triton FPSO
• The Glendronach development and Tormore infill drilling, both of which are within the newly acquired Greater Laggan Area and, if developed, would be produced via the Serica-operated Shetland Gas Plant (‘SGP’)

Further details will also be given regarding the broader opportunity landscape West of Shetland, notably through operatorship of SGP, where Serica is working with joint venture partners and third-parties to secure additional gas volumes which drive further significant shareholder value as well as helping to boost UK gas security of supply.

The rig tender is for a firm period of 400 days, with the option for further extensions. The initial 400-day phase could potentially deliver a three-well programme at Bruce, with optionality for either decommissioning work and/or an additional development well at another asset. The estimated pre-tax cost of the Bruce infill programme is around $400 million for drilling, completion and necessary facilities modifications. Capital spend on Bruce is highly tax-efficient, and is expected to benefit from up to 84.25% tax relief based on the prevailing tax regime.

Should all of our identified short-cycle development projects be delivered, a potential additional $300-400 million pre-tax would be expected to be spent over the period to 2029, with production and returns from investment being delivered on a sequential basis as wells are tied in throughout the programme duration. The total investment programme is forecast to be more than covered by free cash flow in the period, on the basis of Serica’s planning assumptions, including current consensus commodity prices.

Robust current production, significant cash flow

Serica production remains robust. Supported by Triton production of 20,400 boepd in Q2 to date, Q2 production averages 49,500 boepd, and year-to-date production 43,300 boepd. This, coupled with the higher-than-expected commodity price backdrop offset to an extent by our hedging portfolio, has supported the generation of significant cash flow, and as of 1 June 2026 the Company has cash of $228 million and a net debt position of $72 million (net debt of $200 million as at 31 December 2025). Serica remains on track to be net cash at the end of June, with a robust liquidity position of $684 million following the successful recent $300 million Nordic bond issuance and the repayment of drawn RBL debt.

This strong financial position will allow Serica to optimise capital allocation across those opportunities which maximise shareholder value, while continuing to deliver sustainable shareholder returns and the ability to pursue value-accretive M&A.

A dividend policy set to continue material distributions

Serica’s capital allocation framework prioritises maintaining balance sheet strength, funding high-return organic growth, pursuing value-accretive M&A, and delivering sustainable shareholder distributions.

Serica is today announcing a dividend policy designed to deliver attractive and sustainable shareholder returns while preserving flexibility to fund value-accretive organic growth and M&A. For FY2026 and thereafter, Serica will target dividends of 15-30% of post-tax Cash Flow from Operations (‘CFFO’). This range is consistent with the level of Serica’s historic shareholder distributions and is expected to support a continuation of the current 16p per share annual dividend, with potential for additional shareholder returns.

The new dividend policy will not apply in respect of the 10p final dividend relating to 2025, which was approved at the recent AGM and is payable on 24 July 2026 to shareholders registered on 26 June 2026, with an ex-dividend date of 25 June 2026.

Outlook and guidance

Serica expects post-tax CFFO in 2026 of $470-520 million.

All guidance for 2026 remains unchanged, including expected production of significantly over 40,000 boepd. Serica remains on track to move from AIM to the Main Market of the London Stock Exchange in Q3 2026.

The acquisition from ONE-Dyas of a 10% interest in the Catcher Field and a 5.21% interest in the Golden Eagle Area Development is set to complete in the middle of June.

No further current trading information will be disclosed at the CMD.

Tower Resources

Tower has announced its preliminary results for the 12 months ended 31 December 2025.

Cameroon

• 7 March 2025 Tower Resources Cameroon S.A. submitted the TRCSA-Prime farm-out agreement documentation (see ‘Corporate’ section below) and the request for a year’s further extension of the First Exploration Period of the Thali license to the Cameroon Minister of Mines, Industry and Technological Development for approvals.
• 10 June 2025 The Company issued a Letter of Award to Advanced Energy Systems S.A.E (“ADES”) for the provision of a jack-up rig, proposed to be the Admarine 510, to drill the NJOM-3 well on Tower’s Thali license in Cameroon.

Namibia

• 7 March 2025 Tower Resources (Namibia) Limited (“TRNL”) agreed to purchase an additional 5% interest in the PEL96 license offshore Namibia from its local partner, ZM Fourteen Investment (Pty) Ltd, for a cash consideration on completion of US$375,000, subject to usual conditions and approvals.
• 17 June 2025 The Namibian Ministry of Industries, Mines and Energy (“MIME”) wrote to the Company to confirm formally the previously advised entry into the First Renewal Period of the PEL96 license.

Corporate

• 10 January 2025 The Company, through its wholly-owned subsidiary, Tower Resources Cameroon S.A. (“TRCSA”), agreed to farm-out a 42.5% non-operated interest in the Thali license to Prime Global Energies Limited (“Prime”). Terms of the transaction included a US$15,000,000 cash contribution towards the Thali work programme and drilling of the NJOM-3 well in 2025. Additionally, via TRNL, Prime also agreed to farm-in to PEL96, offshore Namibia, for a 25% non-operated interest.

Highlights

• Prime to acquire a 42.5% non-operated interest in the Thali license, and to make a US$15,000,000 contribution to the Thali work programme costs;
• Prime also to acquire a 25% non-operated interest in PEL96, offshore Namibia, with TRNL to be reimbursed back costs at completion;
• In recognition of existing production-based payment agreements in place with Pegasus Petroleum Limited ("Pegasus") on the Thali license, which Pegasus agreed to modify in Prime and Tower's favour, Prime committed to production-based payments of 10% of Prime's after-tax share of profit oil from Thali to Tower, which will, in turn, be passing the majority of those payments on to Pegasus and also retaining a portion itself, as previously disclosed; other aspects of the transaction include;
• A payment of US$1,875,000 was made to Tower upon the farm-out agreement execution; 50% paid on by Tower to Pegasus and 50% retained by Tower;
• A further payment of US$1,875,000 to Tower to be made on completion of the Thali farm-out; 50% to be paid to Pegasus and 50% to be retained by Tower;
• The issue of 5,650,483,681 Ordinary shares in Tower to Pegasus in consideration of the cash retentions by Tower and the modification of the production-based payments to Pegasus noted above;
• A further payment of US$2,500,000 to Tower on completion of the Namibia farm-out (of which US$1,875,000 will be held back pending completion of the Thali farm-out as well as the Namibia farm-out);
• In aggregate Tower to receive a total of US$4,375,000 in cash on completion of both the Thali and PEL96 farm-out agreements;
• Agreement in principle for Tower and Prime to work together on other projects in Cameroon, with Prime participating up to 42.5% depending on the project.

22 January 2025 A broker to the Company exercised rights over 271,018,518 Ordinary shares comprised of 271,018,518 Warrants at an exercise price of 0.027p per share and at an exercise cost of £73,175.

26 March 2025 The Company agreed an unsecured fixed-price convertible bridge loan of £500,000 with Prime Resources Limited with a term of up to 12 months, and convertible into ordinary shares at a fixed conversion price of 0.05588 pence per share if not prepaid earlier. Prime Resources Limited is a Gibraltar-registered private investment company and is not related to the Company's prospective farm-in partner Prime Global Energies Limited.

9 April 2025 The Company made an annual award of 1,540,000,000 Restricted Shares to directors, employees and consultants under its Long Term Incentive Plan (LTIP).

1 July 2025 The Company expanded its Bridge Loan, announced on 26 March 2025, by £250,000, from £500,000 to £750,000. The other terms of the Bridge Loan remained unchanged.

1 September 2025 The Company expanded its Bridge Loan, announced on 26 March 2025 and 1 July 2025, by £250,000, from £750,000 to £1,000,000. The other terms of the Bridge Loan remained unchanged.

17 October 2025 Subscription to raise £550,000 through the issue of 1,964,285,714 new ordinary shares at a price of 0.028p per share. Axis Capital Markets Limited, the broker, awarded warrants over 49,107,143 new ordinary shares with a strike price of 0.056p per share, exercisable over three years.

17 November 2025 Subscription to raise £280,000 through the issue of 1,000,000,000 new ordinary shares at a price of 0.028p per share. Axis Capital Markets Limited, the broker, awarded warrants over 25,000,000 new ordinary shares with a strike price of 0.056p per share, exercisable over three years.

Post-Reporting Period Events

28 January 2026 Subscription to raise £375,000 through the issue of 1,704,545,454 new ordinary shares at a price of 0.022p per share. Axis Capital Markets Limited, the broker, awarded warrants over 42,613,363 new ordinary shares with a strike price of 0.044p per share, exercisable over three years.

16 March 2026 Subscription to raise £1,499,999 through the issue of 6,315,785,262 new ordinary shares at a price of 0.02375p per share, which was used inter alia to repay in full the Bridge Loan. Axis Capital Markets Limited, the broker, awarded warrants over 141,052,526 new ordinary shares with a strike price of 0.0475p per share, exercisable over three years.

I have been positive on Tower for some time as the company moves slowly but surely towards drilling in Cameroon and with financing in place, and I am assured continuing confidence in final approvals action will indeed happen. 

With a continued presence in Namibia as well and a partner in Prime Global I expect to see movement there as well and despite having said it before I think that Tower will indeed make significant progress but as always don’t hold your breath…

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog