WTI (Jan) $56.82 -62c, Brent (Feb) $60.56 -56c, Diff -$3.74 +6c
USNG (Jan) $4.01 -10c, UKNG (Jan) 72.13p -2.3p, TTF (Jan) €26.75 -€0.625

Oil price

Oil is down again today, the short term oversupply is winning the day but next year still looks a great deal better. 

Serica Energy

Serica has announced the entry into a sale and purchase agreement, via two of its newly acquired subsidiaries following the completion of the Prax Upstream transaction, to acquire a portfolio of Southern North Sea assets[1] (the ‘Acquired Assets’) from Spirit Energy Limited (‘Spirit Energy’), and certain affiliates (‘the Transaction’). The upfront consideration is £57 million (c.$74 million) with the effective economic date being 1 January 2025. Completion is expected in H2 2026.

The Acquired Assets comprise a 15% non-operated working interest in the Cygnus field, one of the largest producing gas fields on the UK Continental Shelf; a 25% non-operated working interest in Clipper South; operated positions across various assets in the Greater Markham Area (‘GMA’); and further operated and non-operated interests in gas fields across the Southern North Sea, being Eris (54% operated working interest), Ceres (90% operated working interest), and Galleon (8.4% non-operated working interest). Following completion, the seller will retain decommissioning liabilities on the operated assets, expected to constitute over 75% of the total estimated decommissioning liability.

Chris Cox, Serica’s CEO, stated:

“This transaction is a further step towards delivering on our strategy and diversifying our asset base through the addition of high-quality assets, adding over 15% to our reserves and significantly boosting production. These are also assets I personally know well, and the Cygnus field in particular is an attractive addition to our portfolio given its high uptime, low emissions, and low operating costs. There is also the potential for further infill drilling opportunities across the portfolio, most significantly at Cygnus, where drilling is ongoing.

The transaction will require only modest cash outflow on completion and is set to generate material cash flows, while also limiting our exposure to future decommissioning costs, enhancing Serica’s ability to create further value for shareholders through investing in growth and delivering attractive cash returns.”

This is another cracking deal from Serica and sees CEO Chris Cox going back to his alma mater at Spirit, so he is on home ground with this acquisition. And even he said in the call that it was an ‘outstanding deal’ and that Serica has ‘pulled off a coup’.

I certainly concur, and Serica has done well here, this portfolio of Southern North Sea assets from Spirit for an upfront $74m (£57m) but which will be significantly offset by the receipt of a payment ‘reflecting interim post-tax cashflows between the effective economic date and the completion date, expected in H2 2026’.

The Transaction adds 18.7 mmboe of 2P reserves to Serica’s portfolio, increasing Serica’s 2P reserves by 16%, at a cost of approximately $3.9/boe of 2P reserves and which is incredibly cheap and given that the deal is dated January 2025, will only end up showing a modest cash outflow on completion, expected to be 3Q 2026. 

Indeed, the company say that it will generate ‘material cash flows’ and the deal also cannily limits exposure to decommissioning costs thus enhancing value creation for shareholders. The decommissioning deal means that costs are borne by Spirit although will be operated by Serica. The cash generation is substantial, somewhat over $100m of free cash flow between closing in H2 next year and the end of 2028 adds to the appeal of the deal. 

For Serica this is another deal, in line with the company’s strategy of organic and inorganic  growth, it creates optionality across the portfolio and as always uses the tax situation and the balance sheet very efficiently. 

There is another benefit to shareholders, that optionality is generated as these assets have a very high rate of uptime and given this year’s Triton factor creating regular disappointment will make for more diverse, less volatile profile. It adds yet more gas, although the company was at pains to point out in the webcast that it was not specifically favouring it over oil, it’s just the way deals come along.

There is also a bit of exploration in this deal, although no new licences are being offered by the Government, it appears that the NSTA is almost pressuring companies to drill exploration wells on existing licences. This gives a nice piece of upside to add to the price of the deal, the portfolio now has a more diverse and increasingly robust production profile set for the long term.

But don’t expect this to be the last piece of M&A from Serica, the window is open for a while at least, and the company, with its strong cash flow, will surely be eyeing up other opportunities for next year. The company easily deserves to stay in the Bucket List for next year and my TP of 250p is, as I have mentioned looking a touch parsimonious, FY update on January 21st is probably time to increase that number. 

BENEFITS OF THE ACQUISITION 

• Immediately cash generative, with c.$100 million of free cash flow to be generated by the Acquired Assets by the end of 2028, supporting and enhancing Serica’s strategy of investing for growth and delivering attractive shareholder returns 
• The Transaction adds 18.7 mmboe2 of 2P reserves (as at 1 January 2025) to Serica’s portfolio, increasing Serica’s 2P reserves3 by 16%, at a cost of approximately $3.9/boe of 2P reserves 
• Addition of pro-forma production of around 13,500 boepd in H1 2025, of which 96% was gas 
• Establishes an operated production hub in the Southern North Sea in which to deploy Serica’s leading subsurface and mature asset operatorship expertise, while also further diversifying our UKCS presence and hydrocarbon evacuation routes  
• Interim period cash generation between effective economic date to completion in H2 2026 expected to result in modest payment on completion and no new financing requirement 
• Addition of 3.4 mmboe of 2C resources, and the potential for incremental growth through further wells at Cygnus, Clipper South, and Grove, as well as wider exploration and appraisal opportunities around Cygnus 
• Decommissioning of the operated assets, although funded by Spirit Energy, will be undertaken by Serica, permitting the Company to strengthen its operational capacity in this important activity 

The Cygnus field is a low-cost, low-emission field with high uptime and sustained production into the next decade:

• Opex of c.$11/boe  
• 97% operating efficiency in H1 2025 
• Carbon intensity of 7 kgCO2/boe, well below the North Sea average  

(1) The Transaction is being effected through a combination of asset transactions as well as the acquisition of Spirit Energy’s two Dutch holding companies, Spirit Energy Nederland B.V. and Spirit Energy Infrastructure B.V. 
(2) The 2P reserves stated in this announcement are based on an independent evaluation carried out by Sproule ERCE. Reserves quantities have then been adjusted from the 30 June 2025 date of the Sproule ERCE evaluation to the Transaction effective economic date (1 January 2025) by adding back the actual sales volumes over the period 1 January to 30 June 2025. 
(3) Stated as at 31.12.24, not inclusive of the pro forma reserves added from the Prax Upstream acquisition and related deals with TotalEnergies and ONE-Dyas 

KEY TERMS OF THE ACQUISITION 

• The Transaction has an effective economic date of 1 January 2025 and an upfront cash consideration of £57 million (c.$74 million) to be paid on completion, subject to customary working capital adjustments, and is expected to be significantly offset by the receipt of a payment reflecting interim post-tax cashflows between the effective economic date and the completion date, expected in H2 2026
• The amount due from Serica at completion is therefore expected to be modest, reflecting the contribution of more than 18 months of interim period cash flows 
• The terms of the Transaction also include provision for two potential further cash payments by Serica: (1) £2.5 million contingent on sanction of the drilling of an additional development well on Cygnus; and (2) £1 million contingent on the drilling of, and subsequent first production from, an infill well on Clipper South  
• Following completion of the Transaction, the seller will retain decommissioning liabilities on the operated GMA, Eris and Ceres fields up to a cap, set at 115% of the current estimated decommissioning costs. In total, across the portfolio of Acquired Assets, it is expected that the seller will be retaining over 75% of the total decommissioning liabilities, with decommissioning spend for non-operated assets expected to be $60-70 million (on a pre-tax undiscounted basis) with the majority of this spend not before the early to mid-2030s 

ACQUIRED ASSETS 

Cygnus field (15% working interest) 
Cygnus is one of the largest producing gas fields in the UK North Sea, and is located in the Southern North Sea in blocks 44/11a, 44/11b and 44/12a in shallow water depths of 15 to 25 m. The field, operated by Ithaca Energy, who owns the remaining 85%, has a carbon intensity of 6 kgCO2/boe, considerably below the UK North Sea average of 21 kgCO2/boe, lowering the overall carbon intensity of the Serica portfolio. 

Cygnus is a mid-life field, having begun production in 2016. There are 11 wells, which produced a total of 4,000 boepd net to the acquired Spirit Energy stake in H1 2025, with an infill drilling campaign ongoing. The first of the four firm wells in the campaign is now on production, and the second well underway. Two further wells are set to follow, with the potential for further development drilling beyond the currently approved wells. 

Greater Markham Area (working interests: Markham 37.5%, Chiswick 100%, Grove, 92.5%, Kew 100%, J3C (NL) 4%) 
The GMA sits on the median line between the UK and Dutch segments of the North Sea, and comprises the operated Markham, Chiswick, Grove and subsea tieback Kew fields, along with the TotalEnergies’ operated J3C, K1a, and K4aD fields. Gas from all of these fields is processed across the operated Markham J6A platform and exported via the Wintershall operated K/13 facilities and into the 160 km long Westgas transport pipeline system to the Den Helder onshore terminal in the Netherlands, where it undergoes separation, conditioning, and distribution.  

GMA produced c.7,000 boepd net to Spirit Energy in H1 2025, with the majority of production from the Chiswick field. Further infill and production enhancement opportunities exist in the Grove, Chiswick, and Kew fields and Serica expects to evaluate the merits of pursuing these opportunities promptly on completion of the Transaction. 

Clipper South (25% working interest) 
Clipper South is a tight gas field operated by Ineos Energy and located in blocks 48/19 and 48/20 in the Southern North Sea, approximately 100 km east of the Lincolnshire coast. Situated in water depths ranging from 22 m to 26 m, it lies south of the Galleon and Ensign fields. The field's production, c.1,200 boepd net to Spirit Energy in H1 2025, has demonstrated exceptionally high operational efficiency coming from four long, horizontal, multi-fractured wells tied to a Normally Unattended Installation and controlled from the Shell-operated Clipper installation with gas landed at the Bacton Gas Terminal on the North Norfolk coast.
 
Clipper South is a relatively young asset with significant remaining reserves, ensuring its continued contribution to the region's gas supply. There are multiple identified future drilling opportunities on the block and in adjacent areas that have the potential to extend the production life of the field significantly. 

Galleon (8.4% working interest) 
Galleon is located in blocks 48/14a, 48/15a, 48/19a and 48/20 in the Southern North Sea, east of Clipper and west of Audrey in the Sole Pit Area, at a water depth of 28m. The field consists of 11 producing wells, delivering c.300 boepd net to Spirit Energy in H1 2025. Galleon is operated by Shell with the Shell/ExxonMobil JV having an 83.2% stake, and is set to be transferred to Viaro Energy upon completion of their acquisition of the Shell operated Southern North Sea portfolio. 

Eris (54% working interest) and Ceres (90% working interest) 
Eris and Ceres are single-well subsea tiebacks located approximately 34 km and 44 km, respectively, east of the Easington Gas Terminal in the Southern North Sea. Eris sits in block 47/8c-4 at a water depth of 41m, and Ceres in 47/9c-11 at a water depth of 29m. The two late-life fields, currently producing c.1,000 boepd net to Spirit Energy in H1 2025, are set to cease production in 2026/2027, following which Serica, subject to completion of the Transaction, will undertake planned decommissioning work, with the costs retained by Spirit Energy under the terms of the Transaction. 

NOGAT (1.8% working interest) 
The Northern Offshore Gas Transport (‘NOGAT’) pipeline system transports natural gas from Denmark and Dutch fields to a landing point at Den Helder in the Netherlands. The pipeline is owned by an incorporated joint venture (NOGAT B.V.) owned jointly by Eni (15.0%, operator), EBN (45.0%), PGGM (38.2%) and Spirit Energy (1.8%) who receive tariff income from third party users of NOGAT. 

Hunting

Hunting has announced its intention to extend its current share buyback programme.

The $40 million share buyback programme, announced on 28 August 2025, in respect of its Ordinary shares of 25 pence each, is to be extended by up to a further $20 million, resulting in a total maximum aggregate consideration of up to $60 million being allocated to the Programme.

The Programme is being extended in light of the Group’s sustainable cash generation and strong balance sheet and follows further consultation with major shareholders since the rebalanced capital allocation priorities were announced on 9 July 2025.

The maximum number of Ordinary Shares which can be repurchased under the Programme remains 24,724,518. The Programme will be conducted at all times within the limits of the applicable authority granted by shareholders at the Company’s 2025 Annual General Meeting to purchase the Company’s Ordinary shares. Purchases of Ordinary Shares will continue independently of and uninfluenced by the Company during any closed period to which the Company is subject and/or if the Company comes into possession of inside information. The Programme is subject to market conditions and there is no guarantee that the Programme will be implemented in full.

The sole purpose of the Programme is to reduce the share capital of the Company. As such, all Ordinary Shares purchased under the Programme will be cancelled.

Hunting will continue to announce any purchase of Ordinary Shares under the Programme in accordance with the relevant notification requirements set out in the UK Listing Rules.

This is good news from Hunting as the board are clearly confident that business is good and that the shares offer value to the treasury. I concur and even though the shares have been excellent performers, up by 45% on 6 months and 30% on 12 months, they still look very attractive, my 500p TP may need upward adjustment.

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