Interactive Investor

Insider: directors raise stake in UK oil company with 15% yield

It’s one of the country’s largest oil and gas companies and boasts one of the highest dividend yields, but government plans mean the shares can now be bought at 2021 prices.

17th June 2024 08:29

by Graeme Evans from interactive investor

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Leading directors of Serica Energy (LSE:SQZ) have backed the North Sea production firm after seeing shares trade at a three-year low in the wake of Labour’s manifesto launch.

Serica’s chair David Latin, who is running operations on an interim basis, and the finance boss Martin Copeland spent £37,000 on the AIM-listed shares at prices near 145p on Friday.

That compared with 267p last autumn and the 183p seen in February, when we reported that industry veteran Latin and three other directors made investments worth £391,000.

The pressure on Serica’s valuation continued Thursday after Labour’s election manifesto confirmed the party would not issue new North Sea oil licences and also planned to close loopholes in the current Government’s windfall tax on oil and gas companies.

It said: “We will not issue new licences to explore new fields because they will not take a penny off bills, cannot make us energy secure, and will only accelerate the worsening climate crisis.”

Earlier this month, Serica’s partner on the Buchan redevelopment project off the coast of Aberdeen said the General Election had prompted it to delay a final investment decision.

Jersey Oil and Gas (LSE:JOG), whose AIM-listed shares fell by about 25% over the course of last week, previously envisaged the first production from the project in 2026.

Serica bought its 30% stake last November, part of its focus on finding replacement reserves and delivering incremental production from 2026 onwards.

The company was founded 20 years ago and is among the 10 largest UK oil and gas companies, with its 11 fields this year set to deliver up to 46,000 barrels of oil equivalent a day.

Its scale is built on the Bruce, Keith and Rhum assets acquired from BP in 2018 and last year’s purchase of Tailwind Energy assets, which are operated by Dana Petroleum and have given Serica a broader spread through interests in two North Sea hubs.

Latin said in Serica’s annual report published this month that the company had stepped up efforts to identify opportunities in the broader North Sea region beyond the UK.

He told shareholders: “If good opportunities for increased value should arise in the UK of course we will not ignore them, but in the current circumstances we must consider other alternatives.”

Referring to the Government’s decision to keep the windfall tax in place until 2029 and Labour’s plan to increase this rate to 78%, he said political short termism risked killing off investment across the UK sector of the North Sea along with its high-quality jobs.

He added: “it would seem that the established policy of maximising the economic recovery of the UK’s remaining reserves of oil and gas in support of the energy transition has been abandoned.”

In spite of the ongoing negative political sentiment, broker Peel Hunt pointed out last month that Serica remained highly cash generative.

Its forecasts show Serica producing 43,000 barrels of oil equivalent a day for the next three to four years, which should underpin £350 million of shareholder distributions over the period.

Serica is next due to pay a dividend of 14p a share on 24 July, meaning a 1p increase on the previous year’s total of 22p or £75 million - some 10 times 2020’s maiden payment.

The shares closed on Friday at 147.3p, leaving Serica trading with a 15% dividend yield. Peel Hunt’s note, which was published before the election campaign, had a price target of 334p.

Latin resumes his role as non-executive chair on 1 July, when former Spirit Energy boss Chris Cox is due to start as chief executive.

Buying at a challenging time 

A £24,000 purchase of Mobico Group (LSE:MCG) shares has been made by chair Helen Weir, a few days after meeting shareholders to reflect on a challenging year for the transport group.

The former Lloyds Banking Group and Marks & Spencer director hosted Mobico’s AGM on Tuesday before making her investment at a price of 47.8p on Friday. The shares are down about 60% in the past year, leading to Mobico’s imminent relegation from the FTSE 250 index.

Headwinds for the operator of National Express in the UK and Alsa in Spain have included persistent cost inflation, the loss of Covid subsidies and lower profitability in Germany.

Its operating profits fell 15% and in October the company announced the suspension of its dividend in order to focus on debt reduction.

Writing in the annual report, Weir said the company’s recovery was taking longer than expected but that each of Mobico’s business operations boasted strong market positions that left them well placed for future growth.

She also told shareholders there was a need to think differently about transportation in a world where private car use continues to dominate political decision making and remains the default mobility option for many consumers.

Weir, who became chair in January 2023, also highlighted the “very significant role” for public transport addressing the climate crisis and cost of living pressures.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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