Serica Energy (LON: SQZ) is using its cash pile to buy Tailwind Energy and this will make it one of the top ten oil and gas producers in the UK North Sea.
The deal values Tailwind Energy at £367m and comprises up to 111 million Serica Energy shares and £59m in cash. The value is based on a Serica Energy share price of 277.5p and it has slipped to 260p. There is also net debt of £277m included in the transaction.
Serica Energy should have cash of £320m in the bank at the end of 2022, prior to the acquisition going through. There is also £40m of hedging security. Cash continues to be generated so the cash pile will build up again.
Serica increased production to 28,977 barrels of oil equivalent/day in November and the full year average should be between 26,000 and 28,000 barrels of oil equivalent/day.
Tailwind Energy has six producing assets, and this should increase group production to between 40,000 and 45,000 barrels of oil equivalent/day.
The deal also adds tax losses to the group – $1.4bn of UK ring fence corporation tax losses and $1.2bn of supplementary charge losses. The Tailwind Energy management is staying on in the enlarged group. The target’s major shareholder Mercuria will own one-quarter of Serica Energy and it will appoint two non-execs.
A general meeting will be held in January and the deal could be completed in March.
Earlier this month, Serica Energy said that the North Eigg exploration well has not encountered commercial quantities of hydrocarbons. The well cost around £13m.
