Serica Energy

Serica Energy Dividend Analysis and Summary

• Dividend type: Final (FY2025)
• Amount: 10 pence per share (unchanged year-on-year)
• Total FY2025 dividends: 16 pence per share (10p final + 6p interim paid Nov-2025)
• Ex-dividend date: 25/06/2026
• Record date: 26/06/2026
• Payment date: 24/07/2026
• Share count (issued): ~393.6m; implied final dividend cash cost: ~$52.7m
• Indicative yield at 252p (24 Mar 2026): ~4.0% for the final (10p); trailing FY2025 DPS (16p) ~6.3%
• Approval: subject to 2026 AGM

• Coverage (cash-generative capacity): 2025 EBITDAX $210m and Adjusted CFFO (post-current tax) ~$180m vs final dividend ~$53m implies comfortable operating cash coverage, despite negative 2025 free cash flow (FCF) after capex.
• 2026 cash flow inflection: Guidance points to material FCF in 2026 even at conservative prices (oil $63/bbl, gas 69p/therm), helped by:
  • Production uplift: 2026 guidance “significantly over 40k boepd”; potential to reach ~65k boepd by end-2026 as acquisitions complete (diversifies and stabilises cash flows).
  • Hedging: Floors around $60–64/bbl oil and ~61–85p/therm gas across 2026 provide downside protection on a meaningful volume tranche.
  • Tax assets: Group tax assets (losses/investment allowances) > $1bn reduce near-term cash taxes, supporting distributions.
• Balance sheet: Year-end 2025 net debt ~$200m (improved to ~$152m by 20 Mar 2026); liquidity of ~$290m (cash + undrawn RBL) provides headroom, but leverage and capex must be watched.
• Capital allocation: Management reiterates a balanced approach between acquisitions, organic growth, and shareholder returns, with a capital allocation framework due at the CMD in Q2. Maintaining the 10p final despite 2025 FCF outflow signals commitment to returns.
• Growth trajectory: With operational improvements (Triton reliability work, Bruce optimisation) and short-cycle infill/tie-backs, the dividend appears better supported in 2026 vs 2025, contingent on execution.

• M&A and portfolio expansion: Completed acquisition of 40% of Greater Laggan Area (GLA) from TotalEnergies; completion processes for Catcher, Golden Eagle Area and Spirit Energy assets due during 2026. Pro forma 2P reserves +19% to ~138.5 mmboe; increased gas weighting supports stability.
• Infrastructure position: Operation of the Shetland Gas Plant introduces additional processing income potential and optionality.
• Listing change: Planned move from AIM to Main Market (Q3 2026) could broaden investor base; no direct impact on dividend but may influence policy visibility and discipline.
• Decommissioning: Provision rose to $251m (incl. Lancaster, which is expected to cease production in May 2026). Near-term decommissioning outflows (e.g., Lancaster/Aoka Mizu FPSO) are a competing claim on cash.

• Operational reliability: Triton FPSO has been a recurring issue; a planned ~65-day shutdown in Q3 2026 and single-point-failure risks could defer volumes and cash.
• Commodity prices: Material sensitivity remains despite hedging; upside/downside will flow through FCF and dividend headroom.
• Capex/opex intensity: 2026 guidance of $175–195m capex and $380–400m opex requires disciplined execution to deliver the forecast FCF supporting dividends.
• Leverage and obligations: RBL borrowings and BKR contingent/royalty obligations, plus higher decommissioning provisions, represent ongoing calls on cash.
• Fiscal regime: Extended Energy Profits Levy to 2030 (with ESIM/OGPM mechanisms) adds policy uncertainty to long-term cash taxation.
• Integration/completion risk: Timely completion and smooth integration of 2026 acquisitions are important to realise the production and cash flow underpinning the dividend.