Enquest PLC (AIM:ENQ) or Serica Energy PLC (AIM:SQZ) may be set to bring London’s oil investors a blast from the past, with the listed firm tipped to buy the assets of Prax Group
The assets, namely the Lancaster oil field in the West of Shetland region, could be bought for a modest sum.
Prax, a private UK oil firm that recently entered administration, acquired Lancaster when it was last owned by a distressed company (a name that many investors will recognise), Hurricane Energy, in a $250 million deal back in 2023.
Sky News reported on Thursday that EnQuest and Serica were in talks with administrators handling the Prax insolvency as a deadline neared. Meanwhile, the report added that Ithaca Energy looked at the asset too but opted against making a move.
All three listed companies did not comment on the story, Sky News noted.
This report, citing sources close to the situation but clearly still speculative, was sufficient to get the attention of UK stockbroker Shore Capital.
“The acquisition of Prax’s upstream assets by either EnQuest or Serica could be consistent with the stated strategy of both management teams to expand their UK operations through accretive deals for production assets,” the broker said in a note.
“We would expect the cost of the deal to be relatively modest and comfortably funded from either potential buyer’s existing financial resources.”
Both EnQuest and Serica are rated as ‘buys’ over at Shore Capital.
Lancaster was the flagship asset for Hurricane Energy, which, through the second half of the ‘2010s’ promised big things, with the ambitious junior estimating ‘multi-billion barrel’ potential before ultimately being overwhelmed by the scale of the project and challenged by the project’s substantial capital requirements.
Hurricane primarily funded an initial phase of development with debt financing, which enabled the project to get going, but resulted in cash flow pressure when tighter capital markets reduced scope for more encompassing equity and industry partner funding options.
In short, it was an operational success initially, but financial execution, a need to derisk certain aspects of the larger field, and problems with water impacted production.
The early estimates and expectations could not be lived up to before Prax bought the asset for $250mln. At that time, in 2023, Lancaster was yielding around 7,000 barrels of oil per day (versus Hurricane’s 2014 estimate that it would flow 20,000 bopd per well).
Prax, earlier this year, celebrated Lancaster’s 20 millionth barrel of production.