WTI (Sep) $89.31 -$2.88, Brent (Sep) $96.78 -$3.91, Diff -$7.47 -$1.03.
USNG (Sep) $2.87 -5c, UKNG (Aug) 142.67p -5.43p, TTF (Sep) €58.9 -€2.41.
Oil price
Oil has retreated by over 5 dollars this morning as a potential further ceasefire is being discussed, that is still less than last week’s gain, just. Word has it that the US need to rearm after 13 nights of bombing so it’s not a dead cert deal by any means. Oil markets are still very tight and the futures prices are not an accurate reflection of what you actually pay right now…
Serica Energy
The board of directors of each of Serica and Pharos have announced that they have reached agreement on the terms of a recommended offer pursuant to which Serica will acquire the entire issued and to be issued ordinary share capital of Pharos. The Acquisition is intended to be effected by means of a scheme of arrangement under Part 26 of the Companies Act.
Accordingly, the Pharos Board has decided unanimously to withdraw its recommendation of the Ratio Offer and intends to recommend unanimously the Acquisition to Pharos Shareholders. The Pharos Board therefore proposes to adjourn until further notice the Ratio Offer Shareholder Meetings which have been convened for 17 August 2026 for the purposes of considering the Ratio Offer. Pharos Shareholders are therefore urged to take no action in relation to the Ratio Offer.
Katherine Roe, Pharos’ CEO, stated:
“As announced in our recent trading update, the business is benefitting from strong operational momentum. At the same time, the Board of Pharos is delighted to be recommending this offer from Serica, which delivers shareholders a material premium in cash to the Ratio Offer.”
Chris Cox, Serica’s CEO, stated:
“The acquisition of Pharos is a compelling opportunity to deliver a first step in our long-standing strategic objective of adding to the diversification of our business through international expansion, on terms that are accretive on a per share basis across all key metrics, with multiple embedded growth options. Upon completion the transaction will boost our reserves, resources and add materially cash-generative production, while at the same time delivering an attractive liquidity route for Pharos shareholders.
Pharos brings a highly experienced regional team and an operating model that mirrors our own focus on cash generation funding both growth and returns. As we continue to invest in the UK North Sea, with a multi-well rapid return drilling programme set to begin in 2027, this presents a complementary platform from which to grow in South East Asia, a region with increasing energy demand that benefits from a supportive environment for upstream investment. With a robust balance sheet and material ongoing cash generation, we continue to analyse multiple opportunities to deliver further M&A and create significant value for shareholders.”
This looks like an excellent deal and for both sets of shareholders. For Serica, who have said regularly and at the recent CMD that it wants to diversify the portfolio, it creates two new geographies as it moves into Egypt and Vietnam that in itself satisfying the desire to move into the fast growing SE Asia market.
It also takes Serica into Egypt which itself has transformed in recent months, first by its consolidation of PSC’s giving better fiscal terms and then by settling the receivables issue making inbound capital investment a great deal more reliable and consistent.
Importantly the deal is also strongly accretive on a per share basis, it brings a production increase of over 5/- b/d making group levels to over 70/- b/d, reserves are up as well, 2P pro-forma is up 13% to 156.8 mmboe and 2C resources are up by 15% to 129.4 mmboe giving a formidable background to the deal.
It is also worth looking at the cash situation, I reported last week that Serica had, at the recent completion of the RBL financing, that the company had moved from a net debt position of some $200m at the end of last year to a cash position of $26m last week.
With the enhanced highly cash generative situation of production in both Egypt and Vietnam Serica and with its now debt-free balance sheet which had $45.2m of cash at the end of June financial stability remains its key objective. Both countries have strong political and financial regimes and significant growth opportunities.
All this is important as Serica will be planning to use the acquisition as the platform for growth, their own in-house subsurface expertise offers excellent opportunity to grow both country’s organic production and of course there are many chances for exploration upside in both geographies.
Indeed this exists in Egypt where there is significant long term potential in addition to the infill opportunities and which of course also exist in Vietnam where there is a well documented high-impact ‘drill-ready prospect’ in Block 125 & 126 which Serica will continue to seek a farm-out partner for the prospect.
Finally as is always the case, Serica will continue to seek out further inorganic growth, this deal is consistent with that strategy and also brings new bases to explore in addition to keeping an eye on further expansion in its North Sea which will always provide opportunities albeit not the bigger deals of the past.
Overall the metrics look extremely good, the company will benefit from increased scale and diversification at the same time the deal ‘represents an acquisition cost of $8.4 per 2P boe and of course has low decommissioning liabilities, comparing favourably with relevant precedent transactions’.
Given that Serica are potentially acquiring Pharos at a significant discount to my 50p target price I can clearly see that this would be a compelling deal and when I look at the previous bid it does seem to be pretty parsimonious especially as here are other corporate deals around in the Egypt are competing for the Capricorn assets.
For Serica I keep my target price of 400p, the upside with its fully financed and well structured diversification is tangible and expansion of its geographical reach is good news for shareholders. It will obviously stay in the imminent Bucket List update and today’s price fall, clearly more to do with activity in the Gulf which has taken oil by around 6% this morning and gives a good buying opportunity.
Summary
· Under the terms of the Acquisition, and subject to the Conditions and further terms set out in Appendix I to this announcement, Pharos Shareholders will be entitled to receive:
o 28.6683 pence in cash per Pharos Share (the “Cash Consideration”); plus
o 4.0 pence in cash per Pharos Share by way of special dividend to be paid from Pharos’ existing cash resources that the Pharos Board intends to declare prior to completion of the Acquisition with the record and payment dates aligned with the corresponding dates for determining entitlements to, and payment of, the Cash Consideration due to Pharos Shareholders under the terms of the Acquisition (the “Special Dividend”),
which would result in a total value to Pharos Shareholders of 32.6683 pence per Pharos Share. Pharos Shareholders, where they qualified, will continue to be entitled to retain the final dividend of 0.9317 pence in cash per Pharos Share for the financial year ended 31 December 2025 which was declared on 25 March 2026 and paid on 17 July 2026 to qualifying Pharos Shareholders on the register at close of business on 12 June 2026 (the “FY25 Final Dividend”).
· Taking together the total value offered of 32.6683 pence per Pharos Share with the FY25 Final Dividend, the aggregate amount Pharos Shareholders will receive is 33.6 pence per Pharos Share.
· The aggregate value of the Cash Consideration and the Special Dividend, 32.6683 pence per Pharos Share, values the entire issued and to be issued ordinary share capital of Pharos at approximately £145.7 million and represents:
o a premium of 20.7 per cent. to the equivalent 27.0683 pence per Pharos Share being the aggregate of the cash consideration and special dividend (the “Ratio Cash and Special Dividend Consideration”) announced in the Ratio Offer; and
o a premium of 28.6 per cent. to the undisturbed Closing Price of 25.4 pence per Pharos Share on 23 June 2026 (being the last Business Day prior to the Ratio Offer).
· The total value offered of 32.6683 pence per Pharos Share together with the FY25 Final Dividend represents an increase of 20.0 per cent. compared to 28 pence per Pharos Share being the total value of Ratio’s offer for Pharos (the “Ratio Total Offer Value”) as announced in the Ratio offer.
· If, on or after the date of this announcement and on or prior to the Effective Date, any dividend, distribution or other return of value is declared, made, or paid, or becomes payable by Pharos (other than the FY25 Final Dividend and the Special Dividend), Serica reserves the right to reduce the consideration under the terms of the Acquisition by the amount of such dividend, distribution or other return of value in which case any reference to consideration payable under the terms of the Acquisition will be deemed to be a reference to the consideration as so reduced. In such circumstances, Pharos Shareholders shall be entitled to retain any such dividend, distribution, or other return of value declared, made, or paid.
Shareholder support
· Serica has received an irrevocable undertaking to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting from Aberforth Partners LLP in respect of a total of 59,357,027 Pharos Shares representing, in aggregate, approximately 14.26 per cent. of Pharos Shares at the Latest Practicable Date.
· Further details of this irrevocable undertaking are set out in Appendix III to this announcement.
· As a result of this announcement, the irrevocable undertakings given by certain Pharos Shareholders in respect of the Ratio Offer (the “Ratio Offer Irrevocable Undertakings”) will lapse in accordance with their terms unless Ratio exercises its right to match the value of the consideration offered by Serica pursuant to the Acquisition within 10 Business Days (in the case of the Ratio Offer Irrevocable Undertakings from Bradley L. Radoff and the Radoff Family Foundation) or 15 Business Days (in the case of the Ratio Offer Irrevocable Undertakings from Blue Albacore Business Ltd, Liquid Business Ltd, Palamos Limited, Josephine V. Story, The Edward T. Story Marital Trust Dtd 12.27.2023 and The Story Family Trust Dtd 5.9.2011) from the date of this announcement and in accordance with the terms of the relevant irrevocable undertakings.
Strategic rationale for the Acquisition
· The Acquisition is consistent with Serica’s long-standing strategic objective of increasing its scale and diversification by adding overseas operations with a focus on regions which benefit from a supportive regional environment for upstream investment and increasing energy demand as well as running room for further growth. The Acquisition establishes an operating platform in two new regions at a value accretive cost, and brings multiple embedded growth options – infill drilling at TGT and CNV, development drilling in Egypt on recently implemented improved fiscal terms, and the high-impact exploration acreage at Blocks 125 & 126.
· Pharos has been pursuing an analogous business model, with cash-generative production funding shareholder returns and growth, and brings a highly experienced regional team which complements Serica’s position as one of the leading independents on the UK Continental Shelf.
· The Combined Group brings together the complementary operating skills of Serica and Pharos, applying Serica’s proven subsurface capability to Pharos’ mature producing assets, alongside Pharos’ established in-country organisations and host-government relationships in Vietnam and Egypt as support to Serica’s further growth optionality.
· Specifically:
o Serica believes that the Acquisition offers Pharos Shareholders a materially higher degree of certainty that completion will be achieved than under the Ratio Offer, given Serica’s established record of obtaining the regulatory, licensing and government consents required to complete corporate and asset acquisitions;
o the Acquisition is expected to be immediately accretive on a per share basis to Serica’s production, reserves and key financial metrics from operations;
o the Combined Group will benefit from increased scale and diversification:
§ 13% increase in pro forma 2P reserves to 156.8 mmboe;
§ 15% increase in pro forma 2C resources to 129.4 mmboe; and
§ expected pro forma 2026 exit production rate of c.70,000 boepd;
o the Acquisition adds established, cash-generative production in Vietnam and Egypt, and a debt-free balance sheet with approximately $45 million of cash as at 30 June 2026;
o the Combined Group would benefit from a robust balance sheet, with material liquidity, with the capacity to optimise the delivery of infill opportunities in Vietnam and Egypt, while continuing to seek a farm out partner for a high-impact drill-ready prospect in Block 125 & 126, Vietnam and elimination of overlapping corporate overhead costs; and
o the Acquisition reflects Serica’s disciplined approach to inorganic growth and represents an acquisition cost of $8.4 per 2P boe ($4.4/boe including 2C resources), for existing production with low decommissioning liabilities, comparing favourably with relevant precedent transactions.
Background to and reasons for the recommendation
· The agreed terms of the Acquisition deliver immediate and certain value in cash to Pharos Shareholders at a level which, in the unanimous view of the Pharos Directors, fairly reflects the future prospects of the business while removing the execution, commodity-price, operational, country and financing risks associated with the delivery of the standalone plan.
· In considering the Acquisition, the Pharos Directors have also assessed:
o the fact that the total amount of 33.6 pence per Pharos Share represents an increase of 20.0 per cent. compared to the Ratio Total Offer Value;
o the fact that the aggregate value of the Cash Consideration and the Special Dividend represents a premium of 20.7 per cent. to the Ratio Cash and Special Dividend Consideration; and
o the certainty of the Cash Consideration, including the form, sources and nature of Serica’s financing and the limited conditionality of the Acquisition.
· Pharos believes that the Acquisition represents a more compelling and deliverable liquidity opportunity for the Pharos Shareholders, delivering immediate and certain value in cash to Pharos Shareholders at a level substantially above the Ratio Offer.
Recommendation
· The Pharos Directors, who have been so advised by Rothschild & Co as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to Pharos Directors, Rothschild & Co has taken into account the commercial assessments of the Pharos Directors. Rothschild & Co is providing independent financial advice to the Pharos Directors for the purposes of Rule 3 of the Code.
· Accordingly, the Pharos Directors intend to recommend unanimously that Pharos Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (or, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure acceptance of the Takeover Offer).
· On 24 June 2026, Ratio announced that they had reached agreement on the terms of a recommended cash acquisition by Ratio of Pharos at a total value of 28 pence per Pharos Share (inclusive of the FY25 Final Dividend). The Ratio Offer stated that the Pharos Directors intended to unanimously recommend that Pharos Shareholders vote in favour of the Ratio Offer at the Ratio Shareholder Meetings.
· The Pharos Board has, together with its financial adviser, carefully considered the financial terms of the Acquisition and concluded that the Acquisition represents a superior offer for Pharos Shareholders as compared to the Ratio Offer.
· Accordingly, the Pharos Board has decided unanimously to withdraw its recommendation of the Ratio Offer and intends to recommend unanimously the Acquisition to Pharos Shareholders. The Pharos Board therefore intends to adjourn until further notice the Ratio Offer Shareholder Meetings which have been convened for 17 August 2026 for the purposes of considering the Ratio Offer. Pharos Shareholders are therefore urged to take no action in relation to the Ratio Offer.
Zephyr Energy
Zephyr has announced the signing of a non-binding Letter of Intent with Atlas Oil Company. The LOI details a proposal for a Prepaid Commodity Purchase Agreement and sale of hydrocarbon marketing rights at Zephyr’s project in the Paradox Basin, Utah, U.S. The CPA will provide up to US$15 million in non-dilutive pre-production financing to Zephyr.
Highlights
· Up to US$15 million of non-dilutive pre-production financing for the Paradox project;
o No issue of new Zephyr equity and no sale of asset-level working interests.
· Provides funding to support the Paradox project infrastructure build-out, well workovers and potentially upsized gas processing facilities.
· Proposed funding is not contingent on the timing of first gas production.
· Atlas and its team have detailed knowledge of the Paradox project, having supported prior oil marketing and logistics activities on site since 2021.
· The proposed funding provides benefits and flexibility to the ongoing farm-out process, while also allowing for a standalone Paradox project development operated by Zephyr. The proposed funding would allow Zephyr to get to first commercial production at a larger scale, while existing Zephyr resources can be reallocated for future well planning and drilling.
· Repayment of the proposed funding would come from future production sales proceeds, aligning funding with future project cash generation.
Colin Harrington, Zephyr’s Chief Executive, said:
“I am delighted to be announcing this proposed funding with Atlas. Over the years, we have developed an excellent working relationship with the Atlas team. The Atlas team has marketed and transported all the Company’s oil volumes from the Paradox project since the testing of the State 16-2 well in 2021. The proposal to provide up to US$15 million of prepayment financing demonstrates strong confidence in the Paradox project from a sophisticated, longstanding industry player.
“At the same time, the LOI contemplates the completion of the Paradox project farm-out, and the Atlas financing would be both supportive of a farm-out or allow Zephyr to continue the Paradox project development on a standalone basis, depending on what is the most value-accretive solution for our Shareholders.”
Chris Dillman, Atlas’s General Manager of Crude Trading, said:
“Atlas knows Zephyr well through our prior marketing and logistics activities associated with the Paradox project. Based on that experience and our understanding of the asset, we believe the Paradox project has the potential to become a meaningful oil and gas development as its production and infrastructure are advanced.
“This transaction reflects Atlas’s broader approach of combining commodity trading and marketing capabilities with structured capital solutions to support upstream and midstream infrastructure development. We look forward to continuing our work with Zephyr.”
This looks like a very good move as it gives Zephyr yet more flexibility with regard to the development and financing of the Paradox Basin prospect. The funding will accelerate buildout, and potentially significantly increase the capacity of the company’s initial gas processing facility – all without equity or asset level dilution. It also significantly strengthens the company’s hand as farm-in negotiations with larger operators come to a head, as Zephyr has a clear go-it-alone path now established.
Zephyr has dealt with Atlas and its team since the start (the State 16-2 well in 2021) and the ‘proposal to provide up to US$15 million of prepayment financing demonstrates strong confidence in the Paradox project from a sophisticated, longstanding industry player’.
The shares are modestly down today as the market is off owing to the action in the gulf ‘pausing’, but the shares have been on a decent run, up 50% over YTD and +25% year on year which justifies inclusion in the Bucket List, and my 20p target price remains fully intact.
And finally…
So, Fury and Joshua both won their respective comedy bouts and will fight in the autumn. The smart money is on Madison Square Garden in November which is a natural for an all British fight but apparently it’s all about US TV and if it was held in the UK it would have to start at 2am…
Lando won at the Hungaroring beating Max and Kimi whilst yet again Lewis got penalty points…
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion.
