North Sea-focused Serica Energy has highlighted the rewards it has reaped for investing in existing fields in the area after deciding to back a major new development despite warning about the impact of the windfall tax.
Serica was a vocal critic of the chancellor’s decision to impose the Energy Profits Levy on North Sea oil and gas firms in May last year and to increase the rate in November.
The move came after firms such as Serica enjoyed a big boost to profitability following the spike in oil and gas prices fuelled by Russia’s war on Ukraine.
In Serica’s annual results announcement in April the company’s chairman Tony Craven Walker complained the tax was unfair given the fall in prices seen since late last year amid concerns about the outlook for the global economy.
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Mr Craven Walker complained the impact of the tax would weigh more heavily on independents such as Serica than on giants and would put a question mark over the financing of many North Sea projects.
Serica made £178 million profit after tax in 2022, more than double the £79m achieved in the preceding year.
The company appears to be enjoying further success.
In its interim results announcement in September Serica said it generated £266m cash in the six months to June 30 in line with last time. The company hailed the quality of its “highly cash generative portfolio of assets”.
In an operations update issued yesterday, Serica said it has been producing around 50,000 barrels oil equivalent daily in recent weeks. First half production averaged 49,350 boed.
Chief executive Mitch Flegg noted the company had completed well campaigns on the Bruce and Guillemot fields, which will support production levels.
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“These are further proof of the benefits to be had from low cost, short cycle investments in our existing asset portfolio,” he said.
Noting that the company has drawn up plans to drill wells on Bruce and other producing fields next year, Mr Flegg added: “2024 is anticipated to be a very busy and impactful year of investments in Serica's North Sea portfolio.”
Serica became a significant producer after buying North Sea assets from bigger fish, such as BP.
The company expected to generate good returns on investment in projects that would allow it to increase production from the assets concerned but would be too small to interest giants. The comments in the update suggest it is still happy to pursue that strategy despite the increase in tax rates.
The company can benefit from generous tax relief on investment in upgrade work and the like under the investment allowance introduced alongside the windfall tax.
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Serica acquired an interest in the Guillemot field through the £367m purchase of North Sea-focused Tailwind in December.
That deal suggested Serica’s enthusiasm for the UK North Sea had not diminished significantly, if at all, following the tax hike.
Serica went on to apply successfully in the latest North Sea licensing round for acreage adjacent to the territory acquired with Tailwind.
Last month Serica announced that it was buying in to a major North Sea development project. The company agreed to acquire a 30% interest in the Greater Buchan Area 90 miles north-east of Aberdeen from Jersey Oil and Gas.
Jersey plans to redevelop the venerable Buchan field on the acreage and to bring finds nearby into production.
Private equity-backed Neo Energy acquired a 50% stake in the area from Jersey in April.
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Analysts at Investec said Serica could “continue to sustain production at elevated levels in the medium term with a hopper of short-cycle low risk development opportunities”.
The licence that Serica was awarded in the latest round contains the Kyle field, which ceased production in 2020. Serica may redevelop the field by linking it to production facilities acquired with Tailwind.
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