Serica Energy PLC (AIM:SQZ) is set to shoot up the ranks of UK oil and gas producers after a deal to acquire Tailwind Energy for up to £367mln.
At a stroke, it will nearly double Serica’s production to 40-45,000 barrels daily plus boost reserves to 104mln barrels.
It is also the first major deal in the North Sea since chancellor Jeremy Hunt upped the windfall tax on North Sea profits to 35% in his recent budget
Broker Peel Hunt noted that the assets being acquired are predominantly oil, have low decommissioning liabilities, substantial growth opportunities, and bring with them very material UK tax losses (£2.6bn).
Some oil groups have been turning away from the North Sea following the move by the UK government to increase the rate of the windfall tax.
Harbour Energy, the UK's biggest producer, last week said it would not bid for any more oil and gas licences in the North Sea because of the tax, which means a marginal rate of 75% though there is almost 100% relief on new investment.
Shell for example is reportedly reviewing its portfolio, though it is pushing ahead with several new wells in the region.
Oil and gas producers chart-- Source: Woodmac/ Reuters Graphics
Mitch Flegg, Serica’s chief executive, has no such qualms. In a statement announcing the Tailwind acquisition, he said: “The transaction achieves our strategic objective of materially increasing the scale and diversity of our UKCS portfolio of assets.
“The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production.
“Moreover, through the introduction of Mercuria as a new strategic investor, we will be differentially positioned to take advantage of the opportunities we expect to arise through industry consolidation, the North Sea Transition Deal and potentially overseas.”
Serica is paying for the deal through the issue of 111mln new shares plus £59mln in cash and will also take on Tailwind’s net debt of £277mln.
Mercuria, Tailwind’s major shareholder, will have a 25% stake in Serica following the completion of the deal.
The acquisition comprises six producing areas offshore the UK Continental Shelf from two main hubs: Bruce and Triton.
Serica also noted that its own production in 2022 is expected to be in a range of 26-28,000 barrels per day average with cash at the current year-end forecast to be £420mln.
Shares in Serica dropped 9% to 253.5p.