Serica Energy PLC (AIM:SQZ), a North Sea success story, has today confirmed that it is now seeking growth opportunities abroad.
"We are rightly proud of our track record of growth and value creation, and we aim to repeat the same in the future,” interim chief executive and chair David Latin said, in a statement.
“Unfortunately, recent and potential future increases in UK oil and gas taxes make that increasingly difficult.
“Consequently, while we remain watchful for opportunities in the UK that might be attractive despite this increasingly challenging context, we are also looking very actively overseas."
Latin, in a statement ahead of today’s AGM, noted Serica transformation in recent years in which it began as a small international exploration-focused company, and has since become one of the top 10 producers in the UK North Sea.
He pointed out that Serica - which produces more than 40,000 barrels of oil equivalent per day, generating around £600 million of revenue, £305 million of profit and last year paid £183 million of tax – is a UK success story, built through the acquisition of unloved assets effectively discarded by the ‘majors’ that have largely already exited the North Sea.
“Through diligent attention, investment and the application of a good dose of skill, we have supplied much-needed energy, created substantial value, paid significant amounts of tax, created jobs and reduced emissions,” he said.
“We are proud of that track record and confident of our ability to repeat those successes where government policies and regulations make that possible.”
Latin added: “I have been involved in this industry for more than 30 years and have worked all over the world.
“Other than when I was responsible for a company which had significant assets in a war zone, I have never encountered a situation which was so challenging when it comes to making investment decisions, and planning for the future more generally, as it is in the UK at present.”
North Sea tax misconceptions
David Latin, in detail, discussed the political and fiscal challenges presently faced by companies in the North Sea.
“We hear much reference in the UK political debate to terms such as ‘proper windfall tax’, ‘oil and gas giants’ and ‘closing loopholes’.
“These phrases reflect fundamental misconceptions.
“UK oil and gas producers already pay tax at an overall rate of 75%, three times the tax rate for UK companies operating in other sectors.
“This is despite the period of so-called ‘windfall’ conditions for UK producers having long passed, with oil and gas prices having returned to historically normal levels.
“Yet in the current General Election, no reduction to match the circumstances is proposed by the Conservative Party and yet another increase in the tax rate to 78% is proposed by the Labour Party.
“As to the claim that the tax is being paid by the ‘oil and gas giants’, it is in fact independent companies like Serica who are most affected.
“The 'Majors' account for only around a third of UK production and the vast majority of their profits are made overseas and are not touched by increasing tax rates on UK production.”
He added: “Closing loopholes’ in UK oil and gas tax seems to mean different things to different people.
“Whatever is meant, I wish to be crystal clear that reducing tax relief for capital expenditure below the rate at which tax is payable would make investment in the vast majority of UK North Sea projects unprofitable, meaning that these projects, and the jobs and tax revenues they would generate, simply will not happen.
“Oil and gas continue to flow only when the mains supply of investment stays open. Without it, the flow dries up.”
The Serica chair’s full comments can be read in the statement, here.