Serica Energy speeds up North Sea plans to offset windfall tax

20/09/2023

SERICA Energy says it is seeking to accelerate near-term investment in the North Sea to reduce the impact of the energy profits levy.

The independent oil and gas producer has been a critic of the windfall tax, which Mitch Flegg, chief executive, described as a “wholly unwelcome burden that is already leading to the delay and cancellation of longer-term investment projects across the sector”.

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The levy, first imposed last year and increased at the start of this year, has raised the effective tax rate in the North Sea from 40% to 75%.

However, the government also introduced generous investment allowances enabling companies to offset the tax. 

Flegg said that these allowances “offer Serica the opportunity to mitigate” the impact and it would therefore maintain its short-term investment plans “and where possible will expand and accelerate elements of that programme”.

In the first half it produced the equivalent of 49,350 barrels, 30% higher than a year earlier thanks to the acquisition of Tailwind Energy Investments. 

Net profits increased to £176million, from £117million a year earlier, as it benefited from a significant one-off cash boost from the Tailwind acquisition.

Mr Flegg said Serica’s reserve-boosting acquisition of Tailwind Energy Investments, completed in March, was a “step change in the scale and diversity” of the company.

He added: “We have stated consistently our intention to continue investing in the enlarged portfolio, to add to it in a disciplined fashion if the right opportunities arise.”

But he warned: “Serica’s current circumstances and optimism, reflected in its investment plans, should not mask the fact we share the widespread concerns within the sector about the health of the UK’s offshore upstream industry, given the current fiscal regime and future uncertainties.

“We welcome the UK Government’s recent ‘call for evidence’ regarding long term fiscal policy.

“However, the problems we see need to be addressed urgently in order to restore confidence in the sector.”

“The EPL is a wholly unwelcome burden that is already leading to the delay and cancellation of longer-term investment projects across the sector.”

Serica’s producing assets are focused around two main hubs: the Bruce, Keith and Rhum fields in the northern North Sea, which it operates, and a mix of operated and non-operated fields tied back to the Triton floating production storage and offloading vessel.

The company also has operated stakes in the producing Columbus (central North Sea) and Orlando (northern North Sea) fields, plus a non-operated interest in the producing Erskine field (central North Sea).

Serica now expects to produce the equivalent of between 40,000 and 45,000 barrels of oil per day this year, down from between 40,000 and 47,000 previously, due to “slower than expected ramp-up of production from Bruce and Triton hubs following planned summer shutdowns”.

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