North Sea firm eyes significant acquisitions amid oil price slump

A leading oil and gas independent operating in the North Sea has said the area still has a future following the devastating oil price collapse and underlined its appetite for big acquisitions.

Serica Energy chief executive Mitch Flegg said there would be opportunities for nimble players to achieve growth in the area amid the challenges posed by the coronavirus and the resulting oil market turmoil.

He reckons Serica can expect to generate good returns from investing in assets that bigger fish may lose interest in.

 “I believe and Serica believes there is a future for the North Sea,” said Mr Flegg.

Serica is ready to play a part in the shake up in the area that is likely to be triggered in the area by the oil price fall.

This may be driven by majors deciding to cut their exposure to the North Sea to free up cash to invest in other areas.

The result could be to put North Sea assets in the hands of firms that are more likely to invest in them.

Mr Flegg reckons Serica is reaping the rewards for expanding in the North Sea through the acquisition of significant assets from bigger players amid the fallout from the last crude price plunge.

With a portfolio that includes the bumper Bruce and Rhum fields east of Shetland, the company accounts for around five per cent of the gas produced offshore the UK.

While the Brent crude price has fallen to around $22.15 per barrel from around $70/bbl in January, Mr Flegg said Serica is still making money in the area.

Brent rose around $1.80/bbl yesterday after President Trump stoked tensions with Iran.

Serica produced oil and gas at an average $12.60 per barrel oil equivalent last year. That was down 30 per cent on the preceding year.

Mr Flegg has noted previously that Serica has been able to operate assets more cheaply than the heavyweights it bought them from.

 He reckons it can move faster than giants and manage without the kind of complex reporting systems they use to monitor the performance of their global portfolios.

The companies that will be able to prosper in the current “horrible” price environment will be those that focus on the right issues without having to spend huge amounts of money in the process.

“We’ve got to change the way we work if we want a long term future and we are identifying ways to do that,” said Mr Flegg.

 While thousands of jobs are thought to be at risk in the North Sea supply chain Serica has no plans to reduce staff numbers.

It has around 140 employees working offshore and in its Aberdeen operations base and nine in its London head office.

Mr Flegg thinks Serica is in good shape to make progress amid very tough market conditions after increasing operating profits from £8 million to £88 million last year.

This was the first full year with the Bruce, Keith and Rhum fields under its control.

The company had £102m net cash at the start of the year and no debt.

Mr Flegg said the decision not to raise its bids for a couple of deals it missed out on last year had been a sensible one.

However, he confirmed that acquisitions would form a key element of its growth strategy and raised the prospect that big ticket deals could be in prospect soon.

“We are looking and talking on things right now,” said Mr Flegg, noting: “Acquisitions of scale do make sense for us.”

 Serica still sees potential to develop fields in the North Sea.

Directors proposed Serica should pay a maiden dividend at a cost of £8m. This will be worth 3p per share.

Shares in the Aim-listed company closed up 9p at 97p.

Serica increased production to over 30,000 barrels of oil equivalent per day in 2019, from 25,450 boepd in 2018.

Serica was producing just 2,000 boepd before striking a series of deals in 2017 and 2018 concerning the Bruce, Keith and Rhum fields.

 The Iranian national oil company has a 50% interest in Rhum.

Source: The Herald

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