Oil and gas firm increases focus on North Sea amid downturn

Fast-growing oil and gas company Serica Energy is increasing its focus on the North Sea in spite of facing costly delays on a key project.

Serica said it has decided to call time on its pioneering hunt for oil and gas in Namibia to devote its attention to the North Sea market.

The company has expanded in the area by acquiring assets from bigger fish in the expectation it could generate good returns on its investment in them.

It faces £3m additional costs after suffering setbacks with a plan to increase output from the Rhum gas field East of Shetland. However, chief executive Mitch Flegg said while the delays to the project were frustrating they did not affect its viability or long-term value.

Mr Flegg said Serica has been pleased with the performance of its North Sea production operations over the past three months.

He noted these have benefited from the “significant strengthening of gas prices” during that period, amid growing hopes that effective coronavirus vaccines will be made widely available in coming months.

Oil and gas prices fell to multi-year lows in April after strict lockdowns were imposed around the world, leading some firms to slash spending in the North Sea.

While oil prices remain well below the levels seen at the start of the year, the outlook for demand appears to be brighter than it was during the first wave of coronavirus infections.

However, following the upheaval in the market this year, Serica appears to have concluded that it makes more sense to increase investment in the mature North Sea than to persevere with exploration work in Namibia. This is seen as a relatively under-explored area in oil and gas industry terms.

Mr Flegg said: “Serica is committed to protecting and increasing shareholder value against the current backdrop of lower oil prices and slowing industry commitment to deep-water exploration.

“We have therefore decided that the expense of maintaining the Namibian licence will be better redirected to lower-risk, nearer-term opportunities to build on our North Sea portfolio.”

Serica also highlighted other complications that could be involved operating off Namibia, in an age in which oil and gas firms are facing increasing pressure to curb exploration and development activity on environmental grounds.

The company noted: “The pace of exploration activity in Namibia has been slower than we hoped, and the development of any discovery would likely have been expensive, time consuming and inconsistent with our sustainability objectives.”

Serica said it will focus on delivering value from its major production assets, which are in the North Sea. Exploration efforts will be centred on acreage in the vicinity of existing assets. The company would hope to develop finds made close to production assets relatively quickly and cheaply. It was awarded more licences in the North Sea in the latest round.

Serica is working on a plan to start producing gas from the R3 well on the Rhum field. The well was never brought into production.

Progress with R3 has been slower than expected due to poor weather conditions and a technical problem with rig equipment.

 Serica acquired a 50 per cent interest in the Rhum field from BP in 2017. The Iranian oil company owns the other 50%. Serica had to win an exemption from the US authorities to ensure production from the field could continue after Donald Trump imposed fresh sanctions on Iran.

In September Mr Flegg said the downturn triggered by the coronavirus crisis ould accelerate the shake-up in the North Sea, where majors have been selling off non-core assets to raise funds for investment in other areas.

He said Serica was in the market for more North Sea acquisitions and could pay around £150 million for the right target.

Serica’s withdrawal from Namibia comes nine year after it was awarded a licence off the country. The company completed early-stage exploration activity on the licence with BP but did not drill any wells. BP exited the licence concerned in 2013.

Serica’s exploration interests used to include acreage off Ireland. In September last year Serica announced it was quitting Ireland.

Source: The Herald

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