Serica Energy has pressed the importance of stable fiscal policy after news of the UK Government’s windfall tax knocked around 20% off the company’s share price.
In a June 6 update Serica (LON:SQZ) said it had witnessed a “significant fall” in its share price in the run up to and following the government’s announcement of an Energy Profits Levy.
The “temporary measures” announced on 26 May increase the current headline rate of tax on oil firms from 40% to 65%, though also provide sizable incentives for those investing in UK projects.
Shares in Serica fell by roughly 20% following the news, from around £316 in late May to £251 today.
Meanwhile, reports last week citing sources in the City of London suggested the company would face an extra bill of $64m this year and $99m next.
Serica noted that the Levy is only applicable to profits on or after 26 May and said its profit prior to that date is “unaffected.”
It said that fiscal instability is “unwelcome in an industry with long lead times for capital expenditure,” but stressed that the investment incentives were designed to encourage companies like Serica to continue to reinvest their profits.
The company pointed to its current £60m investment programme, which it believes will benefit from the new measures.
This includes a light well intervention campaign (LWIV) at the Bruce M1 well – aimed at adding reserves and prolonging production from several subsea wells – and the drilling of the North Eigg exploration well in Q3 2022.
Operated entirely by Serica, North Eigg will target over 60 million barrels of oil equivalent (boe) of P50 unrisked recoverable prospective resources, with results expected in early October.
The company said it will also be “evaluating additional candidate projects” designed to increase the productivity at the Bruce hub.
Chief executive Mitch Flegg said the group would be “well placed” to take advantage of the new investment incentives, while its cash position and balance sheet offered the “leverage and resources” to do so.
“Although Serica has financial strength, our industry operates within unusually long investment horizons against a backdrop of often highly volatile commodity markets and business cycles,” Mr Flegg continued.
“We therefore encourage policy makers to consider the importance of fiscal stability in enabling government and industry to meet the mutually set objectives of sustaining investment in the UKCS at a level capable of ensuring security of oil and gas supply in volatile markets and delivering energy transition targets.
“Serica will maintain its focus on delivering vital hydrocarbons to the UK and doing so in an environmentally sensitive manner, whilst continuing to build value for stakeholders.”
Net production for the company averaged above 28,000 boepd in May, while total cash and deposits rose to £246 million, with a further £150 million lodged as security, Serica said.
It intends to hold its next annual general meeting on 30 June.
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