Lower commodity prices left Serica Energy’s earnings lower in 2023 compared to the previous year, prompting the firm’s chairman to hit out at the windfall tax.
David Latin, Serica’s Chairman and incoming Interim CEO, stated: “Any ‘windfall’ due to high commodity prices has long gone and the high tax situation is ill-suited to a mature oil and gas basin such as the UK North Sea. Its continuation will not benefit people in the UK either financially or environmentally.”
In 2023 the firm’s earnings before interest, taxes, depreciation, amortization, and exploration expense (EBITDAX) came to £381.4 million, over £200m less than the 2022’s reporting.
In 2022 Serica Energy’s EBITDAX stood at £616.5 million, the firm argues that this was due to falling oil prices as barrels sold for average realised sales price of $63 compared to $104 the previous year.
The business’ outgoing chief executive Mitch Flegg has previously described the UK’s Energy Profits Levy, or Windfall Tax, as “wholly unwelcome” as the firm has looked overseas for work.
Serica Energy laid out in its 2023 reporting: “Given the challenging UK fiscal regime we continue to seek M&A opportunities elsewhere in the North Sea.
“For example, Norway offers a wide range of sub-surface opportunities and a relatively stable fiscal regime but less deal flow than UKCS.”
The firm shared that despite submitting a draft field development plan set for its Buchan Horst project a final investment decision should not be expected until “the latter part of 2024.”
The group added that decisions on “all major capital projects” will depend “on the impact on project economics of expectations for the future tax regime which will apply through the life of the project. ”
However. the impacts of the UK’s controversial windfall tax were reduced for Serica Energy in 2023 as it completed its acquisition of Tailwind Energy.
Serica Energy explained: “The substantial tax losses acquired with the Tailwind transaction have had the effect of lowering Serica’s effective rate of taxation and so we are still attempting to add investment opportunities to the portfolio.”
Mitch Flegg’s final day at the helm
© Supplied by DCT MediaMr Flegg announced that he will step down from his current role in the company after six years at the helm following today’s reporting.
Following this, the company’s chairman David Latin will take on an interim chief executive role until Serica finds someone to fill the role permanently.
Mr Flegg said today: “My term as CEO ends with these results. More than the metrics of the last six years, it is the quality of the team we have built at Serica that gives me the most satisfaction and pride.”
David Latin added: “I would like to take this opportunity to reiterate the Board’s appreciation for Mitch Flegg’s very significant contribution to the Company over many years, most recently as CEO since 2018.”
The outgoing CEO reflected on the past year and the sides it made, despite the impacts of the UK’s fiscal policy.
He said: “The completion of the Tailwind acquisition in March 2023 represented a step change in the scale and diversity of Serica’s portfolio.
“The merits of seeking diversity and organic growth opportunities through the transaction have been borne out by the sharp decline in gas prices relative to oil prices during 2023 and Serica maintaining its track record of more than replacing production through reserves additions in both the Bruce and Triton production hubs.
“Moreover, there are further growth opportunities within the Company’s existing producing fields and other assets in Serica’s portfolio, such as the potential Buchan Horst project.
“Clearly, the BKR and Tailwind transactions represented the most significant organisational changes. Creating the culture and expertise of an organisation like Serica, however, is an everyday process that involves everyone in the Company. I am grateful to far too many people to mention here.”
Serica’s £170 million CAPEX for 2024
Despite windfall tax hitting the firm as commodity prices lower the firm’s earnings Serica expects to fork out £25 million on the newly sanctioned Belinda development of its forecast £170 million capital expenditure for the year.
Recently it was revealed that the COSL Innovator semisubmersible oil rig was coming to UK waters to kick off the Serica Energy campaign.
A field development plan was submitted in September and a final investment decision has been assumed for the first half of this year.
Holding P50 reserves of about four million barrels of oil and five billion cubic feet of gas, Belinda would be developed as a tie-back to the Triton FPSO.
Serica has revealed that it has taken a final investment decision on Belinda and is waiting for NSTA approval of the field development plan.
It added: “The programme using the COSL Innovator rig now comprises five wells with the addition of the 100% owned Belinda development well.”
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