North Sea oil and gas firm Serica Energy (LON: SQZ) warned it was “looking very actively overseas” for new opportunities as it faces “recent and potential future increases” in UK tax.
Shares in the UK independent E&P firm slipped over 10% to 135.6p in early trading as it confirmed it had paid a UK tax bill of £58.3million in 2023.
In a statement, chairman David Latin addressed ongoing concerns about UK tax.
He said that it aims to continue growth but that “recent and potential future increases in UK oil and gas taxes make that increasingly difficult”.
He added: “Consequently, while we remain watchful for opportunities in the UK that might be attractive despite this increasingly challenging context, we are also looking very actively overseas.”
The UK goes to a general election 4 July in which Labour, the leading party in the polls, has pledged to raise the headline tax rate on oil and gas firms to 78%, the same as Norway and remove investment incentives.
Panmure Gordon analyst Ashley Kelty hailed Serica’s update as “encouraging” for its report on “strong production performance and a healthy balance sheet”.
‘Utterly incoherent’ Labour plans
In his report, he added his view on industry frustration with proposed Labour policy: “The company and investors will be hoping that the fiscal environment will not be worsened post-election, with Labour showing utterly incoherent policy ideas for energy.
“We fail to understand how can you have a national energy company and energy security when you want to shut down domestic supplies.
“We are hopeful that some of the Whitehall Mandarins will have the nous to point it out to new ministers next week.”
Operations update
The firm made an operations and financial update ahead of its AGM today.
The event will confirm the appointment of former Spirit Energy boss Chris Cox as its new CEO after Mitch Flegg relinquished the role after six years leading the business.
Cox will assume the role on at the start of July at which point Serica’s chairman David Latin will end his temporary role as interim CEO at the same time.
In its update, the firm flagged some issues with its North Sea operations including the Triton FPSO.
It said the trip on a compressor in May meant “no production” via the FPSO for three weeks and that it would be shut down for repairs for most of the summer.
Full production has been re-established but the firm warned the “operating vulnerability will remain until the second compressor is repaired”. It said a planned, 40-day shutdown will commence 1 July.
It also said production on the Erskine field, operated by Ithaca Energy (LON: ITH) and which exports via the Lomond platform, is not expected to restart until late July.
Production on Erskine has been on again, off again since it was shut-in on 26 January 2024 due to a problem with a compressor on the host Lomond platform.
Nevertheless this, along with planned maintenance of its Bruce, means Serica expects production guidance to be on track at 41,000 boe/d to 46,000 boe/d at $20 per barrel.
The company said it had £301.6m cash in the bank and debt drawings of $231m.
This is after 2023 final tax payments of £58.3 million, capital spending of £80m asset acquisition costs of £17.3m, including completion of the Greater Buchan Area transaction and share buyback of £15million.
In all, Serica expects to spend around £200m on a pre-tax basis in 2024.
At the AGM, Latin will present a statement highlight concerns about UK tax.
It says: “Over just a few years Serica has been transformed from a small international exploration focussed company into one of the top 10 producers in the UK North Sea, safely and responsibly operating complex facilities offshore and growing its 2P reserves some 35 times since the beginning of 2015.
“To deliver these achievements we have navigated operational challenges, oil and gas prices hitting historic lows – remember gas prices of 10 pence a therm in May 2020 – and pulled off multiple good acquisitions.
“With the assets, financial strength, staff and leadership now in place, we have a very solid platform for entering the next phase of growth.”
“We are rightly proud of our track record of growth and value creation, and we aim to repeat the same in the future.
“Unfortunately, recent and potential future increases in UK oil and gas taxes make that increasingly difficult.
“Consequently, while we remain watchful for opportunities in the UK that might be attractive despite this increasingly challenging context, we are also looking very actively overseas.”
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