Serica Energy has confirmed preparations are underway to drill the North Eigg gas prospect after strengthening its “financial and operational foundations” in 2020.
In its full year results released on Thursday, the London-listed firm published pre-tax profits of £12.5 million, compared to £108.8m in 2019.
The drop was blamed on low commodity prices and the deterioration of a caisson at its Bruce platform that led to a 45-day shutdown.
The incident, as well as “other field maintenance work”, also impacted average net production, which was 23,800 barrels of oil equivalent (boe) per day in 2020, down from 30,000 boe per day in 2019.
Serica’s sales revenue last year was £125m, a drop of around half on 2019’s takings.
In July, Serica paid out its maiden dividend of 3 pence per share, totalling £8m.
That will increase to 3.5 pence per share for 2021, subject to shareholder approval.
Serica’s cash flow from operations was £44.1m, compared to £137.1m in 2019, while its capital expenditure increased from £5.3m to £26.6m in 2020.
Commenting on the results, Mitch Flegg, Serica’s CEO, said: “We are reporting solid results after a challenging year and a severe industry downturn.
“Despite the many obstacles 2020 presented, Serica has continued to strengthen its financial and operational foundations and also to deliver returns to its shareholders.
“COVID-19 caused disruption to global markets and threatened operations during 2020 but Serica responded rapidly to protect its personnel and ensure continuing supplies of oil and gas into the British market.
“The impact of a substantial fall in commodity prices during the year plus a 45-day shut-in of BKR production in 1H to repair a damaged caisson on the Bruce platform was mitigated by the flexible structure of the BKR net cash flow sharing arrangements and the Group’s gas price hedging programme.
“This financial and operational resilience enables the recommendation of an increased dividend of 3.5 pence per share.”
As well as “weathering the storm”, the upstream firm was also able to “move forward” with all of its projects.
The stabilisation in gas prices, which accounts for 80% of Serica’s production, allowed for continued investment, particularly on the Columbus field and Rhum R3 intervention.
Drilling on Columbus, which was delayed due to Covid, got underway in March with the use of the Maersk Resilient heavy duty jack-up – first gas is expected in Q4 2021.
Work is now ongoing to prepare for spudding the North Eigg gas prospect in 2022, with bosses highlighting the firm’s lack of debt and “considerable unutilised debt capacity” as a key factor in facilitating this.
The prospect is located adjacent to Serica’s Rhum field and options for a subsea tie-back to the Bruce facilities are being examined in the event of a discovery.
However, after an “extensive work programme” a decision was taken not to push ahead with the Columbus West prospect.
Serica had a 50% stake in the development, which was judged to “not be favourable” for an oil development due to a lack of tie-back options.
Consequently, Serica supported Summit Exploration and Production’s, the assets operator, decision to hand back the licence.
“The R3 workover is now nearing completion despite a series of technical challenges and periodic severe weather throughout the campaign and the Columbus development well was spudded in mid-March 2021.
“These projects are expected to boost production during 2H and Q4 respectively and we continue to actively pursue M&A opportunities that can broaden our asset base and add further value for our stakeholders. I look forward to updating shareholders on our progress during the rest of the year.”
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