North Sea operator Serica Energy said its UK offshore assets remain “cash generative” despite an “unjustifiably punitive” fiscal regime as it released its half year results today.
The firm also announced “positive early signs” from its drilling programme at the Triton field, and said it plans to drill an exploration well at its Skerryvore prospect by the end of September 2025.
Serica (LON:SQZ) recorded $279 million (£213m) in earnings before interest, taxes, depreciation, amortisation and exploration expense (EBITDAX) in the six months to June 2024.
This was a slight decrease on the first half of 2023, where Serica recorded $290m (£222m) EBITDAX.
Meanwhile, Serica achieved 43,7000 barrels of oil equivalent per day (boepd) and $462m (£353m) in revenue, down from the 49,350 boepd and $545m (£417m) recorded in the same period last year.
Across the six months, Serica paid $72m (£55m) in tax and recorded $124m (£95m) in capital expenditure.
Serica in a “strong financial position”
Serica chief executive Chris Cox said the company is in a “strong financial position”.
“Despite an unjustifiably punitive fiscal regime that may make future investment on the UKCS challenging – and with the level of capital allowances remaining uncertain until the Autumn Budget on 30 October – what is clear is that, thanks to our investment in our assets and our lean operating model, our producing assets remain cash generative, even after paying taxes at a rate of 75% today and due to rise to 78% from 1 November,” Cox said.
Cox said the company’s confidence in its cash generation outlook means it will hold its interim dividend at 9p per share.
Serica will also continue to reinvest its cash flows into its UK North Sea assets, Cox said.
“As a reservoir engineer, I am encouraged that there are multiple attractive opportunities to invest in our portfolio to allow us to sustain production and deliver home-grown low-carbon energy in the medium term,” he said.
“However, we will only be able to make these investments if the fiscal environment allows us to generate a fair return on your capital.
“We also have the option to add to our portfolio through acquisitions and that is why we will continue, intensively but prudently, to seek value-accretive M&A, both at home and abroad.”
Windfall tax and Autumn Budget
Like most North Sea firms, Serica’s boardroom will be keenly awaiting the new Labour government’s October budget.
Earlier this year, Chancellor Rachel Reeves confirmed Labour’s plans to remove “unjustifiably generous” investment allowances contained within the Energy Profits Levy (EPL) windfall tax.
The prospect of further changes to the UK fiscal regime has led to alarm from industry leaders, warning it will “hasten the demise” of the North Sea.
© Supplied by Serica EnergyCox said the decision on capital allowances in the Autumn Budget is “vital” for future projects in Serica’s portfolio such as the Buchan Horst project and a “range of infill wells”.
Last week, Serica’s partner on the Buchan project NEO Energy said it is slowing down investment in the UK due to fiscal and political instability relating to the EPL.
However, despite challenges surrounding new projects, Cox said “whatever happens on capital relief does not materially impact our existing operations”.
“Our producing fields are profitable today and will remain so for many years, and are set to generate over half a billion dollars over the next several years assuming commodity prices at current levels and after taking into account our existing capital commitments.
“We also benefit from our low exposure to decommissioning expenditure.
“This is a strong base from which to pursue growth both domestically and internationally.”
Skerryvore and Kyle
Across its exploration assets, Serica said it is currently scheduled to drill and exploration well for its Skerryvore prospect by the end of September 2025.
Serica holds a 20% working interest in Skerryvore alongside operator Parkmead Group (50%) and CalEnergy (30%).
Meanwhile, Serica said the Kyle licence in block 29/2c, located 20km southeast of its Triton hub, represents a potential redevelopment tieback.
Serica received the Kyle licence in the 33rd North Sea licensing round and holds a 100% interest in the block.
Elsewhere, Serica confirmed it has completed abandonment of the North Eigg exploration well and it will relinquish the licence in Q4 of this year.
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