Serica Energy May Production Strong As North Eigg Plans Advance

British independent upstream company, Serica Energy saw its production average over 28,000 boe per day during May. Its gas production year-to-date has been more than 26,000 boe/d. Serica said it is reaping the rewards of portfolio investments, which include the R3 well and the Columbus development.

“Over 85 percent of Serica’s production is gas, a fundamental part of the UK’s energy transition plans and Serica’s operated North Sea assets provide more than 5 percent of the UK’s gas production. Gas prices have remained strong, with YTD market prices averaging 186p/therm. Prices dipped briefly in early May but have since recovered to average more than 88p/therm for the month and are now back over 100p/therm. Oil prices have also been strong, averaging over $$110/bbl in May 2022 and over $$100 YTD.

As a result, at the end of May, Serica’s cash and deposits had risen to £246 million ($308.3 million) with a further £150 million ($188 million) lodged as security giving a combined total of £396 million ($496.4 million). The company still has no debt and limited decommissioning liabilities.

Serica Energy also noted that planning for the high-impact North Eigg exploration well is at an advanced stage. The well is scheduled to be spudded early in the third quarter of 2022. It is being drilled 100 percent by Serica and is targeting over 60 million boe of P50 unrisked recoverable prospective resources. The results are expected to be available by early October.

The first phase of the previously announced Light Well Intervention Campaign (LWIV) has commenced with operations on the Bruce M1 well. This campaign is aimed at adding reserves and prolonging production from several subsea wells.

Energy Profits Levy

The Board notes the significant fall in the company’s share price in the run-up to and particularly following the UK Government’s announcement on May 26, 2022, of an Energy Profits Levy.

The Levy applies to profits arising on or after May 26 and so Serica’s profit before that date is unaffected.

Although fiscal instability is unwelcome in an industry with long lead times for capital expenditure, this new Levy is part of a package that includes significant investment incentives designed to encourage companies like Serica to continue to reinvest profits.

Serica already has an ongoing investment program including the LWIV campaign and the North Eigg exploration well in 2022. Serica’s planned 2022 expenditure on the North Eigg well and the LWIV campaign is around $75.2 million which the company expects to be eligible for this tax saving. This will offset a large element of the Energy Profits Levy that would otherwise be payable on Serica’s profits this year.

Moreover, Serica is evaluating additional candidate projects designed to increase the productivity of the Bruce hub.  

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