UK North Sea oil producer Serica Energy has agreed to buy Tailwind Energy Investments Ltd ("Tailwind") from Tailwind Energy Holdings LLP.
The consideration for the acquisition comprises the issue of up to 111,048,124 new ordinary shares in Serica, and a cash payment on Completion of £58.7 million.
Following the issue of the Consideration Shares, they will represent up to 28.9 per cent of Serica’s enlarged issued share capital
On the basis of the Serica closing price as of December 19, 2022 of 278 pence per share this would be equivalent to £367 million.
Serica will also be taking on Tailwind’s net debt, which as at November 30, 2022, was around £277 million.
As part of the Transaction, Mercuria, the largest ultimate shareholder of Tailwind, will become a strategic investor in Serica with a 25.2 percent holding. Two Mercuria nominated non-executive directors will join the Serica board on completion.
Serica said that, with the merger, estimated proforma combined production in 2023 would rise significantly to between 40,000 boe/d and 45,000 boe/d putting Serica in the top 10 UKCS producers and top 3 UKCS listed independent producers.
The company also said that through the Tailwind agreement, it was acquiring fully developed 2P reserves of 42 million boe to create a combined portfolio with 2P reserves of 104 million boe.
Serica said that the merger would create a balanced spread of production from two main hubs - Bruce and Triton - which have separate transportation infrastructure, Serica's number of producing fields will increase from 5 to 11 with "substantial upside and organic growth opportunities," and elarged group will operate more than 80 per cent of its net production.
All current Tailwind employees will be offered positions in the enlarged group.
Mitch Flegg, CEO of Serica, who will also remain CEO after merger completion, said: "I am excited by the announcement of this transaction and by the possibilities it brings for Serica in terms of a new phase of growth. The transaction achieves our strategic objective of materially increasing the scale and diversity of our UKCS portfolio of assets. The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production.
"Following this Transaction, Serica will retain its competitive strengths of a strong balance sheet, positive cash flow and low decommissioning cost obligations. Moreover, through the introduction of Mercuria as a new strategic investor, we will be differentially positioned to take advantage of the opportunities we expect to arise through industry consolidation, the North Sea Transition Deal and potentially overseas."
Tony Craven Walker, Chairman of Serica, said: "Serica has been able to grow its business by several times over the past five years without recourse to any external fund raising. We are proud of that achievement and are now a major North Sea operator with proven capabilities, a strong balance sheet and significant ongoing cash flow. The transaction with Tailwind reinforces these strengths, materially enhancing our asset base as we continue responsibly to provide much needed domestic energy at a time of energy crisis and seek to grow and diversify our portfolio of assets further.
The transaction with Tailwind provides a new strategic relationship, bringing in Mercuria, one of the world’s largest energy traders, as a major new shareholder of the enlarged group. The Board believes this relationship will provide competitive advantages as the Company seeks out further value accretive transactions. On completion, Mercuria will hold just over 25 per cent of Serica and will nominate two new non-Executive directors to serve on the Board. I and my Board colleagues are delighted to welcome them, the Tailwind executives and the Tailwind employees to the Company. We look forward to working together on the next phase of Serica’s growth.”
Steve Edwards, CEO of Tailwind, who will join Serica's senior management team, said: "“Since inception in 2016, Tailwind has been driven by creating value for its stakeholders; acquiring and exploiting high quality production and development opportunities on the UKCS. Our value growth and delivery over that period have been exceptional, resulting from smart M&A and consistent delivery of high value organic projects.
"We have achieved this through the combination of a committed strategy, excellent people and enjoying the constant support of Mercuria. My colleagues and I are excited about this next step with Serica, with the combined assets, increased production and financial strength creating a platform to grow even further. We look forward to working closely with our Serica colleagues to deliver on the exciting opportunities for the enlarged group.”
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