Serica Energy will look to expand beyond the British North Sea following the acquisition of smaller rival Tailwind in order to diversify its revenue sources, its chief executive said.
Serica last month announced it had agreed to buy privately-owned Tailwind in a mostly share deal at a value of 644 million pounds ($775 million), including debt.
The deal, which includes bringing on energy trader Mercuria as its biggest investor, will see Serica's production grow to over 40,000 barrels of oil equivalent per day (boed) in 2023 from around 27,000 boed in the first half of 2022. It will also significantly grow its oil production, which contributes 15% of Serica's output.
The acquisition, which includes a cash payment of 59 million pounds, leaves Serica with a large cash position of over 300 million pounds which will allow it to make further acquisitions, Chief Executive Officer Mitch Flegg told Reuters.
"We still have cash, and we will have more from the enhanced portfolio going forward so we are in a good position to make more deals," he said.
Serica will focus on opportunities in other European countries and possibly North Africa, he added.
Mercuria, one of the world's largest commodity traders, will become a 25% shareholder in Serica with two non-executive board seats. As part of the deal, Mercuria will buy oil and gas from Serica and supply financial hedgings, Flegg said.
Serica, whose production includes 85% natural gas, saw its profits soar in the first half of 2022 on the back of an unprecedented rally in European energy prices.
Serica's dividend policy will not change following the deal but if the company continues to grow its cash reserves, "we will have to look at other methods of returning cash to shareholders," Flegg said.
The deal came weeks after the British government increased a windfall tax on North Sea oil and gas producers by 10%, bringing the sector's total tax rate to 75%, one of the highest in the world and raising warnings it would dry up investments in the ageing basin.
The Tailwind acquisition will allow Serica to offset the tax burden through historic tax losses as well as investments in new well drillings around Tailwind's Triton oilfield, Flegg said.
($1 = 0.8315 pounds)
(Reporting by Ron Bousso;Editing by Elaine Hardcastle)
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