Serica Energy plc (AIM: SQZ) is pleased to announce that the transaction to purchase an 18% interest in the producing North Sea Erskine Field from BP was completed on 4 June 2015. As a result Serica has acquired an 18% interest in UK blocks 23/26a (Area B) and 23/26b (Area B) containing the Erskine Field, located in the UK Central North Sea, from BP Exploration Operating Company Limited and Britoil Limited both wholly owned subsidiaries of BP plc.
Highlights
- The transaction provides Serica with an immediate and long term cash flow stream
- Approximately 3.3 mmboe of producing, proven and probable reserves added at completion at a cost per barrel of approximately US$4.0
- The effective date of the transaction is 1 January 2014. Adjustments for net revenue, associated liabilities and partial deferment of consideration have resulted in Serica receiving approximately US$9 million cash on completion
- 13.5 million shares in Serica have been issued to BP who will now hold approximately 5% of Serica’s enlarged issued share capital. BP has agreed to hold the shares as an investment for a period of not less than one year
- Provision for decommissioning at the end of field life has been provided for on the basis that Serica’s estimate of decommissioning costs will be met by BP, with Serica being responsible for any costs above this level. BP responsible for decommissioning costs up to a gross £174 million (£31.32 million net to Serica) adjusted for inflation
- Transaction very tax efficient for Serica – uses only part of its US$186 million ring fenced corporation tax losses leaving substantial losses available to Serica for future transactions
- Provides export routes via CATS and Forties pipeline systems – additional benefits and synergies with Serica’s Columbus field interest
- Field production has recently recommenced following prolonged shutdown for major infrastructure improvements downstream. Facilities are being re-commissioned and production is expected to build over coming months
- 55,000 barrels of Serica’s forward entitlement from Erskine condensate production were sold in 2014 at prices considerably in excess of today’s spot prices (2014 average sales price of $100 per barrel) thus insulating Serica from the impact of lower oil prices over recent months for this production volume
Tony Craven Walker, Chairman commented:
‘The acquisition of an interest in the producing Erskine field from BP is an important step for Serica. In addition to improving our immediate cash resources and bringing cash flow to the Company, the purchase of an interest in Erskine brings us production from a field where there is significant room for improved productivity.
The Erskine field has shown that it is capable of producing up to 4,000 boepd net to Serica but, in 2014, only averaged around 1,100 boepd as the result of poor infrastructure performance downstream (excluding the period of planned shutdown). Considerable work has been undertaken over the past eight months to radically overhaul facilities involving a substantial investment and a field shut-down. It is expected that this will enhance efficiencies considerably and it is the intention of all field participants to continue to seek ways of improving production performance. If we are successful in this endeavour it will bring significant benefits for Serica shareholders.
The transaction is also enhanced significantly as a result of our tax position. At the year end this amounted to approximately US$186 million of unused Ring Fence Corporation Tax losses from past UK investment made by Serica. This is a valuable asset which can be used to offset tax liabilities, not only from Erskine but also from other UK producing fields whether acquired or, in the instance of Columbus, developed by the Company.’
