After wrapping up Tailwind acquisition, Serica ‘uniquely placed to prosper’

UK-based oil and gas company Serica Energy has closed the acquisition of Tailwind Energy Investments from a compatriot company, Tailwind Energy Holdings. This has diversified the UK player’s portfolio, bolstering it with a new production hub while lifting the firm into the top ten UK producers.

Back in December 2022, Serica Energy revealed an agreement with Tailwind Energy Holdings to acquire the entire issued share capital of Tailwind Energy Investments in a deal worth approximately £367 million. The following month, the firm outlined the strategic rationale behind its proposed acquisition.

In an update on Thursday, 23 March 2023, Serica Energy confirmed that it had completed the acquisition of Tailwind Energy Investments and that the admission of the completion consideration shares to trading on AIM had occurred, which was the last step that needed to be checked off the list to close the acquisition.

Mitch Flegg, Chief Executive of Serica, remarked: “We are delighted to have completed the acquisition of Tailwind and welcome the new members of the Serica team. This is an important and exciting moment for Serica. The transaction creates a portfolio of assets which provides both greater resilience and an increase in the range of organic growth opportunities.

“Moreover, this has been achieved while preserving the company’s financial capacity to invest in its existing assets, execute further acquisitions and make sustained cash returns to shareholders. We look forward to providing more information in the coming weeks on the progress made in exploiting the existing producing fields in recent months and the plans for future investments in the enlarged portfolio.“

Following the acquisition, the attributes of Serica encompass a balance of gas and oil production focused around the Bruce and Triton hubs in the UK North Sea; more than 80 per cent of its production from operated fields; and an ongoing programme of sanctioned short cycle organic investments in 2023 and 2024, including a second light well intervention vessel campaign on the Bruce field and infill wells on the Bittern, Gannet E, Guillemot North West and Evelyn fields.

In addition, there are also potential near infrastructure field developments and a strong financial position from which to deliver further business growth. This acquisition is expected to be immediately accretive to the UK firm’s reserves, production, cash flow and earnings per share. Supported by the results of the Gannet GE-04 well announced on 20 February 2023, Serica’s estimated pro-forma production of the combined portfolio is expected to be between 40,000 and 47,000 boe/d in 2023 while Tailwind’s net debt at completion was £215 million.

Tony Craven Walker, Chairman of Serica, commented: “As a result of this transaction, Serica has a broader asset spread with interests in two North Sea hubs, one of which it operates, and better exposure to an oil/gas mix. The combined entity is uniquely placed to prosper as an important contributor to the UK’s energy security in support of energy transition.

“However, this does require a more considered approach from government to revisit the counter-productive tax levels imposed on the UK oil and gas industry and to structure a predictable and far less damaging tax regime to support the innovation and investment required, particularly in view of currently much reduced oil and gas prices. We look forward to the opportunity and the challenge.”

In accordance with the SPA, Serica and Mercuria Holdings (UK) Limited entered into a relationship agreement and under its terms, Mercuria has nominated two new non-executive directors, Guillaume Vermersch and Robert Lawson, who have joined Serica’s board upon the completion of the acquisition.

“Today I am delighted to welcome Guillaume Vermersch and Rob Lawson to the Serica board. Their presence adds to the breadth, depth and diversity of the expertise represented by the board which has grown with the business during the last few years,” added Walker.

Furthermore, Serica and Mercuria also agreed the terms of a revised offtake and marketing agreement, which has been entered into between Tailwind Energy Limited and Mercuria Energy Trading. The company explains that the revisions include the deferral of the expiry of the offtake and marketing agreement to the cessation of production from the fields tied back to FPSO Triton. Previously, the expiry was due to occur in October 2026.

Although entered into prior to admission, the directors of the board of Serica have considered the revised offtake and marketing agreement as if it was a related party transaction under the AIM Rules for Companies due to Mercuria becoming a substantial shareholder of the company, following the admission.

As is customary, the UK company engaged a third-party expert to advise on the terms while the directors consider, having consulted with the firm’s Nominated Adviser, Peel Hunt, that the terms of the revised offtake and marketing agreement are “fair and reasonable insofar as the company’s shareholders are concerned.” Serica highlights that its existing oil and gas marketing arrangements are unaffected.

Regarding the recent developments in the Triton area, it is worth noting that Tailwind started production from a well in the UK Central North Sea in February 2023. This has been tied back to the FPSO Triton.

As explained at the time, the initial production rates exceeded 10,000 barrels of oil per day. The Dana-operated FPSO Triton lies approximately 6 km to the northeast in the UK Central North Sea.