Serica Energy doubles cash after surge in gas prices

Serica Energy, the North Sea company responsible for 5 per cent of the UK’s gas production, more than doubled its cash resources last year after prices surged and it brought new wells online.

Results from the UK’s biggest gas companies will be closely watched over the coming months as the opposition Labour party and environmental groups push for a windfall tax on producers’ profits to fund discounts for households, which are facing steep increases in their energy bills this year, fuelling a cost of living crisis.

Serica was the 10th-biggest gas producer in the UK last year, according to data from consultancy Rystad Energy, behind rivals including TotalEnergies, Harbour Energy, Centrica’s Spirit Energy, BP and Shell.

Serica said on Thursday it had ended 2021 with cash resources of £218.4m, up from £91.1m at the end of 2020, after gas prices surged. About £115.4m of this was lodged as temporary security with gas price hedge counterparties although analysts at Jefferies said they believed “most of this should now be unwound”.

Gas prices averaged 113p per therm last year compared with 25p in 2020, Serica said. About 85 per cent of its production is gas but it also benefited from higher oil prices, which averaged $70 a barrel in 2021 versus $45 the previous year.

A well that forms part of Serica’s Rhum field to the east of the Shetland Islands started flowing at the end of August, adding up to 6,000 barrels of oil equivalent a day to the company’s production. Columbus, a new field that is predominantly gas in waters east of Aberdeen, was brought into production in November.

The company has an investment programme to raise production at its existing Bruce and Keith fields and it plans to drill an exploration well at a nearby gas prospect, North Eigg, this year.

Serica said it remained on the lookout for possible acquisitions that would “add value for our stakeholders”.

Mitch Flegg, chief executive, made no mention of a possible windfall tax in the corporate update issued on Thursday but he stressed that the company’s production “has a significantly lower carbon footprint” than imported liquefied natural gas and “helps maintain the UK’s security of supply”.

More than 50 per cent of the UK’s gas needs are met by imports, which domestic companies claim are produced at a significantly higher cost to the climate.

Flegg last week pushed back against the windfall tax proposals in an interview with the Financial Times, saying that it would “make it more difficult” for companies like his to continue “making the significant level of investment we’re planning in the next few years” and that it may “lead to further [gas] shortages and price volatility as a result”.

Financial results from many of the UK’s biggest gas producers including BP and Shell are scheduled at around the same time that Britain’s energy regulator Ofgem is expected to announce a sharp rise in domestic bills on February 7.

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