Serica thirsty for more
The UK independent is in no mood for giving up on acquisitions after a major deal last year
North Sea oil and gas producer Serica Energy is aiming for further deals to complement its $370mn acquisition of three BP fields in the last year, according to the firm's CEO Mitch Flegg. But the focus is on specific assets rather than the portfolio sales that have characterised the region's M&A landscape of late.
The Aberdeen-based firm's leadership credits its steely focus on enhanced recovery and cost-cutting for a rise in gross profits by 30.6pc to $22mn last year. With its deal to take a 98pc stake in Bruce, 50pc in Rhum and 100pc in Keith, all previously operated by BP, coming into effect from 1 January 2018, full-year production rose to over 24,000 bl/d, from just 2,000 bl/d in 2017.
London-listed Serica does not benefit from the deep pockets of private equity (PE) backers. And, it also had to overcome the challenge of securing a waiver from US sanctions on Iran for Rhum, as the asset is co-owned by the National Iranian Oil Company (NIOC).
Unlike Serica, the swathe of nascent North Sea players is backed by PE cash. These firms will want an exit at some point-what are their most realistic exit strategies?
Flegg: It is difficult to see sufficient appetite in the market for a number of IPOs closely spaced together every couple of months. There are now some big PE-backed operators in the North Sea, and I just do not think that there is enough interest for them all to come to the market.
Whichever firm goes first will stand a good chance—and will probably use up a lot of the available capital. I am not sure how easy it will be for the firms that go second, third, fourth, fifth and sixth.
Some of the PE-backed firms will probably need to tidy up their portfolios by selling some of the assets that do not fit comfortably there. This may make the companies smaller and more attractive for an IPO, or alternatively for some sort of corporate activity or merger.
From our perspective, Serica is happy about that. We are buyers at the moment and are always looking for new opportunities. If there are assets on sale, we are enthusiastic about that.
Are there more big deals on the horizon along the lines of the BP purchase?
Flegg: We are certainly looking to repeat what we have done and continue to look for deals where the firm can add value. The company is not, however, going to join in big auctions such as the Chevron and ConocoPhillips sales.
Instead, the firm will continue to look for opportunities similar to our experience with Erskine, and then with the Bruce, Keith and Rhum fields—assets that we think will be better operated by us than the current owner.
What does Serica aim to bring to new assets in terms of cost cutting and efficiency?
Flegg: The biggest issue is focus and making sure the team does not get sidetracked onto unnecessary tasks. It is equally important to not be overambitious or overpromise. Our existing assets were, of course, previously owned by majors, which have more options on where to spend time and money. For us, everyone in the organisation is focused solely on a handful of offshore assets, and that is how Serica keeps costs under control.
This is not to be critical of majors, which do many tasks very well. Cost control is simply harder for them because people and resources are constantly switching between projects.
Do the annual waivers on Iran continue to be an issue? Or is the process more straightforward now?
Flegg: Serica requires an annual licence from the US Office of Foreign Asset Control and this year's one expires at the end of October. But we have been in regular communication with the US and were over in Washington about six weeks ago. The procedures and processes put in place for our first licence are still there, so it should be straightforward on 31 October.