ONE of the North Sea’s biggest gas producers has rejected calls for a windfall tax after highlighting how much cash it is generating in the area.
Serica Energy said it grew its cash resources to around £220 million last year, from £89m, after benefitting from the dramatic increase in the price of gas on international markets and growth in production from its portfolio.
This includes the giant Rhum field off Shetland, which helps Serica produce around five per cent of the UK’s total gas output.
The update from the company came after Labour called for a windfall tax to be imposed on the profits made by North Sea oil and gas firms to help fund measures to tackle the energy crisis in the UK.
READ MORE: Boost for North Sea oil and gas industry after High Court setback for environmentalists
Millions of consumers are thought to be facing an increase of around £700 in their annual bills from April when the cap on prices is set to be raised by the regulator, to help suppliers cover their costs.
However, Serica’s chief executive, Mitch Flegg, warned a windfall tax could choke off vital investment in the North Sea and exacerbate the problem of gas price volatility.
“The UK has a shortage in its gas production,” he said. “We believe what we’re doing is right — to provide vital gas to the country and to do so with lower emissions than imports such as LNG (liquefied natural gas) .”
He added: “A windfall tax may make it more difficult for companies such as Serica to continue making the significant level of investment we’re planning in the next few years - that may lead to further shortages and price volatility as a result.”
The energy crisis has posed PR challenges for the North Sea industry amid calls from environmentalists for curbs to be placed on production, which they reckon could help tackle the climate change problem.
READ MORE: Shell boss defends plan to develop giant Cambo field and declares North Sea is 'outstanding' basin
However, Mr Flegg said Serica had made an important contribution to the provision of “vital lower carbon gas” to the UK’s energy market last year.
Industry leaders have said gas can play an important role as a transition fuel, by helping to reduce reliance on coal while the required renewable energy generating capacity is developed.
Mr Flegg said Serica had reaped the rewards of the decision it made to continue investing in the North Sea after prices plunged in 2020 following the start of the pandemic.
The company noted: “Gas prices closed 2021 very strongly, contributing to a market average for the year of over 113p/therm (2020: 25p/therm).”
Shareholders could be in line for payouts on the back of Serica’s success.
READ MORE: North Sea firms to pay $1bn dividends as rise in oil and gas prices boosts profits
“Growing cash balances offer increasing options for further investment, acquisition, and distributions,” the London-listed company told investors.
Serica looks set to continue with a strategy that involves investing in North Sea assets that other firms have lost interest in, developing finds and exploring for new ones.
The company plans to work on wells on the Bruce and Keith fields this year, in the hope of improving their production potential.
Serica also expects to drill the North Eigg exploration well nearby, which it described as high impact.
In the event of success, it may be possible to develop a find relatively easily by linking it to nearby production facilities.
Serica acquired interests in Bruce, Keith and Rhum from BP, Total and other firms in a series of transactions that completed in 2018.
READ MORE: Oil giants hail ScotWind success amid claims huge boost to supply chain in prospect
“As always, we continue to look for acquisition opportunities that fit our criteria and will add value for our stakeholders,” added Mr Flegg.
Serica brought an additional well on Rhum into production last year.
It started production from the Columbus field east of Aberdeen in November. By linking Columbus to the Shell-operated Shearwater platform Serica reckons it reduced the environmental impact of the scheme.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel