Serica Energy upbeat on progress in North Sea

UK North Sea-focussed oil and gas company Serica Energy updated the market on its operations on Thursday, reporting that at Columbus, hydrocarbons from the C1z development well started flowing into the Arran subsea system on 24 November.

The AIM-traded firm said the commingled Arran and Columbus production streams were now being exported to the Shearwater platform for processing, and onward export to the gas and liquid sales points.

Early production was constrained due to a temporary unavailability of full capacity in the export system, but during the first 14 days of production, average gross Columbus production rates of 6,300 barrels of oil equivalent per day were achieved, of which over 80% was gas.

Serica said full capacity in the export system was expected to be available to Columbus by mid-January.

Looking at overall production for the company, Serica said performance in the second half was benefitting from the investment in the Rhum R3 well reintervention and the Columbus development project, undertaken during 2020 and 2021.

It said that since the R3 well came online, Rhum production made up a larger proportion of the company’s total production, and so now over 85% of group net production was gas.

Commodity prices, particularly gas, had reached increasingly high levels over the second half of 2021, the company added.

It said it was maintaining a “modest” gas price hedging programme, with about 20% of retained gas and liquids production covered in the second half of 2021.

That, the board said, allowed the company to benefit from full market prices on around 80% of its production, with a similar percentage of gas hedging projected for 2022.

Looking ahead, Serica said the BKR net cash flow sharing arrangements would end on 31 December.

From 1 January, it was entering a new phase, where it would be retaining 100% of the net cash flow from the BKR fields, up from 60% in 2021, and thus benefiting fully from the increase in production levels.

Serica said it intended to continue its programme of investment in assets, with a rig now contracted for the drilling of the high-impact North Eigg exploration well next summer.

It described North Eigg as a gas prospect located close to its BKR fields, adding that a successful discovery could be tied back to existing infrastructure in a carbon neutral manner.

Plans were also in place for a well Intervention campaign to take place in 2022 to improve the production potential of several Bruce and Keith wells during subsequent years.

Growing cash balances offered increasing options for further investment, acquisition, and distributions.

Serica said its board was continuing to evaluate the optimum balance between those elements to deliver further shareholder returns.

“Serica has made significant progress during the second half of 2021,” said chief executive officer Mitch Flegg.

“The impact of the substantial investment programmes undertaken in 2020 and 2021 has been increased production levels providing responsibly sourced gas to the UK domestic market, protecting security of supply, and reducing reliance on imports as part of the transition to a lower carbon future.”

Flegg said commodity prices had been “exceptionally strong” during the period, with a resulting positive impact on income.

“Additionally, from 1 January Serica will retain 100% of the cash flow from its BKR assets and so will benefit further from the increased production levels.

“Serica has no debt, limited decommissioning liabilities, growing cash reserves and so is well positioned to continue to invest in further projects including North Eigg, and other opportunities to add shareholder value.”

At 1230 GMT, shares in Serica Energy were up 3.55% at 233.5p.