Serica Energy to buy fellow North Sea operator Tailwind in £367 million deal

By Allister Thomas

December 20 2022, 11:37 am

Serica's Bruce platform in the North Sea. Image: Serica Energy.

Serica Energy has announced it will buy fellow North Sea operator Tailwind Energy in a shares and cash deal worth a total of £367 million.

Tailwind, backed by commodities and energy group Mercuria, has been steadily expanding in the North Sea in recent years.

High-performing Serica has been seeking a deal to bolster its portfolio.

Completion of the transaction, expected in March 2023, will put Serica among the top 10 oil and gas producers in the UK North Sea.

The deal

Serica will make a cash payment of £58.7m and issue 111 million new ordinary shares, representing up to 29.8% of its issued capital.

The total value of the deal is based on Serica’s share price of £2.78 on December 19.

Serica will take on Tailwind’s net debt of £277m.

Mercuria, Tailwind’s largest shareholder, will become a “strategic investor” in Serica, with a 25.2% stake, and will nominate two new non-executive directors to the board.

Benefits

Serica Tailwind — Serica CEO Mitch Flegg. Image: DCT Media

Mitch Flegg and Tony Craven-Walker will remain as chief executive and chairman of Serica Energy respectively, while Tailwind CEO Steve Edwards will join the senior management.

All current Tailwind employees will be offered positions in the enlarged group.

Serica is acquiring “fully developed 2P reserves” (total of proven and probable reserves) of 42 million barrels of oil equivalent (boe) to create a combined portfolio of 104m boe.

The enlarged group will comprise a “balanced spread of production” from two main hubs; Serica’s Bruce and Tailwind’s Triton facilities, with separate export infrastructure.

Producing fields to rise from five to 11

Serica will see combined production increase by 40,000-45,000 boe per day in 2023, putting it among the UK’s top three listed independent producers.

The enlarged group will operate more than 80% of its net production, while the number of its producing fields will increase from five to 11.

Mr Flegg said: “The transaction achieves our objective of materially increasing the scale and diversity of our UKCS (UK continental shelf) portfolio of assets.

“The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production.

We are excited by our proposed acquisition of Tailwind Energy adding scale & diversity to our UKCS portfolio and bringing in Mercuria, one of the world’s largest energy traders, as a new strategic investor. We look forward to working with the Tailwind team https://t.co/LuiMwbxZCT pic.twitter.com/IceFKrhqF2

— Serica Energy plc (@SericaEnergyplc) December 20, 2022

“Following this transaction, Serica will retain its competitive strengths of a strong balance sheet, positive cash flow and low decommissioning cost obligations.

“Moreover, through the introduction of Mercuria as a new strategic investor, we will be differentially positioned to take advantage of the opportunities we expect to arise through industry consolidation, the North Sea Transition Deal and potentially overseas.”

Tailwind

Tailwind was founded in 2016 by a management team with more than 200 years of experience in investment and exploration and production.

Backed by Mercuria, the company has been expanding its UK North Sea portfolio in recent years.

tailwind serica — Much of Tailwind’s production is tied into the Dana-operated Triton FPSO.

Tailwind bought Shell and ExxonMobil’s stakes in the Triton cluster in September 2018.

It followed that up by swooping for the UK business of Houston-headquartered oil and gas firm EOG Resources later that year.

Last year Tailwind wrapped up an acquisition of Decipher Energy in Aberdeen.

The firm’s main production comes several fields – Evelyn, Bittern, Guillemot and Gannet – produced via the Dana Petroleum Triton floating production storage and offloading vessel.

Mr Edwards said: “Since inception in 2016, Tailwind has been driven by creating value for its stakeholders; acquiring and exploiting high quality production and development opportunities on the UKCS.

“Our value growth and delivery over that period have been exceptional, resulting from smart M&A (mergers and acquisitions) and consistent delivery of high value organic projects.

“We have achieved this through the combination of a committed strategy, excellent people and the constant support of Mercuria.”