North Sea Oil and Gas Independent Eyes Bumper Deals
The boss of North Sea-focused Serica Energy, Mitch Flegg, has underlined the firm’s appetite for bumper acquisitions as it looks to make the most of assets that bigger fish may have lost interest in.
Six months after Serica completed the purchase of a portfolio from BP which propelled it into the premier league, Mr Flegg said the company is eyeing more deals.
He is confident Serica could handle an acquisition that would help it achieve another dramatic increase in its scale.
“It would be absolutely in our sweet spot to look at something that could double the size of the company from where we are right now,” said Mr Flegg.
London-based Serica has a stock market capitalisation of around £320 million and Mr Flegg said deals in that ball park are “absolutely where we are”.
The enthusiasm reflects his belief in the firm’s ability to maximise the potential of assets that major may not consider big enough to be worth investing in.
The deal with BP and follow up transactions with other firms gave Serica control over the Bruce and Keith fields and a 50 per cent interest in the Rhum asset.
The East of Shetland portfolio has brought around 25,000 barrels of oil equivalent additional production per day to Serica, which Mr Flegg noted was only producing around 3,000 boepd a couple of year ago. Some 140 employees joined the firm on completion of the deal. This involved an initial outlay of just £12.8m with up to a further £39m payable depending on the assets’ performance.
Mr Flegg is pleased that Serica is already starting to have an impact on the portfolio.
“The assets are producing at a higher rate than when we bought them from BP. We have been able to focus on a few simple things that we thought were going to add value; they’re doing what we wanted,” he noted.
For example, Mr Flegg found BP staff had to enter masses of information into a range of software programmes that allowed the giant to monitor the performance of a huge global portfolio.
Serica has introduced a much simpler system suitable for its smaller asset base freeing up staff time in the process.
In the longer term the company could boost production from the assets by drilling more wells and bringing undeveloped finds in the area onstream while looking for new discoveries.
The approach exemplifies how independents can support the official effort to maximise recovery from the North Sea’s reserves.
Mr Flegg is up for the challenge.
“We see that the model we’ve got is up-scalable. We can do this again,” he said noting the company has staff resources to allow it to deal with other assets.
The London-born oil man’s enthusiasm has not been dented by the challenges Serica faced in completing the BKR deals.
Serica announced the first transaction with BP in November 2017, only to find the deal got caught in the crossfire between President Trump and Iran.
The problems related to the Rhum field, in which the Iranian national oil firm has a 50% stake.
With the risk of Rhum falling foul of the sanctions the US planned to impose on Iran, Mr Flegg found himself having to navigate choppy waters.
He recalled: “There was some to-ing and fro-ing to Washington, days and weeks with lawyers.”
However, while the experience was not pleasant the complications were not totally unexpected. Serica was confident the significance of Rhum in terms of total UK gas production would mean that governments would not want to see production stopped.
Mr Flegg highlighted the support provided by UK officials in Westminster and the embassy in Washington and noted that American officials were very helpful.
Serica had previously shown its readiness to make imaginative moves as it focused on the North Sea after developing interests stretching from the UK to Namibia.
Founded by North Sea veteran Tony Craven Walker, Serica bought a stake in the producing Erskine field from BP in 2014 just as the crude price peaked at $115 per barrel.
It then had to face the fallout from the plunge in the price, which sank below $30/bbl early in 2016.
The price fall helped scupper Mr Flegg’s attempt to turn round the Circle Oil business which he left Serica in 2015 to run.
He subsequently rejoined Serica as a consultant before being named chief executive when the BKR deal was announced.
Serica initiated that deal after screening the North Sea for potential jewels that might have been considered immaterial by their owners. It expected to be able to acquire assets at low up-front cost by giving sellers a share in any upside.
The company has not participated in North Sea portoflio auctions.
Mr Flegg is confident Serica can find more deals although competition for assets appears to be intensifying.
The rise in the crude price since late 2016 has stoked interest in the North Sea.
The shake up triggered by the price fall from 2014 to early in 2016 continued last week when an Israeli firm bought a $2bn portfolio from Chevron. A range of US firms have more or less withdrawn from the North Sea to focus on shale in their home land.
However, Mr Flegg reckons more deals will be done.
Buyers of big portfolios may look to rationalise their enlarged holdings. Serica will be well placed to compete for transactions as it has shown that it can deliver recently, without having to tap shareholders for acquisition funding.
It has already made an impact in an industry Mr Flegg joined in the expectation of earning decent money while travelling to interesting places after studying physics at Birmingham university.
He spent time at services giant Schlumberger and oil super-major Shell before joining Serica in 2006 but reckons his character is more suited to working in an entrepreneurial independent.
Mr Flegg only ended up at Shell after it bought Enterprise Oil for £4.3bn in 2002.
While working at Enterprise he had an office next door to one used by Robert Trice who went on to pioneer the hunt for oil in an under-explored geological zone West of Shetland at Hurricane Energy. The Surrey-based company started production from the 500 million- barrel Lancaster field in the fractured basement last week.
The two men remain good friends and share a belief in the potential of the North Sea and the importance of the part independents play.
Mr Flegg has no ambition to hold a big job in a major. “I love what I’m doing, I’m very lucky,” he said. “I get up in the morning and I want to go to work.”
What countries have you most enjoyed travelling to, for business or leisure, and why?
A geological field trip to Namibia gave me the appetite to go back for a holiday. My wife and I hired a 4×4 and spent about three weeks exploring. It’s a magnificent country, the wildlife and scenery are superbly unspoilt; the food is great and the people are so friendly.
When you were a child, what was your ideal job? Why did it appeal?
I always thought being a sports journalist would be ideal. Being paid to attend top sporting events would be fun.
What was your biggest break in business?
There have been numerous opportunities that have presented themselves, but at the time it’s not easy to recognise these are necessarily big breaks. The important thing is to take on challenges, then, in hindsight, you can see they were career-defining moments.
What was your worst moment in business?
I have been through a few oil and gas industry downturns. On a couple of occasions, I have had to make people redundant and they have undoubtedly been the most difficult events.
Who do you most admire and why?
My father. His generation had few of the opportunities that have been available to me. After serving through the war he took numerous jobs to make ends meet before establishing a business career and a family. He’s 94 now and still an inspiration.
What book are you reading and what music are you listening to? What was the last film you saw?
The last book I read was Endurance: Shackleton’s Incredible Voyage by Alfred Lansing. My musical tastes are stuck in the last century (Paul Weller is a particular favourite). I don’t see many films. Bohemian Rhapsody was probably the most
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