North Sea oil companies Enquest and Serica Energy in merger discussions

Serica and EnQuest are in discussions over a possible merger amid a challenging backdrop for the North Sea oil and gas sector.

Bosses at Serica believe a tie-up would deliver ‘substantial potential benefits’ such as greater scale and diversification, ‘significant’ synergies, and a stronger platform for future expansion.

They said a deal would most likely involve a reverse takeover by EnQuest for Serica and include a return of capital to current Serica shareholders, who would own most shares in the enlarged business.

Shares in the firm would also be listed on the Equity Shares (Commercial Companies) category of the London Stock Exchange.

Under City takeover rules, EnQuest must declare a concrete intention to put forward an offer for Serica by 5pm on 4 April or walk away.

‘There can be no certainty either that an offer will be made, nor as to the terms on which such offer will be made,’ Serica told investors.

Serica and EnQuest are in discussions over a possible merger amid a challenging backdrop for the North Sea energy sector

Serica Energy shares were 4.4 per cent up at 125.8p on Friday morning, but EnQuest shares jumped 14.1 per cent to 12.4p, making them the FTSE All-Share Index’s top performer.

Talks between the two companies come as North Sea-based oil and gas producers struggle to remain profitable due to the Energy Profits Levy.

The windfall tax was introduced three years ago by then-Chancellor Rishi Sunak after energy prices spiked following the loosening of Covid-related curbs and Russia’s full-scale invasion of Ukraine.

It imposes a 38 per cent surcharge on profits from extraction activities in the North Sea, meaning oil and gas producers pay a headline tax rate of 78 per cent.

Many firms and trade bodies have blamed the windfall tax for job losses, wiping out profits and discouraging investment in domestic production. 

Texas-based Apache announced last November that it plans to close operations in the North Sea by the end of 2029, blaming the ‘onerous financial impact’ of the EPL.

Harbour Energy revealed on Thursday that it swung to a $93million loss in 2024, after incurring a $1.3billion tax expense compared to $571 million the prior year.

While EnQuest has not yet published its 2024 results, the group recorded losses in the previous two years, including a $30.3million loss in 2023 after its net EPL charge totalled $77.2million.

Its chief executive, Amjad Bseisu, has previously warned that the EPL was ‘causing irreversible damage to an indigenous and strategically important UK industry.’

EnQuest recently agreed to acquire Harbour’s Vietnamese division in a £68million deal to bolster its non-UK operations.