Serica Energy might slash funding amid ‘punitive’ taxes

Serica Energy has warned it could cut back investment because of ‘unjustifiably punitive’ tax rates amid changes to the government’s energy profits levy (EPL) 

North Sea oil and gas production is currently taxed at a headline rate of 75 per cent, which includes a 35 per cent EPL introduced two years ago in response to soaring energy prices.

The new Labour government has vowed to hike the EPL to 38 per cent, extend its lifetime to the end of this parliament, and remove investment allowances granting tax relief for extraction activities.

Mid-cap British oil and gas businesses have lambasted the ‘windfall tax’, claiming it discourages domestic investment and leaves them struggling to stay profitable.

Serica said investment was needed to prolong operations and was a ‘lifeblood’ for its UK supply chain, on which it has spent over £1billion in the past five years.

It cautioned that ‘similar expenditures will be lost going forward’ if the Government’s taxes make future investment uneconomic.

The company pointed to the Buchan Horst field in the North Sea as a project whose future depends on ‘an appropriate fiscal regime’, including full tax relief for capital expenditure.

Serica’s chief executive, Chris Cox, said: ‘Despite an unjustifiably punitive fiscal regime…what is clear is that thanks to our investment in our assets and our lean operating model, our producing assets remain cash generative.’ 

The group said its producing fields are profitable and set to generate over $500million in the next few years, assuming existing capital commitments and commodity prices remain at present levels. 

In addition, the firm revealed its revenue fell by about 15 per cent to $462million in the first six months of 2024, owing mainly to an unplanned outage at its Triton hub in May. 

Because of the issues at Triton, Serica expects its average production this year to be at the bottom end of its previously guided range of 41,000 to 46,000 barrels of oil equivalent per day. 

Turnover was also hit by lower gas prices, which averaged 73 pence per thermal unit, compared to 108p per them in the equivalent period last year.

Pre-tax profits slid by around 30 per cent to $188.5million, while they dropped by $16million to $82.5million after tax. 

Nonetheless, the company is keeping its interim dividend flat at 9 pence per share, having just finished a £15million share buyback.

Cox added: ‘Our confidence in our cash generation outlook, together with our strong balance sheet, gives us capital allocation options. 

‘Paramount amongst these will always be supporting material shareholder returns.’

Serica Energy shares were 4.6 per cent down at 111.7p on late Tuesday afternoon, taking their losses since the year began to about 51 per cent.