Serica Energy makes a play for UK oil & gas firm to expand its portfolio

UK-based upstream oil and gas player Serica Energy has set the wheels in motion to bring two additional licenses on the UK Continental Shelf (UKCS) under its fold by acquiring a compatriot player, Parkmead (E&P) Limited (PUK) from Parkmead Group.

Serica has signed an agreement to acquire 100% of the shares in PUK, which includes a 50% working interest in license P2400 (Skerryvore) and a 50% working interest in license P2634 (Fynn Beauly), for an initial consideration of £5 million ($6.4 million).

According to the company, an additional deferred consideration of £9 million ($11.5 million) will be paid in stages over the next three years, alongside contingent payments linked to certain development milestones payable on receipt of approval by the North Sea Transition Authority (NSTA) for the Skerryvore or Fynn Beauly field development plan (FDP).

The firm explains these payments are calculated based on £0.8/bbl of net 2P reserves contained within the respective FDP, subject to a cap of £30 million and £90 million, respectively. This acquisition is said to provide Serica with optionality regarding future projects, simplify decision-making, and enable strategic flexibility regarding the existing position in Skerryvore by consolidating the interests in the P2400 license, in which the firm’s wholly owned subsidiary already holds a 20% interest.

Following completion of the transaction, Serica will hold 70% and become the operator. The P2634 license was awarded in the 33^rd licensing round in July 2024 to PUK (operator) and Orcadian Energy. This license includes the Fynn Beauly heavy oil discovery. The current license commitment is limited to technical studies to assess the feasibility of reducing Fynn Beauly oil viscosity using enhanced oil recovery techniques.

Parkmead has carried forward tax loss balances, which, as of the transaction economic date of June 30, 2024, amounted to £197 million of ring-fence corporation tax losses, £181 million of supplementary charge tax losses, £1 million of Energy Profits Levy losses, and £12 million of activated investment allowances. PUK has no employees.

The acquisition is slated to close in the first half of 2025, subject to customary completion adjustments and the carve-out of PUK’s Dutch assets to a Parkmead affiliate and NSTA change of control consent. Therefore, Parkmead is retaining 100% of its revenue-producing assets, comprising its Dutch natural gas fields and UK wind farm, all onshore.

Moreover, the company, which mulled over the outlook for its UK North Sea oil licenses and the potential capital requirements needed were they to progress through appraisal and development, underlines that the offshore sector is facing continuing challenges because of the current political environment toward oil and gas in the UK and the government’s focus on its net zero strategy.

As a result, Parkmead believes the opportunity to progress these UK North Sea oil licenses would be best served within the portfolio of a larger, North Sea-focused company. This scenario enables the firm to apply its expertise and resources to grow its Netherlands gas assets and its projects in renewable energies.

The UK’s windfall tax hike combined with the rise in capital costs forced Parkmead to throw in the towel last year and abandon its intention to develop an asset described as one of the North Sea’s largest undeveloped oil projects.

Parkmead plans to continue to grow its core renewables business in the UK and the Dutch gas assets, with the co-venturers in the Netherlands working to identify and develop several short-cycle, rapid payback drilling and workover opportunities. The firm is progressing with a joint venture agreement for a wind farm of up to 100 MW centered around its owned land at Pitreadie.

Tom Cross, Parkmead’s Executive Chairman, commented: “I am delighted to announce this important transaction for Parkmead.  Through the sale of these UK offshore oil licences we have no further capital investment requirements, whilst retaining a very attractive share of the upside should any developments at Skerryvore or Fynn Beauly proceed. 

“The addition of the near-term, firm £14 million cash consideration, together with Parkmead’s existing cash, means the Group is well-funded to pursue the next phase of its growth plans in natural gas, renewable energies and international E&P.”