North Eigg well fails to deliver for Serica

NORTH Sea-focused Serica Energy saw its shares fall by more than nine per cent after it said drilling on the North Eigg exploration well had “not delivered the result we had hoped for”, while raising the prospect of directing investment outside the UK following the extension of the windfall tax.

Serica, which operates the Bruce, Keith and Rhum producing assets, told investors that although initial analysis indicates hydrocarbons had been encountered on the well, commercial quantities have not yet been established.

The company intends to suspend the well while it investigates whether it can better evaluate the volumes of hydrocarbons in the new discovery via a future sidetrack location.

Although final well costs will not be known until after the rig is off hire, Serica said it is likely that the net after-tax cost of the well to the company will be around £3 million.

Serica pledged to continue to invest in its assets to maintain production levels and provide jobs, highlighting its role in protecting energy security and reducing reliance on higher carbon intensity imports. It warned the recent extension of the windfall tax on the huge profits oil and gas companies have been making in the wake of Russia’s war on Ukraine would make it “challenging” for the industry to invest in new longer-term projects on the UK Continental Shelf. But it said it remains committed to expanding its portfolio through mergers and acquisitions.

Chief executive Mitch Flegg said Serica would “continue to selectively review new potential projects to maintain our North Sea presence whilst also seeking greater clarity and stability on the taxation regime”.

He said: “While we believe in the importance of the UK oil and gas sector, we are now considering opportunities in other countries alongside those in the UK as we continue to seek to expand our portfolio and create value for all of our stakeholders.”

Shares closed down 27.5p at 289.5p.