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EnQuest and Serica Energy in Merger Talks
North Sea oil and gas producer EnQuest is engaged in discussions with Serica Energy regarding a potential merger, according to recent reports. Adding to positive financial news, EnQuest has announced plans to distribute its inaugural dividend following a return to profitability in the past year, despite experiencing declines in production and revenue.
The energy exploration firm, currently in merger discussions with Serica Energy, has proposed a maiden dividend of 0.62 pence per share for investors in 2025. This payout is estimated to be approximately $15 million.
Following two years of losses, EnQuest demonstrated a financial recovery in 2024, achieving a profit of $93.8 million. This turnaround occurred despite a revenue decrease of roughly 20%, falling to $1.2 billion.
The decrease in sales is attributed to a drop in commodity prices. Average Brent Crude prices decreased by $2 to $80.5 per barrel, and natural gas prices fell by 15.5% to 83.6 pence per thermal unit.
Further impacting revenue was a 7% reduction in production volume, down to approximately 40,700 barrels of oil equivalent per day. EnQuest attributed this decline to ‘natural field declines’ across its operational assets.
As a consequence of these factors, EnQuest’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) decreased by 18.4% to $672.6 million.
However, EnQuest reported a significant reduction in net debt, falling by 20% to $385.2 billion. This figure is over $1.6 billion less than its peak debt level of just over $2 billion.
CEO Highlights Operational Success
Amjad Bseisu, Chief Executive of EnQuest, commented on the company’s performance, stating, “The group delivered another outstanding year of operational performance in 2024.”
He further noted, “Having consistently delivered against production, operational, and cost targets, we have generated substantial free cash flows in recent years, even during periods of lower commodity prices.”
Following the announcement, EnQuest shares experienced a surge, rising by 11.2% to 14.8 pence by late Thursday afternoon. This increase made EnQuest the top performer in the FTSE All-Share Index.
Potential Reverse Takeover of Serica Energy
Approximately three weeks prior, EnQuest disclosed ongoing discussions regarding a potential reverse takeover of Serica Energy.
Both companies indicated that a prospective agreement would involve Serica’s shareholders receiving a return of capital and securing a majority ownership in the combined entity.
Serica Energy’s leadership believes a merger could offer “substantial potential benefits,” including enhanced scale, diversification, operational synergies, and a “stronger platform for future growth.”
According to City takeover regulations, EnQuest is required to formally announce its intention to make an offer for Serica by 5 pm on April 4th or withdraw from discussions.
Impact of Energy Profits Levy on North Sea Operations
This potential merger is taking place amid a trend of numerous energy producers reducing their operational activities in the North Sea, largely due to the Energy Profits Levy (EPL).
The EPL, a windfall tax on profits from North Sea oil and gas production, was introduced in 2022 by the then-Chancellor Rishi Sunak.
In its recent budget, the UK government increased the tax rate by three percentage points to 38% and eliminated the 29% investment allowance for new oil and gas extraction projects.
These tax modifications have resulted in a headline tax rate of 78% for UK oil and gas producers, making it among the highest globally.
Last November, Apache, a Texas-based energy company, announced its plans to cease its North Sea operations by the end of 2029, citing the “onerous financial impact” of the EPL.
Prior to this announcement, Reuters reported that Harbour Energy was contemplating the sale of its interests in five North Sea fields: Armada, Everest, Lomond, Catcher, and Tolmount.
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