Acquisition of BP Interests in the Bruce, Keith and Rhum Fields in the North Sea

London, 21 November, 2017 – Serica Energy plc (AIM: SQZ) (“Serica” or “the Company”) is pleased to report that Serica UK, a wholly-owned subsidiary of the Company, has signed a Sale and Purchase Agreement to acquire BP's interests in the Bruce, Keith and Rhum fields in the North Sea and associated infrastructure (the “Acquisition”). Under the Sale and Purchase Agreement, Serica will acquire a 36% interest in Bruce, a 34.83% interest in Keith and a 50% interest in Rhum (collectively the “BKR Assets”). Subject to completion of the Acquisition, Serica will also become production operator of the BKR Assets and the Directors anticipate that approximately 110 BP staff will be transferred to Serica. The Acquisition is subject to certain regulatory, government and partner consents. The deal has an effective date of 1 January 2018 and Completion of the Acquisition is expected to take place in mid-2018.

The Initial Consideration for the Acquisition is £12.8 million, to be adjusted for working capital, with additional contingent consideration amounts of up to £39.1 million payable dependent on certain production and gas price thresholds being achieved. The Initial Consideration is expected to be exceeded by Serica's share of net cash flow from the BKR Assets between 1 January 2018 and Completion of the Acquisition. The contingent cash consideration will be financed by expected cash flows from the BKR Assets.

BP will also receive a share of pre-tax net cash flow from the BKR Assets of 60% in 2018, 50% in 2019 and 40% in each of 2020 and 2021. The net cash flow shares are calculated on a monthly basis. No amounts are payable by Serica UK unless this cash flow is positive and amounts are repayable to Serica UK in the event of negative cash flow, up to the amount of prior payments made to BP in the same year. Excess losses in a year are carried forward to be offset against future income.

BP will retain liability for all decommissioning costs relating to facilities existing at Completion, including wells, associated with the BKR Assets acquired by Serica UK. Serica UK will pay BP additional consideration equal to 30% of such costs at the time of decommissioning reduced by the tax relief that BP receives on these costs. This element of consideration is capped by the amount of net cash flow received by Serica UK as a result of the Acquisition.

As part of the Acquisition, Serica UK has entered into product sales agreements with BP to off-take Serica's share of gas and oil production from the BKR Assets on market terms. It has also agreed to 

enter sales contracts for Natural Gas Liquids production on a similar basis. BP Gas Marketing Ltd (“BPGM”) has also agreed to provide Serica UK with a Prepayment Facility of up to £16 million. This can be used to provide further financing flexibility to cover the cost of hedging instruments which have been purchased by Serica UK in conjunction with signing the Acquisition Agreement and, if required, the Initial Consideration.

Transaction Highlights

The Board of Serica believes that the Acquisition will be transformational for the Company, positioning it as one of the leading mid-tier independent oil and gas producers on the UK Continental Shelf (“UKCS”).

• Significant increase in Reserves and production

o Serica's pro-forma net 2P Reserves at 1 January 2018 are projected to increase sixteen-fold to 50 mmboe1
o Based on H1 2017 production rates Serica's net production would increase approximately seven-fold to over 21,000 boepd2 of which over 85% is gas o Acquisition expected to be immediately cash flow and value accretive post-


• Diversification of production streams and export routes

o Serica's asset and production base will expand from one to four fields, mitigating sole producing asset risk
o Following the Acquisition Serica will be delivering hydrocarbons via three export systems: Frigg, the Central Area Transmission System and the Forties Pipeline System

• Structured to mitigate financial risk

o Bulk of consideration deferred and contingent
o Initial Consideration expected to be exceeded by Serica's share of net cash flows from the BKR Assets between 1 January 2018 and Completion of the Acquisition anticipated in mid-2018
o Future payments linked to the performance of the BKR Assets, allowing both parties to share the benefits of improving field recoveries and production efficiencies
o The BKR Assets are predominantly gas assets. Gas sales arrangements include price hedging to further mitigate risk

• Maintains balance sheet strength with no shareholder dilution

o Serica is not raising equity finance to fund the Acquisition
o BP to retain decommissioning liability for existing facilities of the BKR Assets
o Cash flows from the BKR Assets can be used to invest in Maximising Economic Recovery from the BKR Assets and to pursue further growth opportunities
o Existing net cash resources are not expected to be impacted by the Acquisition. These stood at approximately US$34 million on 17 November 2017 and are expected to be further supplemented by production from the Erskine field prior to Completion of the Acquisition
o The Company has no borrowings other than under the Prepayment Facility provided by BP as part of the gas sales arrangements

• Tax efficient

o Accelerated utilisation of Serica's tax allowances against profits from the Bruce, Keith and Rhum fields

• Operatorship positions Serica to deliver the full potential of the BKR Assets

o Serica expects to drive value through investment and implementation of efficiencies, focusing on the OGA's target of Maximising Economic Recovery
o Serica's management experience and skill sets will be combined with those of existing BP staff, who will become an integral part of Serica's team
▪ Transition plan to be put in place
▪ Transferred staff employment terms to be guaranteed for at least 12 months post-Completion

• Increased scale to support strategic growth plans

o The Acquisition will increase Serica's prominence and profile and improve its ability to attract new investment opportunities and funding
o The Enlarged Group's diversification, increased scale and operating capabilities will position Serica for both organic growth and further acquisitions
• Board changes
o Mitch Flegg appointed CEO and to the Board of Serica with immediate effecto Further appointments are planned to broaden and diversify representation on the Board in line with the significantly increased scale and nature of the Company's expanded operations and strategic potential for further growth following the Acquisition
o In compliance with US regulations limiting the involvement of US Persons in relation to assets in which there are Iranian interests, Jeffrey Harris has stepped down from the Board to ensure that the Company is not encumbered in future operations on the Rhum field in which Iranian Oil Company (UK) Limited holds a 50% interest

• The Acquisition will constitute a reverse takeover under the AIM Rules

o Trading in the Company's Ordinary Shares will be suspended shortly following the release of this announcement
o An Admission Document, setting out full details of the Company and the proposed Acquisition, is anticipated to be published on or around 30 November 2017 at which time trading in the Ordinary Shares is expected to be restored

Tony Craven Walker, Serica's Executive Chairman, commented:

“This transaction will establish Serica as a leading British independent oil and gas company with the scale, balance sheet and operating capability to prosper in the North Sea's rapidly changing upstream oil and gas industry. It will diversify Serica from being a single asset to a multi-asset production company. It will also broaden our role as an operator, which will enable us to maximise performance from Bruce, Keith and Rhum, complement the continuing good performance from Erskine and deliver further value growth.

We have achieved this through an earn-out structure which enables both Serica and BP to share the risk and benefit from the future performance of the BKR Assets. For Serica, the transaction is expected to be both cash flow and value accretive. It has been delivered without diluting existing shareholder equity and significantly increases reserves and production per share.

Since completing the Erskine acquisition in 2015, Serica has been strengthening its balance sheet to pursue expansion opportunities which are diversifying, value creating, tax efficient and non-dilutive. This acquisition meets these criteria. I am proud of what the team at Serica has achieved during this period, increasing Serica's net 2P reserve base to approximately 50 mmboe and achieving a seven- fold increase in production with no new equity raised.

Our priority now is to maximise the economic value of our producing assets for the benefit of our shareholders, our field partners and our employees. We very much look forward to welcoming the extremely capable team that will be transferring to Serica from BP and combining skillsets and operational expertise.

Prior to completion of the transaction, we expect to strengthen our Board with a number of new appointments. Today we are announcing the appointment of Mitch Flegg as CEO of Serica and I am delighted to welcome him back to our senior management team. Mitch has worked closely with Serica in recent months to help bring this transaction to fruition and I and my co-directors look forward to working with him as we build on the opportunities that this deal will bring.”

Mitch Flegg, Serica's new CEO, commented:

“I am delighted to return to Serica in the role of CEO. I am re-joining a dynamic, fast growing company, which is focused on enhancing the value of both its existing and soon to be acquired assets on the UKCS. I am also looking forward to working with the highly skilled team that will be transferring to Serica from BP. They will be joining us at a very exciting time for the Company. Successful Completion of the transaction will establish Serica as a new force in the North Sea and as a robustly financed upstream operator with the experience, expertise, cash flow, breadth of assets and balance sheet to expand organically and to identify and develop new opportunities to grow shareholder value.”

Bernard Looney, Chief Executive, BP Upstream commented:

“This is an example of BP's Upstream strategy in action – refreshing our portfolio and focusing our activity on assets which will add most value over the long-term.

We remain committed to the North Sea and continue to invest. We expect our production there to double to around 200,000 barrels equivalent a day by 2020 through new projects like Quad 204 and Clair Ridge.

While the Bruce assets are no longer core to BP, we are confident that Serica is the right owner and operator to maximise their continuing value for both companies and for the UK.”

Suspension of Trading and General Meeting

The Acquisition constitutes a reverse takeover under the AIM Rules for Companies. As such, trading in the Company on AIM will be suspended until the publication of an Admission Document anticipated to be published on or around 30 November 2017. The Acquisition is also subject to the approval of Shareholders, which is being sought at a General Meeting, notice of which will be set out in the Admission Document.

Analyst Conference Call

A conference call for analysts will be held at 09:30am this morning, Tuesday 21 November 2017. To participate in this call, please contact for dial-in details.

Technical Information

The technical information contained in this announcement has been reviewed and approved by Clara Altobell, VP Technical at Serica Energy plc. Clara Altobell (MSc in Petroleum Engineering from Imperial College, London) has over 20 years of experience in oil and gas exploration, production and development and is a member of the Society of Petroleum Engineers (SPE) and the Petroleum Exploration Society of Great Britain (PESGB).

The Reserves information extracted from the BKR CPR and the Serica CPR and presented in this announcement has been prepared in accordance with generally accepted petroleum engineering and evaluation principles set forth in standards pertaining to the estimating and auditing of Oil and Gas reserves information promulgated by the SPE (the SPE Standards).


This announcement includes inside information for the purposes of MAR.

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