Serica CEO warns on UK offshore investment

The lack of a stable offshore fiscal regime is creating shareholder pressure on UK-focused independent oil and gas operators to invest abroad, according to outgoing Serica Energy chief executive Mitch Flegg.

"The feedback I get from shareholders and from banks is: 'What are you doing in the UK? We want you to invest in other parts of the world'," Flegg told attendees at a meeting of industry group Offshore Energies UK (OEUK) today. "That's the elephant in the room. We can't ignore that."

The UK government introduced an Energy Profits Levy (EPL) windfall tax on oil and gas profits in summer 2022 in response to the jump in energy prices resulting from Russia's invasion of Ukraine. Initially the levy meant profits were taxed at 65pc, but by the start of last year this was 75pc. In February, UK finance minister Jeremy Hunt extended the duration of the EPL for a year to 2029.

Flegg said the offshore oil and gas sector is "not whining about the levy itself" but it is concerned about "the continual changes in the fiscal regime and it's the instability, rather than the rate, that we're worried about".

Serica, which in recent months has averaged production of 45,500 b/d of oil equivalent (boe/d) in the UK offshore, is now facing pressure to look at other countries, such as Norway. While that country has always had a 78pc tax rate, "that doesn't put us off at looking at working [there]", Flegg said.

"What makes it more attractive is that it's been stable and the allowances that go with that are well thought through and have been there for years and years," he said.

Flegg said another concern is offshore regulator NSTA's new emissions reduction plan, announced today, which could see the authority require operators to cease production of assets with high-emissions intensity as part of an increased drive for electrification at offshore facilities. Flegg acknowledged the industry has needed encouragement "to move in the right direction" on emissions, but said some elements of the NSTA plan "have gone too far" and that important infrastructure could be lost if facilities shut down because of a lack of electrification.

"This is a fragile industry. We all depend upon each other and we've built upon the supply chain," he said. "The supply chain depends on operators and operators depend upon the infrastructure that's out there.

"If the infrastructure doesn't exist then we're not going to be able to tie back new discoveries."

Flegg, who will step down as Serica chief executive in mid-April, was speaking at the launch of OEUK's Business and Supply Chain Outlook report. This said UK offshore oil and gas production will continue to decline at double-digit rates if measures are not taken to improve the investment environment.

By Jon Mainwaring