NORTH Sea-focused Serica Energy has welcomed the recent increase in gas prices as the company underlined its appetite for acquisitions amid the upheaval in the North Sea triggered by the coronavirus crisis.
Oil and gas prices plunged to multi-year lows in April as demand slumped following the imposition of lockdowns around the world, leaving North Sea firms facing huge challenges.
READ MORE: 50 years after landmark Forties oil find does North Sea industry have a future?
However, Serica noted there has been a strong recovery in gas prices since April. In recent days gas has been selling for more than it did in January. This was before the coronavirus outbreak developed into a pandemic.
Demand for oil and gas has risen following the easing of lockdown measures around the world.
While fears of a second wave of coronavirus have weighed on oil prices in recent weeks, analysts at HSBC noted recently that gas prices have been supported by “cooler conditions as the Northern winter arrives and lower US supply on reduced drilling”.
As Serica produces more gas than oil it is one of the North Sea players best placed to benefit from the price increase.
Directors reckon Serica is in a good position to capitalise on opportunities that might be presented amid the downturn.
The company has a strong balance sheet and can generate cash from its North Sea production at current oil and gas prices.
Chief executive Mitch Flegg said Serica would continue to look to take advantage of current market conditions by pursuing opportunities to further expand its portfolio.
READ MORE: North Sea oil and gas firm eyes big acquisitions as downturn triggers upheaval in area
He predicted last month that the downturn would accelerate the shake-up in the North Sea.
It will likely encourage majors to sell off North Sea assets they deem to be non-core to raise funds for investment in other areas. Smaller firms that have been left struggling to service debts may need to launch fire sales of assets.
Mr Flegg said Serica could pay around £150 million for the right target.
The company has acquired assets from a range of majors including BP. It expects to generate good returns on investments it makes in projects that would be too small to interest a major.
For example, the company is working on a plan to start pumping gas from the R3 well on the Rhum gas field East of Shetland. The well was never brought into production.
Serica said the plan will involve recovering equipment left in the well by the previous operator, BP, and removing an obstruction.
Serica acquired a 50 per cent interest in Rhum from BP in 2017. The Iranian oil company owns the other 50%. Serica had to win an exemption from the US authorities to ensure production from the field could continue after Donald Trump imposed fresh sanctions on Iran.
It said yesterday: “A successful recompletion of R3 will increase the production capacity utilising the existing production facilities located on the Bruce platform and will, therefore, not lead to any significant additional CO2 emissions.”
The company expects operations to start production from R3 will take place in early 2021.
Serica noted that it has made good progress with plans to develop the Columbus gas find, despite the logistical challenges posed by the coronavirus. Columbus will be linked to the Shell-operated Shearwater production facilities.
First gas is expected in the second half of next year.
Mr Flegg said: “The R3 Intervention project has the potential to add significant production volumes … The Columbus development will add further production and diversity to our portfolio.”
Separately, Zennor Petroleum has won an apparent vote of confidence from lenders although the company faces a delay in its plan to develop the Finlaggan find in the North Sea.
READ MORE: Surrey-based oil firm completes acquisition of First Oil Expro North Sea assets
Zennor said lenders had agreed to increase the limit on a borrowing facility related to the Finlaggan project to £185m, from £170m, and to extend the facility by one year.
The company said the schedule has been revised due to the coronavirus. It expects production of gas condensate to start in the fourth quarter of 2021. It had been expected to start in the final quarter of this year.
Serica noted that gas prices on the Heren NBP day-ahead spot measure fell from around 28p per therm in January to below 10p/therm during the early stages of the coronavirus lockdown. The average price in October to date has exceeded 35p/therm.
Mr Flegg said gas prices in Europe may have been supported by a reduction in shipments of liquefied natural gas to the continent.
Demand for oil has been slower to recover.
The price of Brent crude fell from around $70 per barrel in January to less than $16/bbl in April. Brent sold for around $42/bbl yesterday.
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