ONE of the North Sea’s biggest gas producers has rejected calls for a windfall tax after highlighting how much cash it is generating in the area.

Serica Energy said it grew its cash resources to around £220 million last year, from £89m, after benefitting from the dramatic increase in the price of gas on international markets and growth in production from its portfolio.

This includes the giant Rhum field off Shetland, which helps Serica produce around five per cent of the UK’s total gas output.

The update from the company came after Labour called for a windfall tax to be imposed on the profits made by North Sea oil and gas firms to help fund measures to tackle the energy crisis in the UK.

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Millions of consumers are thought to be facing an increase of around £700 in their annual bills from April when the cap on prices is set to be raised by the regulator, to help suppliers cover their costs.

However, Serica’s chief executive, Mitch Flegg, warned a windfall tax could choke off vital investment in the North Sea and exacerbate the problem of gas price volatility.

HeraldScotland: Serica Energy chief executive Mitch FleggSerica Energy chief executive Mitch Flegg

“The UK has a shortage in its gas production,” he said. “We believe what we’re doing is right — to provide vital gas to the country and to do so with lower emissions than imports such as LNG (liquefied natural gas) .”

He added: “A windfall tax may make it more difficult for companies such as Serica to continue making the significant level of investment we’re planning in the next few years - that may lead to further shortages and price volatility as a result.”

The energy crisis has posed PR challenges for the North Sea industry amid calls from environmentalists for curbs to be placed on production, which they reckon could help tackle the climate change problem.

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However, Mr Flegg said Serica had made an important contribution to the provision of “vital lower carbon gas” to the UK’s energy market last year.

Industry leaders have said gas can play an important role as a transition fuel, by helping to reduce reliance on coal while the required renewable energy generating capacity is developed.

Mr Flegg said Serica had reaped the rewards of the decision it made to continue investing in the North Sea after prices plunged in 2020 following the start of the pandemic.

The company noted: “Gas prices closed 2021 very strongly, contributing to a market average for the year of over 113p/therm (2020: 25p/therm).”

Shareholders could be in line for payouts on the back of Serica’s success.

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“Growing cash balances offer increasing options for further investment, acquisition, and distributions,” the London-listed company told investors.

Serica looks set to continue with a strategy that involves investing in North Sea assets that other firms have lost interest in, developing finds and exploring for new ones.

The company plans to work on wells on the Bruce and Keith fields this year, in the hope of improving their production potential.

Serica also expects to drill the North Eigg exploration well nearby, which it described as high impact.

In the event of success, it may be possible to develop a find relatively easily by linking it to nearby production facilities.

Serica acquired interests in Bruce, Keith and Rhum from BP, Total and other firms in a series of transactions that completed in 2018.

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“As always, we continue to look for acquisition opportunities that fit our criteria and will add value for our stakeholders,” added Mr Flegg.

Serica brought an additional well on Rhum into production last year.

It started production from the Columbus field east of Aberdeen in November. By linking Columbus to the Shell-operated Shearwater platform Serica reckons it reduced the environmental impact of the scheme.