THE board of North Sea-focused Serica Energy has “unanimously” rejected a revised takeover proposal from energy investment firm Kistos, declaring that it “significantly undervalues” the company.

Kistos upped the headline value of its offer for Serica, which owns and operates the Bruce, Keith and Rhum fields, to £1.2 billion, after seeing its initial approach worth £1.04 bn rejected earlier this month.

Shares in Serica made further gains on the news, closing up 3.4% at 369.05p, suggesting that the City sees potential for a higher bid.

The interest from Kistos in Serica appears to underline a conviction among investors that strong returns can be made from the mature North Sea basin, in spite of heightened concerns about climate change. Gas prices remain elevated amid Russia’s continuing war against Ukraine. Serica produces around 5% of the UK’s gas supplies.

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The revised possible offer from Kistos, which rejected a counter proposal from Serica shortly after its initial approach was rebuffed, was valued at 425p per Serica share, and marks an 11% increase on its first offer. But Serica noted that over 60% of the increased in headline value is driven by the rise in the Kistos share price since July 11.

In a statement to the City, Serica said the revised possible offer relied on using the company’s own cash to partly fund the cash component of the transaction.

The revised offer comprises 0.4 new Kistos shares per Serica share, plus 213p per Serica share. The latter would consist of a capital distribution of 67p per Serica share, and a cash consideration of 146p per Serica share.

Serica said: “The board reiterates its position that it will not recommend any deal on terms which it believes are unattractive to its shareholders and wider stakeholders. Serica shareholders are strongly advised not to take any action.”

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The company stated yesterday that the refreshed offer from Kistos would have reduced the cash element by 33p per share but would increase its own shareholders’ share of the combined entity to around 58% – up from the 50% proposed by the initial Kistos approach.

The revised offer also proposed that Serica chairman would chair the combined entity, with Andrew Austin of Kistos becoming chief executive.

However, Serica said the new offer from Kistos did not reflect the underlying value of its core producing oil and gas assets, and took no account of Serica’s plans and capability for investment in its existing fields to increase production, reserves and asset life.

Serica also branded the latest Kistos approach as “opportunistic”, highlighting the “recent and potentially temporary disconnect between Continental and UK gas prices (noting these gas prices are currently very volatile)”, and the North Eigg exploration prospect that was currently being drilled, where Serica is “targeting over 60 million boe (barrels of oil) of net P50 unrisked recoverable prospective resources.”

Serica added further that the refreshed offer would result in its shareholders “funding much of the purported premium themselves”. It said: “Kistos’ market capitalisation is significantly smaller than Serica’s and the Kistos revised possible offer is approximately 50% in shares.”

Serica said it was committed to a strategy of reinvesting in existing assets, returning cash to shareholders and seeking acquisitions to add further value. It pointed to the success of this approach by highlighting a “rising profile of paid and announced dividends, along with the recently secured authority for share buybacks.”

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But it said of the new Kistos offer: “The structure proposed in the Kistos revised possible offer is fundamentally unchanged from the first Kistos possible offer leaving the combined entity with a weaker balance sheet when compared with Serica currently, thereby compromising the scope for future investments and significantly increasing exposure to inherent business risks.”

Meanwhile, Neptune Energy has completed drilling on a successful four-well campaign in the Norwegian North Sea, ahead of production start-up.

Neptune declared it marked an “important milestone” in the development of the Fenja field, which is scheduled to come on stream in the first quarter of 2023 and will produce approximately 28,000 barrels of oil equivalent per day at plateau.

Erik Oppedal, director of projects and engineering for Neptune in Norway, said: “The completion of the drilling campaign on the Fenja field represents the final step of the development project and we are now ready for production start-up. This region of the Norwegian Sea is a strategically important growth area for Neptune, with high prospectivity.”