Serica Energy (LON: SQZ) has announced it will buy fellow North Sea operator Tailwind Energy in a shares and cash deal worth a total of £367m.
Tailwind, backed by commodities and energy group Mercuria, has been steadily expanding in the North Sea in recent years, while high-performing Serica has been seeking a deal to bolster its portfolio.
Completion of the deal, expected in March 2023, will put Serica in the top 10 club of producers in the UK North Sea.
Serica will give a cash payment of £58.7m and issue 111m new ordinary shares, representing up to 29.8% of its issued capital.
That takes the total consideration of £367m, based on Serica’s share price closing at 278p yon December 19, it said.
Crucially, Serica will take on Tailwind’s net debt of £277m.
Mercuria, Tailwind’s largest shareholder, will become a “strategic investor” in Serica with a 25.2% holding and will nominate two new non-executive directors to the board.
Mitch Flegg and Tony Craven-Walker will remain at CEO and chairman of Serica Energy, respectively, while Tailwind CEO Steve Edwards will join the senior management.
All current Tailwind employees will be offered positions in the enlarged group.
Serica is acquiring “fully developed 2P reserves” of 42 million barrels of oil equivalent, to create a combined portfolio of 104m boe.
The combined group will create a “balanced spread of production” from two main hubs; Serica’s Bruce and Tailwind’s Triton, with separate transport infrastructure.
Serica will see combined production increase by 40,000 – 45,000 boe per day in 2023, putting it in the “top 10 UK producers” and top 3 listed independent producers.
The enlarged group will operate more than 80% of its net production and its number of producing fields will increase from 5 to 11.
Serica Energy CEO Mitch Flegg said: “I am excited by the announcement of this transaction and by the possibilities it brings for Serica in terms of a new phase of growth. The transaction achieves our strategic objective of materially increasing the scale and diversity of our UKCS portfolio of assets.
“The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production. Following this Transaction, Serica will retain its competitive strengths of a strong balance sheet, positive cash flow and low decommissioning cost obligations.
“Moreover, through the introduction of Mercuria as a new strategic investor, we will be differentially positioned to take advantage of the opportunities we expect to arise through industry consolidation, the North Sea Transition Deal and potentially overseas.”
Tailwind was founded in 2016 by a management team boasting more than 200 years of experience in investment and exploration and production.
Backed by private commodities and energy group Mercuria, the company has been steadily expanding its UK North Sea portfolio in recent years.
Last year Tailwind wrapped up an acquisition of Decipher Energy in Aberdeen.
That came after Tailwind bought Shell and ExxonMobil’s stakes in the Triton cluster in September 2018.
It followed that deal up by swooping for the UK business of Houston-headquartered oil and gas firm EOG Resources later that year.
The firm’s main production comes several fields produced via the Dana Petroleum Triton FPSO: Evelyn, Bittern, Guillemot and Gannet.
Tailwind CEO Steve Edwards said: “Since inception in 2016, Tailwind has been driven by creating value for its stakeholders; acquiring and exploiting high quality production and development opportunities on the UKCS. Our value growth and delivery over that period have been exceptional, resulting from smart M&A and consistent delivery of high value organic projects.
“We have achieved this through the combination of a committed strategy, excellent people and enjoying the constant support of Mercuria. My colleagues and I are excited about this next step with Serica, with the combined assets, increased production and financial strength creating a platform to grow even further. We look forward to working closely with our Serica colleagues to deliver on the exciting opportunities for the enlarged group.”