North Sea firm in high spirits as profits near £500m in first year

Spirit Energy chief executive Chris Cox
Spirit Energy chief executive Chris Cox

Exploration and production firm Spirit Energy generated almost £500 million worth of profit in 2018 − its first full year in business.

Spirit launched in December 2017 as a result of a merger between Centrica’s exploration and production business and Bayerngas Norge.

Centrica has a 69% stake in the venture and Bayerngas Norge’s former shareholders, led by Stadtwerke München Group, hold 31%.

The company pumped out 46.8 million barrels of oil equivalent (mboe) in 2018, which was toward the lower end of its 45-55mboe target range.

Spirit said output was lower than expected due to export constraints from the Cygnus field and the shut-in of a well on the Chiswick asset, in the southern North Sea.

Repairs to facilities serving gas fields in Morecambe Bay and unplanned outages on installations in Norway also took a toll.

Unit lifting costs rose to £13.70 per barrel last year, from £12.40 in 2017.

But Spirit still managed to achieve pre-tax profits of £485m in 2018, the first full year of operations for the combined Centrica E&P and Bayerngas Norge business.

Higher oil prices also boosted Spirit’s balance sheet in 2018. Group revenues totalled £1.85 billion last year, up 33% on 2017.

The figures for 2017 – which showed pre-tax losses of £300m − reflected 12 months of trading for Centrica E&P, but the performance of Bayerngas was only factored in from December 8, 2017, the day Spirit was formed.

Spirit made waves in the UK North Sea in August 2018, when it struck a deal to buy 50% of Hurricane Energy’s Greater Warwick Area, west of Shetland.

The company agreed to cover the cost of a £140m campaign to drill two exploration wells and one appraisal well in the region this year.

Drilling on the first well, Warwick Deep, is expected to start this month.

The partners hope to firm up the resource estimates for the area, which is thought to hold around 2 billion barrels of oil.

Last year was also marked by the sale of Spirit’s stakes in the Armada, Maria and Seymour assets, about 160 miles north-east of Aberdeen, to Chrysaor.

Spirit chief executive Chris Cox said the company made progress on delivering its strategy of “adding value” as a “lean, agile and sustainable” business with a focus on growth in north-west Europe.

Mr Cox added: “Looking ahead, 2019 is also set to be an exciting year for us. The Oda field – our first operated development in Norway – has already come on stream five months early and under budget.

“Our exploration plans also include wells at Andromeda and Darach in the UK and Bergknapp in Norway, as well as appraisal wells being considered at Iris and Lille Prinsen.”

Spirit said the impact of “uncertainties” arising from Brexit were likely to be “limited” in the short term, but did raise the prospect of “potential tax consequences” stemming from the withdrawal.

When it launched, Spirit employed more than 700 people across locations in the UK, Norway, the Netherlands, and Denmark.

More than 350 were based in Aberdeen.

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