David Latin is running out of patience. As the chairman of Serica Energy, with over 30 years in the oil and gas industry, including managing drilling operations in war zones, he finds today’s UK investment climate the most challenging he’s ever faced.
“We had no idea what would happen during the Libyan civil war, but we knew that whoever won would still want the oil,” Latin explains. “In the UK, it feels like no one wants us anymore.”
Serica, listed on Aim and responsible for about 5% of the UK’s natural gas production, saw benefits from the spike in energy prices following Russia’s invasion of Ukraine. However, like other energy companies, it has also endured significant downturns.
In May 2020, during the pandemic lockdowns, wholesale natural gas prices dropped to 10p per therm. They soared above 700p in August 2022 but have since settled around 80p. This volatility makes long-term investment decisions exceptionally difficult.
Instead of stabilizing this vital sector, the UK government seems intent on keeping the industry on a tumultuous path.
Serica feels penalized for investing in the North Sea during times of low commodity prices. The company has grown by acquiring “unloved assets” abandoned by larger companies deeming them unviable.
Through these efforts, Serica has generated well-paid jobs, contributed approximately £500 million to the Treasury since 2020, and enhanced the UK’s energy security.
Despite these contributions, challenges persist. Labour has made significant efforts to position itself as the “real party of business” in opposition to the Tories. However, the presence of Ed Miliband on the shadow front bench leaves the oil and gas industry sceptical.
Labour’s green prosperity plan, costing £23.7 billion over the next parliament, will largely be funded by “a proper windfall tax on oil and gas giants.” The manifesto also proposes extending the “temporary” tax until the end of the next parliament and increasing the rate by three percentage points, bringing the overall rate to 78%.
With a market capitalization of £535 million, Serica is far from being an “oil and gas giant” compared to BP’s £79 billion and Shell’s £178 billion.
The impact of Labour’s manifesto was immediate: Serica’s share price dropped by 10.9% on the day of its release. Other independent oil and gas companies also suffered, with EnQuest falling by 11.4% and Deltic Energy by 19%. In contrast, Shell and BP’s share prices only decreased by 1% and 1.1%, respectively.
Increasing oil and gas imports will negatively impact the UK’s national balance of payments, creating jobs and generating tax revenues abroad instead of domestically. North Sea oil and gas production generally has a smaller carbon footprint compared to that produced elsewhere, especially when considering transportation emissions.
High taxes are not the primary issue. Norway taxes its oil and gas companies at 78% but offsets exploration costs at the same rate. Crucially, Norwegian politicians maintain consistent tax rates, providing companies with stability.
Moreover, the Norwegian government, with its climate action plan, understands and supports its oil and gas industry. It’s no surprise that Serica plans to make its next investment in Norway. What the UK loses, Norway gains.
