LONDON: Centrica plc announced the sale of Spirit Energy Limited’s remaining 15% interest in the Cygnus gas field, and all other producing assets in the Greater Markham Area and Southern North Sea, to Serica Energy plc.
The total value of the transaction to Spirit Energy is approximately £98 million, including headline consideration of £57 million and the transfer of £41 million of decommissioning liabilities. Centrica’s 69% share of headline consideration is expected to be £39 million, a statement said.
The disposal has a commercial effective date of 1 January 2025 and is expected to complete in the second half of 2026, subject to regulatory approvals and with customary interim period adjustments to be applied.
As with the sale of 46.25% of Spirit’s interest in Cygnus which was completed in early October, this transaction is strongly aligned with Centrica’s focus on maximising value as it continues to reposition its infrastructure portfolio, delivering attractive upfront cash consideration and transferring long-term decommissioning liabilities.
This disposal will result in the Morecambe Hub4 becoming Spirit’s principal producing asset, with total retained reserves of 9.0mmboe5. Spirit’s primary focus will remain on the development of the Morecambe Net Zero6 carbon storage project, alongside safely and efficiently decommissioning its facilities and wells with minimum environmental impact.
Chris O’Shea, Group Chief Executive of Centrica and Chairman of Spirit Energy, said: “Our focus at Centrica is on creating value. By recycling capital we’re unlocking new investment opportunities in the UK and elsewhere, and accelerating the energy transition – delivering the energy needed today and powering tomorrow’s ambitions by energising a greener, fairer future.
“This disposal generates value for our shareholders, is a significant step in streamlining Centrica’s portfolio, and will focus Spirit on developing the option to invest in Europe’s largest carbon storage project at Morecambe Net Zero. These material UK investment opportunities will however depend upon having a regulatory framework, and a regulator, which is fit for purpose.”
The Acquired Assets comprise a 15% non-operated working interest in the Cygnus field, one of the largest producing gas fields on the UK Continental Shelf; a 25% non-operated working interest in Clipper South; operated positions across various assets in the Greater Markham Area (‘GMA’); and further operated and non-operated interests in gas fields across the Southern North Sea, being Eris (54% operated working interest), Ceres (90% operated working interest), and Galleon (8.4% non-operated working interest). Following completion, the seller will retain decommissioning liabilities on the operated assets, expected to constitute over 75% of the total estimated decommissioning liability.
Chris Cox, Serica’s CEO, stated: “This transaction is a further step towards delivering on our strategy and diversifying our asset base through the addition of high-quality assets, adding over 15% to our reserves and significantly boosting production. These are also assets I personally know well, and the Cygnus field in particular is an attractive addition to our portfolio given its high uptime, low emissions, and low operating costs. There is also the potential for further infill drilling opportunities across the portfolio, most significantly at Cygnus, where drilling is ongoing.
The transaction will require only modest cash outflow on completion and is set to generate material cash flows, while also limiting our exposure to future decommissioning costs, enhancing Serica’s ability to create further value for shareholders through investing in growth and delivering attractive cash returns.”
BENEFITS OF THE ACQUISITION
· Immediately cash generative, with c.$100 million of free cash flow to be generated by the Acquired Assets by the end of 2028, supporting and enhancing Serica’s strategy of investing for growth and delivering attractive shareholder returns
· The Transaction adds 18.7 mmboe of 2P reserves (as at 1 January 2025) to Serica’s portfolio, increasing Serica’s 2P reserves by 16%, at a cost of approximately $3.9/boe of 2P reserves
· Addition of pro-forma production of around 13,500 boepd in H1 2025, of which 96% was gas
· Establishes an operated production hub in the Southern North Sea in which to deploy Serica’s leading subsurface and mature asset operatorship expertise, while also further diversifying our UKCS presence and hydrocarbon evacuation routes
· The Cygnus field is a low-cost, low-emission field with high uptime and sustained production into the next decade:
– Opex of c.$11/boe
– 97% operating efficiency in H1 2025
– Carbon intensity of 7 kgCO2/boe, well below the North Sea average
· Interim period cash generation between effective economic date to completion in H2 2026 expected to result in modest payment on completion and no new financing requirement
· Addition of 3.4 mmboe of 2C resources, and the potential for incremental growth through further wells at Cygnus, Clipper South, and Grove, as well as wider exploration and appraisal opportunities around Cygnus
· Decommissioning of the operated assets, although funded by Spirit Energy, will be undertaken by Serica, permitting the Company to strengthen its operational capacity in this important activity
KEY TERMS OF THE ACQUISITION
· The Transaction has an effective economic date of 1 January 2025 and an upfront cash consideration of £57 million (c.$74 million) to be paid on completion, subject to customary working capital adjustments, and is expected to be significantly offset by the receipt of a payment reflecting interim post-tax cashflows between the effective economic date and the completion date, expected in H2 2026
– The amount due from Serica at completion is therefore expected to be modest, reflecting the contribution of more than 18 months of interim period cash flows
· The terms of the Transaction also include provision for two potential further cash payments by Serica: (1) £2.5 million contingent on sanction of the drilling of an additional development well on Cygnus; and (2) £1 million contingent on the drilling of, and subsequent first production from, an infill well on Clipper South
· Following completion of the Transaction, the seller will retain decommissioning liabilities on the operated GMA, Eris and Ceres fields up to a cap, set at 115% of the current estimated decommissioning costs. In total, across the portfolio of Acquired Assets, it is expected that the seller will be retaining over 75% of the total decommissioning liabilities, with decommissioning spend for non-operated assets expected to be $60-70 million (on a pre-tax undiscounted basis) with the majority of this spend not before the early to mid-2030s.