Serica Energy board rejects £1bn bid from smaller oil and gas rival Kistos

UK oil and gas company Serica Energy has rejected a bold £1bn cash-and-shares offer from a smaller rival led by the North Sea dealmaker Andrew Austin.

Kistos, which Austin set up in 2020 after he sold his previous company RockRose Energy for £250mn, said on Tuesday that it first approached Serica in May about the merits of joining the two North Sea-focused companies but had repeatedly been rebuffed.

It has now gone public with its cash and shares offer, valued at 382p a share, in the hope that Serica’s investors will encourage its board to engage.

Under the terms of the offer, Serica shareholders would receive 0.2932 new Kistos shares plus cash of 246p for each of their existing shares. The offer represents a 25 per cent premium to Serica’s closing price of 305p on Monday.

Stifel analyst Chris Wheaton said the cash element of the bid would be “funded largely by Serica’s own cash”, adding that he did not think the offer represented good value for Serica’s shareholders.

Austin is the largest shareholder in Kistos, with a holding of more than 17 per cent. Serica’s biggest shareholders are retail investors in the West Midlands.

Serica’s share price rose nearly 12 per cent in early Tuesday trading in London to 340p while Kistos’s edged up 0.5 per cent to 465p. Serica’s shares have suffered after the UK government in May introduced a 25 per cent windfall levy on oil and gas producers’ profits, which raised their headline tax rate from 40 per cent to 65 per cent.

Kistos, which has a market capitalisation of £384mn versus Serica’s £829mn, said a combination of the two companies would create a “leading independent North Sea champion” that could act as a consolidator in the region.

After Kistos made its initial approach in May, Serica’s board tabled its own counter offer to buy Kistos at the start of July. Kistos said this bid, which valued its shares at 483p each, represented a premium of only 4 per cent on the company’s share price at the time and rejected it.

Serica said in a short statement on Tuesday that it was “considering its position”.

Alexander Stahel, a fund manager at Burggraben in Switzerland, who holds a small number of Serica’s shares, said the company’s investors had repeatedly warned the board that it needed to execute a more aggressive buyback programme or it would risk becoming a takeover target.

Stahel pointed out that shareholders were keeping a close eye on an exploration project called North Eigg in UK waters, which if proven to hold significant volumes of gas, could boost Serica’s share price given it owns 100 per cent of the scheme.

“We hope other shareholders reject the [Kistos] offer,” added Stahel.

There has been a significant changing of the guard in the North Sea since 2014 when a number of oil majors and utilities retreated or sold down their portfolios to focus on lower cost regions elsewhere, or to invest in clean energy technologies.

Since floating in London at 100p a share in November 2020, Kistos has already made two acquisitions in UK and Dutch waters. Austin, a former investment banker with Merrill Lynch and Nomura, is estimated to have made about £66mn from the sale of RockRose in 2020.