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

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

Kistos, set up by Austin in 2020 after selling 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 latest cash and shares offer, valued at 382p per share, in the hope that Serica shareholders will encourage its board to engage in “constructive discussions” with Kistos about the proposed combination.

Under the terms of Kistos’s 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.

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

It said Serica’s board had tabled its own counter offer for Kistos at the start of July valued at 483p per Kistos share but this represented a premium of only 4 per cent on the company’s share price at the time and was rejected.

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, the latest being a $125mn-plus deal for a 20 per cent stake in a group of gasfields north-west of the Shetland Islands from the French major TotalEnergies. Kistos’s shares were trading before the offer for Serica was disclosed on Tuesday morning at 460p. 

Kistos believes a combined group would gain admission to London’s FTSE 250 index.