Interview: Oil, gas sector ready to respond as UK prioritizes self-reliance: Serica CEO

Oil and gas companies will back a revamped UK energy strategy intended to boost resilience following the Ukraine invasion, provided progress is made on efforts to support the industry and the authorities maintain tax stability, Mitch Flegg, CEO of gas producer Serica Energy, said in an interview.

The UK has announced a switch in energy policy emphasizing "self-reliance," in the words of Prime Minister Boris Johnson, as oil and gas prices have soared in response to efforts to shun the world's largest energy exporter, Russia, over its invasion of Ukraine.

Flegg, whose company is one of several smaller producers to have taken over North Sea assets from major companies like BP, said UK authorities were moving in the right direction and there were still "material" oil and gas resources, despite steady production decline.

He outlined several areas where progress was needed, including the speed of the regulatory approvals process for activities such as exploration and new developments. Johnson discussed removing investment barriers at a March 14 meeting with industry heads while stressing the importance of the energy transition, his office said.

Flegg, speaking to S&P Global Commodity Insights, said, "there's a fantastic opportunity for nimble, like-minded companies — not just Serica, there's a number of companies out there — to get ahead."

Government figures show Russia accounts for under 4% of UK gas supply and 8% of oil demand. Flegg noted, however, the UK's high overall import dependence. "We've got a huge demand for gas in this country. We import more than 50% of our gas, and there's a great opportunity for companies like us that can continue to produce gas and can continue to reduce our emissions whilst we're doing that," he said.

The policy shift, with the government pledging to end Russian oil imports by year's end, follows criticism that it had sidelined oil and gas while hosting COP26 climate talks in 2021. The UK suspended offshore oil and gas licensing ahead of talks — which are still underway — to revamp the licensing process, and some politicians have called for an end to exploration.

Serica's business centers on a cluster of fields acquired from BP and others, named Bruce, Keith, and Rhum, which it says account for 5% of UK gas production. It expects to spend some GBP40 million ($52 million) on an exploration well to be drilled near that hub this summer and is looking for opportunities to buy new assets.

Flegg predicted the industry would stick to low-carbon commitments in areas such as carbon capture and storage and would be willing to work on challenges such as bringing low-carbon electricity to offshore platforms. Current oil and gas facilities, which rely on diesel or gas for power generation, are thought to account for about 10% of UK power generation emissions.

The UK's recent introduction of a new UK Emissions Trading Scheme provides an "effective" incentive to cut emissions, Flegg said, adding the industry needed to be "part of the solution, not part of the problem."

"There's going to be renewed interest in oil and gas, but I think we will do that in the most environmentally friendly way that we can. Electrification is still very much on the agenda and the other projects around hydrogen and carbon capture and everything else that we do as an industry, is not just going to go again," he said.

He outlined several areas where the government could provide "tangible evidence of support," including resuming licensing.

Another — not directly relevant to Serica — would be to ease requirements on the energy content level of gas, he said. London-based Neptune Energy says a slight adjustment would help it produce more gas from its Cygnus field with no risk to consumers, avoiding the current need to blend in gas from Elgin-Franklin, a nearby group of fields operated by TotalEnergies.

Industry willingness

However, the main improvement the UK needs to make is a streamlining of approval processes, Flegg said, adding that more technical challenges could be overcome if there was "political will" — another example being a lack of gas pipeline infrastructure in the deepwater West of Shetland area, generally viewed as challenging and a preserve of major companies.

"There is an incredible will within the industry and now there's a political will as well to make these things work, and I think we've got tremendous engineering capability within our industry, so I think if there's a problem that can be solved, we will solve it," Flegg said.

"What is important to the industry is timely approvals — timely approval if the projects are worthy of approval. If projects reach the necessary levels of commercial, environmental, and technical scrutiny, then prompt approval is very, very important."

"We've all heard of so many things that have taken longer than we might all have expected."

He went on to mention the UK's lack of gas storage as an issue that could be solved with collaboration between government and industry. Above all, maintaining a stable tax regime in the face of calls for windfall taxes would be crucial, he said.

"For everything going forward, we need industry and government to work together," he said, noting the industry already pays higher taxes than other sectors.

"We need to have a stable tax regime. Whether we like the tax regime or not doesn't matter as much as it [is] stable because then you can plan your forward developments," Flegg said. "I think politicians understand that the worst thing that they could do is to play with tax rates as a short-term revenue generator, because that is the biggest thing that will prevent future investment."