UK's Serica weighs bid by rival Kistos to form North Sea gas 'champion'

London-listed Serica Energy, operator of the Rhum gas field and other assets, is weighing a takeover bid by smaller rival Kistos that would create a broader based North Sea operator incorporating Kistos' West of Shetland and Dutch assets.

In a statement, Serica said it had rebuffed an earlier proposal by Kistos in May, and in turn its counter-proposal to buy Kistos had been rejected by the latter July 8.

Following the latest offer by Kistos, valued about GBP1 billion ($1.2 billion), "Serica is considering its position," the latter said, adding it "strongly advised" its shareholders not to take any action.

Serica, with a mainly gas-focused UK portfolio and production of less than 30,000 b/d of oil equivalent, has long been on the lookout for possible combinations that would bulk up its position.

Kistos, created in 2020, has just completed a purchase of West of Shetland gas assets in the Laggan-Tormore area from TotalEnergies, expected to double its production to 12,000 boe/d this year.

Announcing its offer, Kistos said the proposal would be a "market consolidator," adding it has "strong industrial logic, significant value creation potential and achieves increased scale, relevance and trading liquidity for shareholders of both companies."

Serica's main production asset is the Bruce, Keith and Rhum cluster of fields, within which the largest producer is Rhum, owned jointly with a trust set up on behalf of Iran -- a legacy of the pre revolutionary era when Tehran acquired the stake. The trust's earnings flow to an escrow account under a sanctions waiver agreed with the US.

With gas accounting for 85% of Serica's production, it also derives modest volumes from the Erskine and Columbus fields.

On July 11, Serica began drilling the North Eigg exploration well near Rhum, part of a series of efforts to boost production since Serica took over as operator from BP and other partners in 2018.

Kistos' purchase of West of Shetland Laggan-Tormore assets has an effective date of Jan. 1, 2022, while its other production comes from the Q10-A license area offshore the Netherlands.

The UK NBP day-ahead gas price was assessed at 218 pence/therm on July 11, up 31.33% on the day, according to S&P Global Commodity Insights data.