“Serica is profitable but what we can’t do in a high tax environment without sensible reliefs is carry on drilling more wells and pushing out the decommissioning costs on fields,” noted Mr Cox, who has led a range of significant North Sea operations.
Serica has made its name by investing in unloved assets acquired from majors such as BP and is keen to continue with the strategy.
However, Mr Cox said Ms Reeves has caused huge uncertainty by confirming plans to hike the rate of the windfall tax and to scrap the related investment allowance without saying what will happen to other reliefs.
He warned that tax increases on the scale some call for could prompt Serica and other firms to slash investment in a way that would backfire disastrously.
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Labour’s manifesto included plans for a windfall tax rise and an extension of the term of the levy. It said the changes would help raise the £8bn needed to fund a new organisation GB Energy, which will invest in renewables. Keir Starmer has said GB Energy will have its headquarters in Scotland.
But Mr Cox said the UK Government could put a big strain on the public purse by provoking firms to decide to decommission fields early.
“The mad thing is the Government is going to end up paying in general across the North Sea, I think probably around 50% of all of the decommissioning costs, and if we’re not drilling wells you’re bringing all of that forward,” said Mr Cox.
“It would be mad to do that. You accelerate all that cost and you decrease tax revenues. Why would you do that?”
Mr Cox is candid that firms like Serica are generating lots of cash in the North Sea based on current oil and gas prices. However, he is concerned the debate about the windfall tax and the emissions associated with oil and gas is clouded by misconceptions. Labour has proposed to end the awarding of new exploration licences.
“I’m a big supporter of the energy transition,” insisted Mr Cox. “I care about my own carbon footprint. I drive an electric car; I’ve got solar panels on my roof; I’m vegan … I care about this stuff, but you don’t fix it by cutting off the supply: You have to look at the demand side. The demand isn’t going anywhere.”
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Claiming that North Sea supplies account for a “completely insignificant” share of global emissions, he added: “If the demand is still there we’re just going to fuel that with imports that will have a higher carbon footprint … and some other Government is getting the benefit.”
Mr Cox reckons there could be job losses on a huge scale if the Government takes a hard line. He notes the industry is estimated to support 200,000 jobs, including people working in production and across the wider supply chain.
Serica’s experience indicates the impact will be felt well beyond the heartlands of the industry.
The company has around 800 people working for it including 400 contractors based offshore.
“These people live all over the UK … they come from Wales, Liverpool, the North East of England” Mr Cox observed.
“I don’t think the Government realises. They probably don’t care too much about Aberdeen, it’s an oil city, but this is not an Aberdeen issue; this is 200,000 families that stand to lose their jobs when we stop producing out of the North Sea.”
Chris Cox drives an electric car and describes himself as a big supporter of the energy transition (Image: Serica)
While the UK North Sea basin is considered mature, Mr Cox reckons firms could be producing significant amounts of oil and gas from it for years with the right support.
Serica has shown there can be lots of potential in fields that previous owners considered were past it.
Mr Cox noted that production from the Bruce, Keith and Rhum fields was expected to end in 2026 when Serica acquired them in 2018. The firm has pushed out the expected production life to 2030 by drilling wells that have allowed it to squeeze more out of the reservoirs.
Three months after joining Serica, the industry veteran is excited by leads that have been identified on the BKR assets by the reservoir specialists that joined the firm after it acquired North Sea-focused Tailwind Energy for £270 million in December 2022. The windfall tax was introduced that May.
“There’s an awful lot of opportunities around the Bruce, Keith, Rhum assets that I wasn’t aware of when I came … Our secret weapon here is we’ve got the best sub-surface team in the world.”
The team concerned helped Tailwind increase production from the Triton area fields, on which Serica is working.
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“Most companies who owned those assets around Triton would have probably looked and said ‘we’re done here, we’ll just run these until we decommission’. They found opportunities all over the place,” said Mr Cox.
Serica is drilling a well in the Triton area using a rig contracted before the general election.
Mr Cox wants to drill more wells across the firm’s portfolio but says directors can’t commit to any until they have digested the implications of the Budget that will be announced on October 30.
The key question will be what happens to the capital allowance system, under which firms can set the cost of qualifying investments against the profits on which they pay tax.
Some expenditure can be set off in full currently.
“We still don’t know what the outcome is going to be. Yes, we know we’re probably going to a 78% overall rate [from 75%], but the capital allowances are still up for grabs.
“Our view is that we could end up with allowances at 46.25% … but they could be as high as 78% and that makes a massive difference.”
Mr Cox said Serica has a range of projects that would make commercial sense if the rate is set at higher level but cautioned: “An awful lot of these won’t work at the other end of that scale.”
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To show how much is at stake, he noted that Serica bought into a plan to bring the venerable Buchan field back into production that would entail hundreds of millions of pounds investment.
“If we don’t get capital relief at a sensible level that just won’t work.”
The firm leading work on the Buchan project, NEO Energy this week said it would slow investment across its portfolio after recent Government announcements “materially increased” the level of uncertainty in the sector.
A frustrating period may be in store for Mr Cox, who complained; “We haven’t cancelled anything yet but … there’s no way we can commit to a rig right now when we don’t know what the tax regime is going to be.”
After working on lots of North Sea assets in the time he spent running businesses such as Centrica’s Spirit Energy operation, Mr Cox remains convinced there is lots to go for in the area but fears that politicians might prove the doom-mongers right.
“I get a big buzz out of it. I love what we do. We ought to be able to produce out of the North Sea for another few decades,” he said, adding: “I just find it sad that our politicians are finding ways to try to kill it off.”
