Serica Energy has entered into an agreement to acquire the entire issued share capital of Tailwind Energy Investments from Tailwind Energy Holdings LLP. The consideration for the acquisition comprises:

• The issue of up to(1) 111,048,124 new ordinary shares in Serica. Following the issue of the Consideration Shares, they will represent up to 28.9 per cent of Serica’s enlarged issued share capital
• A cash payment on Completion of £58.7 million on the basis of the Serica closing price as of 19 December 2022 of 278 pence per share this would be equivalent to £367 million. Serica will also be taking on Tailwind’s net debt, which as at 30 November 2022 was c.£277 million(2).

As part of the Transaction, Mercuria, the largest ultimate shareholder of Tailwind, will become a strategic investor in Serica with a 25.2 per cent holding and will enter into a Relationship Agreement with Serica as further described below.

Transaction Highlights

Significant increase in Serica’s scale, portfolio diversity and organic investment opportunities

• Estimated proforma combined production in 2023 will rise significantly to between 40,000 boe/d and 45,000 boe/d putting Serica in the top 10 UKCS producers and top 3 UKCS listed independent producers
• Acquiring fully developed 2P reserves of 42 million boe(3) to create a combined portfolio with 2P reserves of 104 million boe(4)
• Will create a balanced spread of production from two main hubs - Bruce and Triton - which have separate transportation infrastructure
• Number of producing fields will increase from 5 to 11 with substantial upside and organic growth opportunities
• Enlarged group will operate more than 80 per cent of its net production
• Adding predominantly oil reserves reduces concentration of commodity price risk whilst gas remains more than 50% of production
• The carbon intensity of the enlarged group’s producing assets is projected to remain below the UKCS average

Introduces Mercuria as a strategic investor with a 25.2 per cent shareholding in Serica

• Serica will benefit from the availability of Mercuria’s financing and hedging capacity combined with its wide geographic reach
• Relationship Agreement between Serica and Mercuria will govern ongoing relationship
• Two Mercuria nominated non-executive directors joining the Serica board on completion(5)

Reinforces Serica’s financial strength

• Highly cash generative portfolio and expected to have a significant net cash position on completion
• Existing Tailwind reserves-based lending (“RBL”) and junior facility expected to be rolled over on completion6 with subsequent refinancing to take advantage of the increased strength of the enlarged group during 2023
• Markedly lower decommissioning liabilities compared to North Sea peers
• Dividend policy to be maintained
• Tailwind holds significant ring fence tax losses carried forward for future use

Combines the two companies’ complementary leadership, technical and commercial expertise

• Tony Craven Walker and Mitch Flegg remaining as Non-Executive Chairman and CEO respectively
• Steve Edwards and Jacques Tohme will be joining the senior management team
• Serica’s North Sea operating capability combining with Tailwind’s sub-surface expertise
• All current Tailwind employees to be offered positions in the enlarged group

Creates an enlarged platform from which to consider future investments in the UK, overseas and in the wider energy sector

• Greater financial capability of the enlarged group
• Enhanced and complementary skill sets
• Strategic shareholder with a wide geographic reach and extensive activities in the broader energy sector

Mitch Flegg, CEO of Serica, commented:
"I am excited by the announcement of this transaction and by the possibilities it brings for Serica in terms of a new phase of growth. The transaction achieves our strategic objective of materially increasing the scale and diversity of our UKCS portfolio of assets. The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production. Following this Transaction, Serica will retain its competitive strengths of a strong balance sheet, positive cash flow and low decommissioning cost obligations. Moreover, through the introduction of Mercuria as a new strategic investor, we will be differentially positioned to take advantage of the opportunities we expect to arise through industry consolidation, the North Sea Transition Deal and potentially overseas. I look forward to working with my new Tailwind management colleagues, Steve and Jacques joining our leadership team, as well as the Tailwind employees and contractors joining Serica on completion. Their skills and experience, which have been central to the success of Tailwind since its formation, are highly complementary to those already existing in Serica’s organisation."

Tony Craven Walker, Chairman of Serica, commented:
"Serica has been able to grow its business by several times over the past five years without recourse to any external fund raising. We are proud of that achievement and are now a major North Sea operator with proven capabilities, strong balance sheet and significant ongoing cash flow. The transaction with Tailwind reinforces these strengths, materially enhancing our asset base as we continue responsibly to provide much needed domestic energy at a time of energy crisis and seek to grow and diversify our portfolio of assets further. The transaction with Tailwind provides a new strategic relationship, bringing in Mercuria, one of the world’s largest energy traders, as a major new shareholder of the enlarged group. The Board believes this relationship will provide competitive advantages as the Company seeks out further value accretive transactions. On completion, Mercuria will hold just over 25 per cent of Serica and will nominate two new non-Executive directors to serve on the Board. I and my Board colleagues are delighted to welcome them, the Tailwind executives and the Tailwind employees to the Company. We look forward to working together on the next phase of Serica’s growth."

Steve Edwards, CEO of Tailwind, commented:
"Since inception in 2016, Tailwind has been driven by creating value for its stakeholders; acquiring and exploiting high quality production and development opportunities on the UKCS. Our value growth and delivery over that period have been exceptional, resulting from smart M&A and consistent delivery of high value  organic projects. We have achieved this through the combination of a committed strategy, excellent people and enjoying the constant support of Mercuria. My colleagues and I are excited about this next step with Serica, with the combined assets, increased production and financial strength creating a platform to grow even further. We look forward to working closely with our Serica colleagues to deliver on the exciting opportunities for the enlarged group."

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