Good morning, ladies and gentlemen, and welcome to the Serica Energy plc half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish their responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful.
I would now like to hand you over to the executive management team from Serica Energy plc. Chris, good morning, sir.
Good morning, and welcome to our 2025 half year results. I'm joined, as usual, by Martin Copeland, CFO, and Andrew Benbow, our Group Investor Relations Manager. Thank you to everyone who submitted questions ahead of the call. As always, we have a lot to get through, but please feel free to post any further questions you have during the presentation. Should we not get time this morning, then please contact Andrew directly. We are happy to respond to every question we receive. Martin and I will run through a short presentation and then answer as many questions as we can in the time available. This is our usual disclaimer, which I would encourage you all to read, even though I know none of you will. Don't worry, it's exactly the same as last time you didn't read it. Okay. Our key focus areas remain unchanged.
Optimized production performance, generate cash, and deliver both organic and inorganic growth. However, it's been a frustrating first half, with our performance very much impacted by the unscheduled downtime at Triton. Here you can see some of the key indicators of our performance in the half year. Despite many of the challenges, we demonstrated the robustness of our underlying business. We know what is required to improve operational performance, and we will continue our efforts to deliver to shareholders. We are aiming to optimize production not just at Triton, but also at our BKR hub, where we are beginning to see the results of a production optimization focus coming through. All in all, we are well set for a much better second half of the year and a highly cash generative 2026.
Our portfolio can generate material cash flow going forward, and we are keen to reinvest a proportion of that back into the portfolio. With numerous projects fighting for capital allocation, we will of course focus on those that deliver most value to shareholders. We are also looking to carry out value accretive M&A. Perhaps surprisingly, the North Sea remains competitive for M&A, but we are involved in a number of discussions at the moment. We will, however, remain disciplined, as demonstrated by our decision to terminate discussions with EnQuest earlier this year. This slide shows the impact of Triton being offline from the end of January through to the end of June.
As we have announced, the FPSO is now back online and production is ramping up, albeit more slowly than we would have liked as the Dana team deal with a number of teething problems associated with restarting a relatively complex multi-well system. BKR also performed a little below par in the first half of the year, but it is pleasing to see the recent work has pushed production from the hub net to Serica to nearly 22,000 barrels of oil equivalent per day in July. Our other assets performed well, but it is the resumption of Triton at full rates and further improvement at BKR that are required to move our daily production run rate back above 50,000 barrels per day.
We are well aware that we still have work to do in order to deliver this increased performance, and a lot of work has taken place at Triton in particular to do so. We are continuing to work very closely with operator Dana to make sure the FPSO performs as we all want it to. We have talked before about some of the repair work that was necessary before restart of the FPSO, and that was completed by the end of June. Further work has taken place in July, including fixing of minor leaks from pipe joints and further repairs to corrosive pipework, all in service of providing improved uptime going forward. In that context, where we are the operator, we want to extract the best possible performance out of our own assets at the Bruce installation.
It operates reliably in the sense that it runs predictably and delivers production on most days. As I have said before, we know it has the capacity to deliver more. We had some facilities constraints which hindered our ability to make interventions needed in H1, but during the month of July, with these constraints fixed, we have seen the impact of interventions to reduce the back pressure on certain low pressure wells, what we call bullheading operations, which had the effect of getting us back above our planned production rate in July. As of today, production is a little ahead of that July average. The same activity has also seen consistent flow resume from the Keith field for the first time since 2020.
There is more to come in this area, but it is pleasing to see that a focus on ensuring we optimize our production every day is beginning to show results. We now have a dedicated production optimization manager whose job it is to both optimize daily production and also look for long-term opportunities to enhance our maximum capacity through the sorts of projects shown on this page. We are also ensuring that we continue to stay ahead of the maintenance curve to help ensure that the long-term future we see for the Bruce installation to enable us to deliver on the exciting subsurface potential. This has seen us recently undertake a successful and intricate process to remove and replace a caisson from one of the jackets which might otherwise have caused a major issue in the long term.
Equally, during the upcoming scheduled turnaround, we will be implementing the first phase of our flare gas recovery project, which will be fully implemented in the 2026 turnaround. Given the natural degree of focus on Triton and BKR, we thought it was worth reminding you about the breadth of our portfolio and the contribution that we get from the unsung heroes. Our other producing assets, Erskine, Columbus and Orlando, delivered very well during the first half of the year and were in fact above our planned levels. That meant that they delivered a very useful pre-tax cash flow contribution of $35 million in H1. Since these assets sit within our tax loss entities, this is a contribution that very much flows to the bottom line. When our portfolio is firing on all cylinders, it can generate material free cash flow.
Unfortunately, we're not permitted to provide any actual predictions of the levels of this cash flow at present due to regulatory restrictions. Given that we shortly expect to be issuing a prospectus on our move to the main market. However, we have seven good analysts covering us and there is therefore a range of forecasts in the market to which people can refer. We have a lot of options to utilize that cash and are committed to making the choices that deliver the maximum returns to our shareholders, whether that is investing in opportunities in the organic hopper or adding to the portfolio through M&A. It is the opportunities in our organic portfolio that I want to speak about now. What we can do with reinvestment back into our portfolio can be seen from the recently completed Triton drilling program.
5 wells were delivered 25 days ahead of time and $31 million under budget net to Serica. A great achievement from the entire Serica and Dana teams, as well as our key partner contractors, Costain and Petrofac. This performance demonstrate the subsurface potential of our asset base. We are now intensely focused on ensuring the facility's performance enables us to convert this potential into value for shareholders. The production from these new wells has the potential to more than mitigate natural decline across the whole portfolio for the next couple of years. This shows on one page all the wells that were drilled. Very successful wells based on great subsurface work and innovative techniques that target key areas. It whets the appetite for what could be possible at BKR.
Much larger fields that have not historically, under Serica or BP ownership, benefited from such exceptional and latest generation technical work. The B6 well on Bittern and the GE-05 well on Gannet have both produced at impressive rates. As these wells flow strongly and bring the gas needed for Triton's startup sequence, they're also among the first wells to be restarted in the ongoing Triton restart program. Guillemot and Evelyn will come on stream in the coming weeks, and then Belinda is expected to flow at the start of 2026. A lot of work has taken place on Belinda, and this work is on track for first oil at the start of 2026. It is worth remembering that Belinda is a new field which is not currently connected to the production infrastructure around Triton.
There is a lot still to do involving all of the vessels you see here to connect flow lines and control systems and get the well ready for production. This work is progressing well so far, and we are looking forward to seeing what the well is capable of delivering come January. As a reminder, Serica owns 100% of Belinda and the well flowed 7,500 barrels per day on a short production test, which was restricted by the equipment on the rig. We will now turn our attention to new projects. We are keen to continue our success around Triton and Kyle is the next development project in line.
Kyle was a producing field that was only shut in due to its infrastructure, the Banff FPSO, being removed. It was producing 4,500 barrels per day just prior to being shut in, and our technical work indicates that this was from a suboptimal well. We can drill a much better well along the lines of those we've seen in our recent program, and we anticipate that a rate of 6,000-10,000 barrels per day should be achievable. We believe such a well would deliver very attractive returns to shareholders, but of course, to do so, we will need the right regulatory and tax environment. This will be a new field development, so we will be watching closely how things go for others ahead of us under the new environmental statement guidance recently issued.
We hear regularly from politicians that the North Sea is in terminal decline, and that we do not need to create the conditions that would encourage further development because there is nothing more to go after. I think that what we've just done on Triton and opportunities like Kyle very clearly show how wrong-headed this narrative is. Exploiting this country's oil and gas resources will not limit or slow down the energy transition, but will promote U.K. economic growth, boost skilled jobs, support local communities, and help deliver energy security, all of which are stated government aims. It is also far better for global emissions than relying on imports and will help maintain the service sector on which both oil and gas and renewables operators rely. Something else on which we are keen to get started is the resumption of drilling at BKR.
Having seen what the subsurface team uncovered around Triton, it has been great to watch them get going through some of the process, the same process around Bruce, which is a much larger field. To put that in perspective, this map, which is just of the Bruce field, i.e., not Rhum and Keith, is around 100 sq km, which is an area roughly equivalent to the city of Aberdeen. Having previously identified 20 possible targets, we anticipate an initial high-graded program that has five wells at Bruce in two phases, only drilling those that promise the creation of most value to shareholders. The first phase is expected to be in an area that we call WAD, the Western Area Development. This has existing subsea infrastructure, which means the wells will be easier and quicker to tie into the Bruce platform.
Phase two would target opportunities in the northeast, where subsurface studies have uncovered some exciting opportunities. We are currently out in the market with a request for service for a rig to execute the drilling campaign for these first two phases in conjunction with the Kyle Production Well. There remains more work to do, and drilling would be around the end of 2026 at the very earliest, or most likely in 2027. At this point, I want to just share that we see a number of attractive drilling opportunities around Bruce and look forward to sharing news of a planned drilling campaign once we have completed more detailed work. Importantly, drilling these wells would also be tax-efficient, thanks to the capital allowances of our fully tax-paying BKR entity. Now for more on our financial position and results for the period, I will hand over to Martin.
Thanks, Chris. I will now cover the highlights of the results we announced today. Our production, thanks very largely to the Triton outage, was materially reduced in the period, down just over 40% from the H1 2024, and revenues were therefore also sharply down, but in fact slightly less than the production, thanks to the stronger gas prices we saw in Q1, reducing from GBP 462 million to GBP 305 million for H1 2025. However, despite this top-line impact, our financial performance was creditable, still delivering a pre-tax profit and with cash actually increasing from the year end. Net debt decreased from GBP 83 million to GBP 57 million at 30 June, demonstrating the resilience in the portfolio, but also notably flattered by the receipt of $71 million tax rebate in respect of overpaid 2024 tax.
Of course, we expect a material increase in production and also in revenues in the second half, following resumption of production at Triton. It is, though, worth noting that our cash outflows are also weighted to the second half. As usual, both dividend payments totaling $82 million are made in the period, and we also expect cash tax payments to resume in H2, with our operating costs also slightly weighted to the second half. It is clear, though, that the underlying business has the potential to generate material cash. In fact, to frame this potential, we estimate that around $300 million in revenue has been lost, or really rather deferred, from Triton's production issues in the period of the main interruptions in the last 9 months, i.e., the last quarter of last year and the first half of this year.
This cash generation potential is what gives us confidence in announcing the interim dividend that we have done today at a level consistent proportionally with the 2024 final dividend we announced on the first of April. We expect to be able to continue making investment in offsetting natural decline and growing the company while continuing to deliver returns to shareholders. We still have plenty available in our current portfolio on which to invest with the opportunities that Chris has already discussed. This year, we will spend around a quarter of a billion dollars before tax, the vast majority of which being on the highly successful Triton drilling campaign.
While CapEx on a value of work done basis is slightly weighted to H1, the spend required to move Belinda to production is the key focus of our CapEx in the remainder of the year, and is progressing ahead of projected schedule. In fact, it is this acceleration of Belinda CapEx into 2025, bringing forward spend from 2026, that largely explains why our overall guidance remains unchanged despite the over $30 million saving we have realized on the well program. The other factor in this is FX. The lion's share of our expenditure remains in pounds sterling, and since the pound has strengthened against the dollar relative to when our guidance was set, the sterling spend translates into a higher amount in US dollars.
We maintain strong liquidity of $433 million at period end, and have enhanced our overall liquidity position by replacing cash collateral and LCs utilized for decommissioning security with surety bonds. It is this liquidity position which also allows us to be nimble and competitive, taking advantage where we see M&A opportunities to deliver further value for shareholders. Turning to the next slide. While of course, we are yet to make any commitments on the potential new spend, and we continue to await further clarity from the government on both regulatory and tax policy, it is worth emphasizing that the tax-efficient nature under the current tax regime of our current and future short cycle spend. Since the government appropriately retained capital allowances against the EPL, our post-tax spend promises rapid payback.
At Triton, where most of the recent spend has been, thanks to the loss pools we have there, capital spend only receives immediate relief against the EPL. Any spend at BKR will benefit from full capital and investment allowance relief against the three different taxes as these fields are in subsidiaries with no loss pools. This tax relief amounts to 84.25% against the full tax rate of 78%. As well as promising an increase in production, BKR drilling also has the potential to be undertaken at a relatively limited after-tax cost.
Following the completion of the Parkmead transaction and our H1 2025 results, our tax losses, which currently only benefit our Triton assets and our other assets, amounted to $1.4 billion of corporation tax losses, $1.2 billion of supplementary charge, and now nearly $200 million of EPL losses at the 30th of June. These losses have a total notional value of over $600 million, although in reality will not be that much given we will only use them over a period of years. Given this tax shelter and continued spend offers further relief against the EPL, as Triton comes back on stream, production from the hub will be materially cash generative on an after-tax basis. In general, 2026 promises to be a year of very strong free cash flow.
Even with the exciting options that we're working up on the portfolio, we will inevitably be between CapEx programs. Triton work will be complete, and we will be maturing opportunities at Kyle and BKR with some long lead and early spend, but with the main program not likely before 2027. It is the promise of this cash generation that gives us the confidence that our dividend is sustainable for the medium term and should be so alongside the investment that we are keen to make. We see the dividend as an important part of our shareholder value creation strategy, a clear indicator that capital allocation decisions are made with shareholders in mind. Our announcement of a 6p interim dividend for 2025 is in line with the rebased dividend level that we announced at the time of our year-end 2024 results.
Finally, a brief update on our work on moving to the main market, which we are undertaking because we are keen to expose our value creation story to as many shareholders as possible. The Serica team and advisors are continuing to work to move from the AIM market to the main market of the London Stock Exchange later this year, and everything is on track for the process to be completed in early Q4. We see this move as maximizing our potential pool of investors, but we are also hopeful of being included in the FTSE 250 index when the index inclusion review is completed in early December. If we do get this index inclusion, that would bring buying demand from tracker funds into the stock for the first time. With that, I will hand back to Chris to wrap up.
Thanks, Martin. Regardless of whether we're on the AIM or the main market, our strategy is unchanged as seen here. We're aiming to optimize the production we have, grow the business both organically and through M&A, and deliver value to shareholders. I will now hand over to Andrew to run the Q&A.
Thanks very much both. I'll split the questions into a number of topics because you can imagine we've had a lot coming in, so I'll try and keep it focused. The first topic, unsurprisingly, is Triton.
First question is, once the new wells are in production at Triton, will our share of production be greater than Dana's? Could you give a rough idea of our percentage share of production when the new wells are on stream?
Yes. Well, we already produce more than Dana over the FPSO. Without new wells, it's about 70% of the production going over the FPSO is Serica's, and we would expect that range to be 70%-80% over the coming years.
The inevitable follow-up question to that then is, wouldn't it make more sense for Serica to assume operator status? Have you suggested Serica becoming operators to Dana?
Would it make more sense? Yes. Would we like to operate? Yes. Have we discussed it with Dana? Yes. That doesn't mean it's going to happen. I won't give a running commentary on any conversations we might have with Dana. However, I would like to say that us taking over operatorship, even if that were to happen, would not be a panacea, and it would not change everything overnight. If we were to operate it, and that's purely speculation at the moment, we would fundamentally keep most of the people that operate it today. They're not bad people, by the way. They're working on a vessel that hasn't been maintained as it should for a number of years, and they're playing catch up.
I think they're doing all the right things, and they're fundamentally good people trying to run a tricky asset. It's very complex. You have to remember, there's production from a number of different fields at different pressures with different fluids, going over a single vessel that wasn't designed to handle all of that. It's not straightforward. I have sympathy with Dana, and we support everything that they're doing. Having said all of that, I think it could run more efficiently.
I think that kind of answers the next question. Are you comfortable that the changes Dana has made will mean it stays on top of maintenance going forwards? And how much influence do you have to ensure this?
Obviously, we have some influence. We're paying the majority of the costs to run the thing, and we've got the majority of the production, and they listen to us, and we support them. Through all of the problems in the first half of the year, we've provided technical support and facilities and vessels and equipment to help Dana. Look, I think they're doing what's necessary. They've been dealt quite a difficult hand by a lack of maintenance over the years. We support what they're doing at the moment.
Now, what lessons have you learned from the unexpected downtime that you think could usefully be applied elsewhere to avoid other unexpected events?
Stay on top of your maintenance. Pure and simple. Look, I've said this before. I'd draw the analogy to your car and skipping an annual maintenance service on your car. You get away with it the first year, typically, and nothing bad happens. Then in year two, if you try again, there's a good chance you'll have a problem. If you skip it for a third year, you're almost certain to have a problem. It's probably gonna be expensive, and you'll be off the road for a while. Same applies to these pieces of kit. The Triton FPSO has been out there longer than it was ever originally designed to be there.
When you've got a vessel that's as complicated as that and as old as that, you just need to maintain it properly. It's quite simple. Don't cut corners.
Last question on Triton. Is it technically viable to replace the FPSO with, for example, the Western Isles FPSO? What would the cost be to shareholders?
Look, you can replace an FPSO. It doesn't happen very often for a good reason. Normally these things are bespoke. It's not like you can take any old FPSO and stick it on a new field. They tend to be designed for a particular purpose, so they can handle a particular amount of fluids. You know, this FPSO has gas lift facilities on it, others don't. Needs to handle water, needs gas compression. So I have no idea, to be honest, whether the Western Isles FPSO could work here. If it could, I'm convinced it would require major modifications to get there, so there'd be a big capital expenditure associated with that. I suspect it's too small.
The other thing you need to keep in mind is you'd probably be shut in. My guess would be 12-18 months while you remove one FPSO and put another one in there. Look, I wouldn't rule it out forever, but I think it's highly unlikely.
All right. Moving on to politics. Chris, your voice is holding up very well, but I think you can save it for a bit, as somebody is directly asking Martin a question here. Martin, how do you view Rachel Reeves' recent comments on the, they say the WFT, which seems like letters in the wrong way around, but I think it means the windfall tax. Do you feel the progress that you've recently made in consultations hits a wall with the Chancellor?
Look, it was disappointing, frankly, to read those comments reported, yesterday. You know, the Chancellor was out visiting, I think, the Acorn carbon capture and storage project and the St. Fergus terminal, which is obviously where our gas lands at, into the mainland. It's obviously, first and foremost, that is a gas reception terminal, not a carbon capture project at the moment. The carbon capture project is not even really been started. She was obviously asked some questions, and feel like one step forward, two steps back with the government. However, that being said, I do think, I mean, the consultation has been sensible.
All of the interactions that we've had have been, you know, quite sensible, and we still expect to see the answer to that come with the autumn budget. Exactly where we end up, as to the timing of when they introduce a new tax, that remains an open question. It's something that we and our colleagues in the industry and our trade bodies will be continuing to make the case for. I think it remains an open question as to where we'll end up on that. As I said in some of the remarks in the original overview, we will navigate whatever we're dealt with in terms of the tax environment.
The kind of short cycle investments that we've been making and that we can see the potential to continue to make can still work in this kind of a tax environment. We'll navigate with the hands we're dealt. We'll continue to lobby for better. Yeah, I guess that's the comments I'd make right now.
Yeah. I think you answered the question that was coming next, which was any indication by the government on the timing of the outcomes from the various consultations of the autumn budget for that.
Well, that's actually Autumn Budget. The other one, though, is licensing. It, you know, that one could come sometime when they're, you know, back from recess. I don't know. We'll see.
It's interesting, actually, the questions that have come in are kind of, you have some people asking if we're disappointed with Rachel Reeves' comments and others asking if we sense a loosening of objections to North Sea oil and gas production following what Trump says, which I think kind of, to some way, speaks to the dichotomy you see between the media coverage, where everyone seems to unanimously say that using our homegrown oil and gas is a good thing, and then some of the comments from the Chancellor. I mean, the one thing I would probably just add quickly is it's worth noting that Rachel Reeves is the person who's been consistently saying that Jackdaw and Rosebank will go ahead, for example. Do consultations hit a wall with the Chancellor?
I think the Chancellor tends to be focused on growth, so we will see where we end up.
Yeah. There's an element, isn't there, Andrew, that she's gonna carry on saying the party line until such time as they decide to change it, right? So that she is the Chancellor, and she's gonna be very careful with her words, one would expect.
I think the more factual question someone's asked now is how much of an impact to future performance would unfavorable political decisions regarding Kyle have? I mean, I think I'll let you both talk about that because obviously Kyle can add to production, but not going ahead with it would save on CapEx. Over to you guys.
Well, we think it adds a lot of value, so obviously we wanna go ahead and develop it if we possibly can. I mean, it's great because it's, you know, a value that we can create. We picked that up as a license round in the last license round that happened. And of course, that means we access those barrels for free, inverted commas, right? Because we pick them up in a license round. Developing that and using the same technology and the same team as we've just done very successfully with the last five wells feels like a very logical thing to do. But it is a new field, so it will need a new license, and that means we're gonna have to go through the new regime that, and there's.
No.
Yeah.
That's the difference between that and the potential drilling at Bruce that we're planning. You know, Bruce wells are drilling into an existing producing field. It's difficult to envisage a situation where we're prevented from doing that. It's not completely out of the question, but I think that's highly unlikely. Something like Kyle, we think it would be mad not to allow, you know, a short tieback to an existing producing field.
We've already got the license, and the government has said that they will allow developments on existing licenses.
Hopefully they stick by that. It's a field that has produced in the past, so it's not even like it's a totally new field. I would say Kyle is possibly the best investment we have in our portfolio based on what we know today. It's about 11 million barrels. It's probably $25 a barrel development cost and really quick payback. We're hopeful that we can crack on and sanction that and get it on stream in 2028, I think is the schedule that we're looking at at the moment.
Moving on to M&A then. As you say, it's perhaps surprising that North Sea M&A remains active. Why do you think that is the case given the backdrop?
Yeah. I mean, look, there's a couple of reasons I think. Firstly, it's always been quite an active market, right? There's always been a fairly liquid market in the U.K. North Sea. So there are a lot of people out there with knowledge, with capital. Despite what we might say about the tax regime, I mean, it is still a place where broadly the rule of law applies and therefore you know that when you buy things you're gonna own them, and that's not always the case in some other jurisdictions where hydrocarbons exist. So it does have some things going for it in that respect. The other very important point is that there are a number of players out there who can do transactions which deliver synergy.
Where they do something that, you know, that is actually, yes, industrially logical and makes a good sense for their company, but it also brings a tax advantage, for instance. That ability to have maybe different tax positions between a buyer and a seller has always created value opportunities that allow transactions to happen. I think really those would be my reasons. I mean, yeah, the reality is there may not be a huge number of new entrants coming in, but unfortunately when it comes to M&A, you don't need, you only need two companies for there to be competition, right? You don't need that many.
I'd say there's two things. One, if you're in a regime where you pay a 78% tax rate, people are gonna look for ways to minimize the amount of tax they pay. A lot of the transactions that have happened have been frankly outside looking in, looks like that was one of the drivers, right? The second thing is, I guess there are companies that take a similar view to us that things can't get much worse. While we can't be certain that things will get better, I don't think we're gonna get a tax regime that's higher than the 78% in the future.
Therefore, as long as you're not paying on the basis that you assume that things get better, you ought to be able to do deals that have an upside to them. Hence there's a number of companies looking at everything that we look at at the moment.
Well, we're gonna break one of our usual rules here, I think, and comment on a specific situation, because clearly the EnQuest merger was public or the attempt to do the EnQuest merger. Various different questions on it and various different slants, I think, which reflects people's views on the merits of either company. We'll go with, why did the proposed EnQuest merger not happen? And given the obvious attractions, might it be revisited?
Should I kick off on that? Firstly, just to be clear, I mean, the way these things go, it's never completely clear, but it leaked. The transaction leaked, so we ended up in those. That's why it became public and we went through the two so-called PUSU periods, which are set by the rules of the Takeover Code. On the seventh of May, our board decided that we wanted to withdraw from the transaction at that time.
It is worth being aware that over the two PUSU periods, so from kind of March through to May, one of the things that happened in that period was the so-called Liberation Day and the actions of Donald Trump and the oil price falling by $10-$12 a barrel. That was certainly a factor for us in terms of looking at the transaction. Ultimately, we absolutely saw the industrial logic, and we still see that there is a lot of strategic merit in a transaction like that, which is why we spent, you know, frankly, a very large number of months really focused on seeing if we could make something work.
At the end of the day, our decision to step back was driven purely on the deal maths, as I put it. We just concluded that it would not be possible to get a deal done on terms that were right for Serica shareholders. Despite the fact that we'd put a huge amount of effort and energy in, we still felt that it was the best thing to do to withdraw because we were not able to conclude a deal on terms that were right for our shareholders. We will always have that level of discipline in what we do and be willing to step back if we just don't think we can deliver a deal on terms that are right for our shareholders.
I completely agree, Martin. I think the word discipline is important here. You know, we were very disciplined. We spent a lot of time on that deal, a huge amount of effort by a lot of people, but we were prepared to make the right decision for shareholders, which for us at the time was to not go ahead with it, because we would have had to stand up in front of shareholders and explain how this was adding value for them. We just felt that it wasn't compelling enough. You asked the question, could it come back in the future? Well, of course, everything's possible. There were things about the deal that we liked, otherwise we wouldn't have been in the conversation in the first place. Many of those things have not gone away.
I would never rule it out coming back on the table. Something in the market would have to change before that happened.
I think that the comments about discipline and focusing shareholder value should cover off any of the other questions we've had. We've had another couple of questions about specific situations which we're not going to comment on, individually, but I think you've heard Martin refer to deal math, and you've heard very clearly that we'll look to do things for shareholder value where shareholder value can be created. I think that will hopefully cover off any other questions people may have about other options. Moving on to questions for Martin now, really, so about capital allocation and shareholder returns. Are share buybacks a possibility?
Well, they are a possibility in the sense that we renewed our mandate with the AGM, so we have technically the ability to do buybacks. You will have probably noticed in my remarks earlier, we talked about dividends and I think our view is that central to our shareholder return approach will be dividends. We keep alive the option of buybacks, but it would be more a case of a top-up, I guess, in relation to the dividend. We see the maintenance of a dividend at a sustainable level over the medium term that we believe we've now rebalance to as being the core of our shareholder return strategy.
Yeah, I think the sustainability of the returns is the key point when looking at the next question, which is: Do you expect to increase the dividends in line with the expected increased free cash generation going forward?
It's a complete balance. I mean, you'll have noticed that, yes, we expect to see 2026 as being pretty strong from a cash flow generation perspective. Equally, we've got a lot of exciting investment to make in the program that Chris outlined around BKR and Kyle, et cetera. We've always got to balance you know the amount we pay out with making sure that we keep the balance sheet in good shape and can still invest in our portfolio. We may end up going to a place where we build up some cash position, but that's because we're you know we're anticipating a high investment phase thereafter. Yeah, I think that's how we're gonna look at it.
Question now on tax losses. Can you provide clarity as to why the Tailwind tax losses haven't been fully utilized as yet? Are they only able to offset profits against barrels produced in Tailwind fields and not the wider Serica assets? Is there any form of restructuring that could help accelerate the utilization of these losses?
Well, point one is, yes, losses belong to particular companies. Particular subsidiaries of the Serica group that own those losses. Therefore, the way it works, each entity is a sort of ring-fenced to itself, and therefore, broadly speaking, those losses can only be used against the production or the assets that sit within those companies. That's certainly true for all the carried forward losses. The historic loss balances that I outlined in the presentation. Why have they not been used so far? Well, ultimately that's a factor of not having produced as much or the prices of the oil not having been as high over the period since we've owned those assets. You know,
I guess the negative is we haven't used them as much, but the positive is we've got a lot left still. You know, it's a kind of, you know, they've not gone away, and it's a bit like the reserves haven't gone away from Triton either, right? They will be used in future. In terms of the, is there any corporate, you know, reorganization that can be done? Absolutely, those kinds of things can be done, but we're gonna look at it in the balance of whether it makes industrial sense to do that. Also think about, you know, if we're, for instance, gonna make, you know, where we pay, where we don't have losses, which is against BKR. But if we're gonna make significant investment in the Bruce field, we'll get quite good capital relief against tax from that investment.
We'll factor that into whether it makes sense to go through what inevitably be quite a lengthy and slightly, you know, complicated process to move assets around. You know, we're always gonna factor that in, as well as making sure that we completely follow all of the relatively complicated corporate and tax rules around how you do these things.
We're moving towards the final couple of questions now. I'd just like to say what I do every time, which is if we don't answer your question today or if you feel we haven't answered your question fully, then please do just email me or call me. I'm always available to answer shareholder questions. Back to M&A briefly. Are we currently evaluating other jurisdictions beyond the North Sea?
We are. I'll let Martin comment. We've said before, we would like to grow in the U.K. North Sea, but we'd also like to be in at least one other jurisdiction, and I think that makes sense in terms of diversification and spreading risk. We're most actively looking in the U.K. at the moment, and we're screening other parts of the world and looking at areas where we could expand our strategy. Which, to remind folks, is to take mid to late life assets, largely those that have been owned by majors in the past and do more with them and extend the life and cut the cost and do additional drilling and add value.
We see other parts of the world where they're getting into that kind of scenario right now, where we might be able to replicate what we've done in the U.K. Martin, I don't know whether you want to give any more specifics on that.
Yeah, no. The only thing I'd add is because people might, you know, the question might be coming from, "Well, hang on. Why?" You know, it's still pretty tough in terms of the political backdrop and in the U.K. "So why not just get out of the U.K.?" Which is obviously a question that does come up. That would be part of the reason why we would like to look at outside of the U.K., at least have some balance against that. We always have to factor that against the place where we have a competitive advantage is in the U.K. because we're an operator in the U.K., a main production operator, which itself is quite a high bar.
It's in fact a bar that's potentially even getting higher because there's a lot of regulatory steps to go through, and that's something that's kind of unique for us. It's not unique completely for us, but it gives us a competitive advantage in the U.K. relative to a number of companies. Of course, tax and the way tax is used is unique to the U.K. We can't, you know, there's no ability to use losses against another country's production, right? Which is of course part of the reason we got into the mess we did because the government got politically into putting together a windfall tax when half the companies that they were trying to tax make all their money outside of the U.K., so they couldn't tax it. Anyway. Yeah. There's always that we need to factor in.
All right. We'll take this one as the final question because I think it's a nice way to end. Chris, you say in your review earlier today, "Having now been at Serica for just over a year, there remains a lot of hard work ahead to position the company where I want to be." Could you tell us what those goals are and how they will be achieved?
Yes. I mean, look, we've made quite a bit of progress and I'm, you know, I've said this before, I'm very happy with the kind of opportunities we have in the subsurface and the way we're evaluating those. I think we've got a lot of great projects ahead of us. I would still like to do more M&A, and I would like us to grow in the U.K. and I think there are synergies to be had. That's still work in progress. The bit that isn't working as I would like at the moment is our operations and hopefully it came across in the presentation. That's not just Triton, right?
Triton's been the biggest issue this year, but Bruce has not been running the way we would want it to until really, probably around about the beginning of July. You know, I said when I came into the role that fixing those kind of operations for me is typically about a two-year project to get from poor performance to good performance. I think we're on that journey, and I think we're roughly halfway through, and there's more to do. Our uptime on Bruce isn't where I would want it to be. As we said during the presentation, on any given day, we don't produce quite enough barrels. We've just had an uptick.
We've grown production on around BKR about 10% in July because of some of that stuff that we're doing around production optimization. We've still got a way to go. We still have some maintenance to catch up on both at Bruce and at Triton. We need to get better at some of the fundamentals around production efficiency. That's things like, you know, apart from staying on top of your maintenance, having critical skip spares in stock so that when something breaks and it's really critical, you can replace it quickly, get it back online quickly when you do have a trip. The whole process of looking at your daily losses. How many barrels did I not produce yesterday that I want to produce today? What's gonna make that difference?
Just that kind of mindset and that relentless focus on delivery every day, I think is still something we need to work on. I think historically, you know, we haven't had that performance focus in Serica, and that's part of the cultural shift that we're trying to make. You know, we've started that, but we're not quite there yet. For me, that represents an upside. We know there's upside in the subsurface, and we've identified some of that and we're pointing to it and we're saying we're gonna go and drill those wells. The other bit of the upside is if we get really good and slick at production operations. There's huge upside in that as well.
Thanks very much, Chris. With that, I would just like to say that please do reach out to me if anybody has any questions they don't think we've answered or just in general if anyone has any questions at any time. I always think it's preferable to ask the company rather than speculate on message boards if people would like to get in touch. Unless Martin or Chris have any final comments, then we can hand back over to the operator.
No.
Thanks very much.
Perfect. Guys, I'll just jump back in there. Thank you very much indeed for updating investors this morning. Could I please ask investors not to close this session, as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team with Serica Energy PLC, we would like to thank you for attending today's presentation. That now concludes today's session. Good morning to you all.