British oil and gas group Serica Energy has rejected a merger proposal valuing it at 1.04 billion pounds ($1.23 billion) from energy investment firm Kistos, which is looking to strengthen its foothold in the North Sea.

The details of the proposal were made public by Kistos on July 12, which had made a cash-and-stock offer of 382 pence per share, representing a premium of 25% to Serica's last close.

"While Serica has stated that its board 'can see industrial logic in combining the portfolios of the two companies', the proposed combination has been rejected by the board of Serica," Kistos said in a statement.

Serica, which produces around 5% of Britain's gas supplies, said it is considering its position and advised shareholders not to take any action.

The announcement comes a day after Kistos completed its acquisition of a 20% stake in the Greater Laggan Area from French oil major TotalEnergies, a deal, announced in January, that marked its entry into the North Sea.

The British North Sea has been undergoing a changing of the guard, with energy majors selling oil and gas fields to private equity-owned groups, who claim they can squeeze out more and cheaper barrels from North Sea fields than big companies.

Shares of London-listed Kistos were up 1.5%, while Serica jumped 10%.

Kistos, which has a market capitalization of 388.1 million pounds compared with Serica's 839 million pounds, said its proposals in May for Serica were rejected.

Serica in turn approached Kistos on July 1 with a cash-and-stock offer of 483 pence per Kistos share, which was rejected by the investment company's board.

Kistos said though the proposal was supposed to be a merger of equals, Serica laid out that none of the firm's senior management or board members be retained.

Stifel analysts said in a note that the proposal underlines the current undervaluation of Serica, but also a potential increase in value should the company's North Eigg exploration be successful and lead to development.

Serica said on Monday it had started drilling operations at the North Eigg exploration well

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