17th Feb 2017 12:21
LONDON (Alliance News) - EnQuest PLC maintained momentum on Friday after providing a welcomed update on the progression of its cornerstone development asset in the UK North Sea, revealing that Kraken is still scheduled to pump its first oil before the end of June.
EnQuest, one of the largest independent firms operating in the UK North Sea, operates Kraken with a 70.5% stake, partnering with fellow London-listed Cairn Energy PLC, which holds the remaining 29.5% stake.
The company has found itself coming under increasing pressure to keep Kraken on track. The subsequent downturn in the oil and gas markets that followed soon after the project was originally sanctioned in 2013 did provide some benefits, bringing down costs as service providers lowered prices to compete for the lower level of activity being conducted by producers and developers.
The gross capital cost of the project is still vast at USD2.50 billion, down from the original USD3.20 billion budget, but that has unsurprisingly caused EnQuest's debt levels to rise.
Bringing Kraken online on time is therefore seen as vital if EnQuest is to begin rapidly paying down its debt pile in the second half of 2017 as planned, with the new project expected to contribute significant cashflow and funds to allow creditors to be paid down.
Net debt at the end of December was USD1.80 billion, rising from USD1.55 billion at the end of 2015, USD932.8 million at the end of 2014 and USD381.1 million at the end of 2013, being the year Kraken was sanctioned.
EnQuest installed confidence in its ability to deliver projects on time after delivering the Scolty/Crathes development in the UK North Sea ahead of schedule last year.
Completing Kraken will also signal a pivotal point for EnQuest's spending budget. While the company guided it has spent between USD620 million to USD670 million in capital expenditure in 2016, the budget for 2017 will drop to a range of USD375 million to USD425 million, representing up to a 44% year-on-year reduction.
It will also play a large part in reducing operating costs to below USD20 per barrel produced, compared to 2016 when average costs are expected to have been in the range of USD25 to USD27 per barrel. Twinned with the recovery in oil prices that is expected to continue over the coming years, EnQuest's margins and profitability look set to improve markedly.
On Friday, EnQuest said the project's floating production, storage and offloading vessel arrived at the Kraken field on Monday, with the vessel securely moored and a full rotation test conducted by the end of Wednesday.
Work is now being undertaken to commission the topsides, which concerns the top half of offshore platforms above water that house operations. Reconstruction of the turret area pipework and connection of the risers and umbilicals to the swivel stack is also currently being undertaken, and will be followed by the commissioning of the subsea infrastructure.
Overall, the development is on track for Kraken to be pouring oil sometime during the second quarter of 2017. EnQuest's guidance for production from all of its assets in 2017, excluding the recently acquired Magnus oil field in UK waters that it purchased from BP PLC, stands at 45,000 to 51,000 barrels per day, versus the 42,500 barrel daily average in 2016.
EnQuest shares were trading 0.5% higher on Friday afternoon at 48.25 pence per share, but Cairn shares were heading the other way, trading down 1.9% to 224.86 pence.
By Joshua Warner; [email protected]; @JoshAlliance
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