17th Mar 2016 12:19
LONDON (Alliance News) - EnQuest PLC shares rose on Thursday after it said it has sufficient headroom to keep the company funded until its major Kraken development in the UK North Sea comes online in 2017 and said it will cut expenditure and reduce operating costs in the meanwhile.
EnQuest shares were up 20% to 17.43 pence per share on Thursday afternoon.
The company, which produces most of its oil and gas in the UK North Sea with additional production coming from assets in Malaysia, will seek to trim costs in 2016 following a difficult 2015 which saw a substantial rise in production offset by the dramatic falls in oil prices.
EnQuest said its pretax loss amounted to USD1.34 billion in 2015, widening from the USD578.7 million loss reported in 2014, with exceptional items, including impairments, totalling USD1.33 billion.
On an underlying basis, which excludes those hefty exceptional items, EnQuest still reported a pretax loss of USD1.5 million compared to a USD243.3 million profit last year.
Earnings before interest, tax, depreciation and amortisation in 2015 fell to USD464.8 million from USD581.0 million.
A 31% rise in production in the year failed to offset the collapse in oil prices, pushing revenue down to USD908.5 million from USD1.02 billion in 2014.
Production increased to 36,567 barrels of oil equivalent per day from 27,895 barrels a day in 2014, but the average price realised dropped to USD72 a barrel from USD103.9 per barrel - more than a 30% fall.
That average price takes EnQuest's hedging programme into account, which contributed USD261.2 million of revenue in the year compared to only USD31.7 million the year before. Excluding the hedging programme, the average oil price was only USD50.9 a barrel compared to USD100.6 in 2014.
EnQuest said it has 10.0 million barrels hedged at USD68 per barrel in 2016.
The lift in production in 2015 was mainly the result of the company's Alma/Galia development coming online in October and because production from Malaysia was also higher-than expected after the company conducted its low cost idle well revitalisation programme.
Alma/Galia contributed net production of 1,083 barrels of oil equivalent a day to the company in 2015, with that figure based on the net production since October 27, averaged out over the 12 month period.
Total net production from EnQuest's operations offshore the UK rose to 27,505 barrels a day from 24,436 barrels whilst net production from Malaysia increased to 9,062 barrels a day from 3,459 barrels.
Importantly, its largest producing North Sea asset, Thistle/Deveron, reported a dip in production year-on-year alongside the Dons/Ythan and Alba fields, which was offset by the introduction of Alma/Galia and rises in production from the Kittiwake and Heather/Broom assets.
The main producing Malaysian field, PM8/Seligi, reported a huge rise in production to 8,689 barrels of oil equivalent per day to become the second biggest contributor to overall production, from the 3,459 barrels produced daily in 2014. Malaysian production was also boosted by the Tanjong Baram field coming online in June, producing an average of 373 barrels a day.
Production is set to soar this year to the range of 44,000 to 48,000 barrels of oil equivalent per day as EnQuest begins to feel the full benefit of the addition of Alma/Galia this year.
Six wells on Alma/Galia have been commissioned and are expected to begin producing early in the second quarter of this year.
The company was already close to hitting that production guidance range late in 2015, with production in the second half 49% higher than the first, running at a rate of 43,356 barrels a day.
EnQuest will be disappointed such a substantial rise in production has come at a time when prices remain under pressure, but the company is taking steps to counter lower prices by focusing on reducing costs and expenditure across the portfolio.
The company is satisfied it is funded and able to progress the business until the main Kraken development comes online in 2017.
Capital expenditure was cut 29% year-on-year to USD751.1 million from USD1.05 billion, but the cuts failed to stop net debt rising to USD1.54 billion at the end of 2015 compared to USD1.31 billion at the end of the first half.
Capital expenditure this year will now be at the lower end of its guidance range of USD700.0 to USD750.0 million, which is also lower than the original USD950.0 million budget. Most of that budget, USD600.0 million, will be spent on finishing off Kraken.
EnQuest believes it can get its operating costs down to USD25 to USD27 per barrel for the full year, which would be a 12% fall from the mid-point of 2015, before making further cuts down to USD20 per barrel once its Kraken project in the North Sea comes online in 2017.
"Further cost savings continue to be targeted across the business, through the supply chain and by improving efficiencies in operations. Contractor rates and headcount have been reduced in the UK and logistics costs also reduced," said the company.
Kraken is also a major source of cost savings, and EnQuest said it has found a further USD125.0 million of capital expenditure savings at the project on top of the USD300.0 million saving unveiled late in 2015 after it adjusted its development plan.
"The overall full cycle project costs have now been reduced by USD425.0 million from the USD3.20 billion at sanction, a reduction of 13%," said the company.
The floating production, storage and offloading vessel for Kraken is set to leave Singapore to make its way to the North Sea this year, with production expected to start in the first half of 2017.
EnQuest said it will drill 23 wells on Kraken from three drill centres compared to the original plan to drill 25 wells from four drill centres, which was one of the sources of reduction to the capital budget.
The company said although net debt has risen in 2015, it still has USD496.0 million of cash and undrawn facilities, giving it plenty of liquidity headroom at prevailing prices until Kraken comes online.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
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