This year it’s been a game of two halves for EnQuest (LSE:ENQ), the North Sea oil company. Although production at Magnus had been impacted by topside-related well performance earlier in the year, overall performance was still on track as of H1 2021.
The company saw strong performance at its main well, Kraken which is one of the biggest subsea heavy-oil field projects in the UK sector of the North Sea and better than expected production at PM8 Seligi, the Malaysian oil field.
Production problemsBut since then, production within the group has been challenged on all sides. A recent update on EnQuest’s operational performance for the year to the end of October 2021 stated that EnQuest now expects production for the year to be around 45,000 barrels of oil equivalent per day (Boepd). This compares to an average production of 60,777 Boepd in the ten months to end October 2020. This estimate also includes the contribution from the Golden Eagle acquisition which was completed on 22 October 2021.
Production for the Magnus field remains below expectations, averaging 12,640 Boepd for the ten months to end October 2021. It was 17,659 Boepd for the same period in 2020 and 18,645 in 2019. There was also an unplanned shutdown at Kraken as well as a supplier-driven delay in the pipeline replacement in Malaysia.
Shares dropped 16% at the announcement, from 22.35GBX to 18.58GBX. Shares opened today at 17.89GBX but this reflects wider market fears over the new Covid variant.
EnQuest and its 2021 acquisitions
EnQuest was formed in 2010 through the combination of the UK North Sea assets of Petrofac and Lundin Petroleum. In 2014 the group acquired its interests in Malaysia. The portfolio is currently focused on maturing and underdeveloped assets in the UK and Malaysia.
In January 2021, the group completed the acquisition of a 40.81% equity interest in and operatorship of the Bressay Oil Field.
In February 2021 EnQuest agreed to acquire Suncor Energy UK Limited’s 26.69% non-operated interest in the producing Golden Eagle area for an initial consideration of $325 million.
In April 2021, the group signed a SPA with Whalsay Energy Holdings Limited to purchase their entire 100.00% equity interest in the P1078 licence containing the proven Bentley heavy-oil discovery.
Oil price boosts revenue
But even though production has fallen, the good news is that EnQuest’s revenue has not. EnQuest’s average realised oil price is around 63% higher than during the ten months to October 2020 – $40.6/bbl in 2020 compared to $66/bbl for the same period this year. Revenue YTD 2021 is now around $950 million. And a quick check at the numbers for the six months ended 30 June 2021 shows that revenue was $518.3 million, 15.2% higher than the same period in 2020.
As a result, the company reports that 2021 year-end net debt is expected to be around the closing net debt position in 2020 – around $1,279.7 million, only slightly higher than net debt at end of June 2021 ($1,183.2 million).
EnQuest acquisitions promise improved production and cash flow
There’s no doubt that higher oil prices have contributed to the boost in revenues – in October crude prices hit seven year highs. They have helped finance a larger portion of the Golden Eagle acquisition from cash flow and resulted in a lower than expected drawdown on the group’s Reserve Based Loan (RBL) facility, although EnQuest also raised £36 million in equity to help pay for this.
But the company states that with the Golden Eagle acquisition now complete it should begin to see improved production, reserves and cash flow as well as further long-term potential development opportunities in the Bressay and Bentley fields too.
EnQuest is listed on the London Stock Exchange and NASDAQ OMX Stockholm. It is also contained in the following ETFs:
- Avantis International Small Cap Value ETF (AVDV)
- SPDR(R) Portfolio Developed World ex-US ETF (SPDW)
- SPDR(R) S&P(R) International Small Cap ETF (GWX)