Financial risk at EnQuest now mitigated, says Westhouse Securities

Westhouse Securities analysts welcomed Friday’s news that EnQuest had renegotiated the terms of its debt and cut its capital expenditure (capex) budget for this year, saying that the oil firm “is a play on oil-price recovery”.

EnQuest’s lenders have agreed to raise the covenants on its credit facility, lifting the net debt-to-operating profit multiples, to provide “flexibility” for the company.

The company also said it had “responded expeditiously” to the recent collapse in oil, and has slashed its capital expenditure (capex) budget for 2015 to $600m. This represents a 40% reduction in the business plan prior to the decline in oil prices and compares with an estimated $1.2bn in 2014.

Westhouse said: “This is a positive update. The risk of EnQuest breaching its covenants is now mitigated with covenants relaxed and capex cut without a delay to major development projects.”

The broker had upgraded EnQuest to a ‘buy’ previously, saying that the stock was oversold on concerns over debt levels and covenants.

“We maintain our ‘buy’ rating given where it’s trading at the moment, and think EnQuest is a play on oil price recovery.

“Now that capex is cut to manageable levels and covenants are relaxed, it needs to focus on bringing the Alma/Galia development onstream without further delays in mid-2015.”

The stock was up over 28% at 38.53p by 10:02.