EnQuest making cost savings amid low oil price environment

Petroleum exploration and production company EnQuest reported average group production of 68,606 barrels of oil equivalent per day (boepd) in its full-year results on Thursday, up 23.7% on 2018.

The London-listed firm said its revenue rose to $1.71bn for the year ended 31 December, up from $1.2bn, while EBITDA improved to $1.01bn from $716.3m.

Cash generated from operations totalled $994.6m, rising from $788.6m, which the board said reflected the higher EBITDA, while cash capital expenditure came in at $237.5m, compared to $220.2m in 2018.

EnQuest said cash and available bank facilities amounted to $288.6m at 31 December, with net debt of $1.41bn, narrowing from $1.77bn, making for a net debt-to-EBITDA ratio of 1.4x.

Net 2P reserves at year-end were 213 million barrels of oil equivalent, with net 2C resources standing at 173 million barrels of oil equivalent at the end of 2019, compared to 245 million barrels and 198 million barrels respectively at the end of 2018.

The board said the lower 2P reserves were driven by production, and downward revisions at Heather/Broom and Thistle, partially offset by increases at Magnus, Kraken and PM8/Seligi.

Non-cash post-tax impairments of $562.3m were reported, including tangible fixed assets of $397.5m, which EnQuest said primarily reflected changes in oil price and production profiles, mainly at Heather/Broom, Thistle and the Dons, and a $149.6m goodwill impairment.

Looking at 2020, the company said year-to-date production performance remained “good”, with the group's day-to-day operations continuing without being materially affected by the Covid-19 coronavirus pandemic.

EnQuest said no senior credit facility amortisations were due in 2020 following voluntary early repayments, with its outstanding credit facility standing at $425m at the end of February.

Cash and available facilities at the end of February totalled $268.2m, with net debt standing at $1.37bn.

The company said it was targeting further in-year savings by removing discretionary activities given the prevailing oil price environment, adding it was looking at full-year operating expense savings of around $190m, with revised full year guidance of about $335m.

Full-year capital expense savings were expected to total $110m, with revised full year guidance of around $120m.

EnQuest said its directors and senior management had agreed to an interim voluntary reduction in salary of 20%, with the board adding that its full-year production guidance remained at between 57,000 and 63,000 boepd.

Forecast free cash flow breakeven was reduced to around $33 per barrel of oil equivalent for 2020 and $27 per barrel for 2021, subject to the firm achieving its planned savings.

It reported future portfolio opportunities as being focussed on its three largest, low-cost assets of Magnus, Kraken and PM8/Seligi.

“During 2019, EnQuest again delivered on its targets,” said chief executive officer Amjad Bseisu.

“The combination of improved Kraken performance, a full year contribution at Magnus and strong performances at Scolty/Crathes and PM8/Seligi, drove significant production growth and free cash flow generation, which facilitated a material reduction in the group's net debt.

“Given the prevailing low oil price environment, we have taken decisive action to lower our cost base, targeting $190m of operating cost savings in 2020, equating to unit operating expenses of c.$15 per barrel of oil equivalent.”

Bseisu noted that with those cost reductions, cash flow breakeven was estimated at around $33 per barrel in 2020, and with realisations in the first quarter, falling to about $25 per barrel for the rest of the year.

He added that 2021 cash flow breakeven was now forecast at around $27 per barrel, with a unit operating expense of about $12 per barrel.

“With these significant reductions, we are well positioned to manage through a sustained low oil price environment.

“Our three largest assets continue to generate meaningful operating cash flows, even at low oil prices, and, in the medium to long-term, offer low-cost resource maturation opportunities which are aligned with our proven differential capabilities.”

At 1453 BST, shares in EnQuest were up 19.95% at 13.41p.