EnQuest shares soar as oil firm cuts capex, lenders relax debt covenants

Shares of EnQuest surged on Friday after the oil and gas group said its financial position “remains resilient” despite the recent collapse in crude prices, after it renegotiated credit facilities with its lenders and cut spending for this year.

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 lenders' continued commitment recognises the considerable cash-flow generating potential of EnQuest's business, in particular from the Alma/Galia and the Kraken developments coming on stream in the next two years. Both of these projects remain on schedule,” the company said.

Westhouse Securities analysts said the news was “positive” given that EnQuest was at risk of breaching its covenants.

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

EnQuest’s production totalled 28,267 barrels of oil equivalents per day (boepd) in 2014, up 17% on last year and at the high end of guidance.

Revenues are expected to exceed $950m, compared with $961.2m in 2013, while operating profits are forecast to fall to $530m-580m from $621.3m.

The company said the improvement reflected the continued strength of field reservoir performance, production efficiency from existing producing assets and an initial contribution from its part-owned PM8/Seligi assets in Malaysia - the first production from outside the North Sea.

Guidance for 2015 is for production of between 33,000boepd and 36,000boepd.

The company also said it had “responded expeditiously” to prices falling to their lowest in five and a half years, and has slashed its capital expenditure (capex) budget for 2015.

Capex programme is expected to be around $600m, due to spending cuts from both new developments and existing fields. 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.

"The rapid change in the macro environment with respect to the oil price has affected all in the industry, not least EnQuest,” said chief executive Amjad Bseisu.

“However, with our strong production growth, the new developments coming on stream in the next two years and our available $1.1bn in funding under our facilities, we continue to demonstrate the strength and sustainability of EnQuest's production growth model.”

The stock was up nearly 27% at 38p by 09:32.