Enquest soars as production hits target and projects remain on target

Results from oil and gas development and production company Enquest showed production was in the middle of its guided range, with management reiterating their target for 2015 and analysts highlighting UK Budget tax benefits.

Production for 2014 of 27.8 thousand barrels of oil equivalent per day (kboed) was within the 25-30 kboed guidance and in line with consensus, up 15.2% from the previous year.

Revenue was up 5.1% to $1.01bn as the realised oil price sank 8.3%, pushing gross profits down 18.2% to $355.8m.

Ignoring a huge raft of impairments, earnings before interest, tax, depreciation and amortisation of $581m was generated, ahead of consensus forecasts of $512m.

Non-cash post-tax impairments of $335.3m were recorded due to the lower expectations for the oil price in coming months, with tangible oil and gas assets impairments totalling $678.8m, mainly relating to the North Sea's Don and Alma/Galia fields, resulting in exceptional losses totalling $821.9m before tax.

This dragged the company to a statutory pre-tax loss of $478.1m, with net debt at the year end at $932.8m.

For the current financial year, management reiterated its production target range of 33-36 kboe/d, a 24% increase over 2014 at the mid-point of the range, as net proven and probable (2P) reserves of 220m barrels (mmb), up 25.2mmb year-on-year in line with expectations.

Important development projects remain on track, with the Alma/Galia fields on track for first production in the middle of the year, providing near-term production growth, while Kraken is scheduled for 2017 start-up.

Broker Westhouse said the results "were positive as the company demonstrated that it is protected in the current oil price environment and its major development projects remain on track, with start-up timelines re-iterated".

Analysts, who continued to view the company as a play on an oil price recovery in the medium to long term, updated their estimates and, due to the Chancellor's UK Budget changes to boost the sector, have increased their target price the shares to 75p from 65p to reflect these results and the positive effect of the tax changes.