REG - EnQuest PLC - Operations Update

EnquestAnnouncement

02/08/2022 07:00

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RNS Number : 5244U  EnQuest PLC  02 August 2022

EnQuest PLC, 02 August 2022

Operations update

Strong production and cash generation, supporting deleveraging

 

EnQuest Chief Executive, Amjad Bseisu, said:

"We have made a good start to the year, delivering production of 49,726 Boepd
and generating $332 million in free cash flows ($474 million pre-hedging) that
have enabled us to significantly reduce net debt to c.$880 million at the end
of June, resulting in a net debt to EBITDA ratio of around 1.0x, and
representing a significant step towards our 0.5x target.

"Performance has been strong at Kraken and in Malaysia, where we have seen the
positive impact of our well workover programme. Our drilling and workover
programmes are underway at both Magnus and PM8/Seligi to deliver production in
the second half, offset by our maintenance shutdowns at Magnus and Kraken.

"We remain on track to deliver our operational targets and, in the prevailing
price environment, are focused on driving an accelerated debt reduction
programme.

"EnQuest has a long track record of investment in the North Sea. We remain
focused on continuing to improve performance and extend the lives of assets
within our portfolio, delivering value to all of our stakeholders as we
increase production, reduce emissions and support energy security."

 

Operating performance

§  Average net Group production in the six months to end June 2022 was
49,726 Boepd, an 8% increase over the same period last year, driven by strong
production efficiency across the portfolio; full year guidance remains
unchanged

§  Kraken delivered average gross production of 27,698 Boepd, above the top
end of full year guidance of 22,000 to 26,000 Boepd; planned shutdown on track
for the third quarter

§  Infill drilling campaigns have commenced at Magnus and PM8/Seligi

§  Well work campaigns at Magnus and PM8/Seligi are progressing well, with
two wells returned to service and three well workovers completed, respectively

§  Excellent progress in reducing absolute Scope 1 and 2 emissions, with CO2
equivalent emissions reduced by 16.8% from the 2020 baseline; since 2018, UK
Scope 1 and 2 emissions have reduced by 42.6%

 

Liquidity and net debt

§  Net debt of c.$880 million at 30 June 2022 is down c.$342 million,
inclusive of c.$10 million of foreign exchange movement, from 31 December
2021, driven by strong free cash flow generation

§  At the end of June, $115 million remained outstanding on the Group's
senior secured debt facility ('RBL') following accelerated repayments
totalling $300 million in the six months to end June 2022

§  EnQuest's net debt to EBITDA ratio as at 30 June 2022 is around 1.0x,
down from 1.6x at the end of 2021.

§  EnQuest has executed $14.4 million (1.7%) of buy backs of the 2023 7%
high yield bonds

§  For the period July to December 2022, the Group has hedged c.3.4 MMbbls
of oil with an average floor price of c.$60/bbl and an average ceiling price
of $79/bbl. For 2023, the Group has hedged a total of approximately c.3.5
MMbbls with an average floor price of c.$57/bbl and an average ceiling price
of c.$77/bbl

 

Guidance unchanged

§  2022 net production guidance of between 44,000 and 51,000 Boepd

§  Kraken gross production still expected to be between 22,000 Boepd and
26,000 Boepd (15,500 Boepd to 18,500 Boepd net)

§  Operating expenditure is expected to be approximately $430 million

§  Cash capital expenditure is expected to be around $165 million

§  Abandonment expense is expected to total approximately $75 million

 

Board change

§  As previously announced, on 24 March 2022 Jonathan Swinney notified the
Board of his intention to step down from the Board as Chief Financial Officer
('CFO') and Executive Director. Following a successful period of transition,
Jonathan will step down from the Board on 15 August 2022 and Salman Malik will
join the Board as CFO on the same day.

Production details

 Average daily production on a net working interest basis      For the period to 30 June 2022  For the period to 30 June 2021
                                                               (Boepd)                         (Boepd)
 UK Upstream

 - Magnus                                                      12,754                          13,847
 - Kraken                                                      19,527                          23,690
 - Golden Eagle(1)                                             7,060                           -
 - Other Upstream(2)                                           4,081                           3,504
 UK Upstream                                                   43,422                          41,041
 UK Decommissioning(3)                                         -                               337

                                                               337
 Total UK                                                      43,422                          41,378
 Total Malaysia                                                6,304                           4,809
 Total EnQuest                                                 49,726                          46,187

 

(1) Golden Eagle completion date was 22 October 2021

(2) Other Upstream: Scolty/Crathes, Greater Kittiwake Area and Alba

(3) UK Decommissioning: the Dons

 

Magnus

Average production for the first six months of 2022 was 12,754 Boepd, impacted
by a pump and well integrity failure in June. The 2022 well work campaign is
underway, with the North West Magnus well expected online in the coming weeks.
The long-term plan to enhance production and mitigate risk of future well
failures is progressing, with two wells successfully returned to service in
the first half of 2022 and with further well work planned in the second half
of the year.

Preparations are underway for the three week shutdown planned in the third
quarter, with the key workscope being a compressor overhaul.

Kraken

During the first half of 2022, average gross production was 27,698 Boepd,
which is above the top end of full year guidance of 22,000 to 26,000 Boepd.
The floating, production, storage and offloading vessel continues to deliver
top quartile performance, with production efficiency of 92% and water
injection efficiency of 95%.

The Group continues to assess optimisation opportunities for the planned
shutdown scheduled in the third quarter of 2022.

Golden Eagle

Year to date June production was 7,060 Boepd. Production efficiency remains
strong at 95%, partially offset by gas lift maintenance and natural decline.
The joint venture has approved a two infill well drilling campaign to commence
in the fourth quarter of 2022, with first oil expected in the first quarter of
2023.

Other upstream assets

Production for the first six months of 2022 averaged 4,081 Boepd. This was
driven by uptime of 92% at the Greater Kittiwake Area, and the continued
positive impact of work completed in the first quarter to optimise gas lift
delivery pressure.

Alba continues to perform in line with Group expectations.

EnQuest is working with its partners to progress field development studies for
Bressay and the Bentley team is focused on re-evaluation of the existing
subsurface data.

UK Decommissioning

Heather and Thistle plug and abandonment ('P&A') campaigns are progressing
well with six wells completed at Heather and nine wells completed at Thistle.
The Group remains on track to complete the P&A of 16 wells at each
installation in 2022.

The tender processes for heavy lift vessels for Heather and Thistle topsides
and jacket removals has concluded. Contracts to complete those scopes, which
are scheduled for 2024 and 2025 respectively, are expected to be awarded in
the second half of 2022.

At the Dons, subsea infrastructure removal within the 500-metre zone is
progressing as expected, with two phases completed during the first half of
the year, and the final phase scheduled for completion in August.

Infrastructure and New Energy

The Sullom Voe Terminal and its related infrastructure continues to maintain
safe and reliable performance, with 100% export service availability during
the first half of 2022. In June, the terminal also reached the milestone of 12
months without any recordable HSE incidents.

EnQuest continues to develop cost-effective and efficient plans to transform
the terminal and prepare and repurpose the site to progress global scale
decarbonisation opportunities, including carbon capture and storage,
electrification and green hydrogen. EnQuest continues to work collaboratively
with potential partners and key stakeholders to progress these opportunities.

Furthermore, EnQuest has conducted initial phases of feasibility and economic
screening work in respect of a carbon storage concept. The Group expects to
make an application in respect of carbon capture and storage ('CCS') licence
areas accessible from EnQuest's existing infrastructure in the forthcoming
North Sea Transition Authority ('NSTA') UK offshore CCS licensing round.

The Group has continued to make excellent progress in reducing its absolute
Scope 1 and 2 emissions during the first half of 2022, with CO2 equivalent
emissions reduced by 16.8% from the 2020 baseline, reflecting operational
improvements and increased workforce awareness driving lower flaring, fuel gas
and diesel usage. Since 2018, UK Scope 1 and 2 emissions have reduced by
42.6%, which is significantly ahead of the UK Government's North Sea
Transition Deal target of achieving a 10% reduction in Scope 1 and 2 CO2
equivalent emissions by 2025 and is close to the 50% reduction targeted by
2030.

Malaysian operations

For the first six months of 2022, average production in Malaysia was 6,304
Boepd, representing a 31% increase over the same period last year, following
reinstatement of the riser pipeline during the first quarter of 2022 and three
workovers, on budget and ahead of schedule. The fourth well workover is in
progress with completion anticipated in July.

Following the mobilisation and installation of the drilling rig at the
Seligi-C satellite platform, and the drilling of a pilot hole during June, the
infill drilling campaign has commenced with the first horizontal well due
onstream imminently.

Develeraging

The Group generated strong free cash flows during the first half of 2022,
resulting in net debt of c.$880 million at 30 June 2022, down c.$342 million
since the end of 2021. This reduction was driven by accelerated repayments
totalling $300 million on the Group's RBL facility, with drawings at $115
million at 30 June 2022, significantly ahead of the required amortisation
schedule. EnQuest's net debt to EBITDA ratio at 30 June 2022 was c.1.0x.

In line with EnQuest's continued focus on deleveraging, during July, the Group
has bought back and cancelled $14.4 million of its 2023 7% high yield bonds,
leaving $813 million outstanding. The Group may, from time to time, purchase
its outstanding notes in open-market purchases and/or privately negotiated
transactions and upon such terms and at such prices as it may determine. The
Group will evaluate any such transactions in light of then-existing market
conditions, taking into account the Group's current liquidity and prospects
for future access to capital. The amounts involved in any such transactions,
individually or in the aggregate, may be material.

2022 outlook

The Group remains on track to achieve net production between 44,000 and 51,000
Boepd, with a significant well work and drilling campaign underway across the
portfolio, partially offset by natural declines and planned maintenance
shutdowns at Magnus and Kraken in the third quarter.

Full year expectations for operating, cash capital and abandonment
expenditures remain unchanged from the Group's original guidance at
approximately $430 million, $165 million and $75 million, respectively.
EnQuest remains focused on cost discipline and has been proactive in
engagement with its global supply chain to mitigate the impacts of cost
inflation within the current year.

Following the enactment of the Energy Profits Levy, EnQuest remains committed
to investment in the North Sea and is reviewing future capital expenditure
programmes in light of the additional investment allowances available under
the levy.

EnQuest hedged a total of c.8.7 MMbbls for 2022 predominantly using costless
collars, with an average floor price of c.$63/bbl and an average ceiling price
of c.$77/bbl. For the period July to December 2022, c.3.4 MMbbls of production
remains hedged with an average floor price of c.$60/bbl and an average ceiling
price of c.$79/bbl.

Cash flows in the second half of the year will be affected by planned
maintenance shutdowns, phasing of work programmes and the impact of the Energy
Profits Levy.

The Group continues to explore options to refinance its high yield bond ahead
of maturity in October 2023.

EnQuest expects to announce its 2022 half year results in September 2022.

Ends

 

For further information please contact:

 

 EnQuest PLC                                                            Tel: +44 (0)20 7925 4900
 Amjad Bseisu (Chief Executive)
 Jonathan Swinney (Chief Financial Officer)
 Ian Wood (Head of Communications & Investor Relations)
 Craig Baxter (Senior Investor Relations & Communications Manager)

 Tulchan Communications                                                 Tel: +44 (0)20 7353 4200
 Martin Robinson
 Martin Pengelley
 Harry Cameron

 

Notes to editors

ENQUEST

EnQuest is providing creative solutions through the energy transition. As an
independent production and development company with operations in the UK North
Sea and Malaysia, the Group's strategic vision is to be the operator of choice
for maturing and underdeveloped hydrocarbon assets by focusing on operational
excellence, differential capability, value enhancement and financial
discipline.

EnQuest PLC trades on both the London Stock Exchange and the NASDAQ OMX
Stockholm.

Please visit our website www.enquest.com (http://www.enquest.com) for more
information on our global operations.

Forward-looking statements: This announcement may contain certain
forward-looking statements with respect to EnQuest's expectations and plans,
strategy, management's objectives, future performance, production, reserves,
costs, revenues and other trend information. These statements and forecasts
involve risk and uncertainty because they relate to events and depend upon
circumstances that may occur in the future. There are a number of factors
which could cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements and forecasts.
The statements have been made with reference to forecast price changes,
economic conditions and the current regulatory environment. Nothing in this
announcement should be construed as a profit forecast. Past share performance
cannot be relied upon as a guide to future performance.

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