REG - EnQuest PLC - February Operations Update

EnquestAnnouncement

15/02/2024 07:00

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RNS Number : 1948D  EnQuest PLC  15 February 2024

EnQuest PLC, 15 February 2024

Full year 2023 operations update and 2024 guidance

Strong free cash flow drives reduction in debt; capital structure primed for
growth

Unless otherwise stated, all figures are unaudited, on a Business performance
basis and are in US Dollars

EnQuest Chief Executive, Amjad Bseisu, commented:

"EnQuest delivered another good year of operational performance in 2023, with
production averaging 43.8 Kboed (in line with the mid-point of guidance).
Having de-levered the business and with debt maturities reset to 2027, we now
aim to build on that strong foundation, utilising our differentiated operating
capability and tax assets as we pivot the business to refocus on future growth
during 2024.

"We continue to achieve top quartile production efficiencies across the
portfolio, while maintaining discipline in our cost management and investment
decisions drove expenditure lower than 2023 guidance. Our differentiated
operating capability now extends to decommissioning activities, with 2023
representing another record year of northern North Sea well plug and
abandonments as 25 wells were completed at Heather and Thistle.

"Having de-levered by c. $1.5 billion since 2017, and with net debt at the end
of 2023 reduced to $481 million, the Group is focused on delivering continued
strong performance from the existing portfolio and the pursuit of
value-accretion and transformational production acquisitions, both in the
North Sea and internationally. The farm down of a 15% interest in Bressay and
the EnQuest Producer FPSO was completed in December and represents an
important step in moving the project forward.

"Building on this excellent operational performance and by remaining
disciplined in our investment decisions, we have set the foundation for a
pivot to growth during 2024. The Group will provide an update on shareholder
return plans when we announce our final audited results in March."

2023 performance

§ Group production averaged 43,812 Boepd (guidance 42,000 Boepd to 46,000
Boepd), reflecting high levels of uptime and maintenance schedule
optimisation.

§ New energy business re-launched as Veri Energy, with new energy and
decarbonisation projects being progressed at Sullom Voe Terminal, boosted by
the award of four carbon storage licences.

§ Expected cash expenditure: Operating costs c. $370 million (guidance $400
million); Capital costs c. $160 million (guidance $160 million);
Decommissioning costs c. $60 million (guidance $60 million).

§ Net debt c. $481 million at 31 December 2023; a c. $236 million reduction
versus 31 December 2022.

§ Gross debt $795 million at 31 December 2023; a c. $1.4 billion reduction
since end-2017. All maturities have been extended to 2027.

§ c. $500 million liquidity at 31 December 2023, providing a platform for
transformational transactional growth, enhanced by EnQuest's advantaged UK tax
position.

§ Sale of 15% interest in Bressay and EnQuest Producer FPSO which closed in
2023. Cash settlement realised in January 2024.

§ Leadership team and Board refreshed - focused on the exciting next phase of
EnQuest's journey.

2024 guidance

§ Production guidance: 41,000 Boepd to 45,000 Boepd.

§ Cash capital expenditure to total c. $200 million; operating expenditure to
total c. $415 million; and decommissioning expenditure to total c. $70
million.

§ Investment is scaled to maintain production, maximise cash flow, drive
capital efficiency and reduce future emissions and operating costs.

Outlook - 2025 and beyond

§ Capital-efficient investment programme; targets organic production growth
in 2025.

§ Kraken FPSO lease rate reduces by c. 70% from 1 April 2025 and major
projects at SVT are expected to crystallise significant operating cost and
emission reductions in 2026 and beyond.

Further Detail:

Production:

In 2023 Group production averaged 43,812 Boepd, with strong production uptimes
across the portfolio and the Group's investment in low-cost, quick-payback
drilling and wellwork campaigns partially offsetting the impact of natural
field declines (2022: 47,259 Boepd).

Upstream:

Production at Magnus averaged 15,933 Boepd, 26% up on 2022. This was driven by
improved production efficiency (88%) and the completion of a well programme
that included the North West Magnus injector (May) and two further infill
wells (online in August and December). The planned annual maintenance shutdown
was completed in 20 days, versus the original planned duration of 24 days,
with all major scopes executed.

Kraken net production averaged 13,580 Boepd. This reflected high uptime before
and after the failure of HSP transformer units during the first half of the
year. Full production was restored in early August, with production and water
injection efficiencies averaging 98% and 99%, respectively, in the final four
months of the year. Further 2023 production gains were achieved by the
acceleration and early completion of planned maintenance work while production
at the FPSO was shut-in, and deployment of new transformers provides increased
resilience to future production capacity.

Golden Eagle net production averaged 4,199 Boepd, with asset production
efficiency in excess of 90%. Drilling of the first well in the 2023/24
platform drilling programme commenced in October 2023 and the well was brought
online in January 2024. This is the first well of an anticipated four well
programme, which is due to be completed in mid-2024.

Production from other UK upstream assets averaged 2,663 Boepd, reflecting
strong uptime of 83% at the Greater Kittiwake Area. Midstream activity at the
Sullom Voe Terminal ('SVT') and its related infrastructure continued to
maintain safe and reliable performance, with 100% export service availability
achieved during 2023.

In Malaysia production averaged 7,437 Boepd; 15% up on 2022, underpinned by
strong operational performance (90% production uptime). Production also
includes 604 Boepd associated with Seligi 1a gas (produced and handled by
EnQuest on behalf of Petronas, in exchange for a gas handling and delivery
fee).

Decommissioning:

EnQuest continued to demonstrate top quartile decommissioning capability
though another year of record-breaking performance across its Heather and
Thistle projects. In total, 25 platform wells were plugged and abandoned
('P&A'), including 12 wells at Heather and 13 wells at Thistle. Delivery
of this extensive programme of activity has been conducted at a peer-leading
cost, and the level of activity exceeds the record for the most prolific
multi-asset P&A campaign in the northern North Sea, previously set by
EnQuest in 2022.

Veri Energy:

Following the establishment of the New Energy business in 2021 and having
progressed three significant new energy and decarbonisation opportunities at
Sullom Voe Terminal, the Group launched Veri Energy ('Veri'), a wholly owned
subsidiary of EnQuest. Veri represents the logical next step in the strategic
evolution of EnQuest's new energy and decarbonisation ambitions, enabling the
project team to move forward with a focused management structure and the
potential to leverage financial and strategic partnerships.

Sale of 15% of Bressay and the EnQuest Producer FPSO

In December, EnQuest announced the sale of a 15% equity share in the Bressay
licence and the EnQuest Producer FPSO to RockRose UKCS 10 Ltd for a total
consideration of £46 million (c.$57 million). The transaction was net debt
neutral at 31 December 2023, with cash settlement realised in January 2024.

Liquidity and net debt

During 2023, EnQuest maintained its focus on de-leverage and, at 31 December
2023, net debt of $481 million represented a decrease of $236 million versus
31 December 2022. The 2023 year end net debt figure incorporated c. $40
million of positive working capital movements, including the timing of cargo
receipts. Gross debt at 31 December totalled $794 million (31 December 2022:
$1,019 million) and cash drawings under the RBL were reduced in the year to
$140 million (from $400m at 31 December 2022).

In August 2023, the Group widened its sources of finance, agreeing a term loan
facility which was drawn in full to $150 million at year end. The Group also
aligned all outstanding debt maturities to 2027, having settled its 2023 7%
Sterling bond of £111.3 million ($138.1 million) at maturity in October 2023.

Total cash and available facilities at the end of 2023 were $499 million (31
December 2022: $349 million), including restricted funds and ring-fenced funds
held in joint venture operational accounts totalling $173 million (31 December
2022: $174 million).

Environmental, Social and Governance

Reduced flaring, and lower fuel gas and diesel consumption lowered EnQuest's
absolute Scope 1 and 2 emissions to 1,032 kt CO2e. The Group's UK emissions
have fallen by more than 40% since 2018 (significantly ahead of the UK
Government's North Sea Transition Deal target of a 10% reduction in Scope 1
and 2 CO(2) equivalent emissions by 2025) and are close to the NSTD's 2030
reduction targeted of 50%.

The health, safety and wellbeing of our employees remains our top priority. In
2023, EnQuest achieved Lost Time Incident ('LTI') frequency(1) rate of 0.52.
Whilst this was an improvement versus 2022, the Group will not be complacent
as it strives to deliver SAFE results with no harm to our people.

EnQuest's 2024 strategic focus is to deliver a step-change in operational
growth, diversification and carbon reduction, around which the Group has
repositioned both its Board and Senior Management. In the year, Salman Malik
(previously Chief Financial Officer ('CFO') and Managing Director,
Infrastructure and New Energy) has assumed the role of Chief Executive Officer
of Veri Energy; Jonathan Copus was appointed EnQuest CFO; and Steve Bowyer has
joined EnQuest as North Sea General Manager.

2024 guidance and 2025 outlook

EnQuest remains focused on maintaining its track record of upstream
operational excellence and utilising its skills, tax position and
significantly de-leveraged balance sheet to drive growth through acquisition.

Group net production averaged c. 43,000 Boepd in January, and 2024 net
production is expected to be between 41,000 and 45,000 Boepd. At current
foreign exchange rates and oil prices, operating expenditures are expected to
be c. $415 million.

Cash capital expenditure is expected to be around $200 million. The Group
plans to execute a two-well drilling campaign at Magnus in the second half of
the year, following the five-yearly rig recertification, and expects to
complete the ongoing four-well platform drilling campaign at Golden Eagle in
mid-2024. In Malaysia, three infill wells and three workovers are planned
during 2024. Ahead of a return to drilling at Kraken in 2025, EnQuest will
purchase selected long lead equipment required to facilitate the two-well
sidetrack programme. Capital investments are also planned to lower operating
costs and reduce future carbon emissions. These projects include a new
stabilisation facility and an electricity power grid connection at SVT, as
well as preparation for a future tieback of the Bressay field's gas cap to
Kraken; displacing diesel that currently powers Kraken operations.

Decommissioning expenditure is expected to total approximately $70 million,
primarily reflecting ongoing well P&A programmes at the Heather and
Thistle/Deveron fields.

The Group is due to make its first full year payment under the Energy Profits
Levy in October 2024.

For 2024, EnQuest has hedged c. 5.3 MMbbls of oil, predominantly through the
use of put options with an average floor price of c. $60/bbl. The Group has
hedged a total of c. 1.6 MMbbls for 2025 using put options at an average floor
price of c. $60/bbl.

Looking ahead to 2025, the Group expects capital-efficient investment to grow
production versus 2024, driven by continued low-cost, quick payback platform
drilling and wellwork at Magnus and PM8/Seligi, as well as a return to
drilling at Kraken, where two sidetrack wells are planned.

Work is expected to continue to develop a technical solution in order to
access the c. 115 MMbbls of 2C resources at Bressay, which remains one of the
largest undeveloped fields in the UK North Sea, including the potential for a
gas tieback to Kraken as an initial development phase. The Group will continue
to consider options around the full Bressay development, including
incorporation of an additional partner to lower the Group's equity share of
development cost.

The Group also expects unit margins to improve as the Kraken FPSO lease rate
reduces by c. 70% from 1 April 2025, while the culmination of major projects
at SVT will crystallise significant operating cost reductions and emission
reductions in 2026 and beyond.

( )(1) Lost Time Incident frequency represents the number of incidents per
million exposure hours worked (based on 12 hours for offshore and eight hours
for onshore)

 

 EnQuest expects to announce its 2023 full year results on 28 March 2024.

Ends

 

For further information please contact:

 

 EnQuest PLC                                Tel: +44 (0)20 7925 4900
 Amjad Bseisu (Chief Executive Officer)
 Jonathan Copus (Chief Financial Officer)
 Craig Baxter (Head of Investor Relations)

 Teneo                                      Tel: +44 (0)20 7353 4200
 Martin Robinson
 Harry Cameron

 

Notes to editors

ENQUEST

EnQuest is providing creative solutions through the energy transition. As an
independent energy company with operations in the UK North Sea and Malaysia,
the Group's strategic vision is to be the partner of choice for the
responsible management of existing energy assets, applying its core
capabilities to create value through the transition.

EnQuest PLC trades the London Stock Exchange.

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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