SHARES in oil explorer EnQuest, the largest UK independent oil producer in the UK North Sea, jumped yesterday after the market reacted positively to news that its bankers had relaxed the covenants on its debts in the wake of oil price falls.
The firm said its bankers had agreed to lift its net debt-to-operating profit multiple until mid-2017 and it now had some $1.1 billion (£730 million) available in funding under the new facilities,
It also said it was again slashing its 2015 capital expenditure plans, down to $600m for the year.
The company had already announced in November it was planning to reduce expenditure to $700m-$800m from initial plans to invest $1bn.
EnQuest, which produces oil from fields including Broom, Deveron, Heather and West Don, added it expects to bring down its operating cost per barrel by at least 10 per cent, both through cost savings and higher margin barrels coming onstream.
The group said it will keep a focus on controlling its cost base in 2015 and intends to work with its supply chain and contractors in order to further bring down costs.
Chief executive Amjad Bseisu said: “The rapid change in the macro environment with respect to the oil price has affected all in the industry, not least EnQuest. 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.”
Analysts at Westhouse Securities welcomed the news.
“This is a positive update. The risk of EnQuest breaching its covenants is now mitigated with covenants relaxed and capex cut without a delay to major development projects,” they said in a note. They said the firm was now “a play on oil-price recovery”.
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Bseisu said he was pleased that production efficiency for 2014 has been approximately 90 per cent, which he described as an “exceptional performance” and ranked EnQuest as one of the best operators in the North Sea.
“The business continues to perform very well operationally and is on course for another year of strong production growth.”
Provisional production of 28,267 barrels of oil equivalent per day, up 17 per cent on the prior year, was at the high end of EnQuest’s guidance.
The company said the figure reflected continuing production efficiency and an initial contribution from its Malaysian asset, Shares rose 7p, or 23.3 per cent, to close at 37p.