EnQuest latest North Sea casualty of oil price fall

ENERGY explorer EnQuest, one of the biggest independent operators in the North Sea, has become the latest victim of the slump in the oil price after revealing its underlying profits had slid by a third during the first half of the year.

Neil McCulloch leads EnQuest's North Sea operations. Picture: Contributed

The group, whose majority-owned Kraken field off the coast of Shetland is one of the largest development projects in the region, yesterday posted a profit of $99 million (£63.2m) in the six months to the end of June.

That was down from $149.4m in the same period of 2014, while revenues dropped 12 per cent to $444m against the backcloth of a 52 per cent fall in the oil price to less than $49 a barrel.

After impairments and exceptional items, the group made a $34.6m loss, compared with a $78.6m profit a year ago. Amjad Bseisu, the firm’s chief executive, said: “EnQuest has responded well to the lower price environment delivering a strong performance driven by production gains and cost reductions.”

Output lifted more than 17 per cent to 29,665 barrels of oil equivalent per day (boepd) in the latest period, with the company’s Malaysian assets delivering about a quarter of that.

The group gave full-year production guidance of between 33,000 and 36,000 boepd, including first oil at its Alma/Galia project in the North Sea within weeks.

Bseisu said as part of efficiency initiatives the company also now expected that it would be able to reduce its costs per barrel even further in 2016.

The group expects to lower its average operating costs per barrel produced by about 10 per cent in 2015 to an average $38, and guided that it believes its costs per barrel will be in the “low $30s” in 2016.

EnQuest introduced a hedging programme against sliding oil prices, while it has also cut capital expenditure twice for 2015, initially from $1 billion to $700m-$800m late in 2014 and then down to $600m in last January.

It said yesterday that it was not giving firm capex guidance for 2016, but that the main item would be for the Kraken field.

The business said it had also benefited from the agreement by its banks to relax the covenants on its debt repayments at the beginning of this year in the wake of the oil price slump.

Neil McCulloch, president for North Sea operations at EnQuest, said: “So far we have not needed it, we have stayed within the old covenants. But it was the right thing to do. It gives us a bit of latitude.”

McCulloch said about 70 to 80 per cent of EnQuest’s output was hedged against falling oil prices for this year and 2016.

He added that the group had brought down its supplier costs, in terms of duration times and costs. The cost cutting had not involved compulsory redundancies, he said, with the great majority f employees on projects coming from suppliers. The North Sea industry has been heavily hit by job losses due to the slide in the oil price. Aberdeen-based oil services major Wood Group, a big client of EnQuest, revealed on Tuesday that it had cut 5,000 jobs, about 1,000 of them in the UK, since the start of 2015.

“We try to work with the supply chain to try to make sure the impact (of redundancies) is as minimal as possible,” McCulloch told The Scotsman.

EnQuest awarded a five-year contract to Wood Group last spring to provide services to North Sea facilities including the Thistle, Heather and Northern Producer assets.

Bseisu, stressing the positives, said: “As the current capital programme reduces over the next two years and EnQuest benefits from lower cost operations and higher production, we expect to move into positive free cashflow at prevailing oil prices.” However, the stock market was jolted by the latest signs of turmoil in the North Sea, and EnQuest’s shares closed down 2p or 6 per cent at 31.25p.