EnQuest today reported results for the year ended 31 December 2020 and 2021 outlook.

EnQuest Chief Executive, Amjad Bseisu, said:
“Our quick and decisive actions in early 2020, combined with our reorganisation, have transformed the Company. We generated $211.1 million of free cash flow in the year, having significantly lowered our cost base and free cash flow breakeven, enabling us to reduce our debt to its lowest level since 2014. Capital and operating expenditures reduced by $295.6 million and free cash flow breakeven1 for the year was $31.9/Boe, both in line with our targets. Our focus on safety enabled us to minimise successfully the impact of COVID-19 on our workforce and operations.

“The proposed acquisition of the low-cost Golden Eagle area will strengthen our business, providing additional production and strong cash flows which will partially utilise our UK tax assets.

“We successfully managed the unique set of challenges presented in 2020, taking decisive action to protect and enhance our business. Our focus on extending the useful lives of existing assets through operational improvements and reducing emissions is well suited to operating through the energy transition and I am confident that EnQuest is well placed to succeed in a changing world.”

2020 performance

• Group production averaged 59,116 Boepd in 2020, in line with guidance (2019: 68,606 Boepd)
• Revenue of $856.9 million (2019: $1,711.8 million) and EBITDA of $550.6 million (2019: $1,006.5 million) reflect lower year on year production and realised oil prices of $41.3/bbl, partially offset by lower operating costs
• Cash generated from operations of $567.8 million (2019: $994.6 million); cash capital expenditure of $131.4 million (2019: $237.5 million)
• Strong free cash flow generation of $211.1 million (2019: $368.5 million)
• Cash and available bank facilities amounted to $284.1 million at 31 December 2020 (2019: $288.6 million), with net debt reduced to $1,279.7 million (2019: $1,413.0 million)
• Statutory reported basic loss after tax was $625.8 million reflecting non-cash impairments, including tax, of $630.3 million, (2019: loss after tax of $449.3 million)

2021 performance and outlook

• Year to date February production averaged 46,635 Boepd, affected by outages, repairs and opportunistic maintenance at Magnus and Kraken, which are now complete
• Hedges in place for c.5 MMbbls of oil with an average floor price of c.$55/bbl and an average ceiling price of c.$64/bbl
• Full year average production expected to be between 46,000 to 52,000 Boepd, excluding Golden Eagle which will add c.10,000 Boepd on a pro forma basis
• Full year operating expenditure of c.$265 million
• Combined cash capital and abandonment expenditure of c.$120 million

2020 performance summary 

The Group’s operational focus was to maintain strong production efficiency across its asset base and successfully execute the drilling programmes at Magnus and Kraken. The combined impact of good operational delivery and the successful transformation of the UK business enabled the Group to lower its unit operating expense to $15.2/Boe, reduce its free cash flow breakeven to $31.9/Boe and generate $211.1 million in free cash flow, enabling further reductions in the Group’s debt.

EnQuest’s average production decreased by 13.8% to 59,116 Boepd, in line with guidance, primarily reflecting a strong performance from Kraken, offset by Thistle, Heather and Alma Galia moving to cessation of production (‘CoP’) and the impact of the detached riser at PM8/Seligi.

EBITDA and cash generated by operations were $550.6 million and $567.8 million, respectively, with the reduction from 2019 reflecting lower prices and production, offset by lower operating costs. 

Cash capital expenditure of $131.4 million was focused on executing the Group’s drilling programmes at Kraken and Magnus. Cash abandonment expenditure of $41.6 million reflected decommissioning activities following CoP at Heather/Broom and Alma/Galia.

Reserves and resources

Net 2P reserves at the end of 2020 were 189 MMboe (2019: 213 MMboe) and have been audited on a consistent basis with prior years. During the year, the Group produced 10.1% of its year-end 2019 2P reserves base, with other revisions primarily reflecting the CoP decisions at Thistle/Deveron and the Dons, largely offset by other 2P reserves revisions and transfers from 2C resources at Kraken, Magnus and PM8/Seligi. Net 2C resources are 279 MMboe (2019: 173 MMboe), an increase of 61.3% compared to the end of 2019 primarily as a result of the agreement to acquire 40.81% equity and operatorship of the Bressay field in the UK in July 2020 which added 115 MMboe.

2021 performance and outlook details

In February, EnQuest signed an agreement to purchase Suncor’s entire 26.69% non-operated equity interest in the Golden Eagle area, comprising the producing Golden Eagle, Peregrine and Solitaire fields for an initial consideration of $325 million. Upon completion, the acquisition will add immediate material low-cost production and cash flow to EnQuest and will allow the Group to accelerate the use of its tax losses. The four well infill programme is continuing, with the first three wells safely completed and online.

Production performance to the end of February has been slightly behind schedule. An unplanned third-party outage, power related failures and ongoing well repair activities at Magnus, along with a short duration shutdown at Kraken for a riser tether repair have been partially offset by PM8/Seligi wells coming back online ahead of schedule. Repairs are now complete on the Kraken tether and Magnus power systems. In addition, a successful Magnus well intervention and early commissioning of gas lift at Kittiwake have further increased production from the end of February.

For the full year, the Group’s net production is expected to be between 46,000 and 52,000 Boepd (excluding any contribution from the proposed Golden Eagle transaction). This guidance includes CoP at the Dons fields which occurred as planned in the first quarter, continued low production at PM8/Seligi until repairs on the riser are completed during the second half of the year and natural declines across the portfolio. Kraken gross production is expected to be between 30,000 and 35,000 Bopd (21,150 and 24,675 Bopd net), reflecting natural declines.

The Group continues to focus on cost control and capital discipline, with operating expenditures expected to be approximately $265 million and combined cash capital and abandonment expenditure expected to be around $120 million, which are lower than 2020. Capital expenditure primarily relates to license to operate activities and guidance excludes the costs associated with the PM8/Seligi riser incident repair which are expected to be largely covered by insurance, while abandonment expense primarily reflects decommissioning programmes at Heather/Broom, including an acceleration of some work scopes, the Thistle/Deveron fields and the Dons.

EnQuest has hedged a total c.5 MMbbls for 2021 using costless collars, with an average floor price of c.$55/bbl and an average ceiling price of c.$64/bbl.

KeyFacts Energy: EnQuest UK country profile