EnQuest today reported that revenue for the six months ended 30 June 2022 was $943.5 million, 82.0% higher than the same period in 2021 ($518.3 million), reflecting the materially higher oil prices and the contribution of Golden Eagle. Revenue is predominantly derived from crude oil sales, which for the first half of 2022 totalled $851.2 million, 73.5% higher than in the same period of 2021 ($490.5 million). Revenue from the sale of condensate and gas in the period was $252.9 million (2021: $57.9 million), primarily reflecting higher market prices for condensate and gas. Gas revenue mainly relates to the onward sale of third-party gas purchases not required for injection activities at Magnus.

EnQuest Chief Executive, Amjad Bseisu, said: 
“Strong production, together with high commodity prices saw the Group generate free cash flow totalling $332 million in the first half of 2022, driving a significant reduction in net debt to $880 million. Consequently, our net debt to 12-month EBITDA ratio has reduced to 0.9x, demonstrating excellent progress towards our 0.5x target. 

“We have a significant work programme to deliver in the second half of the year but remain on track to deliver our operational targets in our core business. 

“We are also committed to supporting the UK’s twin objectives of delivering energy security and decarbonisation. Through our Infrastructure and New Energy business, we intend to repurpose and utilise existing assets to progress new energy and decarbonisation opportunities, including carbon capture and storage, electrification, and the production of green hydrogen.

“We remain focused on further strengthening our balance sheet, which will position us well to utilise our capability to unlock organic and inorganic growth opportunities, including the capital-light infrastructure and new energy business, and deliver returns to shareholders in the future.”

H1 2022 performance

• Group net production averaged 49,726 Boepd (2021: 46,187 Boepd)
• Revenue and other operating income of $943.5 million (2021: $518.3 million) and adjusted EBITDA of $536.3 million (2021: $345.4 million) reflects materially higher realised oil prices of $89.9/Boe (2021: $62.8/Boe), including the impacts of the Group’s hedge programme, and higher production
• Operating costs increased to $208.4 million (2021: $153.0 million), primarily reflecting the addition of Golden Eagle to the portfolio, increased maintenance and well intervention activity, and increased diesel and emissions trading certificate prices
• Cash generated from operations was $522.7 million (2021: $287.9 million); with cash capital expenditure of $54.7 million (2021: $15.9 million) and cash abandonment expenditure of $28.2 million (2021: $38.7 million)
• Strong free cash flow generation of $332.1 million (2021: $144.5 million)

Finance

• At 30 June 2022, net debt reduced to $880.0 million (end 2021: $1,222.0 million) reflecting strong free cash flow generation. Group net debt to last-12 months adjusted EBITDA ratio as at 30 June 2022 is 0.9x, down from 1.6x at the end of 2021
• At the end of June, $115.0 million remained outstanding on the Group’s senior secured debt facility (‘RBL’) following accelerated repayments totalling $300.0 million
• Completed partial refinancing and extended the maturity of the Sterling retail bond on 20 April, with the new October 2027 9% retail bond issue totalling £133.3 million. The remaining October 2023 7% retail bond in issue is £111.3 million
• At the end of June, total cash and available facilities were $467.0 million (end 2021: $318.7 million)
• At 31 August 2022, net debt had been further reduced to $817.6 million
• The outstanding RBL was reduced to $90.0 million
• Executed $33.4 million (4.0%) of buy backs of the October 2023 7% high yield bonds in July and August bringing the total outstanding at the end of August down to $793.8 million

Guidance and outlook

• 2022 average net Group production is expected to be within the guidance range of 44,000 Boepd and 51,000 Boepd reflecting strong first half performances across the portfolio and the impacts of the planned well programme and maintenance shutdowns in the second half of the year
• Operating costs, cash capital and abandonment expenditures are all expected to be in line with prior guidance
• EnQuest has hedged a total of c.3.4 MMbbls with an average floor of c.$60/bbl and ceiling price of c.$79/bbl in the second half of 2022. For the first half of 2023, the Group has hedged a total of c.3.5 MMbbls with an average floor price of c.$57/bbl and an average ceiling price of c.$77/bbl
• Following the enactment of the Energy Profits Levy, EnQuest expects to pay cash tax in the UK in 2022 and for the duration of the levy period

UK operations

Magnus
Average production for the first six months of 2022 was 12,754 Boepd, 7.9% lower than the first half of 2021. Production was impacted by a seawater lift pump failure and a well integrity failure in June. The pump was replaced in July with additional spares purchased to mitigate potential future risks. The Group’s well intervention programme is ongoing, with two wells successfully returned to service in the first half of 2022. The North West Magnus production well, which is the longest reservoir section drilled this century at 1,914 metres with the longest liner ever run at Magnus, has been successfully drilled and logged in late July and is expected online around the end of September. The programme in the second half of the year continues to evolve as EnQuest focuses on the most value-accretive opportunities, resulting in the Group prioritising a number of interventions to mitigate well failure risk and the return to service of the June well failure. Further infill drilling is now expected in 2023.

The planned three-week maintenance shutdown is underway, with production expected to resume later this month.

Kraken
Average production of 19,527 Boepd (27,698 Boepd gross) (2021: 23,690 Boepd net; 33,603 Boepd gross) is above the top end of the Group’s 2022 guidance. The floating production, storage and offloading vessel (‘FPSO’) delivered top quartile performance, with production efficiency of 92% and water injection efficiency of 95%, with the reduction in production from 2021 reflecting the impact of natural decline. The Group has optimised its planned third-quarter maintenance activities, which are scheduled to start in early September, allowing Kraken to continue to operate on a single processing train for one week of the two-week programme duration. Dual-train operations are expected to resume later in September.

Near-field drilling and subsea tie-back opportunities are being assessed. Following completion of a 3D seismic campaign in 2021, work is ongoing to interpret the seismic data in order to evaluate fully the development potential of the western area of the field, in addition to supporting ongoing optimisation of the main Kraken field, including potential infill opportunities. The current expectation is the execution of an initial side-track opportunity in 2024, before future drilling of wells in the western area. Equipment orders are likely to be placed during 2022 in order to accommodate significant supply chain lead times.

Golden Eagle
Year to date June production was 7,060 Boepd. Production efficiency remained strong at 95%, including an optimised annual shutdown which was executed in two days instead of four, partially offset by plant instability caused by gas turbine trips and natural decline. These issues are being addressed by the operator, with further optimisation activities, including well work, planned in the second half of the year.

The joint venture has approved a two infill well drilling campaign to commence at the end of the third quarter of 2022, with first oil expected around the end of the first quarter of 2023. EnQuest is proactively working with the operator to share insights to optimise drilling performance and future well work.

Other Upstream assets
Production for the first six months of 2022 averaged 4,081 Boepd (2021: 3,504 Boepd). This was driven by uptime of 92% at the Greater Kittiwake Area (‘GKA’), and the continued positive impact of work completed in the first quarter to optimise gas lift delivery pressure. The planned 11-day GKA shutdown was completed three days ahead of schedule, with the asset back online in August. EnQuest has also implemented a gas accumulator to mitigate the need for import gas to support GKA’s re-start requirements.

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.

Malaysia 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. This increase was driven by the riser pipeline replacement during the first quarter of 2022 and completion of three out of the four planned workovers. The fourth workover was completed in July. In aggregate, the workover programme was delivered on budget and ahead of schedule with production in line with expectations. The Group has also successfully executed a three-well plug and abandonment (‘P&A’) campaign at PM8/Seligi. In recognition of this workover and P&A performance, EnQuest received three Petronas Recognition Awards centred on a commitment to safety, application of new technology to leverage efficiencies in schedule and cost savings.

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 Group’s first horizontal well at PM8/Seligi being brought on stream in July, with higher than expected initial production rates. The drilling rig subsequently mobilised to the Seligi-D satellite platform, where two more horizontal wells are expected to be delivered in 2022.

Looking ahead, the Group has sanctioned a three well infill drilling programme in 2023, in alignment with the established asset strategy.

On Block PM409, an area containing several undeveloped discoveries and situated close to the Group’s existing PM8/Seligi PSC hub, geotechnical studies have been completed, and a proposed exploration well has been identified. The Group has a commitment to drill the exploration well by the end of the PM409 exploration period, which ends in December 2023.

Decommissioning

Heather and Thistle P&A campaigns are progressing well with six wells completed at Heather and nine wells completed at Thistle. The Group continues to demonstrate and develop capability in delivering these significant decommissioning projects and 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 have scheduled windows between 2024 and 2026, are expected to be awarded in the second half of 2022. The Group is aware of increased competition in the heavy lift vessel market, with the evolution of several large-scale renewable projects being sanctioned by the governments of European countries, and has moved to manage execution of heavy lift scopes within multi-year windows in order to retain flexibility and mitigate availability concerns.

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 September. The North Sea Transition Authority (‘NSTA’) recently recognised the floating production facility off station project as an example of exemplary execution and best-in-class performance in the North Sea for prompt asset removal, reduction of post-cessation of production operating expense and CO2 reduction.

The EnQuest Producer FPSO remains in warm stack at Nigg Energy Park while the Group continues to evaluate options, which include utilisation on a future project or sale.

Infrastructure and New Energy

The Sullom Voe Terminal (‘SVT’) and its related infrastructure maintained safe and reliable performance, with 100% export service availability during the first half of 2022.

EnQuest continues to develop cost-effective and efficient plans to transform the terminal and prepare and repurpose the site to progress decarbonisation opportunities at scale, focused on carbon capture and storage (‘CCS’), electrification and green hydrogen. The terminal site offers several unique competitive advantages, including a 1,000-acre industrial site with access to existing oil and gas pipeline infrastructure, a deep-water port and jetties, the highest wind capacity factor across Europe, and a highly skilled workforce and local supply chain. In advancing its Infrastructure and New Energy business, the Group will maintain its focus on capital discipline and, having secured exclusivity from the Shetland Islands Council to progress new energy opportunities on the site to achieve value for the Council, the Shetland community and EnQuest, the Group is well placed to deliver on its new energy ambitions alongside strategic delivery partners.

Carbon Capture and Storage

The availability of the deep-water port and jetties and a pipeline network linked to several well-understood offshore reservoirs presents the opportunity to repurpose infrastructure to import and permanently store material quantities of CO2 from isolated emitters in the UK, Europe or further afield.

EnQuest has conducted initial phases of feasibility and economic screening work in respect of this carbon storage concept. These studies have indicated the capability of the existing infrastructure, including the EnQuest operated East of Shetland pipeline system, and storage sites to support a project of up to 10 million tonnes per annum of CO2. In May 2022, the Group made two CCS licence area nominations in locations which are both accessible from EnQuest’s existing infrastructure. These were both accepted and EnQuest expects to make two applications in respect of these licence areas in the forthcoming NSTA UK offshore CCS licensing round, with results expected to be announced in the first quarter of 2023.

Electrification

EnQuest is assessing the potential to leverage its existing infrastructure and subsea projects expertise to facilitate the electrification of nearby offshore oil and gas assets and planned developments by way of a grid connection supplemented with renewable power. This would lead to significant emissions reductions for platforms which are expected to operate into the 2050’s. In addition, the Group is also currently assessing onshore wind potential and a new power solution for the Sullom Voe Terminal, which has the potential to significantly reduce the Group’s carbon footprint.

Green Hydrogen

The Group is exploring the potential for repurposing areas of the existing SVT site and harnessing the advantaged natural wind resource around Shetland for the production of green hydrogen and derivatives at export scale to provide a low carbon alternative fuel which could help to decarbonise a number of industries.  

Liquidity and net debt

The Group generated strong free cash flows during the first half of 2022, resulting in net debt of $880.0 million at 30 June 2022, down $342.0 million since the end of 2021. This reduction was driven by accelerated repayments totalling $300.0 million on the Group’s RBL facility, with drawings of $115.0 million at 30 June 2022, significantly ahead of the required amortisation schedule. EnQuest’s 12-month net debt to adjusted EBITDA ratio at 30 June 2022 was 0.9x and the Group had total cash and available facilities of $467.0 million, including restricted funds and ring-fenced funds held in joint venture operational accounts totalling $286.1 million (31 December 2021: $318.7 million and $191.4 million, respectively).

In line with EnQuest’s continued focus on deleveraging, the Group has further reduced its net debt to $817.6 million at the end of August. The outstanding RBL facility was reduced to $90.0 million and the Group bought back and cancelled $33.4 million of its 2023 7% high yield bonds across July and August, leaving $793.8 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. At the same time, the Group continues to explore options to refinance its high yield bond ahead of maturity in October 2023.

KeyFacts Energy: EnQuest Malsysia country profile   l   KeyFacts Energy: EnQuest UK country profile