EnQuest today reports results for the six months ended 30 June 2023.

EnQuest Chief Executive, Amjad Bseisu, said: 
“Strong operational performance, including the efficient return to service of Kraken, has enabled free cash flow generation totalling $140 million in the first half of 2023, driving further reduction in EnQuest net debt to $592 million. Within the core business, we have a significant work programme in the second half of the year, including further drilling at Magnus and at Golden Eagle and a continuation of well plug and abandonment activities at Heather and Thistle, which we expect to deliver in line with 2023 guidance.

“EnQuest continues to play an active role in supporting the UK’s twin objectives of delivering energy security and decarbonisation. Following the successful awards of carbon capture and storage licenses, I’m delighted that the Board has established a commitment for EnQuest to reach net zero for scope 1 and scope 2 emissions by 2040.

“The UK’s oil and gas sector faces significant challenges and loss of competitiveness due to uncertainty following the adverse changes to the fiscal regime. While we appreciate the Government’s intentions to improve the attractiveness of the sector through the Energy Security Investment Mechanism, we believe timely legislative reform is required to restore confidence in the UK oil and gas sector to protect jobs and deliver both energy security and decarbonisation.

“As we navigate the challenges posed by the EPL, we remain focused on further strengthening our Balance sheet, to unlock organic and inorganic growth opportunities, as well as our differentiated tax advantage, to grow the business and deliver returns to shareholders.”

H1 2023 performance

• Group net production averaged 45,480 Boepd (2022: 49,726 Boepd)
• Revenue and other operating income of $732.7 million (2022: $943.5 million) and adjusted EBITDA of $399.2 million (2022: $536.3 million) reflects lower realised oil prices of $75.8/Boe (2022: $89.9/Boe) and lower production
• Operating costs were $162.7 million (2022: $208.4 million), reflecting higher lease charter credits reflecting unplanned downtime at Kraken, as well as lower maintenance and well intervention costs at Magnus and at PM8/Seligi
• Reported profit before tax was $112.9 million (2022: $182.6 million). Reported loss after tax was $21.2 million (2022: profit of $203.5 million) driven by the impact of the UK Energy Profits Levy
• Reported cash generated from operations was $370.4 million (2022: $522.7 million); with cash capital expenditure of $80.0 million (2022: $54.7 million) and cash abandonment expenditure of $29.3 million (2022: $28.2 million)
• Free cash flow generation, including favourable working capital movements, of $140.0 million (2022: $332.1 million)
• Awarded four carbon storage licences by the North Sea Transition Authority

End June EnQuest net debt reduced by $125.0 million from year end; EnQuest net debt to adjusted EBITDA maintained at 0.7x

• At 30 June 2023, EnQuest net debt reduced to $592.1 million (end 2022: $717.1 million). EnQuest net debt to last-12 months adjusted EBITDA ratio as at 30 June 2023 remains at 0.7x, as it was at the end of 2022
  • At the end of June, $247.0 million (end 2022: $400.0 million) remained outstanding on the Group’s senior secured debt facility (‘RBL’) following accelerated repayments totalling $153.0 million
  • At 30 June, EnQuest retained strong liquidity with total cash and available facilities of $385.2 million (end 2022: $348.9 million)
• At 31 August 2023, EnQuest net debt increased to $615.2 million due to the July payment of $50 million contingent consideration in relation to the Golden Eagle acquisition.
  • The outstanding RBL, which matures in April 2027, was reduced by a further $7.0 million to $240.0 million
• In August 2023, the Group agreed a term loan facility totalling $150.0 million, maturing in July 2027, which will rank junior to the existing RBL as a secured second lien instrument within the capital structure. The loan proceeds, which can be used for general corporate purposes, provide an additional source of liquidity for the Group in advance of the October settlement of the 7% Sterling retail bond
• The remaining October 2023 7% Sterling retail bond in issue is £111.3 million and is expected to be settled in cash at maturity

Guidance and outlook

• 2023 average net Group production is still expected to be within the guidance range of 42,000 Boepd to 46,000 Boepd reflecting strong first half performances across the majority of the portfolio and the efficient return to service at Kraken, which mitigated losses associated with a period of production shut-in following the decision to accelerate maintenance work originally planned for the third quarter 
• Operating costs, cash capital and abandonment expenditures are all expected to be in line with prior guidance of c.$425 million, c.$160 million and c.$60 million, respectively, with operating costs expected to be higher in the second half of the year in line with increased activity
• EnQuest has hedged a total of c.3.8 MMbbls in the second half of 2023 with an average floor of c.$60/bbl through the use of put options. For the first half of 2023, the Group hedged a total of c.5.9 MMbbls with an average floor price of c.$57/bbl and an average ceiling price of c.$76/bbl applicable to 3.1 MMbbls
• EnQuest has hedged a total of c. MMbbls in 2024 and a total of 0.1 MMbbls in 2025 through the use of put options, all with the same floor of $60/bbl

UK operations

Magnus
Average production for the first six months of 2023 was 16,530 Boepd, 29.6% higher than the first half of 2022 (12,754 Boepd). Production efficiency for the period was 91.4% (2022: 73.0%), driven by improvements to rotating equipment performance, including gas compressors and power generation units, following 2022 investment to optimise equipment and reduce obsolescence. Other improvements relate to the test separator system, where enhancements have been made to enable the resumption of well testing and increase the Group’s understanding of well composition and characteristics. The Group’s drilling programme is ongoing, with the North West Magnus injector brought online in May to provide pressure support for the production well. In addition, slot recovery activity continued to enable the delivery of future infill drilling opportunities, with the completion of the B6 well plug and abandonment (‘P&A’). Subsequently, the new B6 infill well came online on 4 August. The programme in the second half of the year includes the completion of a further infill well.

Work is ongoing to optimise the ongoing maintenance shutdown, originally planned for 24 days, with the Magnus team aiming to align to the Ninian Central outage and shorten the shutdown duration.

Kraken
Average production of 13,082 Boepd (18,556 Boepd gross) (2022: 19,527 Boepd net; 27,698 Boepd gross) reflected an efficientreturn to service of the FPSO following the anomalous failure of hydraulic submersible pump (‘HSP’) transformer units during May. Working alongside the vessel owner, Bumi Armada, the EnQuest asset team limited the impact on production, resuming production on a single train basis on 12 June and then reaching 80-90% production capacity through the refurbishment and reinstatement of a transformer unit in July. On 7 August, a further transformer unit was brought back into service, following a rebuild, returning Kraken to full production. New transformer units were proactively ordered from the manufacturer and are due for delivery in September, providing further resilience to production capacity.

The Group reacted quickly to mitigate production losses by executing maintenance work, originally planned for the third quarter shutdown during two periods of single train operations. No further planned maintenance outages are anticipated during 2023.

In light of the direct impact of the EPL on the Group’s available cash flow and the indirect contribution to underlying inflationary pressures through incentivisation of industry-wide investment within a defined timeline, the Group took the decision to delay its plans to progress the Kraken drilling programme. However, near-field drilling and subsea tie-back opportunities continue to be assessed, with interpretation of 3D seismic data ongoing to access the significant opportunity in terms of main field side-track drilling opportunities, along with further drilling within the Pembroke and Maureen sands, with c.33 Mmboe of 2C resources available at Kraken. Until drilling resumes, Kraken production will be subject to natural field decline.

Golden Eagle
Average production in the first half of the year was 4,545 Boepd net (2022: 7,060 Boepd), while production efficiency remained high at 91% (2022: 95%). The planned 26-day shutdown was optimised to a 12-day programme of work, which was completed during August.

The delayed 2022 drilling campaign was completed in the first half of 2023, with first oil from the new well delivered on 24 June 2023. Preparations are underway for the next drilling campaign, which includes a two-well infill programme, with further well options, utilising a heavy duty jack up rig and which is expected to run from September 2023.

Other Upstream assets
Production for the first six months of 2023 averaged 3,105 Boepd (2022: 4,081 Boepd). This was driven by uptime of 95% (2022: 92%) at the Greater Kittiwake Area (‘GKA’), and the positive impact of the reinstatement of the Grouse well. The planned three-week GKA shutdown was deferred from April and has recently been completed, with production resuming on 19 August following a shutdown of 23 days.

At Bressay, we continue to progress evaluation of the project through creative development options with potential partners, in light of the EPL.

Malaysia Operations

For the first six months of 2023, average production in Malaysia was 8,218 Boepd, representing a 30% increase over the same period last year. This increase includes 660 Boepd associated with Seligi gas, to which Petronas hold the entitlement, and which is produced and handled by EnQuest in exchange for a gas handling and delivery fee. In addition, production in the first half of the year has benefitted from the workover campaign and three horizontal wells delivered during 2022. Thus far in 2023, two well workovers have been completed which, when coupled with the delivery of idle well restoration work, is expected to add an incremental 2.5 kboed to PM8/Seligi production.

The planned three-week shutdown at PM8/Seligi to undertake asset integrity and maintenance activities was optimised and the updated 14-day work programme was completed ahead of schedule during August, with the completed scopes expected to help improve reliability and efficiency at the field. Well P&A work will also continue, primarily funded by a centralised investment fund to which EnQuest contributes, with six well abandonments planned for 2023 with one delivered to date.

The Group continues to undertake preparatory work ahead of plans to drill a multi-well infill programme during 2024. On Block PM409, an area containing several undeveloped discoveries and situated close to the Group’s existing PM8/Seligi PSC hub, the Group is currently drilling its commitment well, with results expected in our next operational update.

Decommissioning

Heather and Thistle P&A campaigns are progressing well with seven wells completed at Heather and a further seven wells completed at Thistle during the first half of 2023. The Group continues to demonstrate and develop capability in delivering these significant decommissioning projects and remains on track to complete the P&A of 23 wells (12 at Heather and 11 at Thistle) in 2023.

The Heather project team is looking for further opportunities to perform P&A activities using supplementary equipment, which will increase efficiency of the main platform rig, and will further underpin its expectation that the target to disembark the platform in the fourth quarter of 2024 will be met. At Thistle, the team aim to complete disembarkation by the end of the third quarter of 2025. Both assets remain on track to meet their post-cessation of production well P&A targets of 39 wells at Heather and 41 wells at Thistle by the end of 2024.

EnQuest is also planning the P&A of 33 subsea wells at the Alma/Galia, Dons and Broom fields and aims to be execution-ready during the second quarter of 2024 and, to that end, aims to put in place a rig commitment by the end of 2023. The EnQuest team continues to work on the basis that subsea decommissioning activities can be optimised by utilising a portfolio approach across the fields.

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 2023.

EnQuest continues to develop cost-effective and capital-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’), production of green hydrogen and derivatives and electrification. The terminal site offers several unique competitive advantages, including a 1,000- acre tier 1 COMAH industrial site with access to existing utilities, 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 exclusive rights from the Shetland Islands Council to progress new energy opportunities on the site, the Group is well placed to deliver on its new energy ambitions alongside strategic delivery partners in a capital-light manner. Delivery of these opportunities is anticipated to create material value for EnQuest, the Council and the Shetland Community, contribute to emissions reduction and retain and create significant local jobs.

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 successfully secured four carbon storage licences, incorporating storage sites in the Magnus and Thistle fields currently operated by EnQuest, as well as the non-operated Tern and Eider fields. These sites are large, well characterised deep storage formations connected by significant existing infrastructure to the Sullom Voe Terminal ('SVT') in Shetland. EnQuest plans to have carbon dioxide ('CO2') shipped to SVT in liquid form, received at the existing jetties at the terminal before being transported via the existing East of Shetland pipeline for injection and permanent storage offshore. The flexibility afforded by a shipped solution for carbon storage is expected to enable a service to be provided to isolated emitter clusters in the UK, Europe and further afield who may not otherwise be able to access storage infrastructure. The capability of the existing infrastructure, including the EnQuest-operated East of Shetland pipeline system, and storage sites is expected to support a project that could store up to 10 million tonnes of CO2 per annum. This quantity of potential carbon storage represents a multiple of the Group’s existing direct emissions.

Additional geological formations in this area of the North Sea, which could be connected to SVT infrastructure in the future, have the potential to store in excess of one billion tonnes of CO2.

Green Hydrogen

The Group is working closely with strategic partners, including renewable developers and potential local customer offtakers to explore opportunities to aggregate and use the excess energy produced by local wind power from onshore and offshore wind farms to produce green hydrogen and derivatives. The Group is working on developing a first phase project aimed at decarbonising local industry with a further scale-up to service customers globally, leveraging the existing export capabilities and advantaged renewable power potential.

Electrification

EnQuest continues to progress innovative proposals to harness local renewable power and SVT’s advantaged location to offer robust and commercially attractive electrification solutions to facilitate new asset developments in the North Sea basin and to support UK energy security. In leveraging the Group’s 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, it is anticipated that realisation of this opportunity would lead to significant emissions reductions for platforms which are expected to operate into the 2050s.

Liquidity and EnQuest net debt

The Group generated $140.0 million in free cash flows during the first half of 2023, incorporating favourable working capital movements, including receipt of a joint venture advanced cash call, and the March refund of the Group’s EPL instalment payment in December 2022, resulting in EnQuest net debt of $592.1 million at 30 June 2023, down $125.0 million since the end of 2022. This reduction was driven by accelerated repayments totalling $153.0 million on the Group’s RBL facility, with drawings of $247.0 million at 30 June 2023, significantly ahead of the required amortisation schedule. EnQuest’s net debt to adjusted EBITDA ratio at 30 June 2023 was 0.7x and the Group had total cash and available facilities of $385.2 million, including restricted funds and ring-fenced funds held in joint venture operational accounts totalling $124.1 million (31 December 2022: $348.9 million and $174.3 million, respectively).

EnQuest net debt has increased to $615.2 million at the end of August, predominantly due the scheduled contingent consideration payment of $50 million in relation to the Golden Eagle acquisition. The outstanding RBL facility, which matures in April 2027, was reduced to $240.0 million during the month of July.

On 25 August, the Group entered into a new $150.0 million term loan facility, maturing in July 2027, which will rank junior to the existing RBL as a secured second lien instrument within the capital structure. The loan proceeds, which can be used for general corporate purposes, will provide an additional source of liquidity for the Group ahead of the October settlement of the remaining October 2023 7% Sterling retail bond in issue of £111.3 million.

2023 outlook 

The Group remains on track to achieve net production between 42,000 and 46,000 Boepd, with ongoing drilling campaigns at Magnus and at Golden Eagle, partially offset by natural declines and planned maintenance shutdowns at Magnus and GKA in the third quarter.

Full year expectations for operating, cash capital and abandonment expenditures remain unchanged from the Group’s original guidance at approximately $425 million, $160 million and $60 million, respectively, with spending expected to be higher during the second half of the year, in line with activity. EnQuest remains focused on cost discipline and continues to employ a proactive approach to engagement with its global supply chain to mitigate the impacts of cost inflation across all contracts.

EnQuest will pay cash tax in the UK in accordance with the Energy Profits Levy (‘EPL’), with the expected October 2023 cash payment of c.$75 million reflecting the Group’s 2022 tax liability.

EnQuest hedged a total of c.9.7 MMbbls for 2023 predominantly using put options, with an average floor price of c.$58/bbl. For the period July to December 2023, c.3.8 MMbbls of production remains hedged with an average floor price of c.$60/bbl.

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