Highlights

• Group production averaged 68,606 Boepd in 2019, up 23.7% on 2018
• Revenue of $1,711.8 million (2018: $1,201.0 million) and EBITDA of $1,006.5 million (2018: $716.3 million)
• Cash generated from operations of $994.6 million (2018: $788.6 million), reflecting higher EBITDA
• Cash capital expenditure of $237.5 million (2018: $220.2 million)
• Cash and available bank facilities amounted to $288.6 million at 31 December 2019, with net debt of $1,413.0 million (2018: $1,774.5 million); net debt:EBITDA at 1.4x
• Net 2P reserves of 213 MMboe and net 2C resources of 173 MMboe at the end of 2019 (2018: 2P reserves of 245 MMboe; 2C resources of 198 MMboe); lower 2P reserves driven by production and downward revisions at Heather/Broom and Thistle, partially offset by increases at Magnus, Kraken and PM8/Seligi
• Non-cash post-tax impairments of $562.3 million, including tangible fixed assets of $397.5 million, mainly reflecting changes in oil price and production profiles, primarily at Heather/Broom, Thistle and the Dons, and $149.6 million impairment of goodwill

2020 performance and outlook

Operations

• Year to date production performance remains good with the Group’s day-to-day operations continuing without being materially affected by COVID-19

Financial position

• No senior credit facility amortisations due in 2020 following voluntary early repayments; the Group’s outstanding credit facility(1) is $425.0 million at the end of February
• Cash and available facilities at the end of February were $268.2 million, with net debt of $1,368.1 million

Prioritising operational excellence, cost control and capital discipline

• Targeting further in-year savings by removing discretionary activities given the prevailing oil price environment
  • Full year operating expense savings of c.$190 million; revised full year guidance of c.$335 million
  • Full year capital expense savings of c.$110 million; revised full year guidance of c.$120 million
  • Directors and senior management have agreed an interim voluntary reduction in salary of 20%
• Full year production guidance remains at 57,000 to 63,000 Boepd
• Forecast free cash flow(2) breakeven reduced to c.$33/Boe for 2020 and c.$27/Boe for 2021, subject to achieving savings
• Future portfolio opportunities focused on three largest, low-cost assets: Magnus, Kraken and PM8/Seligi

1 Excludes interest capitalised as payment in kind of $15.8 million
2 Free cash flow: net change in cash and cash equivalents less net (repayments)/proceeds from loan facilities. $/Boe based on working interest production

EnQuest Chief Executive, Amjad Bseisu, said:
“During 2019, EnQuest again delivered on its targets. The combination of improved Kraken performance, a full year contribution at Magnus and strong performances at Scolty/Crathes and PM8/Seligi, drove significant production growth and free cash flow generation, which facilitated a material reduction in the Group’s net debt.

“Given the prevailing low oil price environment, we have taken decisive action to lower our cost base, targeting $190 million of operating cost savings in 2020, equating to unit operating expenses of c.$15/Boe. With these significant cost reductions, cash flow breakeven is estimated at c.$33/Boe in 2020. With realisations in the first quarter of 2020, the cash flow breakeven falls to c.$25/bbl for the remainder of the year. 2021 cash flow breakeven is now forecast at c.$27/Boe, with unit operating expense of around $12/Boe. With these significant reductions, we are well positioned to manage through a sustained low oil price environment.

“Our three largest assets continue to generate meaningful operating cash flows, even at low oil prices, and, in the medium to long-term, offer low-cost resource maturation opportunities which are aligned with our proven differential capabilities.”

2019 performance summary

EnQuest’s operational focus for 2019 was to improve and stabilise production at Kraken, deliver the Group’s sub-sea pipeline projects and drilling programmes, while maintaining strong production efficiency across its asset base. All of these were achieved with the Group again performing better than, or in line, with external guidance. This operational delivery combined with ongoing cost control, has enabled the Group to continue to strengthen the balance sheet by significantly reducing net debt.

EnQuest’s average production increased by 23.7% to 68,606 Boepd, towards the top end of the guidance range, primarily reflecting the contributions from Magnus, Kraken, Scolty/Crathes and PM8/Seligi, partially offset by the shutdowns at Thistle and Heather and natural declines across the portfolio.

EBITDA and cash generated by operations increased materially in 2019 compared to 2018, reaching $1,006.5 million and $994.6 million, respectively, reflecting the combination of significantly higher production, higher realised oil price and the Group’s focus on cost control.

Cash capital expenditure of $237.5 million was focused on executing the Group’s drilling programmes at Kraken, Magnus and PM8/Seligi and the sub-sea pipeline projects at Scolty/Crathes and the Dunlin bypass for Thistle and the Dons.

Liquidity and net debt

At 31 December 2019, net debt was $1,413.0 million, down $361.5 million from $1,774.5 million at 31 December 2018, reflecting a strong operational performance and higher realised oil prices. Total cash and available facilities were $288.6 million, including ring-fenced funds held in operational accounts associated with Magnus, the Sculptor Capital facility (previously known as the Oz Management facility) and other joint venture accounts totalling $74.0 million.

Strong free cash flow generation enabled the Group to make early voluntary repayments of the senior credit facility, which was reduced by $325.0 million during the year, including $120.0 million associated with the April 2020 scheduled amortisation. A further $35.0 million was repaid in January 2020 as an accelerated voluntary payment of the October 2020 amortisation. No further amortisation payments are due in 2020. At the end of March, the senior credit facility, excluding payment in kind interest, totalled $425.0 million.

Reserves and resources

Net 2P reserves at the end of 2019 were 213 MMboe (2018: 245 MMboe) and have been audited on a consistent basis with prior years. During the year, the Group produced 9.6% of its year-end 2018 2P reserves base, with downward revisions at Heather/Broom and Thistle almost entirely offset by increases at Magnus, Kraken and PM8/Seligi. Net 2C resources at the end of 2019 were 173 MMboe (2018: 198 MMboe) as a result of transfers to 2P reserves at Magnus and PM8/Seligi and revisions at Heather/Broom, partially offset by the addition of resources associated with the award of the PM409 Production Sharing Contract in Malaysia.

COVID-19 update

As a responsible operator, EnQuest has been monitoring the evolving situation, and consequent emerging risk, with regards to the spread of COVID-19. The Group has been working with a variety of stakeholders, including industry and medical organisations, to ensure its operational response and advice to its workforce is appropriate and commensurate with the prevailing expert advice and level of risk. Appropriate restrictions on offshore travel have been implemented, such as self-declaration by, and isolation of, individuals who have been to affected areas and pre-mobilisation temperature checking in operation at most locations. EnQuest’s normal communicable disease process has been updated specifically in respect of COVID-19, with additional offshore isolation capability and agreements in place to transport impacted individuals back onshore in dedicated helicopters. At the Sullom Voe Terminal, the same processes have also been implemented, with isolation capability at the local accommodation block. Non-essential down-manning has been implemented, with many of the Group’s onshore workforce working remotely.

While it is difficult to forecast the impact of COVID-19, at the time of publication of EnQuest’s full year results, the Group’s day-to-day operations continue without being materially affected. The situation will continue to be monitored.