North Sea EnQuest slashes spending again to be 'well positioned' for price crunch

London — North Sea operator EnQuest slashed its 2020 spending plans for the second time in under a month on Thursday due to the collapse in oil prices, as it focuses on its two largest UK fields, an asset in Malaysia and the Brent loading terminal in the Shetland Islands.

Reporting 2019 financial results, EnQuest said it was cutting non-critical activity as well as management salaries and would also make savings through the shutdown of late-life, low-producing fields.

North Sea oil and gas companies have been slashing spending on discretionary maintenance and in some cases pushing back new projects in the face of the recent oil price collapse; EnQuest is largely focused on ensuring production from current assets rather than any new projects.

It said Thursday it now expects to break even at an average price for its production of $33/barrel of oil equivalent this year, translating as $25/boe for the rest of the year given its Q1 revenue.

With operating expenditure slashed to $335 million for the year, down 36% from its original plans, it expects to achieve operating costs of $15/boe of production.

"We have taken decisive action to lower our cost base. With these significant reductions we are well positioned to manage through a sustained low oil price environment," CEO Amjad Bseisu said, adding the company was generating "meaningful operating cash" from its three largest assets, the UK Kraken and Magnus fields and the PM8/Seligi complex in Malaysia.

EnQuest's cost expectations assume it meets its output target for the year, which it had already lowered to 57,000-63,000 boe/d, having decided to decommission four late-life fields with low production rates: Thistle, Deveron, Heather and Broom.

It also expects to cease production at another pair of late-life fields, Alma and Galia, in the second half of the year. The two together were producing around 2,500 b/d of oil in mid-January.

Major asset focus

The company reiterated production was going well from its biggest UK fields, Kraken and Magnus. EnQuest launched production from Kraken, an ultra-heavy oil field, in 2017, and took over Magnus from BP in 2017-18, along with operation of the UK's Sullom Voe terminal, loading point for benchmark Brent crude.

Magnus first came on stream in 1983, reaching production heights of nearly 200,000 b/d, but those levels have since fallen back and output averaged 15,000 b/d last year.

EnQuest's overall production last year was 69,000 boe/d, a 24% annual increase, however, it reported a net loss of $449 million, reflecting a post-tax financial impairment of $562 million, largely as a result of reduced production and oil price expectations.

It said it now expected capital expenditure this year of $120 million, roughly half its original plans, with the majority of this already spent on a drilling program at Magnus, while two wells are to be drilled at Kraken.

It expects Kraken to produce 30,000-35,000 b/d this year, with the new wells expected to partly offset a maintenance shutdown.

EnQuest added it did not expect operations to be "materially affected" by the health risk from the coronavirus, although the situation was hard to predict.

It said it had taken precautions at Sullom Voe, with some workers able to work from home and facilities available for isolating any workers with symptoms associated with the virus.

Sullom Voe loads around 150,000 b/d of crude, including the Brent blend, which contributes to the Dated Brent benchmark, and the separate Clair crude grade.