North Sea EnQuest says 'decisive' crisis response paying off, as fields outperform

North Sea independent EnQuest said Thursday it was making progress on steadying the business after recent turmoil in which it slashed its spending and moved to decommission several fields, with a number of key assets performing well.

In a statement, EnQuest said it had produced 66,000 b/d of oil equivalent over the first four months of the year, just 3,000 boe/d lower than last year and slightly above its revised guidance for this year, of 57,000-63,000 boe/d. The company derives most of its production from the North Sea, including Magnus, an ageing field inherited from BP, and Kraken, an ultra-heavy oil field. It also produces about 8,000 boe/d offshore Malaysia.

"EnQuest has responded well to the challenges of COVID-19 and the downturn in oil prices. Our continued focus on operational excellence has ensured our operations remain materially unaffected by the ongoing COVID-19 pandemic," CEO Amjad Bseisu said.

"We... took decisive, early action to reduce costs and the implementation of our cost reduction program is progressing well. With the strong performance in the year to date and continued focus on delivering our cost program, we expect that for the remainder of the year we need to realize an average oil price of around $25/boe to achieve free cash flow breakeven, and remain confident in meeting our targets."

EnQuest, which also operates the Sullom Voe terminal, loading point for the Brent crude grade, has attracted concern over the years over its high debt levels and large number of ageing oil facilities, but has more than doubled its production in the last half-decade thanks principally to its takeover of BP's Magnus facilities, which feed into the Brent pipeline, and its development of the Kraken oil field, which came on stream in 2017.

With the industry buffeted by coronavirus outbreaks among offshore workers, and collapsing oil prices, the company has almost halved its capital spending plans this year to $120 million. It has also announced plans to decommission six late-life fields, resulting in sizeable job losses, as well as grappling with unions over cost-cutting measures at Sullom Voe.

On Thursday it said production had been boosted by recent drilling at Magnus, completed in March, and by stronger-than-expected production at Kraken, as well as at two smaller fields, Scolty and Crathes.

Kraken performance

It noted Kraken is headed for a maintenance shutdown over the summer, but the production impact would be offset by additional wells due on stream at the field. Kraken produced 38,000 b/d of heavy crude over the first four months of the year. "The floating production, storage and offloading vessel continues to perform well, with production efficiency remaining high at above 80%. Sub-surface and well performance continues to be strong, with the aggregate water cut remaining stable," EnQuest said.

EnQuest was slightly less positive about Magnus, a very mature field that came on stream in 1983 and is now far off its early production heights of nearly 200,000 b/d. Crude output from the field averaged 15,000 b/d last year.

In the first four months of this year, "Magnus production was impacted by gas compressor performance, although this was partially offset by good production efficiency. The two new Magnus wells came on stream in late-March and are performing in line with expectations," it said.

EnQuest expects to break even at $33/boe of production on average this year and to reduce that to $27/boe next year, while it estimates its operating costs this year at $15/boe.

It said it had hedged about 40% of its expected oil production this year at an average price of $45/b. The company's net debt at the end of April stood at $1.4 billion, slightly down on the end of last year, while it said it had no senior credit facility amortizations due this year.

On its handling of the health risks associated with COVID-19, EnQuest said: "Day-to-day operations continue without being materially affected. The situation will continue to be monitored."