21 March 2017

2016 FULL YEAR RESULTS ANNOUNCEMENT

Kraken on track and 2017 guidance reiterated
Magnus/SVT acquisition progressing to plan

2016 results highlights

  • Production averaged 39,751 Boepd in 2016, up 8.7% on 2015
  • 2016 unit operating costs of $24.6/bbl compared to $29.7/bbl in 2015
  • 2016 cash capex of $609.2 million compared to $751.1 million in 2015
  • Revenue of $849.6 million and EBITDA** of $477.1 million, reflecting EnQuest’s strong operational performance and hedging activities
  • Cash generated from operations of $408.3 million, up from $221.7 million in 2015
  • Net 2P reserves of 215 MMboe at the end of 2016, 5.9% up on the 203 MMboe at the end of 2015
  • Comprehensive financial restructuring significantly improved EnQuest’s liquidity position
  • Net debt at the year end, was $1,796.5 million, compared to $1,548.0 million at the end of 2015

2017 update and outlook

  • The Kraken development continues under budget and on track for first oil in Q2 2017
  • EnQuest’s confirms 2017 average production guidance, in the range of 45,000 Boepd to 51,000 Boepd for the full year – dependent on the timing of Kraken first oil
  • EnQuest also remains on course to reduce average unit opex further in 2017 to be within the range of $21/bbl to 25/bbl including Kraken production, driven by further cost reductions across the supply chain. Cash capex is set to be in the range $375 million to $425 million in 2017, the majority of which is being invested in the Kraken development
  • Hedging of c.6 million barrels for 2017, at an average of c.$51/bbl
  • Total debt facilities of c.$2.1 billion remain in place
  • The proposed EnQuest acquisition of interests in the Magnus oil field and the Sullom Voe terminal was announced on 24 January. Transition activities have begun and are ongoing; the process is expected to take 6-12 months, with no cash outlay for EnQuest

* Unless otherwise stated, all figures are on a business performance basis and are in US dollars.

2016
2015
Change
%
Production (Boepd)
39,751
36,567
8.7
Revenue and other operating income ($m)***
849.6
906.6
(6.3)
Realised oil price ($/bbl)***
63.8
72.0
(11.4)
Gross profit ($m)
196.1
173.2
13.2
Profit before tax & net finance costs ($m)
237.1
173.9
36.3
EBITDA** ($m)
477.1
474.2
0.6
Cash generated from operations ($m)
408.3
221.7
-
Reported basic earnings per share (cents)
22.7
(98.0)
-
Cash capex**** ($m)
609.2
751.1
(18.9)
End 2016
End 2015
Net (debt)/cash ***** ($m)
(1,796.5)
(1,548.0)
16.1

**EBITDA is calculated on a business performance basis, and is calculated by taking profit/loss from operations before tax and finance income/(costs) and adding back depletion, depreciation, foreign exchange movements and the realised gains/loss on foreign currency derivatives related to capital expenditure. The prior year EBITDA has been restated on a comparable basis by adding back realised losses on foreign currency derivatives related to capital expenditure of $9.4 million. *** Including revenue of $255.8 million (2015: $261.2 million) associated with EnQuest’s oil price hedges. ****Cash capex is stated net of proceeds received from the disposal of tangible and intangible fixed assets of $1.5 million (2015: $75.5 million) ***** Net (debt)/cash represents cash and cash equivalents less borrowings, stated excluding accrued interest and the net-off of unamortised fees.

EnQuest CEO Amjad Bseisu said:

“EnQuest further streamlined its operations in 2016 and delivered cash capital expenditure at $609 million and unit opex at $24.6/bbl, both well down on the previous year. Operationally EnQuest worked at high levels of production efficiency and safely delivered production averaging 39,751 Boepd, our highest annual production figure, supporting our financial objectives.

2016 saw the successful restructuring of our balance sheet, designed to strengthen EnQuest’s liquidity position, to reduce the level of its cash debt service obligations and to enable it to bring the Kraken development onstream.

In early 2017, EnQuest securely moored the Kraken FPSO on station in the North Sea, where commissioning work continues on the vessel and the subsea infrastructure; preparations for the handover to operations are ongoing. The project remains below budget and on track to deliver first oil in Q2 2017.

In early 2017, EnQuest and BP announced EnQuest’s proposed acquisition of interests in the Magnus oil field and the Sullom Voe oil terminal. The innovative structure of the acquisition recognises EnQuest’s differential strength in managing maturing assets and infrastructure, whilst generating significant potential for future growth.

EnQuest’s combination of integrated technical capabilities and high levels of production efficiency and cost control ideally positions us to create value from assets such as Magnus and from the substantial potential in our existing asset portfolio, with 215 MMboe of net 2P reserves at the end of 2016. Our journey to optimise and increase production and reduce costs continues, with average 2017 production anticipated to be between 45,000 Boepd and 51,000 Boepd. Following delivery of Kraken, EnQuest will begin moving from a period of heavy capital investment into one focused on cash generation and deleveraging the balance sheet.”

2016 performance summary

In 2016, operations and production were generally strong across the portfolio, leading to an 8.7% year on year net increase to 2016 average production of 39,751 Boepd. The Heather/Broom performance was one of the highlights of the year, with production of 5,948 Boepd, up 28.1% on the prior year. This was due to increased water injection reliability and the continuing benefits of the 2015 wells workover programme. Production from PM8/Seligi was another highlight, with successful work on wells and topsides resulting in production in early December of over 20,000 Boepd gross, the highest levels since EnQuest assumed operatorship. Productivity from Alma/Galia was negatively impacted by well performance including reliability issues with ESPs.

Full year final reported cash capex of $609.2 million was better than the bottom of the latest indicated range of $620 million to $670 million, down from the $700 million to $750 million range guided to in March 2016, following capex savings on the Kraken development and phasing of milestone payments. This net reduction in capex was achieved despite increasing the 2016 programme to include the successful drilling of the Eagle discovery.

Full year final reported 2016 unit opex of $24.6/bbl was slightly ahead of guidance of $25/bbl to $27/bbl. Unit opex has been reduced across the board. Heather/Broom was a particular success, driven partly by its increased production, but also by the ongoing cost reduction programme, as Heather/Broom reduced its unit operating costs, to levels which generated positive cash margins.

Reserves
Audited net 2P reserves at the end of 2016 were 215 MMboe, 5.9% up on the 203 MMboe at the end of 2015; representing a reserve life of 17 years. Factors leading to this net impact included a 14 MMboe increase in relation to the acquisition of an additional 10.5% interest in Kraken and an additional 15.2% in West Don, as countered by the 2016 production of 13 MMboe, also upward revisions to reserve estimates at the Thistle and Heather hubs, both due to improved predicted performance of infill wells based on reservoir simulation model outputs and decreases at Alma/Galia due to the levels of well performance.

2017 year to date and additional outlook details

In 2017, the focus is on delivering first oil from Kraken on schedule. To which end, the majority of the 2017 cash capex programme of between $375 million and $425 million will be invested in Kraken, including the Kraken drilling programme which will follow after first oil. EnQuest is on course to further reduce average unit opex, in 2017 in the range of $21/bbl to 25/bbl; this includes the beneficial impact of production from Kraken. EnQuest continues to seek further cost reductions across the supply chain.

Production performance remains on track to achieve the average production guidance for the full year 2017 of between 45,000 Boepd and 51,000 Boepd.

General and administration costs for 2017 are expected to be in line with those incurred in 2016.

The 2017 depletion and depreciation charge is anticipated to be around $20/bbl, depending on timing of Kraken first oil.

In the current oil price environment and with investment in the North Sea, EnQuest does not expect a material cash outflow for UK corporation tax on operational activities.

2017 outlook by individual production and development asset
Including performance updates re early 2017

North Sea

Kraken

The Kraken FPSO arrived in the North Sea in early January, having completed its journey from Singapore within the scheduled number of days. The vessel was berthed in Rotterdam for post voyage inspection and final preparations prior to sailing. The FPSO then sailed to the Kraken field once good weather conditions were anticipated for the hook up of the STP buoy mooring system to the FPSO. This was completed and a full rotation test performed so that by mid-February the vessel was on station and securely moored. The risers and umbilicals have now been successfully pulled in. Work is continuing in the turret area, as is topsides commissioning work. Following completion of the turret area work, subsea commissioning will commence. Handover of FPSO systems from commissioning to operations continues.

All drilling is now complete on DC-1 and DC-2 and the rig next moves to DC-3. At start up 13 wells will be available comprising 7 producers and 6 injectors. As with all developments of this scale, wells will be brought onstream in a phased manner in line with good reservoir management practices. Drilling performance to date has significantly de-risked delivery of the project to and beyond first oil.
The project continues to be under budget and on schedule for first oil in Q2 2017.

Thistle/Deveron

On both Thistle and Heather there is a programme to abandon redundant well stock, co-funded by EnQuest’s partners. This will both reduce risk and present opportunities in the future to drill further infill wells when circumstances allow. The related Thistle programme of partial well abandonments will continue throughout 2017, starting with the abandonment of well A05/25, which commenced in January 2017. The phased approach to decommissioning utilises EnQuest’s ability to execute low cost well work for the benefit of all Thistle stakeholders and is an important new component of Thistle’s life extension strategy.

The Brent Pipeline System (‘BPS’) operator is planning a further shutdown in 2017, currently expected to result in a Thistle shutdown in Q3.

The Don fields

The planned BPS shutdown will impact the Dons similarly to Thistle, with a Don fields shutdown expected in Q3.

Heather/Broom

Following on from the Thistle well programme, the drill crew will move to Heather in the second half of 2017 to start a similar programme of well decommissioning. Removing legacy wells will safeguard current sustained high water injection efficiency. EnQuest is pleased to have gained decommissioning partner funding for this important life extension work.

A Heather hub shutdown for routine inspection and maintenance is expected Q3 2017.

Greater Kittiwake Area (‘GKA’)

The work programme in GKA for 2017 will be focused on optimising production across the assets and concluding the minimal scope of work remaining from the Scolty/Crathes project: the replacement of the associated gas compressor (‘A-Gas’). Grouse would also be offline during the gas system shutdown. No drilling is planned on GKA in 2017. Evaluation of the potential from the Eagle discovery is ongoing.

A chemical treatment (scale squeeze) is planned in the summer of 2017 for the Mallard well to coincide with the planned three week GKA shutdown in Q3 2017.

Scolty/Crathes

The 2017 programme for Scolty and Crathes will be focused on optimising production across the two fields, as part of this process the Scolty well is currently shut in. Production will be affected by the same outages as are planned for GKA in 2017.

Alma/Galia

In 2017, the final phase of the power optimisation and the produced and sea water injection optimisation projects will be completed on the EnQuest Producer. Discussions are ongoing with the ESP supplier, on rectification plans to address the pump reliability issues. An unscheduled shutdown took place in January/February as a result of damage from a severe winter storm; Alma/Galia performed well after being brought back onstream. A two week maintenance shutdown is scheduled for Q2 2017.

Alba (non-operated)

The Alba oil field is operated by Chevron.

A maintenance shutdown is planned in Q3.

Malaysia

PM8/Seligi

EnQuest will continue to enhance production by investing in low cost well interventions and facility projects to improve production efficiency, including gas compression control system upgrades to improve reliability. In addition, robust maintenance and integrity inspection campaigns of platform structures, topsides, and subsea pipelines will continue to ensure safe operations. This includes a planned annual maintenance shutdown in Q3 2017.

Longer term, EnQuest will extend field life through further investment in idle well restoration, facility improvements and upgrades and technical studies supporting development drilling and secondary recovery projects to increase ultimate recovery. During 2017, the first new drilling projects will be defined for execution in 2018, and significant progress will be made on rebuilding of static and dynamic reservoir simulation models in support of longer term field redevelopment.

Tanjong Baram

Focus remains on steady, safe and low cost operations in 2017. In addition, three options aimed at reviving well A1 are under technical review; the review will be completed in H1 2017.

Summary financial review of 2016

Total revenue for 2016 was $849.6 million compared to $906.6 million for 2015. On average, oil prices in 2016 were lower than in 2015. The Group’s blended average realised price per barrel of oil sold excluding hedging was $44.3 for the year ended 31 December 2016, compared to $50.9 during 2015. Revenue is predominantly derived from crude oil sales and for the year ended 31 December 2016 crude oil sales totalled $577.8 million, compared with $634.3 million in 2015. The decrease in revenue was due to the lower oil price, offset partially by the higher production.

The Group’s commodity hedges and other oil derivatives generated $255.8 million of realised income (2015: $261.2 million). This includes $31.2 million of non-cash amortisation of option premiums and $2.5 million of hedge accounting gains deferred from 2015 (2015: $111.6 million of non-cash amortisation of option premiums). The Group’s average realised oil price after hedging was $63.8 per barrel in 2016 compared with $72.0 per barrel in 2015.

EBITDA for the year ended 31 December 2016 was $477.1 million compared with $474.2 million in 2015. Increased production and lower operating costs have driven a higher EBITDA, although this was partially offset by the impact of lower oil prices in 2016, as partially mitigated through the contribution of the $255.8 million from the commodity hedge portfolio.

Business performance cost of sales was $653.5 million for the year ended 31 December 2016 compared with $733.4 million for 2015. Although production has increased year-on-year, operating costs decreased by $23.9 million, reflecting EnQuest’s ongoing cost saving initiatives and the benefit of a weaker sterling exchange rate, partially offset by an increase in realised losses on foreign currency derivatives of $25.8 million. On a per barrel basis, the Group’s average operating cost per barrel has decreased by 17% to $24.6 per barrel, reflecting the cost reductions and foreign exchange benefits above, together with the impact of 9% higher production.

Cost of sales include realised losses on foreign currency derivatives related to capital expenditure of $47.3 million, reflecting the significant devaluation of sterling against the US dollar since June 2016 (2015: loss of $9.4 million).

The Group’s overlift position decreased significantly during the year, primarily reflecting the unwind of the balances that had accrued at 31 December 2015 on Thistle and GKA. The impact of this movement on the change in lifting position recognised in cost of sales was offset by the impact of higher oil prices on the valuation of the position at 31 December 2016 compared to 31 December 2015, resulting in an overall $2.8 million expense in 2016 (2015: $28.5 million).

Profit after tax and net finance costs was $121.5 million, reflecting a tax credit for the year of $5.2 million and net finance costs of $120.8 million. The tax credit of $5.2 million (2015: $129.3 million tax credit), excluding exceptional items, is due primarily due to Ring Fence Expenditure Supplement on UK activities and the tax effect on foreign exchange gains. Net finance costs of $120.8 million include $110.5 million of bond and loan interest payable (2015: $80.2 million), $14.2 million unwinding of discount on provisions and liabilities (2015: $22.3 million), $36.5 million relating to the amortisation of premium on options designated as hedges of production (2015: $70.0 million), $5.9 million amortisation of arrangement fees for the bank facilities and bonds (2015: $7.3 million), other financial expenses of $10.5 million (2015: $11.0 million), primarily commitment and letter of credit fees and finance income of $1.4 million (2015: $1.0 million).

Net debt at 31 December 2016 amounted to $1,796.5 million compared with net debt of $1,548.0 million at 31 December 2015.

On 21 November 2016, the Company concluded a comprehensive financial restructuring comprising: amendments to the credit facility, high yield bond and retail bond; renewal of surety bond facilities; and a placing and open offer (the ‘Restructuring’). The Restructuring significantly improved EnQuest’s liquidity position and included the following key features:

  • the placing and open offer resulted in the issue of, in aggregate, 356,738,114 new ordinary shares at an issue price of 23.0 pence per share and generated gross cash proceeds of $101.6 million;
  • $176.3 million available for drawdown under the credit facility, as at the restructuring date, with maturity extended to October 2021, the amortisation profile amended and certain financial covenants relaxed;
  • accrued, unpaid interest on the high yield bond as at the restructuring date of $27.5 million was capitalised and added to the principal amount of the bond;
  • future interest payments due on the both retail and high yield bonds will only be payable in cash where the average prevailing oil price (dated Brent future, as published by Platts) for the six month period immediately preceding the day which is one month prior to the relevant interest payment date being at least $65 per barrel; otherwise interest payable is capitalised to principal, repayable at maturity; and
  • option exercisable by the Company to extend the maturity date of the high yield bond and retail bond from April 2022 to April 2023 with a further automatic extension of the maturity date to October 2023 if the credit facility is not fully repaid or refinanced by October 2020.

The Group has remained in compliance with financial covenants under its debt facilities throughout the period and managing ongoing compliance remains a priority.

The Group had $174.6 million of cash and cash equivalents at 31 December 2016 and $1,796.5 million of net debt (2015: $269.0 million and $1,548.0 million, respectively). Net debt comprises the following borrowings:

  • $191.3 million principal outstanding on the £155 million retail bond;
  • $677.5 million principal outstanding on the high yield bond, including capitalised interest of $27.5 million pursuant to the Restructuring;
  • $1,037.5 million carrying value of credit facility, comprising amounts drawn down of $1,037.3 and interest of $0.2 million capitalised as an amount payable in kind (‘PIK amount’);
  • $40.0 million loan facility drawn down from a trade creditor during the year; and
  • $24.9 million principal outstanding on the Tanjong Baram project finance facility.

Exceptional items include a net reversal of impairments of $147.9 million, primarily due to higher near term oil price assumptions and the beneficial impact of a deterioration in the GBP/USD exchange rate on the underlying costs of the assets.

UK corporate tax losses at the end of the year increased to approximately $2,893.7 million.

Production statistics

Production on a working interest basis
Net daily average
1 Jan’ 2016 to
31 Dec’ 2016
Net daily average
1 Jan’ 2015 to
31 Dec’ 2015
(Boepd)
(Boepd)
Thistle/Deveron
7,533
8,930
Dons/Ythan
5,404
7,690
Heather/Broom
5,948
4,643
Kittiwake
2,988
3,981
Scolty/Crathes
7191
-
Alma/Galia
6,740
1,0832
Alba
1,271
1,178
Total UKCS
30,603
27,505
PM8/Seligi
7,960
8,689
Tanjong Baram
1,188
3733
Total Malaysia
9,148
9,062
Total EnQuest
39,751
36,567

1Net production since first oil on 21 November 2016, averaged over the 12 months to the end of December 2016; equates to an average of 6,422 Boepd from first oil to the end of 2016.
2Net production since first oil on 27 October 2015, averaged over the 12 months to the end of December 2015
3Net production since first production in June 2015, averaged over the 12 months to end of December 2015

Click here to read the full press release in PDF format.

Ends

For further information please contact:

EnQuest PLC Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Michael Waring (Head of Communications & Investor Relations)
Tulchan Communications Tel: +44 (0)20 7353 4200
Martin Robinson
Martin Pengelley

Presentation to Analysts and Investors
A presentation to analysts and investors will be held at 09:30 today – London time. The presentation and Q&A will also be accessible via an audio webcast – available from the investor relations section of the EnQuest website at www.enquest.com. A conference call facility will also be available at 09:30 on the following numbers:

Conference call details:

UK: +44(0)20 3427 1909

USA: +1212 444 0412

Confirmation Code: EnQuest

Notes to editors

EnQuest is one of the largest UK independent producers in the UK North Sea. EnQuest PLC trades on both the London Stock Exchange and the NASDAQ OMX Stockholm. Its operated assets include Thistle/Deveron, Heather/ Broom, the Dons area, the Greater Kittiwake Area, Scolty/Crathes and Alma/Galia, also the Kraken development; EnQuest also has an interest in the non-operated Alba producing oil field. At the end of December 2016, EnQuest had interests in 25 UK production licences, covering 35 blocks or part blocks and was the operator of 23 of these licences.

EnQuest believes that the UKCS represents a significant hydrocarbon basin, which continues to benefit from an extensive installed infrastructure base and skilled labour. EnQuest believes that its assets offer material organic growth opportunities, driven by exploitation of current infrastructure on the UKCS and the development of low risk near field opportunities.

EnQuest is replicating its model in the UKCS by targeting previously underdeveloped assets in a small number of other maturing regions; complementing its operations and utilising its deep skills in the UK North Sea. In which context, EnQuest has interests in Malaysia where its operated assets include the PM8/Seligi Production Sharing Contract and the Tanjong Baram Risk Services Contract.

Forward looking statements: This announcement may contain certain forward-looking statements with respect to EnQuest’s expectation and plans, strategy, management’s objectives, future performance, production, reserves, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.

Glossary

BPS Brent Pipeline System
DC Drill centre
ESP Electrical submersible pump
FPSO Floating production, storage and offloading vessel
GKA Greater Kittiwake Area
SVT Sullom Voe Terminal

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