2019 Half year results
5 September 2019
Unless otherwise stated, all figures are on a Business performance basis and are in US Dollars.
Comparative figures for the income statement relate to the period ended 30 June 2018 and the Balance Sheet as at 31 December 2018.
Highlights and outlook
- Group net production up 27.0%, averaging 68,548 Boepd in the six months to end June 2019; full year 2019 guidance of 63,000 Boepd to 70,000 Boepd unchanged
- Improved production efficiency at Kraken in the second quarter resulted in average gross production of 32,776 Bopd in the first half of 2019. Full year guidance of 30,000 Bopd to 35,000 Bopd remains unchanged. Worcester two-well drilling programme planned for 2020 as the first Western Flank development
- Magnus performance in line with expectations. Planned maintenance shutdown completed in the period. Two-well drilling programme to commence in the fourth quarter
- PM8/Seligi performance above expectations reflecting the ongoing successful idle well restoration programme and high production efficiency. Two-well drilling programme commenced in July
- Increased revenue of $858.2 million (2018: $548.3 million) and EBITDA of $525.9 million (2018: $311.9 million) driven by higher production volumes and realised prices, including the impact of the Group’s hedge programme
- Operating expenditure increased to $248.4 million (2018: $220.6 million) with unit operating costs reduced to $20.1/boe (2018: $22.6/boe), reflecting the acquisition of additional interest in Magnus
- Material increase in cash generated from operations at $426.2 million (2018: $318.3 million); cash capital expenditure of $124.6 million (2018: $125.8 million), with guidance unchanged
- Free cash flow** generation of $138.3 million (2018: $53.6 million) has enabled continuing debt reduction
End June net debt reduced by $136.6 million from year end; net debt:EBITDA ratio* of 1.8x
- At 30 June 2019, net debt was reduced to $1,637.9 million (end 2018: $1,774.5 million) with cash and available bank facilities amounting to $248.5 million (end 2018: $309.0 million)
- At the end of July, the Group’s credit facility had reduced to $615.0 million following the early repayment of $65.0 million of the scheduled amortisation, with $55.0 million repaid in June and $10.0 million repaid in July. The remaining $35.0 million of the scheduled amortisation will be paid by 1 October
- Net debt:EBITDA ratio* at the half year was 1.8x (end 2018: 2.5x), ahead of target to be below 2x by the end of 2019
* based on last twelve months EBITDA to end June 2019 and net debt at 30 June 2019
** Free cash flow: net change in cash and cash equivalents less net (repayments)/proceeds from loan facilities
2019 cash flow supported by oil price hedges
- For full year 2019, the Group’s hedge programme covers c.12.5 MMbbls. For the second half of 2019, the Group has c.4.6 MMbbls of oil hedges in place. Approximately 3.9 MMbbls are hedged at an average floor price of c.$66/bbl, with a further c.0.7 MMbbls hedged with an average floor price of c.$56/bbl in accordance with the Oz Management facility agreement
- EnQuest has appointed Martin Houston as Chairman of the Group with effect from 1 October 2019, replacing Jock Lennox who will step down from the Board on 30 September 2019 (See separate announcement)
EnQuest Chief Executive, Amjad Bseisu, said:
“The Group has delivered a strong performance in the first half of 2019. Production was towards the top end of our full year guidance range and we continue to control our operating expenditures, with unit opex of $20/boe in the period.
“We have generated strong cash flows in the period and significantly reduced our debt, with our net debt:EBITDA ratio at 1.8x, ahead of our target to be below 2x by the end of 2019.
“We remain confident in achieving our 2019 production guidance of 63,000 to 70,000 Boepd. Our two pipeline projects have been completed ahead of schedule and budget and our annual maintenance programme is expected to be concluded around the end of the third quarter. Drilling is underway in Malaysia with our two-well campaign and drilling at Magnus is due to start in the fourth quarter.
“The Worcester development at Kraken, planned for 2020, will utilise our existing infrastructure and is the first step in developing the material resource present in the Western Flank. We continue to assess options to develop the significant potential within our reserves and resources across our portfolio, particularly at Kraken, Magnus and PM8/Seligi.”
Production and financial information
|H1 2019||H1 2018||Change %|
|Revenue and other operating income ($m)1||858.2||548.3||56.5|
|Realised oil price ($/bbl)1||66.1||59.5||11.1|
|Average unit operating expenditure ($/Boe)||20.1||22.6||(11.1)|
|Gross profit ($m)||269.9||100.8||167.8|
|Profit before tax & net finance costs ($m)||264.5||105.2||151.4|
|Statutory reported profit after tax ($m)||44.3||43.3||2.3|
|Statutory reported basic earnings per share (cents)3||2.7||3.3||(18.2)|
|Cash generated from operations ($m)||426.2||318.3||33.9|
|Cash capex ($m)||124.6||125.8||(1.0)|
|End June 2019||End 2018|
|Net (debt)/cash ($m)4||(1,637.9)||(1,774.5)||(7.7)|
1. Including gains of $7.6 million (2018: loss of $77.3 million) associated with EnQuest’s oil price hedges.
2. EBITDA is calculated on a Business performance basis. It is calculated by taking profit/loss from operations before tax and finance income/(costs) and adding back depletion, depreciation, foreign exchange movements, inventory revaluation and the realised gain/loss on foreign currency derivatives related to capital expenditure.
3. 2018 restated to reflect the impact of the October 2018 rights issue.
4. Net (debt)/cash represents cash and cash equivalents less borrowings, stated excluding accrued interest and the net-off of unamortised fees and IFRS 9 Financial Instruments adjustments
Summary financial review of H1 2019
Unless otherwise stated, all figures are on a Business performance basis and are in US Dollars.
Comparative figures for the income statement relate to the period ended 30 June 2018 and the Balance Sheet as at 31 December 2018.
Revenue was $858.2 million for the six months ended 30 June 2019 compared with $548.3 million for the same period in 2018. This increase was driven by material growth in the Group’s production primarily reflecting the contribution from Magnus, including the impact of increased gas and condensate sales. Group revenue is predominantly derived from crude oil sales and for the six months ended 30 June 2019, crude oil sales totalled $761.9 million compared with $608.9 million for the comparative period in 2018. Revenue from the sale of gas and condensate in the period was $79.9 million (2018: $10.7 million) reflecting additional gas sales, including purchased gas not required for injection activities, at Magnus.
The commodity hedge programme resulted in realised gains of $7.6 million in the first half of 2019 (2018: realised loss of $77.3 million). Consequently, the Group’s blended average realised oil price was $66.1/bbl for the six months ended 30 June 2019, compared to $59.5/bbl received during the first half of 2018. Excluding the impact of hedging, the average realised oil price was $65.4/bbl in the first half of 2019, compared to $68.1/bbl received during the first half of 2018.
Cost of sales were $588.3 million for the six months ended 30 June 2019 compared with $447.5 million for the same period in 2018. Operating costs increased by $27.8 million to $248.4 million, primarily reflecting the acquisition of the additional equity interest in Magnus. The Group’s average unit operating cost has decreased by 11.1% to $20.1/Boe (2018: $22.6/Boe). Other costs increased by $113.0 million to $339.9 million (2018: $226.9 million) reflecting higher production driven depletion charges, a reduction in the Group’s net underlift position and higher purchased gas costs. Magnus third-party gas purchases not required for injection activities are now pass through costs having previously been recognised in operating expense.
EBITDA for the six months ended 30 June 2019 increased significantly to $525.9 million compared with $311.9 million for the same period in 2018. This was driven by higher revenue partially offset by higher cost of sales.
The tax charge for the six months ended 30 June 2019 was $36.2 million (2018: $23.0 million tax credit).
The Group’s reported cash generated from operations for the six months ended 30 June 2019 was $426.2 million (2018: $318.3 million) driven by higher production and realised prices.
Remeasurement and exceptional items were a net loss of $120.0 million before tax for the six months ended 30 June 2019 (2018: gain of $34.5 million). Revenue included unrealised losses of $42.9 million in respect of the mark to market movement on the Group’s commodity contracts from 31 December 2018 (2018: unrealised gains of $2.5 million). Other remeasurement and exceptional items in the first half of 2019 also include a charge to the statement of comprehensive income as a result of an increase in the fair value relating to the contingent consideration on the 75% acquisition of Magnus and associated infrastructure of $26.9 million, which reflects the Group’s expectations of continued strong performance at Magnus, $28.1 million unwinding of discount on the end 2018 contingent consideration balance and the provision for settlement of the historical KUFPEC claim of $15.6 million.
EnQuest’s net debt decreased by $136.6 million from $1,774.5 million at the end of 2018 to $1,637.9 million at 30 June 2019. Net debt at 30 June 2019 includes $132.5 million of inception to date interest that has been capitalised to the principal of the facilities pursuant to the terms of the Group’s November 2016 refinancing (‘PIK’), compared to $132.0 million at 31 December 2018.
UK corporate tax losses and allowances at 30 June 2019 decreased to $3,090.4 million (2018: $3,225.3 million).
|Net daily average production|
on a working interest basis
|Northern North Sea||30,215||18,002|
|Central North Sea||6,627||6,108|
Northern North Sea operations
Average production in the six months to end June 2019 of 30,215 Boepd was 67.8% higher than the same period in 2018, primarily driven by the contribution from additional equity in Magnus.
At Magnus, production performance remained in line with expectations with production efficiency of around 80%, including the impact of the planned three-week shutdown in May to undertake safety-critical maintenance and execute the Dunlin bypass pipeline project tie-in works. The Group’s revised reservoir management strategy requires less gas injection, leading to lower operating expenditures as the cost of gas purchased from third parties under a long term contract is now recognised in other cost of sales. The Group remains on-track to commence the planned two-well drilling programme in the fourth quarter and a number of economic, drillable targets have been identified to start to develop the Group’s estimated 50 MMboe of 2C resources at Magnus. With material reserves and resources, Magnus provides the opportunity for long-term, low-cost reserves and production increases.
Production and water injection efficiency above 90% in the period resulted in a good performance at Thistle. Planned well abandonments continue to be successfully executed in line with the Group’s asset life extension strategy. Strong operational execution and cost control has allowed the Group to increase the 2019 abandonment project scope from five to nine wells while expecting to remain within the original budget.
At the Dons fields, production was in line with the Group’s expectations. Good production and reservoir performance was offset by lower than expected water injection efficiency in the first quarter reflecting water injection pump failures. In June, the Dunlin bypass pipeline project was successfully completed 18 days ahead of schedule, with final commissioning work undertaken during the Dons planned annual maintenance shutdown. Subsequently, Thistle production was transferred to the new export route without incurring any production downtime.
Single compressor operations and reliability issues in the first quarter of 2019 impacted production in the period at Heather, although well intervention and production optimisation work at H67 and H56 are expected to improve performance in the second half of the year. The first phase of the Group’s 2019 well abandonment programme was successfully completed below budget, with preliminary abandonment work on a further 11 wells to be conducted in the second half of the year ahead of the 2020 programme. The three-week planned maintenance shutdown was completed in August.
EnQuest has continued to achieve high plant availability and deliver safe and stable operations at the Sullom Voe Terminal. In July, the Group announced essential organisational changes to ensure the terminal remains competitive for existing and future business, to deliver the required level of service to its customers, to help Maximise Economic Recovery in the UKCS and provide long term employment opportunities.
Central North Sea operations
Average production in the six months to end June 2019 of 6,627 Boepd was 8.5% higher than the same period in 2018. Production efficiency at Alma/Galia has been over 95% in 2019 following the replacement of three Electric Submersible Pumps in 2018, although the reservoir continues to decline. The focus remains on production optimisation, cost reduction and the preparation of detailed decommissioning plans.
At Scolty/Crathes, production was stable prior to the third quarter shutdown for planned maintenance and connection of the replacement pipeline. The pipeline project was completed ahead of budget and schedule. Production began in early September and is expected to increase significantly compared with the field’s pre-shutdown performance.
High levels of production and water injection efficiency in the Greater Kittiwake Area have delivered a strong production performance in the period. The short planned shutdown was completed in July in line with expectations. Output from Alba has been in line with the Group’s expectations.
Average gross production in the six months to end June 2019 of 32,776 Bopd was in line with guidance. Production efficiency was improved following the resumption of a two-train operation in mid-March, averaging around 80% in the second quarter of 2019, up materially on the first quarter of the year (c.55%). EnQuest has been working closely with the FPSO operator, Bumi Armada, to improve production uptime. Notable successes have been in the power systems, including greater engine stability and power pump performance, and more effective offshore spares management and FPSO maintenance processes. Completion of the DC4 drilling programme in March marked the conclusion of the original Kraken field development plan. All three wells continue to perform ahead of expectations.
Overall subsurface and wells performance has remained strong. Stable water cut levels and the optimisation of production through improved injector-producer well management has offset the impact of the increase in reservoir voidage as a result of low water injection efficiency in the period, which reflected additional cleaning requirements in the seawater treatment unit.
In July and August, pipework repairs on the FPSO required short unplanned production shutdowns. Production efficiency is returning to a similar level to that delivered in the second quarter of 2019. The Group continues to review the requirements for a planned shutdown in September, with certain work scopes having been opportunistically executed during July.
Strong production efficiency performance remains the Group’s operational priority and EnQuest continues to expect Kraken to deliver average production in line with guidance of between 30,000 Bopd and 35,000 Bopd (gross) in 2019.
Since first production in June 2017, more than 21 million barrels of oil have now been produced and 42 cargoes offloaded from the FPSO, with 15 of these cargoes offloaded in 2019. Cargo pricing has seen premiums to Brent and continues to be robust.
The Western Flank Area provides a near-field, economic, development opportunity with around 100 MMbbls of STOIIP. Initial Worcester targets have been high-graded, with development drilling of a producer-injector pair through spare capacity in the existing DC2 sub-sea infrastructure planned for 2020. Pembroke development options continue to be assessed.
Average production in Malaysia in the six months to end June 2019 of 8,599 Boepd was 4.5% higher than the same period in 2018.
Production has increased from PM8/Seligi as a result of high production efficiency of over 90% and better than expected performance from the Group’s idle well restoration programme, which commenced earlier than planned and has seen ten wells restored to production. The Group’s 2019 two-well drilling programme commenced in July with first oil expected by the end of the third quarter as planned, while the planned asset rejuvenation activity is progressing as scheduled. At the end of 2018, the Group had c.20 MMboe of 2P reserves and c.68 MMboe of 2C resources. A large number of low-cost drilling and workover targets have been identified and are being assessed.
Liquidity and net debt
At the end of June 2019, net debt was $1,637.9 million, down $136.6 million from $1,774.5 million at 31 December 2018 reflecting strong operational performance and a higher realised oil price. Total cash and available facilities were $248.5 million, including ring-fenced accounts associated with Magnus, the Oz Management facility and other joint venture accounts totalling $79.1 million.
In June, the Group made an early voluntary repayment of $55.0 million of the scheduled October amortisation, with a further $10.0 million repayment in July which has reduced the Group’s credit facility to $615.0 million. The remaining $35.0 million will be repaid by 1 October 2019.
By the end of June, c.7.9 MMbbls of oil hedges had been settled. Approximately 7.1 MMbbls had an average floor price of c.$67/bbl, while c.0.8 MMbbls associated with the Oz Management facility had an average floor price of c.$56/bbl. For the remaining six months of 2019, EnQuest has c.4.6 MMbbls of oil hedges in place. Approximately 3.9 MMbbls are hedged at an average floor price of c.$66/bbl, with a further c.0.7 MMbbls hedged with an average floor price of c.$56/bbl in accordance with the Oz Management facility agreement.
2019 outlook reaffirmed
Group production performance in the period was ahead of the mid-point of guidance of 68,548 Boepd. With a number of planned maintenance shutdowns in the second half of 2019, the Group continues to expect 2019 net production to grow by around 20% to between 63,000 and 70,000 Boepd.
Operating expenditure is now expected to be around $550 million, lower than the $600 million originally guided primarily as a result of the revised reservoir management strategy at Magnus.
Expectations for 2019 capital expenditure remain around $275 million, with the programme weighted towards the second half of the year. The two-well drilling programme at PM8/Seligi commenced in July with the Magnus two-well campaign expected to commence in the fourth quarter.
The Group continues to prioritise debt repayment with an ongoing focus on cost control and capital discipline. Through the second half of 2019, the Group expects overall net debt to EBITDA to continue to reduce. In future, EnQuest intends to operate between 1x and 2x, targeting the lower end of the range.
Appointment of external auditors
In accordance with the Group’s policy, a formal audit tender process was conducted resulting in EnQuest appointing Deloitte LLP (‘Deloitte’) as the Group’s external auditors of the Company’s financial statements beginning 1 January 2020. Ernst & Young LLP will continue to audit the Group’s financial statements for the year ended 31 December 2019.
- Ends -
For further information please contact:
EnQuest PLC Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Ian Wood (Communications & Investor Relations)
Tulchan Communications Tel: +44 (0)20 7353 4200
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 on 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) 844 571 8892 or +44 (0) 800 376 7922
International: +44 (0) 207 192 8000
Confirmation Code: EnQuest
Notes to editors
This announcement has been determined to contain inside information.
Identity of the person making this notification: Stefan Ricketts, Company Secretary
EnQuest is an independent production and development company with operations in the UK North Sea and Malaysia. The Group’s strategic vision is to be the operator of choice for maturing and underdeveloped hydrocarbon assets by focusing on operational excellence, differential capability, value enhancement and financial discipline.
EnQuest PLC trades on both the London Stock Exchange and the NASDAQ OMX Stockholm. Its UK operated assets include Thistle/Deveron, Heather/Broom, the Dons area, Magnus, the Greater Kittiwake Area, Scolty/Crathes, Alma/Galia, Kraken and the Sullom Voe Terminal; EnQuest also has an interest in the non-operated Alba oil field. At the end of June 2019, EnQuest had interests in 17 UK production licences and was the operator of 15 of these licences. EnQuest’s interests in Malaysia include the PM8/Seligi Production Sharing Contract and the Tanjong Baram Risk Services Contract, both of which the Group operates.
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 announcement should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.