2020 Full Year Results
25 March 2021
Unless otherwise stated, all figures are on a Business performance basis and are in US Dollars.
EnQuest Chief Executive, Amjad Bseisu, said:
“Our quick and decisive actions in early 2020, combined with our reorganisation, have transformed the Company. We generated $211.1 million of free cash flow in the year, having significantly lowered our cost base and free cash flow breakeven, enabling us to reduce our debt to its lowest level since 2014. Capital and operating expenditures reduced by $295.6 million and free cash flow breakeven1 for the year was $31.9/Boe, both in line with our targets. Our focus on safety enabled us to minimise successfully the impact of COVID-19 on our workforce and operations.
“The proposed acquisition of the low-cost Golden Eagle area will strengthen our business, providing additional production and strong cash flows which will partially utilise our UK tax assets.
“We successfully managed the unique set of challenges presented in 2020, taking decisive action to protect and enhance our business. Our focus on extending the useful lives of existing assets through operational improvements and reducing emissions is well suited to operating through the energy transition and I am confident that EnQuest is well placed to succeed in a changing world.”
- Group production averaged 59,116 Boepd in 2020, in line with guidance (2019: 68,606 Boepd)
- Revenue of $856.9 million (2019: $1,711.8 million) and EBITDA of $550.6 million (2019: $1,006.5 million) reflect lower year on year production and realised oil prices of $41.3/bbl, partially offset by lower operating costs
- Cash generated from operations of $567.8 million (2019: $994.6 million); cash capital expenditure of $131.4 million (2019: $237.5 million)
- Strong free cash flow generation of $211.1 million (2019: $368.5 million)
- Cash and available bank facilities amounted to $284.1 million at 31 December 2020 (2019: $288.6 million), with net debt reduced to $1,279.7 million (2019: $1,413.0 million)
- Statutory reported basic loss after tax was $625.8 million reflecting non-cash impairments, including tax, of $630.3 million, (2019: loss after tax of $449.3 million)
2021 performance and outlook2
- Year to date February production averaged 46,635 Boepd, affected by outages, repairs and opportunistic maintenance at Magnus and Kraken, which are now complete
- Hedges in place for c.5 MMbbls of oil with an average floor price of c.$55/bbl and an average ceiling price of c.$64/bbl
- Full year average production expected to be between 46,000 to 52,000 Boepd, excluding Golden Eagle which will add c.10,000 Boepd on a pro forma basis
- Full year operating expenditure of c.$265 million
- Combined cash capital and abandonment expenditure of c.$120 million3
1 Based on the Group’s aggregate cash outflows prior to any debt repayments and $37.3 million of Magnus-related third-party gas purchases divided by net working interest production
2 Existing portfolio
3 Excludes the costs associated with the PM8/Seligi riser incident repair which are expected to be largely covered by insurance
Production and financial information
|Revenue and other operating income ($m)1||856.9||1,711.8||(49.9)|
|Statutory reported revenue and other operating income ($m)2||865.6||1,646.5||(47.4)|
|Realised oil price ($/bbl)1,3||41.3||65.3||(36.8)|
|Gross profit ($m)||71.4||468.3||(84.8)|
|Statutory reported gross profit ($m)||66.6||402.5||(83.4)|
|Profit/(loss) before tax and net finance costs ($m)||(20.0)||442.2||(104.5)|
|Statutory reported (loss)/profit after tax ($m)||(625.8)||(449.3)||(39.3)|
|Statutory reported basic (loss)/earnings per share (cents)||(37.8)||(27.4)||(38.0)|
|Cash generated from operations ($m)||567.8||994.6||(42.9)|
|Cash expenditures ($m)||173.0||248.6||(30.4)|
|End 2020||End 2019|
|Net (debt)/cash ($m)3||(1,279.7)||(1,413.0)||(9.4)|
1 Including realised losses of $6.1 million (2019: realised gains of $24.8 million) associated with EnQuest’s oil price hedges
2 Including net realised and unrealised gains of $2.7 million (2019: net realised and unrealised losses of $40.6 million) associated with EnQuest’s oil price hedges
3 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’ starting on page 68
|Average daily production on a net working interest basis (Boepd)||1 Jan 2020 to 31 Dec 2020 (Boepd)||1 Jan 2019 to 31 Dec 2019 (Boepd)|
- Other Upstream1
1 Other Upstream: Scolty/Crathes, the Greater Kittiwake Area and Alba
2 UK Decommissioning: Heather/Broom, Thistle/Deveron, the Dons and Alma/Galia
2020 performance summary
The Group’s operational focus was to maintain strong production efficiency across its asset base and successfully execute the drilling programmes at Magnus and Kraken. The combined impact of good operational delivery and the successful transformation of the UK business enabled the Group to lower its unit operating expense to $15.2/Boe, reduce its free cash flow breakeven to $31.9/Boe and generate $211.1 million in free cash flow, enabling further reductions in the Group’s debt.
EnQuest’s average production decreased by 13.8% to 59,116 Boepd, in line with guidance, primarily reflecting a strong performance from Kraken, offset by Thistle, Heather and Alma Galia moving to cessation of production (‘CoP’) and the impact of the detached riser at PM8/Seligi.
EBITDA and cash generated by operations were $550.6 million and $567.8 million, respectively, with the reduction from 2019 reflecting lower prices and production, offset by lower operating costs.
Cash capital expenditure of $131.4 million was focused on executing the Group’s drilling programmes at Kraken and Magnus. Cash abandonment expenditure of $41.6 million reflected decommissioning activities following CoP at Heather/Broom and Alma/Galia.
Liquidity and net debt
At 31 December 2020, net debt was $1,279.7 million, down $133.3 million from $1,413.0 million at 31 December 2019, reflecting a strong operational performance and cash generation. Total cash and available facilities were $284.1 million, including ring-fenced funds held in operational accounts associated with Magnus, the Sculptor Capital facility and other joint venture accounts totalling $108.0 million.
The Group’s material free cash flow generation enabled early voluntary repayments of the senior credit facility, which reduced by $97.8 million during the year. This reduction included the $65.0 million associated with the April 2021 scheduled amortisation. Following a further voluntary early repayment of $25.0 million in January 2021, the senior credit facility, including payment in kind interest, totalled $352.3 million at the end of February.
The senior credit facility expires in October 2021. Securing lenders commitment to a new senior secured facility in conjunction with the Golden Eagle acquisition remains on track and the Directors are confident of a successful outcome. Further details on the status of refinancing are provided in the going concern disclosure on page 15.
Reserves and resources
Net 2P reserves at the end of 2020 were 189 MMboe (2019: 213 MMboe) and have been audited on a consistent basis with prior years. During the year, the Group produced 10.1% of its year-end 2019 2P reserves base, with other revisions primarily reflecting the CoP decisions at Thistle/Deveron and the Dons, largely offset by other 2P reserves revisions and transfers from 2C resources at Kraken, Magnus and PM8/Seligi. Net 2C resources are 279 MMboe (2019: 173 MMboe), an increase of 61.3% compared to the end of 2019 primarily as a result of the agreement to acquire 40.81% equity and operatorship of the Bressay field in the UK in July 2020 which added 115 MMboe.
Environmental, Social and Governance performance
The Group’s absolute Scope 1 and 2 emissions were 11.2% lower in 2020 compared to 2019 and 25.5% lower than 2018, primarily reflecting the Group’s decisions to cease production at its Heather, Thistle/Deveron and Alma/Galia assets. The Group has set itself a challenging target to deliver a further reduction in Scope 1 and 2 emissions of c.10% over the next three years from its existing portfolio through the identification and implementation of economic emission reduction opportunities, with the achievement of this target linked to reward. The Group continues to optimise sales of Kraken cargoes directly into the shipping fuel market, avoiding emissions related to refining and helping reduce sulphur emissions in accordance with the IMO 2020 regulations. The avoidance of emissions related to Kraken’s crude is significant, with refining emissions for a typical North Sea crude estimated to be c.32 - 36kgCO2e/bbl1, 2. As such, emissions relating to Kraken oil by the time it reaches its end user, compares favourably on a fully-refined basis to even high-performing North Sea fields3.
The Group’s strong safety culture was clearly evidenced as the Company successfully implemented a number of mitigations to minimise the impact of COVID-19 on its people and operations. The Group also achieved a significant reduction in its lost time incident frequency rate of 0.22, materially below the UKCS benchmark of 1.28. However, the Group experienced asset integrity issues with a detached riser in Malaysia and pipeline issues at SVT. EnQuest is committed to continuous improvement in asset integrity and continues to ensure that the Group’s integrity management systems appropriately identify focus areas.
To reflect the Board’s commitment to ESG matters, the remits of the current Board-level committees were strengthened to ensure the Group’s ESG performance is aligned with EnQuest’s purpose and appropriately responds to the expectations of our stakeholders. The composition of the Committees was also reviewed to ensure they remained efficient and effective, with some alterations to certain Committee memberships. There were also a number of Board changes during the year and in early 2021, revising the balance of skills, expertise and experience of the Board and improving its gender and ethnic diversity.
1 kgCO2e/bbl = kilograms of CO2 equivalent per produced barrel
2 Based on an the University of Calgary PRELIM model recognised by California Air Resources Board, US Energy Tech. Laboratory, USDOE Office of Energy Efficiency and Renewable Energy, Carnegie Endowment for International Peace and the US Environmental Protection Agency
3 EnQuest analysis of UK North Sea assets 2019 performance
2021 performance and outlook details
In February, EnQuest signed an agreement to purchase Suncor’s entire 26.69% non-operated equity interest in the Golden Eagle area, comprising the producing Golden Eagle, Peregrine and Solitaire fields for an initial consideration of $325 million. Upon completion, the acquisition will add immediate material low-cost production and cash flow to EnQuest and will allow the Group to accelerate the use of its tax losses. The four well infill programme is continuing, with the first three wells safely completed and online.
Production performance to the end of February has been slightly behind schedule. An unplanned third-party outage, power related failures and ongoing well repair activities at Magnus, along with a short duration shutdown at Kraken for a riser tether repair have been partially offset by PM8/Seligi wells coming back online ahead of schedule. Repairs are now complete on the Kraken tether and Magnus power systems. In addition, a successful Magnus well intervention and early commissioning of gas lift at Kittiwake have further increased production from the end of February.
For the full year, the Group’s net production is expected to be between 46,000 and 52,000 Boepd (excluding any contribution from the proposed Golden Eagle transaction). This guidance includes CoP at the Dons fields which occurred as planned in the first quarter, continued low production at PM8/Seligi until repairs on the riser are completed during the second half of the year and natural declines across the portfolio. Kraken gross production is expected to be between 30,000 and 35,000 Bopd (21,150 and 24,675 Bopd net), reflecting natural declines.
The Group continues to focus on cost control and capital discipline, with operating expenditures expected to be approximately $265 million and combined cash capital and abandonment expenditure expected to be around $120 million, which are lower than 2020. Capital expenditure primarily relates to license to operate activities and guidance excludes the costs associated with the PM8/Seligi riser incident repair which are expected to be largely covered by insurance, while abandonment expense primarily reflects decommissioning programmes at Heather/Broom, including an acceleration of some work scopes, the Thistle/Deveron fields and the Dons.
EnQuest has hedged a total c.5 MMbbls for 2021 using costless collars, with an average floor price of c.$55/bbl and an average ceiling price of c.$64/bbl.
The health, safety and wellbeing of EnQuest’s employees is the top priority. The Group remains compliant with UK, Malaysia and Dubai government and industry policy. The Group has also 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. The Group's day-to-day operations continue without being materially affected by COVID-19.
Summary financial review of 2020
(all figures quoted are in US Dollars and relate to Business performance unless otherwise stated)
2020 was an extremely challenging year with the oil price collapse of March 2020, the COVID-19 pandemic and the resulting impacts on the macro-economic environment. As a result, the company went through significant changes, including decisions to cease production at some assets and transform the organisation with a focus on cost and capital expenditure reductions. Notwithstanding the very challenging environment, the Group delivered on its 2020 production and cost guidance. The early and decisive action to reduce costs resulted in operating and capital expenditures being $295.6 million lower than 2019, materially lowering the Group’s free cash flow breakeven.
Revenue for 2020 was $856.9 million, 49.9% lower than in 2019 ($1,711.8 million), reflecting the materially lower oil prices, a reduction in production following the decision to cease production at Heather, Thistle and Alma/Galia and moving from a net overlift to a net underlift position. Revenue is predominantly derived from crude oil sales which totalled $779.9 million, 49.6% lower than in 2019 ($1,548.2 million). Revenue from the sale of condensate and gas was $60.5 million (2019: $120.2 million), reflecting significantly lower market prices for gas in relation to the onward sale of third-party gas purchases not required for injection activities at Magnus.
The Group’s commodity hedge programme resulted in realised losses of $6.1 million in 2020 (2019: gains of $24.8 million). The Group’s average realised oil price excluding the impact of hedging was $41.6/bbl, compared to $64.2/bbl for 2019. The Group’s average realised oil price including the impact of hedging was $41.3/bbl in 2020, 36.8% lower than in 2019 ($65.3/bbl).
Total cost of sales were $785.5 million for the year ended 31 December 2020, 36.8% lower than in 2019 ($1,243.6 million).
The Group’s operating expenditures of $328.6 million were 36.6% lower than in 2019 ($518.1 million), primarily reflecting the Group’s focus on cost control, including the decision to cease production at Heather, Thistle and Alma Galia. Unit operating costs decreased by 26.2% to $15.2/Boe (2019: $20.6/Boe).
Total cost of sales also included non-cash depletion expense of $438.2 million, 16.5% lower than in 2019 ($525.1 million), mainly reflecting the decision to cease production at Heather, Thistle and Alma/Galia and a decrease in the unit-of-production rate arising from impairments booked in the first half of the year.
The credit relating to the Group’s lifting position and inventory was $34.8 million (2019: $102.9 million). This reflects a switch to a $3.0 million net underlift position at 31 December 2020 from a $28.6 million net overlift position at 31 December 2019.
Other cost of operations of $53.4 million were 45.1% lower than in 2019 ($97.5 million), reflecting the lower cost of Magnus-related third-party gas purchases following the reduction in the market price for gas, partially offset by a $24.9 million inventory write down recognised in the year, which primarily relates to inventory held at assets now scheduled for decommissioning.
EBITDA for 2020 was $550.6 million, down 45.3% compared to 2019 ($1,006.5 million). This was driven by lower revenue, partially offset by lower cost of sales.
The tax credit for 2020 of $172.5 million (2019: $23.6 million tax charge), excluding exceptional items, is mainly due to the Ring Fence Expenditure Supplement on UK activities generated in the year. UK North Sea corporate tax losses at the end of the year increased to $3,183.9 million (2019: $2,903.4 million), primarily as a result of the Ring Fence Expenditure Supplement generated in the year.
Remeasurement and exceptional items for 2020 were a net post-tax loss of $599.6 million (2019: loss of $663.6 million). Revenue included unrealised gains of $8.8 million in respect of the mark-to-market movement on the Group’s commodity contracts (2019: unrealised losses of $65.4 million). Other remeasurement and exceptional items includes a $138.2 million gain in relation to the fair value recalculation of the Magnus contingent consideration reflecting the reduction in oil price assumptions. The Group also recognised post-tax non-cash impairment charges on its oil and gas assets of $259.2 million (2019: $397.5 million), reflecting a reduction in oil price assumptions, and a non-cash de-recognition of undiscounted deferred tax assets of $371.1 million.
The Group’s reported cash generated from operations for 2020 was $567.8 million (2019: $994.6 million), primarily as a result of lower revenue. Free cash flow for 2020 was $211.1 million (2019: $368.5 million).
Net debt at 31 December 2020 was $1,279.7 million, a decrease of 9.4% compared to 2019 ($1,413.0 million). This includes $205.8 million of payment in kind interest (“PIK interest”) that has been capitalised to the principal of the facility and bonds pursuant to the terms of the Group’s November 2016 refinancing (31 December 2019: $133.3 million).
In January 2021, EnQuest made an early voluntary repayment of $25.0 million of the senior credit facility. The final payment of $352.3 million, including $17.3 million PIK interest, is due on 1 October 2021.The Group is currently in the process of refinancing the facility in conjunction with the Golden Eagle acquisition.
In June 2020, EnQuest made an early voluntary repayment of the entire $31.7 million of the Tanjong Baram Project Finance facility having received the first of three instalments from Petronas for reimbursement of outstanding net capital expenditure of $51.1 million relating to the Tanjong Baram project. The remaining two reimbursement instalments were received in the second half of the year.
The strong production performance at Kraken has driven a $55.2 million reduction in the Sculptor Capital facility in the year.
For further information please contact:
Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Ian Wood (Head of Communications & Investor Relations)
Jonathan Edwards (Senior Investor Relations & Communications Manager)
Tel: +44 (0)20 7353 4200
Presentation to Analysts and Investors
A presentation to analysts and investors will be held at 09:00 today – London time. The presentation will 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 09:00 on the following numbers:
Conference call details:
UK: +44 (0) 800 279 6619
International: +44 (0) 207 192 8338
Confirmation Code: 8538947
Notes to editors
This announcement has been determined to contain inside information. The person responsible for the release of this announcement is Stefan Ricketts, General Counsel and Company Secretary.
EnQuest is providing creative solutions through the energy transition. As 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.
Please visit our website www.enquest.com for more information on our global operations.
This announcement may contain certain forward-looking statements with respect to EnQuest’s expectations 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 upon as a guide to future performance.