2021 Half Year Results
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 2020 and the Balance Sheet as at 31 December 2020. Alternative performance measures are reconciled within the ‘Glossary – Non-GAAP measures’ at the end of the Financial Statements.
EnQuest Chief Executive, Amjad Bseisu, said:
“The Group delivered strong free cash flow in the first half which reduced net debt. Performance at Kraken has been good with the FPSO performing well, while production at PM8/Seligi has been better than expected as a result of the acceleration of initial restoration activities following the riser detachment. Production at Magnus has been impacted by topside related well performance but our production enhancement programme has partially recovered the well potential and we expect further recovery over the remainder of the year. We remain focused on improving production across our existing portfolio.
“The Golden Eagle acquisition remains on track to complete around the end of September and will add production, reserves and cash flow to the Group, while the Bressay and Bentley acquisitions, offer further long-term potential development opportunities.”
H1 2021 performance
- Group net production averaged 46,187 Boepd (2020: 66,055 Boepd)
- Kraken production of 23,690 Boepd (33,603 Boepd gross) was in line with the Group’s guidance reflecting strong production and water injection efficiency and a good performance from the Floating Production, Storage and Offloading vessel (‘FPSO’)
- Improved production at PM8/Seligi as a result of the acceleration of initial production recovery activities following the riser detachment in late 2020
- Lower production at Magnus reflected the slower execution and an increase in scope of the well intervention programme, an unplanned third-party outage, power related failures and natural declines
- Revenue and other operating income of $518.3 million (2020: $450.0 million) and EBITDA of $345.4 million (2020: $320.8 million) reflects materially higher oil prices, partially offset by lower production
- Operating costs decreased to $153.0 million (2020: $174.3 million) primarily reflecting lower tariff expenditure
- Cash generated from operations of $287.9 million (2020: $282.6 million); cash expenditures of $54.6 million (2020: $108.5 million)
- Strong free cash flow generation of $141.5 million (2020: $86.8 million) reflecting materially lower cash expenditures
End June net debt reduced by $96.5 million from year end
- At 30 June 2021, net debt reduced to $1,183.2 million (end 2020: $1,279.7 million) reflecting strong free cash flow generation. Total cash and available facilities were $303.4 million (end 2020: $284.1 million)
- Signed a new senior secured borrowing base debt facility (the 'RBL') of $600 million with an additional amount of $150 million for letters of credit for up to seven years
Significant business development
- Agreed to acquire Suncor Energy UK Limited’s 26.69% non-operated interest in the producing Golden Eagle area for an initial consideration of $325.0 million with completion expected around the end of September
- Signed a Share Purchase agreement ('SPA') with Whalsay Energy Holdings Limited to purchase its 100.0% equity interest in the P1078 licence containing the proven Bentley heavy-oil discovery. Bentley offers long-term potential development opportunities and other synergies, with the transaction completed in July
Guidance and outlook
- 2021 average net Group production is expected to be at the lower end of the guidance range of 46,000 Boepd and 52,000 Boepd. This reflects expected performances at Magnus, the Greater Kittiwake Area and PM8/Seligi over the course of the second half of the year. Kraken gross production is expected to be between 30,000 Boepd and 35,000 Boepd (21,150 Boepd to 24,675 Boepd net)
- Operating costs are expected to be approximately $300 million, reflecting lower lease charter credits driven by higher uptime at Kraken, additional production enhancement scopes and topside maintenance activities at Magnus, higher diesel costs and sterling strength
- Combined cash capital and abandonment expenditure, excluding costs associated with the PM8/Seligi riser repair, is expected to be broadly around $120 million
- EnQuest has hedged a total of c.11 MMbbls for full year 2021 predominantly using costless collars, with an average floor price of c.$59/bbl and an average ceiling price of c.$69/bbl, with c.6 MMbbls hedged with an average floor of c.$62/bbl and ceiling price of c.$73/bbl in the second half of 2021. For 2022, EnQuest has hedged a total of c.6 MMbbls using similar structures, with an average floor price of c.$61/bbl and an average ceiling price of c.$75/bbl. For 2023, the Group has hedged a total of approximately c.1 MMbbls with an average floor price of c.$55/bbl and an average ceiling price of c.$73/bbl
Production and financial information
|Business performance measures||For the period to|
30 June 2021
|For the period to|
30 June 2020
|Revenue and other operating income ($m)1,2||518.3||450.0||15.2|
|Realised oil price ($/bbl)1,3||62.8||43.6||44.0|
|Average unit operating costs ($/Boe)3||19.3||14.4||34.0|
|Cash expenditures ($m)||54.6||108.5||(49.7)|
|Free cash flow ($m)3||141.5||86.8||63.0|
|30 June 2021||31 December 2020|
|Net (debt)/cash ($m)3||(1,183.2)||(1,279.7)||(7.5)|
|Statutory measures||For the period to|
30 June 2021
|For the period to|
30 June 2020
|Reported revenue and other operating income ($m)2,4||481.3||438.7||9.7|
|Reported gross profit ($m)||148.1||18.7||692.0|
|Reported profit/(loss) after tax ($m)2||(56.4)||(472.4)||88.1|
|Reported basic earnings/(loss) per share (cents)2||(3.4)||(28.6)||88.1|
|Cash generated from operations ($m)2||287.9||282.6||1.9|
|Net increase/(decrease) in cash and cash equivalents||53.3||(32.1)||–|
1 Including realised losses of $32.9 million (2020: realised gains of $35.2 million) associated with EnQuest’s oil price hedges
2 Comparative information for 2020 has been restated. See Note 2 Basis of preparation – Restatements
3 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’ starting on page 31. Note, during the second half of 2020, the Group’s definition of EBITDA was updated. Comparative information for 2020 has been updated to reflect the changes, which are outlined in the Glossary. Note, EnQuest defines net debt as excluding finance lease liabilities
4 Including net realised and unrealised losses of $69.9 million (2020: net realised and unrealised gains of $23.9 million) associated with EnQuest’s oil price hedges
Summary financial review
(all figures quoted are in US Dollars and relate to Business performance unless otherwise stated)
Revenue and other operating income for the six months ended 30 June 2021 was $518.3 million, 15.2% higher than the same period in 2020 ($450.0 million), reflecting the materially higher oil prices offset by a reduction in production. Revenue is predominantly derived from crude oil sales, which for the first half of 2021 totalled $490.5 million, 30.6% higher than in the same period of 2020 ($375.5 million). Revenue from the sale of condensate and gas in the period was $57.9 million (2020: $27.6 million), primarily reflecting higher market prices for condensate and gas. Gas revenue mainly relates to the onward sale of third-party gas purchases not required for injection activities at Magnus.
The Group’s commodity hedges and other oil derivatives contributed $32.9 million of realised losses (2020: gains of $35.2 million), as a result of the timing at which the hedges were entered into. The Group’s average realised oil price excluding the impact of hedging was $67.3/bbl for the six months ended 30 June 2021, compared to $39.9/bbl received during the first half of 2020. The Group’s average realised oil price including the impact of hedging was $62.8/bbl in the first half of 2021, 44.0% higher than during the first half of 2020 ($43.6/bbl).
Total cost of sales were $333.3 million for the six months ended 30 June 2021, 18.9% lower than in same period of 2020 ($410.9 million).
Operating costs decreased by $21.3 million, primarily reflecting low tariff and transportation costs due to lower production for the first half of 2021, with production costs broadly flat year on year as lower costs following asset cessation of production (‘CoP’) have been offset by remediation costs at Magnus and lower lease charter credits reflecting higher uptime at Kraken driven by the continued strong performance of the FPSO. Unit operating costs increased by 34.0% to $19.3/Boe (2020: $14.4/Boe) as a result of lower production.
Total cost of sales included non-cash depletion expense of $153.1 million, 38.4% lower than in the same period in 2020 ($248.4 million), mainly reflecting the decisions to cease production at Dons and Alma/Galia and a decrease in the unit-of-production rate arising from impairments booked in the period ended 31 December 2020.
Also within cost of sales, the credit relating to the Group’s lifting position and hydrocarbon inventory for the six months ended 30 June 2021 was $26.1 million (2020: credit of $48.5 million). This reflects an increase in the net underlift position from $3.0 million at 31 December 2020 to $32.0 million at 30 June 2021.
Other cost of sales, which forms part of the total cost of sales balance, of $53.3 million were higher than the same period in 2020 ($36.7 million), reflecting the higher cost of Magnus-related third-party gas purchases following the increase in the market price for gas.
EBITDA for the six months ended 30 June 2021 was $345.4 million, up 7.7% compared to the same period in 2020 ($320.8 million), driven by higher revenue.
The tax credit for the six months ended 30 June 2021 was $19.4 million (2020: $71.5 million tax credit).
Remeasurements and exceptional items were a net post-tax loss of $164.6 million for the six months ended 30 June 2021 (2020 restated: loss of $478.7 million). Revenue included unrealised losses of $37.0 million in respect of the mark-to-market movement on the Group’s commodity contracts (2020: unrealised losses of $11.3 million). Other remeasurements and exceptional items includes a $27.5 million gain in relation to the fair value recalculation of the Magnus contingent consideration reflecting a change in the payment profile. The Group recognised a non-cash deferred tax charge of $139.5 million (2020 restated: $286.0 million see Note 2 Basis of preparation – Restatements), following a reassessment of deferred tax balances reflecting revisions to forecast assumptions.
The Group’s reported cash generated from operations for the six months ended 30 June 2021 was $287.9 million (2020: $282.6 million). Free cash flow for the six months ended 30 June 2021 was $141.5 million (2020: $86.8 million) reflecting the materially lower cash capital expenditure in 2021, partially offset by higher decommissioning spend.
In January 2021, EnQuest made a voluntary early repayment of $25.0 million on the Multi-currency revolving credit facility (‘RCF’). The strong production performance at Kraken combined with higher oil prices enabled the full repayment of the $67.7 million outstanding balance on the Sculptor Capital facility in the period to 30 June 2021.
Net debt at 30 June 2021 was $1,183.2 million, a decrease of 7.5% compared to 31 December 2020 ($1,279.7 million). This includes $244.4 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 2020: $205.8 million).
In July 2021, $360.0 million was drawn down from the Group’s new senior secured borrowing base debt facility. The proceeds were used to repay the entire outstanding balance on the RCF, which at the time of repayment was $354.5 million, including PIK and accrued interest. In addition, $58.7 million, representing the full amount of the outstanding principal and interest on the Magnus vendor loan, was repaid.
|Average daily production on a net working interest basis||For the period to|
30 June 2021
|For the period to|
30 June 2020
- Other Upstream1
|Total UK |
1 Other Upstream: Scolty/Crathes, the Greater Kittiwake Area and Alba
2 UK Decommissioning: Heather/Broom, Thistle/Deveron, the Dons and Alma/Galia
UK Upstream operations
Production of 13,847 Boepd was 26.4% lower than in 2020, primarily reflecting slower execution and an increase in scope of the well intervention programme, combined with an unplanned third-party outage, power related failures and natural declines associated with the new wells that were brought onstream in early 2020. Given the challenges that have been presented during the first half of the year, a proactive production enhancement programme was initiated comprising various well intervention techniques, including a coiled tubing campaign, alongside additional topside maintenance activities. Since June, three wells have been returned to service and production performance has improved. The coiled tubing campaign is expected to continue during the second half of the year, with the Group expecting production performance to improve further in the fourth quarter, with a two-well drilling campaign anticipated in 2022.
Average production of 23,690 Boepd (33,603 Boepd gross) remains in line with the Group’s 2021 guidance, which remains unchanged. The reduction from 2020 reflects the impacts of a riser tether repair and natural declines. Production and water injection efficiency remained strong at 90% and 92%, respectively, and the FPSO continues to perform well. To date, a number of maintenance activities have been undertaken allowing for the deferral of the planned shutdown to 2022. Subsurface and well performance remains good, with aggregate water cut evolution in line with expectations. A successful 3D seismic campaign was completed in July, providing valuable data for the Group to evaluate fully the development potential of the western area of the field, in addition to supporting ongoing optimisation of the main Kraken field, including potential infill opportunities.
Other Upstream assets
Production of 3,504 Boepd was materially lower than in 2020. At the Greater Kittiwake Area (‘GKA’), the reduction was driven by a planned four-week shutdown that was concluded in late June, lower production following the failure of a power umbilical to the Mallard and Gadwall wells, as well as natural declines. Performance from Scolty/Crathes in the period was good, reflecting the positive impact of compression and gas lift being introduced in February, although gas compression suffered an outage from late June until mid-August. The power umbilical replacement, which commenced in August, is expected to further improve performance later in September.
Alba has continued to perform broadly in line with Group expectations.
UK Midstream operations
The Sullom Voe Terminal (‘SVT’) and its related infrastructure has delivered safe and reliable performance, with 100% service availability continuing. The Group continues to work in close collaboration with its stakeholders to ensure the terminal meets existing and future customer needs, while remaining focused on simplification and cost management, which is progressing in line with expectations.
In pipelines, good progress has been made undertaking planned repair and remediation work on delivery infrastructure relating to Kraken, Magnus and Thistle, in addition to in-line pipeline inspection evaluations at GKA. These activities will ensure continued smooth operations across the Group’s assets.
To support the ongoing transformation of SVT and EnQuest’s energy transition ambitions, the Company established an Infrastructure and New Energy business in August, replacing the former Midstream directorate. The new business will focus on strengthening and extending the life of operations and assessing and delivering new energy opportunities through innovative commercial structures over the medium to long-term to create a hub of growth in infrastructure and renewables at SVT.
Average production from the Dons fields was 337 Boepd, with production ceasing as planned in March 2021. In April 2021, the Northern Producer Floating Production Facility departed the Dons and was handed back to its owners.
Following acceptance by the regulator of the CoP application at Heather during 2020, good progress has been made on decommissioning activities, with sub-sea inspections having been completed ahead of the resumption of the well abandonment programme. At Broom, the application for CoP was approved by the regulator in March 2021.
At Thistle, the first phase of the re-habitation of the platform was successfully completed in June 2021 in line with expectations, with a permanent team now situated on the asset ahead of the well abandonment programme planned for the fourth quarter.
In Malaysia, average production was 4,809 Boepd, 42.1% lower than in 2020. This decrease reflects the impact of a riser detachment in late 2020. Production has since improved and been better than expected as a result of the accelerated progress of initial production recovery activities. It is anticipated that replacement of the pipeline and riser will occur in October 2021, returning production to normal levels shortly thereafter.
In late July 2021, a planned five-day maintenance shutdown was successfully completed at PM8/Seligi one day ahead of schedule.
In January 2021, the Group completed the acquisition of a 40.81% equity interest in and operatorship of the Bressay Oil Field. This acquisition provides a low-cost addition of up to 115 MMbbls (net) 2C resources, around a 65% increase in EnQuest's 2C resources from 164 MMbbls as at 31 December 2020 to 279 MMbbls. The initial consideration was £2.2 million, payable as a carry against 50% of Equinor's net share of costs from the point EnQuest assumed operatorship.
In February 2021, the Group announced the acquisition of a 26.69% non-operated interest in the producing Golden Eagle area from Suncor Energy UK, for an initial consideration of $325 million. The transaction will add incremental production of c.10 kboed, c.19 MMbboe to net 2P reserves and c.4 MMbboe to net 2C resources, in addition to creating c.$170 million NPV (10)1. Shareholders approved the acquisition at the General Meeting held on 23 July 2021, with the remaining conditions precedent anticipated to be met or waived ahead of the expected completion around the end of September 2021.
In April 2021, the Group signed a SPA with Whalsay Energy Holdings Limited ('WEL') to purchase their entire 100.00% equity interest in the P1078 licence containing the proven Bentley heavy-oil discovery. This discovery is within c.15 kilometres of the Group's existing Kraken and Bressay operated interests, offering further long-term potential development opportunities and other synergies. Upon completion in July, EnQuest funded certain accrued costs and obligations of WEL, which amounted to less than $2 million.
1 Per GCA CPR estimates and oil price assumptions of: 2021: $51/bbl, 2022: $54/bbl, 2023: $57/bbl, 2024:+: $60/bbl
Liquidity and net debt
Free cash flow generation in the period to 30 June 2021 totalled $141.5 million (2020: $86.8 million), primarily reflecting materially lower cash capital expenditure, partially offset by higher decommissioning spend. During the period, the Sculptor Capital facility was repaid. At 30 June 2021, net debt was $1,183.2 million, down $96.5 million from $1,279.7 million at 31 December 2020. Total cash and available facilities at 30 June 2021 of $303.4 million, including restricted funds and ring-fenced funds held in operational accounts totalling $102.0 million.
In June, the Group announced that it had signed a new senior secured borrowing base debt facility (the 'RBL') of $600 million with an additional amount of $150 million for letters of credit for up to seven years. In July 2021, $360.0 million was drawn down from the RBL. The proceeds were used to repay the entire outstanding balance, including PIK, of $354.5 million on the RCF. In addition, $58.7 million, representing the full amount of the outstanding principal and interest on the BP vendor loan, was repaid. Following shareholder approval of the acquisition of the Golden Eagle assets at the Group’s general meeting on 23 July 2021, it is anticipated the remaining funds in the RBL will be used to part finance the required consideration.
In July, the Group successfully completed a capital raise consisting of gross proceeds of approximately £36.1 million ($50.0 million), by way of a firm placing and placing and open offer of 190,122,384 new ordinary shares, at an issue price of 19 pence per new ordinary share.
Full year production is expected to be at the lower end of the guidance range of between 46,000 and 52,000 Boepd. This reflects expected performances at Magnus, GKA and PM8/Seligi over the course of the second half of the year.
The Group expects operating costs to be approximately $300 million, reflecting lower lease charter credits driven by higher uptime at Kraken, additional production enhancement scopes and topside maintenance activities at Magnus, higher diesel costs and sterling strength. Combined cash capital and abandonment expenditure, excluding costs associated with the PM8/Seligi riser repair where most costs are anticipated to be covered by insurance, is expected to be broadly around $120 million.
As at the end of August, EnQuest has hedged a total of approximately 11 MMbbls for full year 2021 predominantly using costless collars, with an average floor price of approximately $59/bbl and an average ceiling price of approximately $69bbl, with c.6 MMbbls hedged with an average floor of c.$62/bbl and ceiling price of c.$73/bbl in the second half of 2021. For 2022, EnQuest has hedged a total of approximately 6 MMbbls using similar structures, with an average floor price of approximately $61/bbl and an average ceiling price of approximately $75/bbl. For 2023, the Group has hedged a total of approximately 1 MMbbls with an average floor price of approximately $55/bbl and average ceiling price of approximately $73/bbl. This ensures that the Group receives a minimum oil price for its production. The Group continues to layer in hedging over the longer term.
Environmental, Social and Governance
EnQuest has continued to make good progress in reducing its Scope 1 and 2 emissions. Having reduced emissions by 26% between 2018 and 2020, the Group is ahead of the 2025 target set out in the UK Government’s North Sea Transition Deal (‘NSTD’) to reduce emissions by 10% from a 2018 baseline. As previously outlined, the Group has set its own target to reduce emissions by a further 10% from its existing portfolio by the end of 2023 and is on track to achieve this having materially reduced flaring in 2021. Delivering this additional reduction in emissions would also position EnQuest favourably against the 2027 target set out in the NSTD.
The health, safety and wellbeing of EnQuest’s employees is the Company’s top priority. Following recent COVID-19 related announcements in the UK, a phased approach back to the office has commenced with the necessary precautions in place, while testing of the offshore workforce continues to be undertaken regularly by the Group. In Malaysia, the Group has evolved its strategy to accommodate the requirement by the local government for all personnel to quarantine for 14 days ahead of deployment to an asset. The Group has amended its shift patterns to facilitate this whilst maintaining safe operations. The Group remains compliant with UK, Malaysia and Dubai government and industry policy and will continue working closely 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. The Group's day-to-day operations continue without being materially affected by COVID-19. During the period, the Group also achieved a lost time incident frequency (‘LTI’) rate of zero, with Heather achieving two years LTI free in July, which remains materially below the UKCS benchmark. There continues to be a focus on asset integrity and the Group remains committed to ensuring that the ongoing asset integrity review appropriately identifies key focus areas.
In July, EnQuest published its Diversity & Inclusion global strategy and accompanying policy update to help the Group achieve specific improvements. Set out in the strategy were seven distinct commitments ranging from committing to challenging personal bias, to ensuring that diversity within EnQuest remains a key focus area. In addition, EnQuest has set some specific targets for women in senior grade and management positions, as well as ethnic minorities in Executive leadership roles. The aim is to meet these targets by 2025.
In February, the Board was pleased to appoint Liv Monica Stubholt as a Non-Executive Director of the EnQuest Board. Liv Monica also became a member of the Audit Committee and the Safety, Climate and Risk Committee. Her appointment builds on the Board’s extensive experience in the energy industry and further strengthens its governance position.
— Ends —
For further information, please contact:
Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Ian Wood (Head of Investor Relations, Communications & Reporting)
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 a webcast by clicking here. 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: 11104072
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.
Forward-looking statements: 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.