2022 Full 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 31 December 2021 and the Balance Sheet as at 31 December 2021. Alternative performance measures are reconciled within the ‘Glossary – Non-GAAP measures’ at the end of the Financial Statements.
EnQuest Chief Executive, Amjad Bseisu, said:
“Throughout 2022, we continued to demonstrate progress against our strategic priorities of “deliver, de-lever and grow”. Production was at the mid-point of our guidance range, we generated significant free cash flow of $518.9 million and reduced our year end net debt to $717.1 million, its lowest level since 2014. We also refinanced our debt facilities, materially extending their maturities.
“We continue to progress our new energy and decarbonisation ambitions at the Sullom Voe Terminal and delivered a 24 well abandonment programme, the largest multi-asset well decommissioning campaign seen in the UK Northern North Sea, demonstrating strong capability as a transition company. Our integrated, capability-led business model and our advantaged tax position in the UK enhance our ability to pursue accretive M&A.
"We have continued to perform well against our full year targets. Production to the end of March has averaged around 47,800 Boepd and we have further reduced our net debt, which was down to $624.3 million at the end of February.
“Throughout 2023, we will remain focused on driving performance in our Upstream and Decommissioning businesses while pursuing our decarbonisation and new energy opportunities in a capital-light manner. We also intend to pursue balanced and disciplined capital allocation that will include shareholder returns in the near future.
“With our differentiated business model and the resilience, creativity and adaptability of our people, we are well positioned to deliver on our plans for the future.”
- Group net production averaged 47,259 Boepd (2021: 44,415 Boepd1), reflecting improved performances at Magnus and PM8/Seligi and the contribution from Golden Eagle
- Revenue and other operating income of $1,839.1 million (2021: $1,320.3 million) and adjusted EBITDA of $979.1 million (2021: $742.9 million) reflecting materially higher oil prices and higher production
- Cash generated from operations was $1,026.1 million (2021: $756.9 million)
- Cash capital expenditure of $115.8 million (2021: $51.8 million)
- Cash decommissioning expenditure of $59.0 million (2021: $65.8 million)
- Strong free cash flow generation2 of $518.9 million (2021: $396.8 million)
- Cash and available facilities amounted to $348.9 million at 31 December 2022 (2021: $318.7 million), with EnQuest net debt reduced to $717.1 million (2021: $1,222.0 million)
- Statutory reported loss after tax was $41.2 million (2021: profit after tax of $377.0 million), primarily driven by the recognition of a non-cash deferred tax liability associated with the UK Energy Profits Levy
1 2021 includes Golden Eagle contribution for the period 22 October to 31 December, averaged over the 12 months to the end of December
2 Net change in cash and cash equivalents less acquisition costs and net repayments/proceeds from loans and borrowing and share issues
2023 performance and outlook
- Year to date March production averaged around 47,800 Boepd
- Net debt amounted to $624.3 million at 28 February 2023
- During the first quarter of 2023, the Group repaid $118.0 million of its reserves-based lending facility, with drawings reduced to $282.0 million
- Hedges in place for c.7.9 MMbbls of oil, predominantly through the combination of puts and costless collars. The average floor price is $58/bbl and the ceiling associated with the 3.3 MMbbls of costless collars is $75/bbl
- 2023 full year average net Group production expected to be between 42,000 and 46,000 Boepd
- Full year operating costs are expected to be c.$425.0 million
- Cash capital expenditure is expected to be c.$160.0 million
- Cash decommissioning expenditure is expected to be c.$60.0 million
Production and financial information
|Business performance measures||2022||2021||Change %|
|Revenue and other operating income ($m)1||1,839.1||1,320.3||39.3|
|Realised oil price ($/bbl)1,2||88.9||68.6||29.6|
|Average unit operating costs ($/Boe)2||22.7||20.5||10.7|
|Adjusted EBITDA ($m)2||979.1||742.9||31.8|
|Free cash flow($m)2||518.9||396.8||30.8|
|EnQuest net (debt)/cash ($m)2||(717.1)||(1,222.0)||(41.3)|
|Statutory measures||2022||2021||Change %|
|Reported revenue and other operating income ($m)3||1,853.6||1,265.8||46.4|
|Reported gross profit ($m)||652.9||358.2||82.3|
|Reported profit/(loss) after tax ($m)||(41.2)||377.0||–|
|Reported basic earnings/(loss) per share (cents)||(2.2)||21.7||–|
|Cash generated from operations ($m)||1,026.1||756.9||35.6|
|Net increase/(decrease) in cash and cash equivalents ($m)||39.1||67.4||(42.0)|
1 Including realised losses of $203.7 million (2021: realised losses of $67.7 million) associated with EnQuest’s oil price hedges
2 See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’ starting on page 63. 2021 cash capital expenditure includes $13.2 million associated with the PM8/Seligi riser replacement
3 Including net realised and unrealised losses of $189.3 million (2021: net realised and unrealised gains of $122.2 million) associated with EnQuest’s oil price hedges
|Average daily production on a net working interest basis||1 Jan 2022 to|
31 Dec 2022
|1 Jan 2021 to |
31 Dec 2021
- Golden Eagle1
- Other Upstream2
1 2021 figure includes Golden Eagle contribution for the period 22 October to 31 December, averaged over the 12 months to the end of December
2 OtherUpstream: Scolty/Crathes, Greater Kittiwake Area and Alba
3 UK Decommissioning: the Dons
2022 performance summary
Strong production performance, cost control and the supportive commodity price environment underpinned record free cash flow generation. This enabled the Group to refinance its debt facilities, rebalancing the capital structure between secured and unsecured debt and extending maturities until 2027, and reduce EnQuest net debt to $717.1 million. The EnQuest net debt to adjusted EBITDA ratio at the end of 2022 was 0.7x, down from 1.6x at the end of 2021, which shows excellent progress towards the target of 0.5x. The Group also advanced its new energy and decarbonisation ambitions at the Sullom Voe Terminal, identifying and maturing three discrete and scalable decarbonisation opportunities of carbon capture and storage (‘CCS’), electrification and green hydrogen and derivative production, while continuing to reduce total Group Scope 1 and 2 CO2 equivalent emissions. In Decommissioning, 24 wells at Heather and Thistle were decommissioned during the year, one of the most productive campaigns seen in the UK North Sea.
Production of 47,259 Boepd reflected a full year’s contribution from Golden Eagle and improved performances at Magnus and PM8/Seligi following successful well programmes and improved uptime at Magnus, while production at Kraken was at the top end of its guidance range. These improvements were partially offset by well integrity issues at Magnus, compressor downtime at PM8/Seligi and natural declines across the portfolio.
Adjusted EBITDA, cash generated by operations and free cash flow were $979.1 million, $1,026.1 million and $518.9 million, respectively, with the material increases from 2021 reflecting higher production and market prices. Capital expenditure of $115.8 million primarily reflected the well programmes at Magnus, PM8/Seligi and Golden Eagle, while cash decommissioning expenditure of $59.0 million was focused on well plug and abandonment (‘P&A’) activities at Heather and Thistle.
Liquidity and net debt
At 31 December 2022, EnQuest net debt was $717.1 million, down $504.9 million from $1,222.0 million at 31 December 2021. During the year, EnQuest successfully refinanced its debt facilities, rebalancing the capital structure between secured and unsecured debt and extending maturities until 2027. At 31 December 2022, cash drawings under the reserve based lending (‘RBL’) facility were $400.0 million against a commitment of $500.0 million, while total cash and available facilities were $348.9 million, including restricted funds and ring-fenced funds held in joint venture operational accounts totalling $174.3 million.
EnQuest net debt as at 28 February 2023 was further reduced to $624.3 million, including a working capital benefit of c.$50 million which is expected to reverse, with cash and available facilities of $330.1 million.
During the first quarter of 2023, the Group made repayments totalling $118.0 million reducing cash drawn under the RBL facility to $282.0 million at 31 March 2023 and ensuring the Group remains ahead of its accelerated amortisation requirements following the revisions made to UK Energy Profits Levy (‘EPL’).
EnQuest remains focused on its strong balance sheet and its ongoing deleveraging strategy. As part of this financial policy, the Group will continue to assess funding opportunities across markets to optimise the capital structure and manage its debt facilities.
Reserves and resources
Net 2P reserves at the end of 2022 were c.190 MMboe (2021: reported c.194 MMboe). During the year, the Group produced c.17 MMboe. This reduction was partially offset by transfers from 2C resources net of other technical revisions, combined with the Group changing its reporting of 2P reserves in Malaysia to an equity working interest basis (from an entitlement basis) to align with peers. This change in reporting added c.11 MMboe to the year-end 2022 balance (c.11 MMboe was also added to the previously reported 2021 figure to align comparatives). Net 2C resources were c.393 MMboe (2021: c.402 MMboe), with the decrease a result of progression to 2P reserves, as noted above.
Environmental, Social and Governance
The Group has continued to make excellent progress in reducing its absolute Scope 1 and 2 emissions, with CO2 equivalent emissions reduced by c.23% since 2020, reflecting lower flaring and lower fuel gas and diesel usage. Following offshore modifications to metering systems in Malaysia, the Group is now able to have its Malaysian emissions data independently verified in accordance with the Streamlined Energy and Carbon reporting guidance. This also required harmonisation of reporting methodologies across the Group, which has led to minor restatements of Malaysian emissions data for prior periods to ensure consistency of comparatives provided. Since 2018, UK Scope 1 and 2 emissions have reduced by c.43%, which is significantly ahead of the UK Government’s North Sea Transition Deal target of achieving a 10% reduction in Scope 1 and 2 CO2 equivalent emissions by 2025 and close to the 50% reduction targeted by 2030. The Group continues to mature three discrete and scalable decarbonisation opportunities of CCS, electrification and green hydrogen and derivative production as part of its Infrastructure and New Energy business, with initial CCS feasibility studies indicating the capability to support a project that could store up to 10 million tonnes of CO2 per annum, which is a multiple of the Group’s existing emissions footprint, providing the opportunity to go beyond net zero.
The health, safety and wellbeing of our employees is our top priority. In 2022, EnQuest achieved an upper quartile Lost Time Incident (‘LTI’) frequency1 rate. However, there was an increase in the number of LTIs from 2021 for which intervention was undertaken, emphasising increased focus on situational awareness and dynamic risk assessment.
1 Lost Time Incident frequency represents the number of incidents per million exposure hours worked (based on 12 hours for offshore and eight hours for onshore)
Effective succession planning remains a key focus area for the Board, Governance and Nomination Committee and management. In August, Jonathan Swinney stepped down from the Board as Chief Financial Officer (‘CFO’) and Executive Director, with Salman Malik, who had long been identified as a potential CFO successor, succeeding him. In addition, following the Group’s Annual General Meeting in June, Philip Holland stepped down from the Board as part of an orderly and planned succession process with Rani Koya succeeding him, having joined the Board on 1 January 2022. In December 2022, Gareth Penny was appointed to the Board as Non-Executive Chairman, succeeding Martin Houston. Gareth is currently the chairman of Ninety One Plc, a FTSE 250 financial institution, having previously served on the board of Julius Baer Group for 12 years.
During the year, the Board agreed to adopt the Women Leaders Review target of 40% female representation on the Board and reviewed and supported work being undertaken throughout the organisation to create a more inclusive workplace. The Board currently has 33% female representation and remains ahead of the Parker Review target with respect to minority ethnic representation, with four minority ethnic board members.
In early 2023, the Safety, Climate and Risk Committee was renamed the Safety, Sustainability and Risk Committee, recognising its scope to manage sustainability risks and opportunities within the broader ESG framework.
2023 performance and outlook
Group net production averaged around 47,800 Boepd to the end of March. For the full year, the Group’s net production is expected to be between 42,000 and 46,000 Boepd, including the drilling campaigns at Magnus and Golden Eagle. Required maintenance activities are planned to be executed during two separate ten-day periods of single train operations at Kraken, with further extensive shutdowns at each of Magnus and GKA.
Operating expenditures are expected to be approximately $425.0 million, with the increase from 2022 largely due to inflationary pressures and phasing of activities.
Cash capital expenditure is expected to be around $160.0 million. The Group plans to execute a three-well drilling campaign at Magnus and complete the 2022 drilling campaign at Golden Eagle, where two further platform wells are expected to be drilled, commencing later in the year, subject to joint venture approval.
Decommissioning expenditure is expected to total approximately $60.0 million, primarily reflecting ongoing well P&A decommissioning programmes at the Heather/Broom and Thistle/Deveron fields.
For 2023, EnQuest has hedged c.7.9 MMbbls of oil, predominantly through the combination of puts and costless collars. The average floor price is $58/bbl and the ceiling associated with the 3.3 MMbbls of costless collars is $75/bbl. For 2024, EnQuest has hedged c.3.2 MMbbls of oil with an average floor price of c.$60/bbl in the form of puts, with the call element of the existing costless collars having been bought back during the first quarter of 2023.
Summary financial review of 2022
(all figures quoted are in US Dollars and relate to Business performance unless otherwise stated)
The Company continued to make progress against its strategic aims during 2022. The combination of higher production, higher prices and cost control and capital discipline drove strong free cash flow generation of $518.9 million, up 30.8% compared to 2021. This enabled a 41.3% reduction in EnQuest net debt, which was reduced by $504.9 million to $717.1 million (2021: $1,222.0 million). This rapid deleveraging and increased adjusted EBITDA of $979.1 million, up 31.8% compared to 2021 ($742.9 million), has resulted in a leverage ratio of 0.7x (2021: 1.6x), which is excellent progress towards the Group’s leverage target of 0.5x. In addition, the Group completed a comprehensive refinancing of its debt facilities during 2022, reducing the level of gross borrowings and extending the maturities by five years to 2027. This refinancing was a significant achievement given the volatile backdrop in financial markets. Subsequently, the impact of the EPL was included in the Group’s reserve based lending (‘RBL’) facility redetermination for the first half of 2023, resulting in a reduction of the available RBL capacity and liquidity available to the Group, with an accelerated RBL repayment profile. In the first quarter of 2023, the amount drawn on the RBL facility was reduced by $118.0 million to $282.0 million, ensuring the Group remains ahead of the amended amortisation profile.
Revenue for 2022 was $1,839.1 million, 39.3% higher than in 2021 ($1,320.3 million) primarily reflecting higher realised prices and higher production. The Group’s commodity hedge programme resulted in realised losses of $203.7 million in 2022 (2021: losses of $67.7 million) which reflected the timing at which the hedges were entered into and the increase in market prices during the year, particularly following the Russian invasion of Ukraine in February (see note 27 for further information on the Group’s hedging position). The Group’s average realised oil price excluding the impact of hedging was $102.6/bbl in 2022, 40.5% higher than 2021 ($73.0/bbl). The Group’s average realised oil price including the impact of hedging was $88.9/bbl in 2022, 29.6% higher than 2021 ($68.6/bbl).
Cost of sales were $1,195.8 million for the year ended 31 December 2022, 32.8% higher than in 2021 ($900.4 million).
The Group’s operating costs increased by $75.5 million to $396.5 million, primarily reflecting higher production costs, including the full year impact of Golden Eagle, higher fuel and emission trading scheme costs due to higher market prices and lower lease charter credits reflecting high uptime at Kraken, partially offset by a weakening of the Sterling to US Dollar exchange rate. Unit operating costs (excluding hedging) increased by 10.7% to $22.7/Boe (2021: $20.5/Boe), reflecting the impacts on costs noted above. Unit operating costs including hedging were $23.0/Boe (2021: $19.8/Boe).
Total costs of sales also included non-cash depletion expenses of $327.0 million, which were 7% higher than in 2021 ($305.6 million), mainly reflecting the impact of Golden Eagle.
The credit relating to the Group’s lifting position and inventory was $15.6 million (2021: charge of $62.3 million). This primarily reflects the reversal of the net overlift position of $18.0 million at 31 December 2021, resulting in a $0.8 million net underlift position at 31 December 2022.
Other cost of operations of $487.8 million were materially higher than in 2021 ($211.5 million), principally as a result of higher Magnus-related third-party gas purchases of $452.8 million (2021: $199.6 million) following the increase in associated market prices.
The tax charge for 2022 of $322.5 million (2021: $53.7 million tax charge), excluding exceptional items, reflects the tax impact on the Group’s increased profit before tax and the enactment of the UK EPL. Ring Fence Expenditure Supplement (‘RFES’) on UK activities, which would historically have provided an offset to the UK tax charge, ceased to be available to claim from the end of 2021.
UK North Sea corporate tax losses at the end of the year decreased to $2,497.7 million (2021: $3,011.0 million). This significant tax loss position provides EnQuest with a strategic advantage in the UK North Sea, enhancing the relative value of assets in EnQuest’s hands when compared to other tax paying participants.
Remeasurements and exceptional items resulting in a post-tax net loss of $253.6 million have been disclosed separately for the year ended 31 December 2022 (2021: profit of $156.7 million). Revenue included unrealised gains of $14.5 million in respect of the mark-to-market movement on the Group’s commodity contracts, primarily reflecting the recycling of 2021 unrealised hedge losses into business performance during 2022 (2021: unrealised losses of $54.5 million). A non-cash net impairment charge of $81.0 million (2021: impairment reversal of $39.7 million) on the Group’s oil and gas assets arises from the impact on future cash flows following the introduction of the EPL, updated asset profiles and a higher discount rate, partially offset by higher forecast oil prices. Other expense includes a $233.6 million charge in relation to the fair value recalculation of the Magnus contingent consideration reflecting a forecast increase in Magnus future cash flows due to higher forecast oil prices and asset profile and cost assumption changes (2021: $140.1 million gain). Other finance costs mainly relate to the unwinding of discount on contingent consideration from the acquisition of Magnus and associated infrastructure of $36.4 million (2021: $58.4 million). A net tax credit of $78.0 million (2021: credit of $78.2 million) has been presented as exceptional, representing the tax effect on the items above and the non-cash recognition of undiscounted deferred tax assets of $127.0 million given the net effect of Group’s higher long-term oil price assumptions and changes in asset profiles, partially offset by the initial recognition of the deferred tax liability associated with the EPL of $178.3 million.
Cash flow and EnQuest net debt
The Group’s reported cash generated from operations for the year ended 31 December 2022 were $1,026.1 million, up 35.6% compared to 2021 ($756.9 million) primarily driven by materially higher revenue. Free cash flow for 2022 was $518.9 million (2021: $396.8 million). These strong free cash flows enabled the Group to make early voluntary repayments on the previous RBL facility resulting in the balance being repaid in full prior to the RBL being refinanced in October 2022 with commitments of $500.0 million.
In April 2022, the Group partially refinanced its 7% Sterling retail bond (‘7.00% retail bond’) through an exchange and open offer in the form of a new 9% Sterling retail bond (‘9.00% retail bond’), raising £133.3 million
In July, August and September, the Group bought back and cancelled $34.9 million of it 2023 7.00% high yield bond, leaving $792.3 million outstanding. This was subsequently repaid in full in October 2022 utilising $400.0 million of drawdowns from the Group’s refinanced RBL, along with operating cash flows and the net proceeds from the issue of a new 11.625% high yield bond.
The EPL has been included in the RBL review and redetermination for the first half of 2023, resulting in a reduction of the available RBL capacity and liquidity available to the Group, with an accelerated RBL repayment profile. During the first quarter of 2023, the Group made repayments totalling $118.0 million, reducing cash drawn under the RBL facility to $282.0 million, ensuring the Group remains ahead of its accelerated amortisation requirements following redetermination. EnQuest net debt as at 28 February 2023 was further reduced to $624.3 million, including a working capital benefit of c.$50 million which is expected to reverse, with cash and available facilities of $330.1 million.
Looking forward, the EPL has also had implications for EnQuest’s capital allocation strategy as it limits the cash available for further deleveraging, capital investment and shareholder returns. However, the Group is optimising its capital expenditures in respect of available investment allowances and is confident of further deleveraging through 2023, with shareholder returns to follow in the future.
For further information, please contact:
EnQuest PLC Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Salman Malik (Chief Financial Officer)
Ian Wood (Head of Investor Relations, Communications & Reporting)
Craig Baxter (Senior Investor Relations & Communications Manager)
Teneo 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 will be accessible via a webcast by clicking here.
EnQuest investor relations team will be hosting a presentation via Investor Meet Company, primarily focused on the Company’s retail investors on 19 April at 14:00 - London time.
The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add to meet ENQUEST PLC via: https://www.investormeetcompany.com/enquest-plc/register-investor
Investors who already follow ENQUEST PLC on the Investor Meet Company platform will automatically be invited.
Notes to editors
This announcement has been determined to contain inside information. The person responsible for the release of this announcement is Chris Sawyer, General Counsel and Company Secretary.
EnQuest is providing creative solutions through the energy transition. As an independent energy company with operations in the UK North Sea and Malaysia, the Group's strategic vision is to be the partner of choice for the responsible management of existing energy assets, applying its core capabilities to create value through the transition.
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.