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EnQuest's reserves on the up

RESULTS: Rising costs and a hefty increase in the 'technical' tax charge hit EnQuest's earnings in 2013, but a busy work programme this year holds out great promise for both production and exploration.
March 26, 2014

North Sea driller EnQuest (ENQ) managed to drive up full-year production over the course of last year, but a sharp increase in operating costs and an extra $100m (£61m) on the accounting tax charge sent earnings tumbling.

IC TIP: Buy at 137p

Although EnQuest recorded a small drop in its realised price for crude, revenues were up thanks to a 6 per cent increase in average daily production to 24,222 barrels of oil equivalent (boe). However, profits were held back by sales costs, which climbed nearly a fifth to $541m, and by $25m in administrative expenses, up from $6.7m in the previous year.

The good news is that EnQuest, which last year gave the green light to a £4bn investment in the giant Kraken field east of Shetland, bumped up net reserves by 66m boe to 195m boe. For this year, Enquest expects daily output in the range of 25,000 boe to 30,000 boe (excluding production from Didon in Tunisia, as that acquisition has yet to close). Work is expected on over 15 wells through 2014, including three production wells on Alma/Galia and two production wells at the non-operated Alba field, together with a new production well on Don Southwest. EnQuest is currently assessing results from the Cairngorm appraisal well, with preliminary work suggesting that a commercial-scale reservoir is in place - although its accessibility is still open to question.

ENQUEST (ENQ)
ORD PRICE:127.9pMARKET VALUE:£1bn
TOUCH:127.7-127.9p12-MONTH HIGH:148pLOW: 117p
DIVIDEND YIELD:nilPE RATIO:9
NET ASSET VALUE:185¢*NET DEBT:26%

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2009234111.9nil
2010583564.0nil
20119363637.6nil
201289040346.2nil
201396133124.4nil
% change+8-18-47-

£1=$1.65

*Includes intangible assets of $239m, or 30¢ a share