In the 12 months since we recommended EnQuest (ENQ) as a speculative buy option, the share price of the North Sea independent has oscillated within a relatively narrow range (-11p/+16p) either side of the current share price of 132p. The relative stability (or stagnation) of the share price - depending on your point of view - is partly attributable to repeat production delays on the Alma/Galia project. But oil from the 34m barrel development is now imminent, which will help to shore-up near-term sentiment, particularly if output is cranked-up in fairly short order. However, even beyond the immediate quest to bump-up EnQuest's daily production volumes by another 13,000 barrels, the driller's strategic focus on exploiting maturing assets and underdeveloped fields in the UK North Sea places it in an ideal position to benefit from likely regulatory reforms, and we recommend buying in anticipation.
- Prospective tax concessions
- Organic reserve increases
- Private equity interests in North Sea
- Successful note issue
- Alma/Galia delays
- Rising production costs
We think that Westminster has been deliberately downplaying the potential of the UK Continental Shelf (UKCS) ahead of September's referendum on Scottish independence. The Department of Energy has certainly been far more subdued than it was at the time of the February publication of Sir Ian Wood's preliminary findings on the future of offshore oil & gas in the UK. According to the report, the UK economy could generate £200bn over the next 20 years through the recovery of only 3-4bn barrels of North Sea oil and gas. Many analysts believe that the potential is much greater, although energy companies will need to be offered increased tax incentives to stay the course in the North Sea.