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EnQuest lifts production guidance

RESULTS: EnQuest shows strong production growth in maiden half-year results
August 18, 2010

North Sea oil and gas firm EnQuest, which demerged from Petrofac in April, has had a strong start to life as an independent company. Taking a pro-forma half year's production from the assets previously owned by Petrofac and Lundin Petroleum, EnQuest produced 18,708 barrels of oil equivalent per day (boepd) over the six months. This included average production in June from the Thistle field of 5,454 boepd, which is the highest achieved since February 2005.

IC TIP: Hold at 116p

EnQuest has lifted its full-year production guidance from 18,000 boepd to 20,000 boepd, based on the strong performance of its Don and Thistle fields, and without yet incorporating the recently announced acquisition of Stratic Energy. That agreed deal is expected to complete in the fourth quarter of 2010 and will add 7.27m barrels of proven and probable (2P) reserves in the North Sea, equivalent to 9 per cent of EnQuest's 2P reserves.

An average realised oil price of $78.18 (£49.9) per barrel in the half year helped generate strong cash flow of $68.2m after capital expenditure, and the company retains $200m of unused loan facilities to fund further investments. Capital expenditure of $95.3m was invested mainly in Don Southwest, Thistle and Broom, the last of which proved disappointing and will be suspended pending further evaluation of possible uses. Full-year capital expenditure is expected to be around $240m, in line with expectations.

The company's strategy is to exploit low-risk opportunities around the UK that can benefit from installed infrastructure and skilled labour; it is not seeking high risk-high reward exploration prospects. EnQuest has interests in 16 production licences, and is operator of 15 of these, covering 26 UK blocks or part blocks. A six-well drilling programme planned for the second half of 2010 has started promisingly, with the S5 producing well at Don Southwest already having come onstream at a higher-than-expected gross rate of 21,000 boepd.

ENQUEST (ENQ)
ORD PRICE:116pMARKET VALUE:£902m
TOUCH:116-117p12-MONTH HIGH:122pLOW: 87p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:105¢NET CASH:$76.4m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
201022541.73.10nil
% change----

£1=US$1.568

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