North Sea-focused EnQuest has halved its capital commitment to the Alma/Galia oil fields through a farm-out agreement that promises to improve the company’s rate of return, frees up cash to fund new initiatives on the UK Continental Shelf and reaffirms our positive view on the company.
The renewed clamour for North Sea assets is illustrated by the decision by the state-owned Kuwait Foreign Petroleum Exploration Company (KUFPEC) to buy in to a 35 per cent interest in the fields. Under the terms of the agreement KUFPEC will commit around $500m (£321m) to capital costs, including a maximum of $182m in future contributions for past expenses and carry on development costs for EnQuest's remaining interest in Alma/Galia. If KUFPEC does not recover its costs by the start of 2017, it will receive 50 per cent of subsequent operating profits until the costs are recovered in full.
EnQuest anticipates first oil from Alma/Galia by the end of next year – with daily peak production of at least 20,000 barrels of oil equivalent (boe) predicted. The farm-out will effectively reduce EnQuest net daily production by around 7,000 boe in 2014, thereby bringing EnQuest's overall daily production to 39,000 boe.
Although no formal strategic relationship exists, the farm-out is actually the second deal undertaken by the parties, both of whom had been linked as potential buyers for Ithaca Energy.
