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EnQuest marked down on production decline

The North Sea driller has seen production tail off in the first half
September 2, 2021
  • Production outages and power problems
  • Debt levels a cause for concern

Try as it might, EnQuest (ENQ) failed to gloss over an uninspiring update at the half-year mark. The share price pulled back sharply on results day after the North Sea driller revealed that daily net production had fallen by 30 per cent to 46,187 barrels of oil equivalent (boe). Interim production was held in check by “unplanned third-party outage” at the northerly Magnus field, although you could argue that the term 'unplanned' is synonymous with oil and gas production anyway.

Output from the field, located north-east of Shetland, was down by a quarter on HY2020 due to power issues and natural decline. The company has initiated remedial measures, which are expected to gradually improve output, but it is difficult to build redundancy into offshore positions, so average daily group production is expected to be at the lower end of guidance, around 46,000 boe, set against an average rate of 59,116boe through 2020.    

Problems weren’t restricted to Magnus. Daily production from the Kraken field also pulled back by 30 per cent, again partly a reflection of natural decline, while output from the Greater Kittiwake Area was also constricted due to power issues and a four-week maintenance shutdown.

For all the difficulties encountered through the period, EnQuest, like every other resource producer, is in thrall to underlying commodity prices, so it’s no surprise – given the recovery in crude oil prices – that adjusted gross profit increased nearly fivefold to $185m (£135m), also reflected in a steep rise in the accompanying margin.   

The sell-off on results day undid some of the share price gains over the past 12 months, but aside from the retracement in crude prices, there is little cheer for investors, particularly when you weigh up the impact of debt servicing on the bottom line. Sell.

Last IC view: Sell, 13p, 09 Apr 2020

    ENQUEST (ENQ)   
ORD PRICE:23.25pMARKET VALUE:£439m
TOUCH:23.25-23.45p12-MONTH HIGH:27pLOW: 8.63p
DIVIDEND YIELD:NILPE RATIO:1
NET ASSET VALUE:2¢*NET DEBT:$1.84bn
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2020 (restated)439-373-28.6nil
202148149.1-3.40nil
% change+10---
Ex-div:-   
Payment:-   
£1=$1.37 *Includes intangible assets of $167m, or 9¢ per share