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EnQuest's creaking assets bringing in the cash

North Sea oil company sees cash flow surge from higher prices but lower 2021 production and maintenance needs cut into earnings
March 24, 2022
  • Free cash flow doubled on last year but still not back to 2019 level
  • This year's guidance allowing for maintenance at Kraken and Magnus

Judging by the government’s energy security rhetoric, the North Sea has come back into style. EnQuest (ENQ), which owns stakes in the Kraken and Magnus fields in the North Sea, plus a new share in the CNOOC-operated Golden Eagle area, is similar to a disco-lover who never ditched flares and is pleasantly surprised they are now back in fashion. 

It has stuck to its strategy of buying into aged assets and squeezing more life out of them. This means sometimes difficult-to-manage operations and lots of maintenance. Outages knocked 2021 production down from an average of 59,116 barrels of oil equivalent per day (boepd) to 44,415boepd last year. 

Guidance for this year are 44,000-51,000boepd. The company is now completing a “review to identify strengths and opportunities” in its “integrity management system” after having pipeline issues at the Sullom Voe Terminal in the Shetlands and equipment in Malaysia. Production this year will be hit by maintenance at both Magnus (up to a month) and Kraken (two weeks for “safety critical works”). 

Thanks to the higher oil price, free cash flow still climbed by 89 per cent on 2020 to almost $400mn (£308mn). EnQuest has $3bn in tax losses banked, so sees no “corporation tax or supplementary charge” to be paid on UK operational activities for the foreseeable future. 

Cash flow is being used to pay down debt, and since year-end EnQuest has taken net borrowings down from $1.2bn excluding lease liabilities to $1.1bn. Despite the surging oil prices, consensus forecasts see 2022 cash profits and cash flow at below the 2019 levels. We remain sellers. 

Last IC View: Sell, 23p, 2 Sep 2021

ENQUEST (ENQ)   
ORD PRICE:31pMARKET VALUE:£ 572mn
TOUCH:31-31.40p12-MONTH HIGH:32pLOW: 15p
DIVIDEND YIELD:NILPE RATIO:2
NET ASSET VALUE:28ȼNET DEBT:$1.9bn
Year to 31 DecTurnover ($bn)Pre-tax profit ($mn)Earnings per share (ȼ)Dividend per share (ȼ)
20170.63-230.0-4.6nil
20181.30909.2nil
20191.65-729-27.4nil
20200.86-566-29.0nil
20211.2735221.7nil
% change+47---
Ex-div:NA   
Payment:NA   
£1=$1.31