Join our community of smart investors

EnQuest impairs itself into the red

North Sea oil producer launches major cost cutting in response to price crash
April 9, 2020

It’s not going to be an easy year for oil producers. North Sea-focused EnQuest (ENQ) has gone to battle stations to try to make it through what could be a long period of low oil prices.

IC TIP: Sell at 13p

The company has cut operating costs this year by $190m (£152m), or 35 per cent, and says it can get its cash flow break-even to $33 per barrel (bbl). Enquest will also cut its capital spending by around half, to $120m. 

Even if Opec gets its act together and drops production, the cut in air and road travel and industrial demand means EnQuest might not see a reliable oil price above its break-even point. 

This difficult period comes after a stronger 2019 for the company, which saw cash profits climb and net debt (excluding lease liabilities) come down 20 per cent to $1.4bn. That sent the net debt-to-cash profit ratio down from 2.5 times to 1.4 times.

The 24 per cent production uptick to 68,606 barrels of oil equivalent per day (boepd) came from the Magnus North Sea asset moving to 100 per cent ownership at the end of 2018 and production increases elsewhere in the portfolio.

This did not carry through to the bottom line, however, because of $812m of impairments. Three-quarters of this figure came from writing down the value of the Heather, Thistle and the Dons assets. 

ENQUEST     
ORD PRICE:13pMARKET VALUE:£ 219m
TOUCH:12-14p12-MONTH HIGH:30pLOW: 7p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:34¢NET DEBT:$2.1bn*
Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20150.91-1.34-98.8nil
20160.800.2222.7nil
20170.63-0.23-4.6nil
20181.300.099.2nil
20191.65-0.73-27.4nil
% change+27---
Ex-div:na   
Payment:na   
*Includes $716m in lease liabilities