EnQuest shares fall further amid North Sea setback

Shares of North Sea-focused oil producer EnQuest fell for a second day following its update on Wednesday that cut its full-year production forecast amid a slower than expected start-up of its flagship Kraken field.

EnQuest recently went through a complex financial restructuring.

The Kraken development east of Shetland is one of the largest new oil fields to come onstream in the North Sea since Buzzard.

EnQuest said on Wednesday its 2017 output could be as much as 18% lower than previously expected after delays in bringing Kraken’s floating production, storage and offloading (FPSO) vessel into operation and lower production from some of its other North Sea fields.

“With prolonged commissioning leading to lower than expected operational efficiency from the Kraken FPSO vessel to date, production volumes have been lower than forecast and EnQuest’s overall average daily production for the full year 2017 is now anticipated to be as per the first half 2017 production rate, plus or minus 10%,” said EnQuest.

“This reduction in EnQuest’s short term 2017 production guidance, is consistent with EnQuest’s objective of bringing Kraken onstream in a phased manner in line with good reservoir management practices aimed at maximising long term productivity and value.

“We do not expect the current operational issues in the Kraken ramp-up to continue beyond 2017.”

EnQuest said its net debt at the end of June was $1.92 billion, compared to the $1.91 billion reported at the end of April.

Available cash and bank facilities amounted to $213 million at June 30.

Analysts at UBS warned the fall in production could affect EnQuest’s free cash flow and could hamper EnQuest’s ability to repay its debt.

“It now looks like EnQuest may need to seek covenant waivers from lenders,” said the analysts.

However, the UBS analysts added that they expect EnQuest’s lenders to be accommodating given the expected ramp-up in Kraken output.

EnQuest CEO Amjad Bseisu said on Wednesday: “EnQuest was pleased to bring the Kraken field onstream in Q2 2017 at a substantially reduced capex spend, having delivered excellent drilling and subsea programmes.

“The FPSO however is a complex vessel, designed and built to manage the heavy oil from the Kraken development, and it is taking longer than expected to commission during this initial period.

“Nonetheless, we have been very pleased with reservoir performance and the flow rates achieved on individual wells and, we expect the field to increase production in Q4 and to achieve plateau production of approximately 50,000 Bopd gross in H1 2018.

“While we have seen natural declines in EnQuest’s existing production base in H1 2017, Kraken is on course to drive a material increase in EnQuest’s production in 2018 and beyond.”