NORTH Sea-focused EnQuest has revealed that production from a flagship oil development off Shetland has been running below expectations sending its shares plunging around 10 per cent.

The company has slashed its production guidance for this year after encountering problems on the Kraken oil development 75 miles East of Shetland.

EnQuest started production from the heavy oil field on schedule in June with its partner in the project Cairn Energy amid fanfare.

The $2.5 billion (£2bn) development is one of the biggest completed in the North Sea for years. The startup of the field encouraged hopes there could be a surge of activity in the relatively under-explored waters off Shetland.

However, EnQuest said work on commissioning the facilities needed to process the output is taking longer than expected to complete.

Kraken uses a giant floating production storage and offloading vessel (FPSO).

EnQuest’s chief executive Amjad Bseisu said: “The FPSO … 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.”

The company said with prolonged commissioning leading to lower than expected operational efficiency from the FPSO, production volumes have been lower than forecast.

EnQuest did not quantify the shortfall. However, it indicated average production this year may be as much as a third lower than expected

Production is expected to average 33,300 barrels oil equivalent per day to 40,716 Boepd this year. In May EnQuest had reaffirmed its guidance for average production of 45,000 Boepd to 51,000 Boepd, which it said then reflected the expected Kraken contribution.

Mr Bseisu put a brave face on the setback yesterday, noting EnQuest was pleased with the performance of the Kraken reservoir and the flow rates achieved from the production wells it sunk into the field.

The company expects output from Kraken to increase in the third quarter and to ramp up to the plateau level of 50,000 barrels oil daily in the first half of next year.

However, with shares in EnQuest closing down 3p at 29.75p yesterday, the update appeared to rattle investors.

The start of production from Kraken had been expected to mark a turning point for EnQuest. The company accumulated hefty debts by investing in UK North Sea assets only to find the crude price plunge posing big challenges for oil and gas firms.

Mr Bseisu and his family agreed to invest £15 million in EnQuest in November last year when the company completed a debt restructuring to stabilise its finances.

The problems EnQuest and Cairn have faced on Kraken may be greeted with dismay in the North Sea oil and gas industry.

Kraken was sanctioned before the crude price plunge started. Some felt the progress achieved on the development showed North Sea developments could be viable at much lower oil prices than prevailed during the boom that ended in 2014.

The development cost around 25 per cent less than expected. EnQuest and Cairn benefited from a sharp drop in the cost of some support services in the North Sea. Suppliers have been jockeying for position in a shrinking market following cuts in spending by many oil and gas firms.

It was thought work on Kraken could encourage firms to look at other fields that contain heavy oil, which is harder to produce and process than light sweet crude.

Edinburgh-based Cairn Energy made no comment on EnQuest’s update.

It has a 29.5 per cent stake in Kraken. EnQuest has 70.5 per cent.

After Cairn announced interim results on Tuesday its chief executive Simon Thomson said the company was very pleased with progress on Kraken and the giant Catcher development off Aberdeen.

Cairn expects to produce 25,000 barrels oil equivalent daily from the fields next year. It reckons production costs on the fields will average just $17 per barrel thanks to the use of modern technology.

Shares in Cairn closed down 0.4p at 179.8p. The company made good progress in the first half off Senegal, where appraisal drilling underlined the potential of a big find.

Brent crude traded at around $52 per barrel yesterday, compared with $115/bbl in June 2014.

EnQuest produced 37,015 in the first half, down from 42,520 last time. It also faced production challenges on the Scolty/Crathes and Alma Gallia developments off north east Scotland.