NORTH Sea-focused EnQuest has said the United Kingdom Continental Shelf remains an attractive investment proposition although Brexit could cause some disruption as the firm grapples with production challenges on a flagship field off Shetland.
After posting a 135 per cent increase in annual profits, to $716.3 million (£545m), EnQuest said it had reaped the rewards of a dramatic expansion in the North Sea and made clear it sees further growth potential in the area.
Read more: Bumper Shetland fields could be in production for decades
The company noted it has achieved strong results from the mature Magnus field in the Northern North Sea and a stake in the Sullom Voe oil terminal, which it acquired from BP for $185m.
This helped offset a disappointing performance from the Kraken heavy oil field that EnQuest developed East of Shetland.
The company’s partner in the development, Cairn Energy, last week cut the valuation of its stake in Kraken by $166m. However, EnQuest said its estimate of the reserves held in Kraken remained materially unchanged.
While EnQuest’s “clear operational priority” in 2019 is to improve the uptime and efficiency of the floating production storage and offloading vessel (FPSO) used on Kraken it highlighted the potential to develop more oil finds in the area.
Read more: £200bn investment needed to secure future for North Sea oil and gas industry
The results announcement provided a clear vote of confidence in the UK North Sea, amid the renewed volatility in crude prices seen since October and the uncertainty around Brexit.
EnQuest’s chairman Jock Lennox said: “The Directors believe that the UK Continental Shelf remains an attractive investment proposition.”
Noting the industry had worked hard to reduce costs in recent years, he said firms in the area benefited from competitive regulatory and fiscal regimes, an extensive infrastructure base, access to a world-leading supply chain and a highly skilled workforce.
Mr Lennox added: “While there may be some disruption to the supply chain from the impacts of the UK’s proposed exit from the European Union, the Directors are confident that such issues can be overcome.”
Read more: Shell boss declares giant focused on growth in North Sea amid Brexit uncertainty
The growth achieved by EnQuest has encouraged directors to persevere with a strategy that has involved using acquisitions to support a big increase in its presence in the North Sea. EnQuest employs around 800 in Scotland.
Moves by majors to retrench in the North Sea in response to the crude price plunge since 2014 have created opportunities for firms like EnQuest to acquire assets at what they regard as attractive prices.
Independents expect to generate good returns from investing in projects that may not be big enough to interest majors.
EnQuest acquired full control of Magnus in December and increased its stake in Sullom Voe to 15.1%.
Mr Lennox said that after gaining 100% control of Magnus, EnQuest had enjoyed an immediate and material increase to its proved and probable reserves, production and cash flow. Magnus had performed well since EnQuest assumed operatorship in December.
Chief executive Amjad Bseisu said EnQuest had reduced operating costs at the Sullom Voe Terminal on Shetland by around 25%, to £150m, through efficiency initiatives.
He noted that production at Kraken had been below expectations, reflecting FPSO and weather-related outages.
“We continue to assess future opportunities at Kraken that have material volumes of oil in place for future development, such as the Western Flank,” added Mr Bseisu.
Read more: Oil and gas market recovery slower than expected says Wood
But EnQuest’s statement suggests firms that operate fields will keep the pressure on the North Sea supply chain. EnQuest said it was vital to maintain a continued focus on costs amid ongoing oil price uncertainty.
With shares in EnQuest rising around 11% yesterday, investors appeared pleased with the update.
Group production averaged 55,447 barrels of oil equivalent per day (boepd) in 2018, up 48.2% on 2017.
The $716.3m earnings before interest, tax, depreciation and amortisation achieved in 2018 compared with $303.6m in 2017. The rise in profits reflected higher volumes and the increase in oil prices during the year.
After Royal Dutch Shell posted a 36% increase in annual profits to $21.4 billion in January chief executive Ben van Beurden said the oil giant wanted to grow in the UK North Sea.
He said Shell believed a no deal Brexit would be “a very bad outcome” but had prepared for the possibility.
“In the bigger scheme of things … this is a relatively immaterial event for our portfolio,” he said then.
On Monday Siccar Point Energy boss Jonathan Roger said the company could be producing from bumper fields off Shetland for decades as it started drilling work on a big prospect in the area.
Shares in London-listed EnQuest closed up 2p at 19.64p.
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