NORTH Sea-focused EnQuest appears to have given up on two fields as it unveiled plans for deep cost-cutting in response to the plunge in the oil price, which is posing huge challenges for the industry.
The group said it had decided not to restart production from the Heather and Thistle fields as it looks to slash its running costs by $150 million (£130m) after rethinking its plans in response to the recent turmoil in the market.
North Sea oil and gas firms in plea for help amid warning sector in 'paper thin' state
In an update which will deepen the gloom in the oil and gas industry, EnQuest said it also plans to cut investment in new developments by $80m this year.
It came as Shetland oil pioneer Hurricane Energy said it planned to keep the lid on spending in an area that generated excitement in the industry before the slump began.
Caution will be the order of the day amid the “macroeconomic headwinds” Hurricane faces.
The announcements from EnQuest and Hurricane provided clear evidence the dramatic change in market conditions this month is already prompting oil and gas companies to curb North Sea activity.
COMMENT: The costs of the crude price plunge must be shared fairly
The Brent crude price fell to a 17-year low of less than $25 per barrel on Wednesday amid concern about the impact of the coronavirus on the global economy and the start of a price war earlier this month between Saudi Arabia and Russia.
Brent sold for around $28/bbl yesterday. It rallied after the Bank of England cut the base rate to a record low of 0.1 per cent and said it would pump £200 billon into the financial system in an attempt to stabilise markets.
With the crude price down around 50% this month, North Sea industry leaders have said the sector has been left in a precarious state.
Oil & Gas UK has highlighted the risk that firms that operate fields will slash spending in response to the price fall with devastating consequences for businesses in the supply chain.
EnQuest’s action underlined the seriousness of the situation.
Chief executive Amjad Bseisu said EnQuest was positioning itself to manage through the current low oil price environment. It is taking decisive action to be able to break even in cash terms if oil trades at an average $38/bbl this year.
Brent crude sold for an average $65/bbl in 2019.
EnQuest has expanded rapidly in the North Sea in recent years after buying assets that bigger fish had lost interest in. It has an operations centre in Aberdeen.
Oil firm highlights 'significant' North Sea opportunity
Heather and Thistle were shut in last year to allow the company to do remedial work.
As recently as November EnQuest said it was hoping to restart production from them during the first half of this year.
It said yesterday: “The Group has reviewed each of its assets and related spending plans in light of the current lower oil price environment. EnQuest’s updated working assumption is not to re-start production at the Heather and Thistle/Deveron fields.”
It is understood the fields will be shut in permanently.
EnQuest expects the decision will help it achieve the $150m targeted cut in operating costs, to $375m.
It gave no indication of how the cuts will impact on jobs.
The group expects to reduce capital investment in new assets by $80m to $150m.
Investment will be focused on the Magnus field which EnQuest acquired from BP in 2018 and the Kraken field East of Shetland, which it brought into production in 2017.
Noting the degree of uncertainty about the impact of the coronavirus on economies and future oil prices, Hurricane Energy said: ”Considerable caution over the scale and pace of future capital spending commitments is therefore appropriate at the present time.”
The company posted underlying profits of $30m for 2019 after starting production in June from the giant Lancaster field West of Shetland.
Lancaster lies in an under-explored geological layer, which Hurricane has focused on.
Start up of giant West of Shetland field provides vindication for oil pioneer
The firm’s success encouraged others to look at West of Shetland. The Spirit Energy business owned by Centrica bought into Hurricane’s Greater Warwick Area (GWA) acreage.
A drilling campaign funded by Spirit in the area delivered mixed results last year.
Hurricane’s chief executive Robert Trice said the company is talking to Spirit about how to proceed but GWA faces “additional headwinds from the macroeconomic environment”.
But Mr Trice noted the company could generate cash profits on its production from Lancaster even at current oil prices. It had $157m cash at the year end.
Meanwhile shares in exploration minnow i3Energy rose 15% from a low base after the company said it would press on with appraisal work on a find in the Cromarty Firth after winning backing for its plans from a drilling firm.
North Sea exploration firm rated top pick by investment bank
Dolphin Drilling will acquire a 10% interest in the block containing the Serenity find in return for sacrificing up to $14m profit it would have been in line to earn for work on the campaign.
North Sea industry leaders encouraged firms that operate oil and gas fields to collaborate with services businesses amid the last sector downturn earlier in the decade.
Shares in EnQuest closed up 0.23p at 8.16p.
Hurricane Energy shares closed up 1.18p at 10.48p.
i3 Energy shares closed up 0.5p at 3.88p.
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