NORTH Sea-focused EnQuest has seen its shares rise around 12 per cent after the company said it had been performing well and had taken decisive action to reduce costs in response to the oil price plunge.
The company last month announced plans to shed around 530 jobs under the cost-saving drive.
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EnQuest said yesterday the cost-cutting should help it break even in cash terms if Brent crude sells for $25 per barrel for the rest of the year.
Brent sold for around $36.17/bbl yesterday afternoon up $0.42 on the day.
The price fell to an 18 year low of $15.98/bbl in April amid the fallout from the rapid spread of the Covid-19 coronavirus in countries around the world.
The price has rallied following signs that demand has started to increase in response to moves by some governments to ease resulting lockdowns.
Record production cuts agreed by members of the Opec + grouping of exporters in April took effect from the start of the month.
While Brent is still only selling for around half what it fetched in January, EnQuest appears confident that it has put itself in position to cope with challenging conditions.
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Chief executive Amjad Bseisu said: “EnQuest has responded well to the challenges of Covid-19 and the downturn in oil prices.”
He added: “With the strong performance in the year to date and continued focus on delivering our cost programme, we expect that for the remainder of the year we need to realise an average oil price of around $25 per barrel oil equivalent to achieve free cash flow breakeven.”
The company said it has modified procedures to minimise the risks associated with Covid-19 but day-to-day operations have not been materially affected.
The update could provide some reassurance that firms can still make money in the North Sea.
However, EnQuest’s experience will do little to ease fears that the North Sea supply chain is facing another long downturn soon after emerging from the slump that started in 2014. Industry body Oil & Gas UK warned in April that 30,000 jobs could be lost in the North Sea supply chain over the next 18 months.
EnQuest announced its job cut plans that month after deciding not to resume production from the Thistle and Heather fields, which it shut in last year for remedial work.
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It plans to cut operating costs by $190 million (£155m) annually and investment in new assets by $110m.
In an operations update issued yesterday EnQuest left its annual production target unchanged, at 57,000 barrels oil equivalent daily to 63,000 boed reflecting confidence in the potential of its core North Sea assets.
These include the bumper Kraken heavy oil field off Shetland, which EnQuest developed with Cairn Energy.
The partners faced operational challenges after starting production from Kraken in 2017 but the field has been performing strongly in recent months.
Average daily production from Kraken increased by 36 per cent annually in the first four months, to 38,115 barrels daily.
The company started production in March from two additional wells it drilled on the bumper Magnus field north of Shetland. Both are performing in line with expectations.
EnQuest bought Magnus in 2018 from BP along with a managing interest in the Sullom Voe processing terminal.
EnQuest achieved rapid growth in the North Sea after buying a range of assets that other firms lost interest in, such as Magnus.
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In March last year the company’s then chairman Jock Lennox said the directors believed the UK Continental Shelf remains an attractive investment proposition.
He noted then that the North Sea industry had worked hard to reduce costs in recent years while firms in the area benefited from competitive regulatory and fiscal regimes and access to a world-leading supply chain and a highly skilled workforce.
EnQuest has been looking to save cash in response to the oil price fall since March.
It reduced net debt by $50 million in the first four months of the year, to $1.36 billion at April 30.
EnQuest felt the benefit of a hedging programme that helped limit the impact of the fall in commodity prices on revenues.
Shares in the firm closed up 1.42p at 12.92p.
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