OIL and gas firm Neptune Energy has underlined the value of North Sea output after posting a dramatic increase in third quarter profits.
However, North Sea-focused EnQuest has seen its shares plunge 15 per cent after the company announced a cut to production forecasts which will deprive it of some of the benefit of the recent crude price rise.
Private equity backed Neptune achieved a $393 million (£290m) underlying profit in the third quarter compared with $15.7m in the same period last year.
The results underline the scale of the improvement in oil and gas market conditions which has been fuelled by the easing of lockdowns around the world.
Oil and gas prices plunged to record lows in the first half of last year as economies closed down in response to the coronavirus crisis but have risen above pre-pandemic levels in recent months.
Neptune noted: “ In the third quarter, gas markets tightened considerably as strong international demand for LNG, lower gas storage levels and weaker renewable energy output combined to drive European prices to record highs.”
Following the COP26 climate talks in Glasgow Nicola Sturgeon said the UK Government should not approve plans to develop the Cambo oil field off Shetland, which have been lodged by Shell and Siccar Point Energy. She cited environmental grounds.
However, Neptune chief executive Jim House said yesterday: “The tightening of supply and subsequent increase in prices underlines the need for a diverse energy mix and for economies to maximise lower carbon and lower cost domestic production.”
Neptune said it had responded to higher prices by optimising production from key assets.
Noting that output was stronger in the UK than in the second quarter, Neptune highlighted the contribution of the giant Cygnus gas field in the Southern North Sea.
The company is developing the Seagull field off Aberdeen with BP and Japex. It said the development continues to progress as planned. First oil is expected in 2023. Neptune expects to decide in the first quarter of next year whether to make the investment required to develop the Pegasus West gas discovery.
The company is also working on plans to develop a carbon capture and storage cluster which would be linked to North Sea fields and has launched initiatives to reduce methane emissions.
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It has operations in a range of other countries, including Norway and Egypt.
Against the bullish market backdrop, investors appeared to be disappointed by the contents of an operations update from EnQuest yesterday.
The company said it expected full year production to average around 45,000 barrels of oil equivalent per day (Boepd).
In its interim results announcement in September the company had said it expected 2021 average production to be at the lower end of the previous guidance range of 46,000 Boepd to 52,000 Boepd.
Chief executive Amjad Bseisu said yesterday: “Group production has been challenging.”
He highlighted the impact of issues that EnQuest has faced with the flagship Magnus and Kraken fields in the North Sea.
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EnQuest said the performance of Magnus remains below expectations. It recently completed work on a programme to boost output that resulted in three wells being returned to service but then was hit by a gear box failure on a key piece of equipment.
The company’s experience highlights the challenges involved working on mature North Sea fields.
EnQuest bought interests in Magnus and the Sullom Voe terminal in Shetland from BP under a programme that has seen it acquire a range of North Sea assets from firms that appeared to have cooled on them.
In October, EnQuest completed the acquisition of interests in the Golden Eagle fields in the North Sea from Suncor, for up to $375m.
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The company said the performance of the Kraken heavy oil field off Shetland had been impacted by a short unplanned shut down which followed an oil heater failure.
EnQuest brought Kraken into production with Cairn Energy in 2017. Cairn recently sold its interests in Kraken and the Catcher field off Aberdeen to Waldorf Production for £330m.
EnQuest appears to remain confident that its strategy is sound despite the recent production disappointments.
Mr Bseisu said: “We are delighted to have completed the acquisition of the Golden Eagle area. As a highly cash generative, low-cost asset, delivering material incremental production, reserves and resources, Golden Eagle is a great addition to our portfolio, further strengthening the Company.
“Revenue and cash flow continues to be positively impacted by the prevailing strong price environment and we expect this to continue through the end of the year.”
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Shares in EnQuest closed down 3.33p at 19.02p in London yesterday.
Both EnQuest and Neptune Energy have big operations centres in Aberdeen.
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