EnQuest provides operational update
Thursday, Nov 30, 2017
Highlights

§   Kraken production rate on plan

o  Kraken is achieving month on month increases in production and by early November average production rates were around 23,000 Bopd gross. The second production processing train was brought onstream later in November, with rates of over 40,000 Bopd gross being achieved.

o  The second and third cargo offloads were completed in October and November respectively. The quality of the crude has been well received by buyers; the latest sale of a cargo was contracted at a discount to Brent of less than $5 per barrel, this level of pricing has been achieved earlier than targeted.

o  The final DC2 production well has been brought online. Excellent drilling performance has continued with the drilling of the DC3 wells nearing completion and ahead of time. The process of bringing the DC3 wells onstream has commenced early and plans to drill DC4 in 2018 are being developed.

o  On the basis of this strong performance and subject to continued progress on plant uptime, EnQuest continues to expect production at Kraken to reach 50,000 Bopd gross during H1 2018.

§ Group production averaged 35,410 Boepd in the ten months to end October 2017, reflecting Q3 scheduled maintenance shutdowns of around two to four weeks at most of the existing producing assets and one additional unscheduled two week shutdown at Thistle. The fields also experienced natural declines where there has been no recent drilling. EnQuest confirms 2017 full year average production guidance range remains unchanged.

§  EnQuest has continued its close dialogue with its lending banks and as part of EnQuest's ongoing liquidity management strategy, it has proactively sought and has agreed relaxation of covenants and the amortisation schedule of its Term Loan and Revolving Credit Facility.

§  Available bank facilities and cash amounted to $179 million as at 31 October 2017, compared to $213 million as at the end of June 2017. Net debt at 31 October 2017, was $1,991 million compared to $1,922 million as at the end of June 2017. This is prior to receipt of the additional liquidity of over $100m announced on 26 October 2017.

§  Hedging of c.4 million barrels in place for H1 2018, at an average of c.$59/bbl.

§  The Magnus/Sullom Voe Terminal acquisition remains on course for completion before the end of 2017.

EnQuest CEO Amjad Bseisu said:

"We are making good progress in delivering the ramp up of Kraken, with average Kraken production increasing each month. We have now achieved production rates of over 40,000 bopd gross with DC3 wells online earlier than planned. We are on track to deliver a Kraken production rate of 50,000 Bopd gross during H1 2018.

We had a significant planned maintenance programme in Q3 2017, which reduced production in the ten months to the end of October by c.1,800 Bopd. Overall, our non-Kraken assets are now delivering as per our plan post this programme.

We have hedged c.4 mm bbls at c.$59\bbl for H1 2018 and with our large capital programmes behind us, are on plan to reduce our debt in 2018."

Scheduled production shutdowns: Most of EnQuest's existing production hubs completed scheduled shutdowns during Q3 (lasting around two to four weeks each) for planned maintenance work programmes. Planned shutdowns in Q3 therefore reduced EnQuest's net production in the ten months to end of October 2017 by approximately 1,800 Bopd.

UK North Sea

Northern North Sea production (Thistle/Deveron, Heather/Broom, Dons/Ythan)


Whilst water injection performance has improved at Thistle/Deveron, issues with the produced water system led to an outage of approximately two weeks. Well performance was above expectations at Don Southwest, with high levels of production efficiency across all the Don fields. Production improving chemical treatments have been completed at West Don and Don Southwest.

Lower water injection at Heather/Broom has impacted production year on year, partially offset by high levels of production efficiency.

Central North Sea Production (Alma/Galia, Greater Kittiwake Area, Scolty/Crathes, Alba)


The work programme in the Greater Kittiwake Area ('GKA') and Scolty/Crathes for 2017 continues to be focused on optimising production across the assets. Good production has been delivered from the GKA fields, with high levels of plant uptime and production efficiency. The Mallard/Gadwall water injection flowline replacement is complete and in service.

Wax issues remain at Scolty/Crathes, however the reservoir is outperforming expectations and production uptime has been very high. Treatments to keep the flowline in service continue successfully whilst work is finalised on longer term solutions, such as flowline replacement.

At Alma/Galia, finalisation of the optimisation projects for power, produced water and sea water injection, have led to very high uptimes in Q3 on the EnQuest Producer. As expected at the time of EnQuest's full year 2016 results announcement in March, 2017 production from Alma/Galia has been lower than in 2016, reflecting wells having been shut in, production outages in Q1 due to storm damage and natural declines. A workover programme to replace certain ESPs is expected to be undertaken in 2018.

The Kraken development

First oil from Kraken was delivered on 23 June 2017. The four wells from drill centre 1 ('DC1') and the three wells from drill centre two ('DC2'), have produced at initial gross rates above expectations and with stabilised flow rates which confirm the Field Development Plan. The sum of DC1 maximum individually tested well rates have been approximately 24,000 Bopd, with stabilised combined well rates at approximately 15,000 Bopd. One DC2 well has been tested at a rate well above 10,000 Bopd, demonstrating excellent reservoir properties and completion efficiency. Water injection wells have performed in line with expectations.

DC3 wells are nearing completion, substantially ahead of schedule. The process of bringing the DC3 wells onstream has commenced early and plans to drill DC4 in 2018 are being developed. The second production processing train was brought online during November. This second train and DC3 are both further facilitating reaching the expected 50,000 Bopd during H1 2018.

Full cycle gross Kraken project capex is estimated to be c.$2.4 billion, 25% down on the original sanctioned cost of $3.2 billion. The previously announced latest c.$100m of capex savings on the project resulted from the excellent delivery of the DC3 drilling programme and also the lower market rates for the remaining subsea campaign.

Malaysia


The scheduled August shut down at PM8/Seligi was completed early and production has been in line with expectations. Key work scopes such as separator clean outs have been completed. In addition, a compression reliability improvement plan has been executed in 2017 and underpins volume delivery from PM8/Seligi.

Longer term, EnQuest will extend field life through further investment in idle well restoration, facility improvements and upgrades, well workovers, new drilling and secondary recovery projects to increase ultimate recovery.

At Tanjong Baram, the focus remains on steady, safe and low cost operations. Operational uptime continues to be very good.

Financing

Term Loan and Revolving Credit Facility Amendments

EnQuest has continued its close dialogue with its lending banks and has proactively sought and agreed additional amendments to its Term Loan and Revolving Credit Facility. These changes include:

§ Deferral of the scheduled $140 million reduction in the Term Loan facility from 1 April 2018 to 1 October 2018

§  An increase in the level of the Leverage Ratio* to March 2019, with the remaining life of the facility set at 1.5 times compared to 1.0 times

§ Reductions in the level of the Finance Charges Ratio* covenant in 2017 and 2018

These changes provide additional flexibility while Kraken continues its positive production ramp-up trajectory.

*Note

Leverage Ratio: The ratio of consolidated net financial indebtedness to EBITDA (Earnings before interest, tax, depreciation and amortisation). Consolidated net financial indebtedness relates only to amounts drawn on the Term Loan and Revolving Credit Facility net of cash and cash equivalents.

Finance Charges Ratio: The ratio of EBITDA to forecast finance charges.

Liquidity enhanced by over $100 million

As announced on 26 October 2017, EnQuest has agreed the execution of an $80 million crude oil prepayment transaction and a $37.25 million refinancing for its Tanjong Baram project in Malaysia. These transactions directly provide EnQuest with over $100 million of additional financial resources.

2017 guidance

2017 full year opex and capex guidance also remain unchanged:

§ Full year 2017 unit opex is expected to be around c.$27/bbl; and

§ Full year 2017 cash capex is expected to be in the $375 million to $400 million range.
 
For more information, please visit: http://www.enquest.co.uk

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