Final Results

ENQUEST PLC, 27 March 2013 

Results for the 12 months to 31 December 2012  

Sustained strong cash flow generation

Major project execution on track

Unless otherwise stated, all figures are before exceptional items and depletion of fair value uplift and are in US dollars.

Highlights

  • EnQuest performed well in 2012, delivering production of 22,802 Boepd, above the mid-point of guidance due to a successful drilling programme
  • EnQuest’s net 2P reserves at the start of 2013 were 128.5 MMboe, an 11.5% increase on the start of 2012; reflecting a reserves replacement ratio of 262.2% and a reserve life of 15.6 years
  • Revenue of $889.5 million, EBITDA* of $626.2 million and cash generated from operations of $593.9 million, reflecting strong underlying operational performance and cost control
  • Profit after tax was $259.7 million, up 90.8% on the prior year
  • 2012 capital investment on property, plant and equipment oil and gas assets amounted to $802.9 million
  • The Alma/Galia development project is on track for first oil in Q4 2013 and the new Kraken development is on schedule for the submission of the Field Development Plan (‘FDP’) in Q2 2013
  • Average production guidance for the full year 2013 is between 22,000 Boepd and 27,000 Boepd, as approximately 1,000 Boepd has been lost, primarily due to third party shutdowns of the Brent pipeline in Q1 2013

2012 2011 Change%
Production (Boepd) 22,802 23,698 (3.8)
Revenue ($m) 889.5 936.0 (5.0)
Realised oil price $/bbl 111.6 107.6 3.7
Gross profit ($m) 441.3 444.2 (0.1)
Profit before tax & net finance costs ($m) 405.1 390.1 3.8
Profit after tax ($m) 259.7 136.1 90.8
EBITDA * ($m) 626.2 629.1 (0.5)
Cash generated from operations ($m) 593.9 656.3 (9.5)
Reported basic earnings per share (cents) 46.2 7.6 507.9
Net cash ** ($m) 89.9 378.9 (76.3)

* EBITDA is calculated by taking profit/loss from operations before tax and finance income/(costs) and adding back depletion (adjusted for depletion of fair value uplift), depreciation, impairment and write-off of intangible oil and gas assets.   ** Net cash represents cash and cash equivalents less borrowings as at the reported cash flow statement date of 31 December.

EnQuest CEO Amjad Bseisu said:

“In 2012, our successful drilling programme and strong operational performance produced 22,802 Boepd, above the mid-point of our guidance. This was driven by five production wells being brought onstream and by strong operations execution at Thistle and the Dons. In 2012, EnQuest generated $593.9 million in cash flow from operations. In the three years since our inception, we have built a strong technically focused organisation that has generated total cash from operations of over $1.5 billion.

The execution of our major new development projects is on track; Alma/Galia is set to produce first oil in Q4 of this year and we are planning to submit our Field Development Plan (‘FDP’) for the new Kraken development in Q2 2013. With the Kraken and Alba acquisitions and through the 27th UK Licensing Round, we have further expanded our asset base. In 2012, EnQuest doubled the number of UKCS blocks in which it has an interest and established a presence in oil basins outside the UK North Sea. At the end of 2012, EnQuest had increased 2P reserves to 128.5 MMboe, representing a reserve replacement ratio of 262.2% and a reserve life of over 15 years.”

2013 Outlook


Summary

  • Average production guidance for the full year 2013 is between 22,000 Boepd and 27,000 Boepd, as approximately 1,000 Boepd has been lost, primarily due to third party shutdowns of the Brent pipeline in Q1 2013
  • In total, EnQuest plans to deliver 12 wells in 2013. This includes six production wells, three injection wells and three exploration/appraisal wells
  • Capital expenditure in 2013 is expected to be approximately $750 million with around $350 million invested in the Alma/Galia development and about $75 million pre-development expenditure for the new Kraken development prior to submission of the Field Development Plan (‘FDP’); this Kraken pre-development expenditure includes an appraisal well to be drilled in Q2 2013
  • Production and transportation costs for 2013 are expected to be in the range $310 million to $340 million
  • Exploration and appraisal. Appraisal wells will be drilled at Cairngorm and Kraken.   In H2 2013, an exploration/appraisal well is expected to be drilled in the Sabah area, offshore Malaysia
  • Development opportunities. Options for a proposed Crathes/Scolty development are being analysed and a range of development options continues to be evaluated at Kildrummy. Development studies at Crawford/Porter also continue
  • EnQuest’s UK production licences increased from 22 at the start of 2012, to 39 at the start of 2013, including 11 licences from the UK’s 27th Licensing Round
  • EnQuest continues to look at additional opportunities both in the UK and internationally

By Production and Development Asset

Thistle/Deveron

  • In February 2013, EnQuest announced that it had sanctioned the next phase of the Thistle life extension project, facilitated by its qualification for the UK government brownfield allowance programme. The current Thistle drilling campaign has been extended and the final well in the current phase, a new production well in the West Fault Block, will be drilled in Q2 2013. Drilling will then stop on Thistle for a year, to allow for the life extension programme to be continued
  • Due to the third party closure of the Brent pipeline, production from Thistle was shut down in Q1 2013 for an unscheduled 8 days  

Dons

  • The Don Southwest Area 6 DS producer is expected online in Q2 2013 and an associated water injector will be drilled later in the year. The West Don W6 (NJ) water injector well was tied in and brought online in Q1 2013
  • Due to the third party closure of the Brent pipeline, production from the Dons was shut down in Q1 2013 for an unscheduled 8 days

Heather/Broom

  • The drilling programme at Heather will start in Q3 2013, following the completion of drilling on Thistle

Alma/Galia

  • In February 2013, EnQuest announced it approved an increase in the scope and specification of the Alma/Galia project with the objective of extending the field life, optimising operating costs and enabling a potential second phase of development
  • First oil from Alma/Galia is scheduled for Q4 2013  

Kraken

  • The new development of Kraken remains on track for submission of FDP in Q2 2013 and is targeting first oil in 2016.

Review of 2012

Financial

  • Strong levels of cash generation continued, with cash generated from operations of $593.9 million resulting in net cash of $89.9 million at the end of 2012, after cash outflow of $842.3 million on capital expenditure
  • Tax losses increased to approximately $600 million at the end of 2012, reflecting the investment programme
  • 2012 revenue of $889.5 million was 5.0% lower than in 2011, due to the expected decrease in production, partly offset by the increase in the realised average price per barrel of oil sold. Revenue for 2012 was also lower than 2011 due to an underlift of $24.4 million in 2012, compared to an overlift of $14.6 million in 2011
  • Profit from operations before tax and net finance costs was $405.1 million, a 3.8% increase over 2011. This reflects the $44 million decrease in cost of sales, partly reflecting a $39 million change in the lifting position and also a reduction in the absolute level of operating costs. Underlying operational performance and cost control were strong
  • Profit after tax increased by 90.8% to $259.7 million, mainly due to a reduction in income tax expense compared with 2011
  • Exceptional items included a $175.9 million gain on disposal from the farm out of a 35% interest in Alma/Galia. There was also a $143.9 million impairment of the Heather and Broom hub following a delay in phasing of production, particularly to allow the drilling of the West Fault Block well at Thistle in 2013; there was also an increase in estimated capital expenditure associated with the field life extension programme. The Heather and Broom hub inherited a high net book value of $423 million, reflecting the fair value uplift when Lundin acquired the Heather and Broom assets prior to the formation of EnQuest
  • 2012 capital investment on tangible oil assets amounted to $802.9 million. This included $367.1 million invested in EnQuest’s existing producing fields and $421.3 million in executing the Alma/Galia development project plan, of which $86.7 million was the carry element
  • The 2012 cash generated from operations of $593.9 million, is lower than the equivalent $656.3 million 2011 figure, primarily due to the $67.5 million increase in year end joint venture receivables, principally in relation to Alma/Galia

Production, Development & Reserves

Net daily average2012 Net daily average2011
(Boepd) (Boepd)
Thistle/Deveron 8,058 5,436
The Don Fields 10,992 12,770
Heather/Broom 3,752 5,492
Total 22,802 23,698

Thistle/Deveron

  • Base oil production increased significantly over 2011, partly due to more reliable power and to enhanced water injection rates, supplemented with oil production from three electrical submersible pumps (‘ESP’s’).   The Deveron P1 ESP well started production in late Q1 2012, with productivity at the upper end of pre-drill estimates. The A59/45 Area 6 well was completed in late September and the ESP came onstream in October 2012. Following a successful wireline intervention, the Thistle A27/17 well came back on line in December, helping to increase year end production levels. The new gas turbine power generator was lifted onto the Thistle platform in H2 2012, an important milestone in the Thistle life extension project

Dons/Conrie

  • The expected year on year decrease was due mainly to the decline in production from the S5 well, which had been drilled and brought onstream in 2010. In July 2012 at Don Southwest, the S11 well came online at a good initial rate. Well W2 on West Don was abandoned in September; following which well W5, the sidetrack of well W2, was brought online in October. A new water injection well, W6, was drilled in 2012 and tied in in Q1 2013.   At Don Southwest, the S10Y came onstream in Q4 2012, in line with expectations

Heather/Broom

  • The year on year decline at Heather/Broom was as anticipated, reflecting the natural decline in production from Broom BR2. Plant management at Heather was good, resulting in high production efficiency

Alma/Galia

  • EnQuest executed well on its development of its new Alma/Galia hub in 2012, finishing the year on track for first oil in Q4 2013. Six wells were batch drilled in 2012 (K1 to K6), the three which had been drilled through the reservoir by the year end were all at or better than prognosis

Kraken

  • Following EnQuest’s acquisition of 60% of Kraken in 2012 and its assumption of operatorship of the proposed development project in September 2012, EnQuest has been working closely with its partners in preparation for the submission of the project FDP in Q2 2013 and for first oil targeted for 2016

Reserves

  • 11.5% year on year growth in audited net 2P reserves to 128.5 MMboe, a strong reserves replacement ratio of 262.2%, after production of 8.2 MMboe during 2012. Reserves growth was driven by 20.4 MMboe which relates to EnQuest’s 20% direct interest in Kraken. Contingent resources in respect of the remaining 40% carried interest are anticipated to be recognised as 2P reserves after the FDP has been submitted. Net contingent resources have been increased by 62.9 MMboe in relation to EnQuest’s interest in Kraken.

Ends

For further information please contact:

EnQuest PLC                                                                                                                 Tel: +44 (0)20 7925 4900

Amjad Bseisu (Chief Executive)

Jonathan Swinney (Chief Financial Officer)

Michael Waring (Head of Communications & Investor Relations)                                                                    

Finsbury                                                                                                                          Tel: +44 (0)20 7251 3801

James Murgatroyd

Conor McClafferty

Dorothy Burwell

Presentation to Analysts and Investors

A presentation to analysts and investors will be held at 09:30 today. The presentation and Q&A will also be accessible via an audio webcast – available from the investor relations section of the EnQuest website at www.enquest.com.   A conference call facility will also be available at 09:30 on the following numbers:

UK:                 +44 (0) 20 7784 1036          

USA:               +1 646 254 3365 

Notes to editors

EnQuest is the largest UK independent producer in the UK North Sea. EnQuest PLC trades on both the London Stock Exchange and the NASDAQ OMX Stockholm. It is a constituent of the FTSE 250 index. Its assets include the Thistle, Deveron, Heather, Broom, West Don, Don Southwest and Conrie producing fields and the Alma and Galia development. At the end of 2012, including the licences EnQuest was offered through the UK’s 27th Licensing Round, EnQuest had interests in 39 production licences covering 55 blocks or part blocks in the UKCS, of which 31 licences are operated by EnQuest. In addition, EnQuest also has an interest in two blocks offshore in Sabah, Malaysia.

EnQuest believes that the UKCS represents a significant hydrocarbon basin in a low risk region, which continues to benefit from an extensive installed infrastructure base and skilled labour. EnQuest believes that its assets offer material organic growth opportunities, driven by exploitation of current infrastructure on the UKCS and the development of low risk near field opportunities.

Forward looking statements: This announcement may contain certain forward-looking statements with respect to EnQuest’s expectation and plans, strategy, management’s objectives, future performance, production, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts.   The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.

Click the associated PDF document to view the full announcement.

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