Operations Update H2 2015

ENQUEST PLC, 8 December 2015.
Operations Update H2 2015.

Strong production up 26% year on year.
Alma/Galia performing well.
Cost reduction programme ahead of expectations.

Key highlights

• Production averaged 35,022 Boepd to end of November, up 26% on the same period last year and with a 39% increase to 41,360 Boepd from July to November Vs H1 2015. On 18 November, EnQuest delivered its first individual day’s production total of over 50,000 barrels.
  
  
• Operating costs continue to be reduced, now ahead of target and expected to be $31-32/bbl in 2015.
  
  
• Alma/Galia: Since first oil on 27 October, Alma/Galia has been performing as anticipated by EnQuest’s reservoir modelling. Average net daily production of four thousand barrels a day was achieved in the month of November, predominantly from the first two Alma wells. The Galia well was also brought onstream in the second half of November and this well alone has produced approximately seven thousand barrels per day gross since late November.

• Kraken: The project continues on schedule for first oil in H1 2017; capex costs for the project have now been reduced by over 10%, bringing the expected gross capex to $2.86 billion.   The Kraken FPSO vessel continues to be on track for delivery in 2016.
  
  
• Scolty/Crathes: The Scolty/Crathes field development plan has been approved and sanctioned. The project benefits from limited cash capital expenditure until first oil in 2017 and extends field life for the GKA field. Including this field life extension, unit capital costs for the project are under $20/bbl. Unit operating cost should be under $15/bbl in the initial peak volume years.
  
  

Outlook Highlights

• EnQuest’s average production guidance for the full year 2016 is for between 44,000 Boepd to 48,000 Boepd
  
  
• Unit Opex: EnQuest is on course to achieve an average unit opex in the range $26-28/bbl in 2016
  
  
• Hedging of 10 million barrels remains in place for 2016
  
  
• Scolty/Crathes: Drilling of the development wells is due to commence by the middle of 2016, with first oil anticipated in H1 2017
  
  
• Net debt is planned to increase during 2016 ahead of Kraken first oil, with debt repayments anticipated being made from H2 2017 onwards.
  
  

EnQuest CEO Amjad Bseisu said:

“EnQuest is addressing its priorities in this low oil price environment: delivering on production and execution targets, streamlining operations and strengthening the balance sheet.

Production in H2 2015 has been very strong across the portfolio, averaging 41,360 Boepd from July to November, including spot rates of c.14,000 Boepd gross from the Alma/Galia development which was put onstream in late October. The Kraken development continues firmly on schedule. At the mid-point of our guidance ranges for 2015 and 2016, we are now forecasting a further 33% growth in production next year, before Kraken and Scolty/Crathes come onstream.

We have continued to reduce operating costs which are now expected to be $31-32/bbl in 2015 and are currently expected to be in the $26-28/bbl range for 2016, ahead of our earlier expectations.

EnQuest is improving its balance sheet with good operational performance. We have reduced Kraken capital expenditure by c.10% and average development cost/barrel around our established operated hubs is approximately $18/bbl in 2015. The 2015 drilling programme is below budget, with very high operating efficiencies across our operated rigs and significantly lowered spread rates.

With 2016 capex focused on Kraken, net debt is planned to increase during 2016 ahead of Kraken first oil. Capex will be substantially reduced in 2017 and will further reduce in subsequent years. Debt repayments are anticipated to be made from H2 2017 onwards.”

Further summary details

Production. Production in the second half of the year has benefitted from Alma/Galia coming onstream and a strong Kittiwake contribution. Net GKA production was 5,120 Boepd from July to November and the platform achieved gross peak production levels of over 19,000 Boepd in the period after the sidetracking of the Gadwall well. Malaysia continued with high levels of performance with production of 8,654 Boepd in 2015 to the end of November including the first contribution from Tanjong Baram.

Full year 2015 production guidance continues to be the range of between 33,000 Boepd and 36,000 Boepd.

Capital expenditure. Cash capital expenditure for work done in 2015 has increased by approximately $150 million as a result of the earlier drilling of the Galia production well, which was moved from 2016 into 2015. As a result of the strong performance of the planned Thistle wells, a further three wells were added to the programme. Finally, there was additional work required during the final commissioning processes and start-up of the EnQuest Producer on the Alma/Galia field as well as the capitalisation of standby operating costs resulting from the timing of first oil.

Including the impact of this additional Alma capex, 2015 year end net debt is now anticipated to be approximately $1.55 billion. The 2016 capex programme will be focused on Kraken and total 2016 cash capex is anticipated to be approximately $700-$750 million, depending on payment profiles, with significant reductions in 2017 and beyond.

Operating expenditure. EnQuest’s programme of cost reduction initiatives is now on course to deliver unit opex of $31-32/bbl in 2015.

Savings have been achieved across the business; the Greater Kittiwake Area alone has reduced unit opex from above $100 / bbl at the time of the acquisition of this hub, down to below $30 per barrel, partly due to significant increases in production, but also to material cost reductions.  

To achieve these cost reductions we have focused on three key areas:

• Lower unit rates: Examples are scale treatments, subsea inspection, repairs and maintenance, logistics, equal time rotas and reduced contractor rates
• Incentivised contract structures: KPI structures for our service providers ensures payment is linked to performance
• Enhanced contract and procurement practices. We have moved our procurement team to Dubai to take advantage of lower global costs

Transportation costs have also reduced; we are working with the SVT operator to reduce gross cost levels and agree cost allocation based on usage. Unit transportation costs have improved and we expect reductions to continue.

General and administration costs for 2015 are now expected to be around the bottom of the previous guidance range of $15 million to $20 million, reflecting further savings initiatives and reductions in the size of the direct workforce.

Scolty/Crathes Development sanction

The Scolty/Crathes development has been approved by the UK Oil & Gas Authority. EnQuest is the operator of the development with a 50% working interest. The Scolty/Crathes project has been sanctioned with a net development cost of approximately $125 million.

The development plan consists of single horizontal wells to be drilled in each of the Scolty and Crathes fields. The fields will be tied back to the Kittiwake platform, in the Greater Kittiwake Area. The potential for such a tie back was one of the original rationales for the acquisition of GKA. Production from the Scolty/Crathes fields is expected to continue until 2025 which also extends the life of the GKA hub to 2025. Development well drilling is anticipated by mid-2016, with first oil from Scolty/Crathes expected by the first half of 2017. The Scolty/Crathes development itself is anticipated to have gross peak volumes of 10,000 Boepd in its first year and combined with the resulting increase in GKA reserves, the project is estimated to increase EnQuest’s net 2P reserves by c.9 million barrels.

The cost of the tie back and the work required on the topsides of the Kittiwake platform have been agreed on a fixed lump sum turnkey basis and will only become payable after a first oil determined date.

Investment prioritisation and asset disposals

Hydrocarbon assets. Norway: EnQuest confirms that it has completed the disposal of its Norwegian North Sea interests.

In 2015, EnQuest also ceased to have interests in Egypt and Tunisia and sold its exploration assets in Malaysia. In the UK, it has relinquished interests in a number of licences since the oil price decline. By the end of 2015, EnQuest is expected to have interests in c.30 UK production licences, down from 35 at the end of H1 2014.

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