Enquest Prepares To Double Production Levels

Published in Company Comment on 14 August 2012

... despite profits falling by 11%.

Enquest (LSE: ENQ), the largest independent producer of oil and gas from the North Sea, said its plans to increase its production levels remain on track, despite the fact that its latest interim profits have declined by 11% to $193m.

Although Enquest received a slightly higher price for oil during the period, production from its three core areas declined by nearly 20% to an average of 20,253 barrels of oil equivalent per day (boepd). Part of this decline was expected, with an older well at its Don Fields development winding down, but a 20-day pipe shutdown affected another key unit.

This fall in production looks set to be temporary, however, as Enquest is confident it will hit its production range of 20,000 to 24,000 boepd for the full year, with a number of new wells due to come online during the second half.

Looking further ahead, Enquest still believes it will hit its long-term expansion target of 20% annual growth from 2009 to 2014. In the presentation given alongside its previous set of results, initial guidance of 25,000 to 30,000 boepd was given for 2013, with over 40,000 for 2014.

A new production area, Alma/Galia, is expected to come onstream from the end of next year, while Enquest is also pressing ahead with the Kraken heavy oil discovery, with a target production date of 2015.

All this expansion comes at a cost of course. Enquest's net cash declined from $266m this time last year to just $93m as at 30 June 2012. Capital expenditure for the first half of the year was a mammoth $500m, but it is expected to be a mere $800m for the full year, following the farm-out of a 35% stake in Alma/Galia to the Kuwait Foreign Petroleum Exploration Company. Enquest also has access to a $900m credit facility, which was agreed just a few months ago.

Enquest shares were little changed today, falling 1% to 115p, which values the company at £920m. Despite all the recent activity at the company, the shares are just above the price at which they joined the market back in April 2010.

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> Stuart does not own any of the shares listed above.

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