EnQuest: Cost cutting mode stays ON

EnQuest, an independent oil and gas firm with assets in the UK North Sea, will continue with cost cutting efforts in 2016, both on capex and opex.

In its 2015 results statement on Thursday, the company said its unit operating costs in 2015 were  $29.7 a barrel, down from $42.1 a barrel in 2014.

For 2016, EnQuest expects the cost reductions will continue, with the aim of $25 – $27 a barrel in average unit opex, and even further down to low $20s, once its North Sea field Kraken starts producing oil in 2017.

To remind, EnQuest in February said it acquired a further stake in the Kraken of an additional 10.5% interest bringing its total interest to 70.5%. The additional Kraken net capex to EnQuest was anticipated to be approximately $90 million to first production.

However, despite the additional net capex from the stake increase, EnQuest has said that in addition to the c.$300 million Kraken capex saving announced in December 2015, an additional c.$125 million saving in Kraken’s capex has been made, following optimisation of the drilling programme.

The operator says it has managed to reduce the overall full cycle Kraken project costs by c.$425 million the from $3.2 billion at sanction, a reduction of c.13%.

In 2016, capex, again reduced, will be focused on Kraken. Total EnQuest 2016 cash capex has been reduced to the low end of the previous $700 million to $750 million.

The predominant focus areas are the next phases of the Kraken development, with the FPSO being a critical path element, Enquest said, adding that this has been reduced from an equivalent c.$950 million original capex budget, including the Kraken stake increase.

Production increase

Production averaged 36,567 Boepd in 2015, up 31% on 2014 and above EnQuest’s guidance range. In both November and December, EnQuest production averaged over 50,000 Boepd.

The company expects its production will increase from 2015 levels, reaffirming its guidance of 44,000 Boepd to 48,000 Boepd for the full year of 2016.

As for the dividend payment, the company has not declared or paid any dividends since incorporation and does not intend to pay dividends in the near future, it said in the statement, adding that any future payment of dividends is expected to depend on the earnings and financial condition.

In an interview with Bloomberg today, the company’s CEO Amjad Bseisu hinted the company might start thinking about the dividend payments sometime “beyond next year” following the first production from the Kraken, but this would also depend on the oil prices levels and the capital program going forward.

Asked about the tax cuts on the oil and gas industry announced in the Chancellor George Osborne’s budget on Wednesday, Bseisu said he thought it was a positive move, showing that the UK government is focused on the industry. He said the move might help increase investments in the North Sea.

Offshore Energy Today Staff