A 13.2% year-on-year fall in first-half pre-tax profits to $167.2 million coupled with delays to a new field help sink North Sea oil producer EnQuest (ENQ) – the shares down 2.9% at 123p.

Profits have been constrained by a lower realised oil price – $109 per barrel compared with $112 a barrel for the same period in 2012 – and higher depletion and one-off costs.

Alongside the numbers was the disappointing revelation that the Alma/Galia field is now expected to come on stream in the first quarter of next year (rather than the fourth quarter of this year) due to additional work on the floating production storage and offloading (FPSO) vessel being used on the project. As a result, 2013 average production will come in at the lower end of the £1 billion cap's previous 22,000-27,000 barrels of oil equivalent per day (boepd) guidance.

Despite the gloom engendered by these set backs there were some positives in the interim results, offering encouragement to observers such as this author who still believes in the group's long-term prospects (we examined these in detail back in March). A first-half appraisal well confirmed a second accumulation on the Kraken heavy oil development.

EnQuest announced gross proved and probable (2P) reserves for Kraken of 137 million barrels of oil equivalent (mmboe) and says it expects to book an additional 60 mmboe before the end of the year.

Investment bank BoA Merrill Lynch, which has a 'neutral' recommendation on the stock and a price target of 150p, indicates increased tax losses of $850 million and the heavy oil allowance associated with Kraken mean cash tax will not be paid until 2018.

In response, analyst Alexander Holbourn ups his 2014 and 2015 earnings per share estimates by 6 cents to 35 cents and 1 cent to 38 cents respectively. Based on Holbourn's forecasts the group trades on a free cashflow yield of 22.9% for 2014 rising to 30% in 2015.

Broker Numis, which has a 'buy' recommendation and a target price of 186p, says: 'We see an opportunity today for buyers of the stock if there is a sell off due to Alma/Galia delays.' JP Morgan's James Thompson who is 'overweight' the stock with a price target of 188p, adds: 'The potential value uplift at Kraken should be sufficient to offset the impact of the (Alma/Galia) delay.'

Issue Date: 13 Aug 2013