North Sea oil producer EnQuest (ENQ) is taking the bold step of bucking the industry trend of cancelling projects amid collapsing oil prices. Instead it is giving the green light to the development of the Scotty/Crathes field at a cost of $125 million. The news is included in a well-received second half operations update which helps lift the shares 6.6% to 20.5p
According to management the investment ‘makes sense’ because it can tie in to existing infrastructure thereby reducing capital costs to less than $20 per barrel, with operating costs at peak production expected to be south of $15 per barrel. Time will tell if this is a wise move and the company has limited room for manouevre given expected year end net debt of $1.55 billion. Repayments on this debt are not expected until the second half of 2017.
The company has slashed costs, lowering operating spend to $31 to $32 per barrel from around $38 and that figure is expected to fall to a $26 to $28 range in 2016. Borrowings are likely to increase still further as the group brings the Kraken development on stream although a ramp up in other new fields will see output go from 33,000 to 36,000 barrels of oil equivalent per day in 2015 (boepd) to 44,000 to 48,000 boepd in 2016.