Oil producer EnQuest (LSE:ENQ) jumped 15pc to 20.5p on Thursday after releasing its full-year results. The company reported revenues of $1.2bn in 2018, almost doubling the $635.2m generated in the previous year. This was a result of strong production growth and an increase in oil prices. The firm produced an average of 55,447 barrels of oil per day (bopd) in 2018, a 48pc increase year-on-year. In the same period, net debt fell by $217m to $1.774bn.
EnQuest expects positive operational and financial progress to continue this year, forecasting production to grow a further 20pc to 63k-70k barrels of oil equivalent per day (boepd). The firm has been plagued by issues with its flagship Kraken field but hopes to resolve some of these to improve efficiency. Meanwhile, acquisitions have boosted EnQuest’s output. In today’s announcement, CEO, Amjad Bseisu, said:
“FPSO performance has been the main limiting factor in achieving Kraken’s full production potential. As such, our clear operational priority is to improve Kraken’s FPSO uptime and efficiency. We are working with the FPSO operator on a number of improvement initiatives.
“The acquisition of Magnus has added material value to the business through significant production and reserve growth, and the application of our production enhancing capabilities are already improving performance above original expectations.
“In the near term, we remain focused on investing in short-cycle projects which maximise cash flow and allow us to deliver on our plans to reduce our debt. We have opportunities for low-cost material growth in near-field, short-cycle infill and tie-back investments, particularly at Magnus, PM8/Seligi and Kraken.
“Longer term, our capital allocation will balance investment to develop our asset base, returns to shareholders and the acquisition of suitable growth opportunities.”
The company’s share price has struggled to recover with the oil price rising as investors have remained wary due to the company’s sizeable debt. However, progress is being made to steady the ship and EnQuest is striving to reduce its debt burden further over the coming year. Bseisu, added:
“We are committed to further reducing our debt, and expect our net debt to EBITDA ratio to trend towards 2x this year and intend to operate within our 1-2x target in the future.”
Prior to the release of the full-year results, EnQuest’s shares had dipped to a three-year low after its Kraken project partner, Cairn Energy, reduced its estimate of reserves for the field by 19pc. EnQuest was quick to dispute the 2P reserve downgrade, stating its estimate remains ‘materially unchanged’. EnQuest explained it uses different technical approaches to Cairn for the production forecasting of Kraken and assured investors that it does not expect to recognise any impairment charge related to the field.
ValueTheMarkets highlighted EnQuest as a potential contrarian buy last week at 15.5p as investors reacted to the announcement from Cairn Energy.