EnQuest has reduced operating costs by 50 per cent since the collapse in oil prices two years ago in a sign of the aggressive steps being taken by North Sea producers to remain competitive and control rising debts.
The UK company said costs had fallen from $46 a barrel in the first half of 2014 to $23 in the same period this year.
EnQuest also revealed a further $150m cut in expected capital expenditure on its new Kraken field, east of the Shetland Islands, on top of the $425m already saved on a project now expected to cost $2.6bn.
Deep spending cuts have been crucial to keeping EnQuest and other heavily indebted independent producers such as Premier Oil afloat as prices have fallen from more than $100 per barrel to below $50 in the past two years.
Neil McCulloch, president of EnQuest’s operations in the North Sea, said the company had found more efficient ways of drilling and “relentlessly” sought savings from suppliers.
The cuts could not prevent EnQuest’s net debt rising 9 per cent from last year to $1.7bn in the first half as the company pushed ahead with its Kraken development while contending with weak prices for its existing production.
But Amjad Bseisu, chief executive, insisted the company could weather the debt storm until Kraken delivered its first oil in the first half of next year, after which capital expenditure and debts should begin to fall.
EnQuest said it was holding “constructive discussions” with creditors about possible debt restructuring and was looking at potential asset sales; this included talks with Delek Group of Israel over the proposed disposal of a 20 per cent stake in Kraken.
Kraken, 70.5 per cent owned by EnQuest with the remainder held by Cairn Energy, is one of the biggest new heavy oilfields under development in the North Sea, with projected peak production of 50,000 barrels a day.
EnQuest has pushed ahead with the project against the backdrop of declining investment in the North Sea as the ageing basin battles to remain competitive.
Mhairidh Evans, analyst at Wood Mackenzie, the energy consultancy, said operating costs across the North Sea industry fell by an average of 20-30 per cent between 2014 and 2015. With the easiest savings already made, the focus was now on structural changes that could produce lasting improvements in productivity. Examples included operators sharing services and equipment such as helicopters and boats.
Analysts said EnQuest was doing a good job controlling costs and maximising output, with production up 43 per cent in the first half at 42,520 barrels per day. This helped increase earnings before interest, tax, depreciation and amortisation by 7 per cent to $242.9m.
Michael Alsford, analyst at Citi, warned that EnQuest’s stretched balance sheet remained a concern. The company was “likely to require additional drawdowns from its revolving credit facility and a further waiver of covenants if oil prices remain below $50 per barrel through 2017,” he said.
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