NORTH Sea heavyweight EnQuest has said its focus on extending the lives of fields in the area makes sense amid the energy transition although it decided to decommission two in response to the fallout from the coronavirus crisis.
EnQuest lost $625 million (£455m) in 2020 after slashing the valuation of its oil and gas assets by $259m following the fall in crude prices triggered by the pandemic.
Last March the company said it had decided not to restart production from the Heather and Thistle fields under a cost-reduction drive that resulted in around 500 North Sea job losses.
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While crude prices have risen following the launch of vaccination programmes, firms operating in the North Sea could face a long wait for a sustained recovery given uncertainty about the outlook for the economy.
They are also coming under increasing scrutiny amid calls from campaigners for oil and gas production to be curbed to help tackle the threat of climate change.
However, EnQuest has underlined its belief in the commercial potential of existing North Sea fields and the logic of investing in them on environmental grounds.
Yesterday chief executive Amjad Bseisu noted: “The focus on extending the useful lives of existing assets through operational improvements and reducing emissions is well suited to operating through the energy transition, meaning EnQuest is well placed to succeed in a changing world.”
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EnQuest agreed in February to acquire a stake in the bumper Golden Eagle oil field development for up to around £275m from Canada’s Suncor.
Mr Bseisu said the proposed acquisition would strengthen EnQuest’s business, by providing additional production and strong cash flows which will partially utilise its UK tax assets.
The costs of production from the Golden Eagle assets are relatively low. EnQuest highlighted the potential to increase output in the area.
EnQuest has also made clear that it believes the time will come when it makes sense to invest again in new field developments.
In August it acquired a stake in the undeveloped Bressay field East of Shetland from Equinor for an initial £2.2m.
Mr Bseisu said yesterday that the acquisition provided EnQuest with a further opportunity to demonstrate its proven capabilities in low-cost drilling and heavy oil development.
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He noted the Kraken heavy oil field East of Shetland performed well in the latest year. EnQuest developed Kraken with Cairn Energy during the last downturn in the North Sea.
EnQuest said it had also benefited from a robust performance from the Magnus field North of Shetland. It bought Magnus from BP in 2018 along with an interest in the Sullom Voe terminal on Shetland.
EnQuest said it had taken early and decisive action to reduce costs in response to the extremely challenging conditions faced in 2020.
The decision to cease production from the high cost Heather and Thistle fields helped the firm to reduce its average operating costs to $15.20 per barrel from $20.60/bbl in 2019.
The company got an average $41.30/bbl for the oil it sold, down from $65.30/bbl.
The Brent crude price fell from around $70 per barrel in January last year to an 18-year low of less than $20/bbl in April.
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The market turned up from November and the price rose above $70/bbl earlier this month. However, it then fell again as concern mounted about rising coronavirus infection rates in some countries.
Brent crude sold for $61.68/bbl yesterday afternoon, down $2.73 on the day.
EnQuest generated $567m cash from its operations last year, down from $994m. It also has interests in Malaysia.
Shares in the company closed down 1.36p at 18.74p.
The company produced an average 59,116 barrels oil equivalent per day, against 68,606 boepd.
North Sea production fell to 52,680 boepd from 59,953 boped.
EnQuest cut net debt to $1.3bn from $1.4bn.
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