By Scott Wright

ENQUEST saw 11 per cent wiped off its stock market after the oil and gas company said it had deferred drilling on the Kraken field amid concerns over the Energy Profits Levy.

Chief executive Amjad Bseisu said changes to the windfall tax would “impact cash flow generation” at the North Sea giant, adding that the higher rate would have “implications for our capital allocation strategy and our UK production ambitions”.

UK ministers introduced the Energy Profits Levy in May to tax the extraordinary profits oil and gas companies were making amid the surge in commodity prices that followed Russia’s invasion of Ukraine. The levy was initially set at 25%, on top of the headline tax rate of 40%, but was then lifted to 35%.

Mr Bseisu voiced his concern as EnQuest reported record free cash flows of more than $500 million in 2022, driven by surging prices, which helped reduce net debt to around $700m. He highlighted progress in reducing emissions and decommissioning.

Shares closed down 11%, or 2.35p, at 19p.

Mr Bseisu said: “Looking ahead, changes to the UK Energy Profits Levy will impact cash flow generation and have implications for our capital allocation strategy and our UK production growth ambitions. However, given the strong performance towards our leverage target, returns to shareholders are becoming an increasingly important consideration for our capital allocation decisions. In the immediate future, we remain focused on deleveraging and intend to prioritise organic investments with quick pay backs and accretive M&A (mergers and acquisitions) opportunities that allow us to leverage our operating capability and tax loss position.”

EnQuest said production averaged 47,259 barrels of oil equivalent per day in 2022, 6% higher than the year before. Production from the Kraken averaged 26,091 boepd, above the top end of guidance, but drilling on the field will be deferred.

EnQuest expects that average net production will be between 42,000 and 46,000 boepd this year.

Russ Mould at stockbroker AJ Bell said: “Can anybody locate the world’s tiniest violin? Despite booking record cash flows, North Sea oil and gas producer EnQuest is vocal in complaining about the windfall tax.

“While sympathy is likely to be in short supply, the fact EnQuest has accompanied these complaints with a move to abandon planned drilling on its Kraken field may provoke some concern, particularly if other operators follow suit.

“The UK needs all the domestic production it can get right now so it won’t want to do anything to dissuade companies from investing. However, EnQuest may have less room for manoeuvre than some others thanks to its debt pile which, despite being paid down materially last year, remains large.”