TIDMENQ
RNS Number : 3528L
EnQuest PLC
05 September 2023
EnQuest PLC
Results for the six months ended 30 June 2023
5 September 2023
Unless otherwise stated, all figures are on a Business
performance basis and are in US Dollars.
Comparative figures for the Income statement relate to the
period ended 30 June 2022 and the Balance sheet as at 31 December
2022. Alternative performance measures are reconciled within the
'Glossary - Non-GAAP measures' at the end of the Financial
Statements.
EnQuest Chief Executive, Amjad Bseisu, said:
"Strong operational performance, including the efficient return
to service of Kraken, has enabled free cash flow generation
totalling $140 million in the first half of 2023, driving further
reduction in EnQuest net debt to $592 million. Within the core
business, we have a significant work programme in the second half
of the year, including further drilling at Magnus and at Golden
Eagle and a continuation of well plug and abandonment activities at
Heather and Thistle, which we expect to deliver in line with 2023
guidance.
"EnQuest continues to play an active role in supporting the UK's
twin objectives of delivering energy security and decarbonisation.
Following the successful awards of carbon capture and storage
licenses, I'm delighted that the Board has established a commitment
for EnQuest to reach net zero for scope 1 and scope 2 emissions by
2040.
"The UK's oil and gas sector faces significant challenges and
loss of competitiveness due to uncertainty following the adverse
changes to the fiscal regime. While we appreciate the Government's
intentions to improve the attractiveness of the sector through the
Energy Security Investment Mechanism, we believe timely legislative
reform is required to restore confidence in the UK oil and gas
sector to protect jobs and deliver both energy security and
decarbonisation.
"As we navigate the challenges posed by the EPL, we remain
focused on further strengthening our Balance sheet, to unlock
organic and inorganic growth opportunities, as well as our
differentiated tax advantage, to grow the business and deliver
returns to shareholders."
H1 2023 performance
-- Group net production averaged 45,480 Boepd (2022: 49,726 Boepd)
-- Revenue and other operating income of $732.7 million (2022:
$943.5 million) and adjusted EBITDA of $399.2 million (2022: $536.3
million) reflects lower realised oil prices of $75.8/Boe (2022:
$89.9/Boe) and lower production
-- Operating costs were $162.7 million (2022: $208.4 million),
reflecting higher lease charter credits reflecting unplanned
downtime at Kraken, as well as lower maintenance and well
intervention costs at Magnus and at PM8/Seligi
-- Reported profit before tax was $112.9 million (2022: $182.6
million). Reported loss after tax was $21.2 million (2022: profit
of $203.5 million) driven by the impact of the UK Energy Profits
Levy
-- Reported cash generated from operations was $370.4 million
(2022: $522.7 million); with cash capital expenditure of $80.0
million (2022: $54.7 million) and cash abandonment expenditure of
$29.3 million (2022: $28.2 million)
-- Free cash flow generation, including favourable working
capital movements, of $140.0 million (2022: $332.1 million)
-- Awarded four carbon storage licences by the North Sea Transition Authority
End June EnQuest net debt reduced by $125.0 million from year
end; EnQuest net debt to adjusted EBITDA maintained at 0.7x
-- At 30 June 2023, EnQuest net debt reduced to $592.1 million
(end 2022: $717.1 million). EnQuest net debt to last-12 months
adjusted EBITDA ratio as at 30 June 2023 remains at 0.7x, as it was
at the end of 2022
-- At the end of June, $247.0 million (end 2022: $400.0 million)
remained outstanding on the Group's senior secured debt facility
('RBL') following accelerated repayments totalling $153.0
million
-- At 30 June, EnQuest retained strong liquidity with total cash
and available facilities of $385.2 million (end 2022: $348.9
million)
-- At 31 August 2023, EnQuest net debt increased to $615.2
million due to the July payment of $50 million contingent
consideration in relation to the Golden Eagle acquisition.
-- The outstanding RBL, which matures in April 2027, was reduced
by a further $7.0 million to $240.0 million
-- In August 2023, the Group agreed a term loan facility
totalling $150.0 million, maturing in July 2027, which will rank
junior to the existing RBL as a secured second lien instrument
within the capital structure. The loan proceeds, which can be used
for general corporate purposes, provide an additional source of
liquidity for the Group in advance of the October settlement of the
7% Sterling retail bond
-- The remaining October 2023 7% Sterling retail bond in issue
is GBP111.3 million and is expected to be settled in cash at
maturity
Guidance and outlook
-- 2023 average net Group production is still expected to be
within the guidance range of 42,000 Boepd to 46,000 Boepd
reflecting strong first half performances across the majority of
the portfolio and the efficient return to service at Kraken, which
mitigated losses associated with a period of production shut-in
following the decision to accelerate maintenance work originally
planned for the third quarter
-- Operating costs, cash capital and abandonment expenditures
are all expected to be in line with prior guidance of c.$425
million, c.$160 million and c.$60 million, respectively, with
operating costs expected to be higher in the second half of the
year in line with increased activity
-- EnQuest has hedged a total of c.3.8 MMbbls in the second half
of 2023 with an average floor of c.$60/bbl through the use of put
options. For the first half of 2023, the Group hedged a total of
c.5.9 MMbbls with an average floor price of c.$57/bbl and an
average ceiling price of c.$76/bbl applicable to 3.1 MMbbls
-- EnQuest has hedged a total of c.3.2 MMbbls in 2024 and a
total of 0.1 MMbbls in 2025 through the use of put options, all
with the same floor of $60/bbl
Production and financial information
Business performance measures For the For the Change
period to period to %
30 June 2023 30 June 2022
Production (Boepd)(1) 45,480 49,726 (8.5)
----------------------------------------- -------------- -------------- -------
Revenue and other operating income
($m)(2) 732.7 943.5 (22.3)
----------------------------------------- -------------- -------------- -------
Realised oil price ($/bbl)(2,3) 75.8 89.9 (15.7)
----------------------------------------- -------------- -------------- -------
Operating costs ($m) 162.7 208.4 (21.9)
----------------------------------------- -------------- -------------- -------
Average unit operating costs ($/Boe)(3) 19.7 22.7 (13.2)
----------------------------------------- -------------- -------------- -------
Adjusted EBITDA ($m)(3) 399.2 536.3 (25.6)
----------------------------------------- -------------- -------------- -------
Cash expenditures ($m) 109.3 82.9 31.8
----------------------------------------- -------------- -------------- -------
Capital 80.0 54.7 46.3
----------------------------------------- -------------- -------------- -------
Abandonment 29.3 28.2 4.0
----------------------------------------- -------------- -------------- -------
Free cash flow ($m)(3) 140.0 332.1 (57.8)
----------------------------------------- -------------- -------------- -------
30 June 31 December
2023 2022
----------------------------------------- -------------- -------------- -------
EnQuest net debt ($m)(3) (592.1) (717.1) (17.4)
----------------------------------------- -------------- -------------- -------
Statutory IFRS measures For the For the Change
period to period to %
30 June 2023 30 June 2022
----------------------------------------- -------------- -------------- -------
Reported revenue and other operating
income ($m)(4) 770.4 838.8 (8.2)
----------------------------------------- -------------- -------------- -------
Reported gross profit ($m) 287.1 252.8 13.6
----------------------------------------- -------------- -------------- -------
Reported profit/(loss) after tax
($m) (21.2) 203.5 -
----------------------------------------- -------------- -------------- -------
Reported basic earnings/(loss) per
share (cents) (1.2) 11.1 -
----------------------------------------- -------------- -------------- -------
Cash generated from operations ($m) 370.4 522.7 (29.1)
----------------------------------------- -------------- -------------- -------
Net increase/(decrease) in cash
and cash equivalents ($m)(5) (18.1) 99.5 -
----------------------------------------- -------------- -------------- -------
Notes:
(1) Production figure for first half of 2023 includes 660 Boepd
associated with Seligi gas
(2) Including realised losses of $22.2 million (2022: realised
losses of $162.3 million) associated with EnQuest's oil price
hedges
(3) See reconciliation of alternative performance measures
within the 'Glossary - Non-GAAP measures' starting on page 32.
Note, EnQuest defines net debt as excluding finance lease
liabilities
(4) Including net realised and unrealised gain of $15.4 million
(2022: net realised and unrealised losses of $267.0 million)
associated with EnQuest's oil price hedges
(5) Excludes foreign exchange impact of $(0.3) million (2022:
$(16.4) million)
Summary financial review
(all figures quoted are in US Dollars and relate to Business
performance unless otherwise stated)
Revenue for the six months ended 30 June 2023 was $732.7
million, 22.3% lower than the same period in 2022 ($943.5 million),
reflecting lower realised prices and lower production. Revenue is
predominantly derived from crude oil sales, which for the first
half of 2023 totalled $540.1 million, 36.5% lower than in the same
period of 2022 ($851.2 million). Revenue from the sale of
condensate and gas in the period was $213.2 million (2022: $252.9
million), primarily reflecting lower market prices. Gas revenue
mainly relates to the onward sale of third-party gas purchases not
required for injection activities at Magnus.
The Group's commodity hedges and other oil derivatives
contributed $22.2 million of realised losses (2022: realised losses
of $162.3 million), as a result of the timing at which the hedges
were entered into. The Group's average realised oil price excluding
the impact of hedging was $79.0/bbl for the six months ended 30
June 2023, compared to $111.0/bbl received during the first half of
2022. The Group's average realised oil price including the impact
of hedging was $75.8/bbl in the first half of 2023, 15.7% lower
than during the first half of 2022 ($89.9/bbl).
Total cost of sales were $493.1 million for the six months ended
30 June 2023, 15.8% lower than in same period of 2022 ($585.6
million).
Operating costs decreased by $45.7 million to $162.7 million,
primarily reflecting lower production costs for the first half of
2023. This decrease was driven by higher lease charter credits,
reflecting unplanned downtime at the Kraken Floating, Production,
Storage and Offloading ('FPSO') in the second quarter of 2023 , and
lower maintenance and well intervention costs at Magnus and at
PM8/Seligi. Unit operating costs decreased by 13.2% to $19.7/Boe
(2022: $22.7/Boe), primarily reflecting lower costs partially
offset by lower production.
Total cost of sales included non-cash depletion expense of
$147.9 million, 15.1% lower than in the same period in 2022 ($174.2
million), mainly reflecting lower production volumes.
Also within cost of sales, t he credit relating to the Group's
lifting position and hydrocarbon inventory for the six months ended
30 June 2023 was $15.3 million (2022: credit of $29.9 million). The
credit in the period reflects an increase in the net underlift
position to $15.8 million at 30 June 2023 from a $0.8 million net
underlift position at 31 December 2022.
Other cost of sales, which forms part of the total cost of sales
balance, for the six months ended 30 June 2023 of $197.9 million
were lower than the same period in 2022 ($232.9 million),
reflecting the lower cost of Magnus-related third-party gas
purchases following the decrease in the market price for gas and
which is offset by gas sales presented in revenue.
Adjusted EBITDA for the six months ended 30 June 2023 was $399.2
million, down 25.6% compared to the same period in 2022 ($536.3
million), driven by lower revenue offset partially by lower
operating costs.
The tax charge for the six months ended 30 June 2023 of $131.8
million (2022: $142.4 million tax charge), reflects a $45.5 million
non-cash deferred tax impact on the Group's profit before tax,
$10.3 million overseas current tax charge and a $76.0 million
current tax charge associated with the EPL (noting EPL was
substantively enacted in July 2022).
Remeasurements and exceptional items resulting in a post-tax net
loss of $27.9 million have been disclosed separately for the six
month period ended 30 June 2023 (2022: profit of $23.5
million).
Revenue included unrealised gains of $37.6 million in respect of
the mark-to-market movement on the Group's commodity contracts
(2022: unrealised losses of $104.7 million). Cost of sales included
unrealised gains of $9.9 million relating to the mark-to-market
movement on the Group's foreign exchange contracts and forward UKA
purchase contracts (2022: unrealised losses of $0.5 million). Other
remeasurements and exceptional items includes a non-cash impairment
charge of $96.5 million (2022: $10.1 million reversal) and a $43.5
million gain (2022: $31.0 million loss) in relation to the fair
value recalculation of the Magnus contingent consideration
reflecting an increase in the discount rate. A net tax charge of
$2.3 million, which includes a net tax charge of $5.8 million
related to the EPL, (2022: credit of $163.4 million, with nil
impact from EPL) has been presented as exceptional, representing
the tax effect on the above items. While the Group has lowered its
near-term oil price assumptions, there is no change in recognition
of undiscounted deferred tax assets at 30 June 2023 (2022: $107.9
million recognition due to the Group's increased short-term oil
price assumptions) as there remains sufficient headroom in the
Group's forecast future cash flows to support full recognition of
relevant tax losses.
The Group's IFRS profit before tax was $112.9 million (2022:
profit of $182.6 million), and IFRS loss after tax was $21.2
million (2022: profit of $203.5 million). The Group's effective tax
rate for the period was 118.8% (charge), primaily reflecting the
current tax impact of EPL and its high level of non-deductible
expenditures related to financing and decommissioning costs (2022:
(11.5)% credit, primarily reflecting the non-cash recognition of
$107.9 million of undiscounted deferred tax assets).
EnQuest has recognised UK North Sea corporate tax losses of
$2,318.8 million at 30 June 2023 (31 December 2022: $2,497.7
million).
The Group's reported net cash flow from operations for the six
months ended 30 June 2023 was $371.0 million (2022: $498.4
million), and included favourable working capital movements,
including the receipt of a joint venture advance cash call, and the
March refund of the Group's EPL instalment payment in December
2022. Free cash flow for the six months ended 30 June 2023 was
$140.0 million (2022: $332.1 million) which was utilised as part of
the Group's repayments totalling $153.0 million on the Reserve
Based Lending ('RBL') facility.
EnQuest net debt at 30 June 2023 was $592.1 million, a decrease
of 17.4% compared to 31 December 2022 ($717.1 million) and includes
$26.3 million of payment in kind interest ("PIK interest") that has
been capitalised to the principal of the facility and bonds (31
December 2022: $25.1 million). As at 31 August 2023, EnQuest net
debt had increased to $615.2 million due to the $50 million Golden
Eagle contingent payment made in July. In August 2023, the Group
entered into a new $150.0 million term loan facility, maturing in
July 2027, which will rank junior to the existing RBL as a secured
second lien instrument within the capital structure. The loan
proceeds, which can be used for general corporate purposes, provide
an additional source of liquidity for the Group ahead of the
October settlement of the remaining October 2023 7% Sterling retail
bond in issue of GBP111.3 million.
Operating review
Production details
Average daily production For the For the
on a net working period to period to
interest basis 30 June 2023 30 June 2022
-------------------------- -------------- --------------
(Boepd) (Boepd)
UK Upstream
- Magnus 16,530 12,754
- Kraken 13,082 19,527
- Golden Eagle 4,545 7,060
- Other Upstream(1) 3,105 4,081
-------------- --------------
Total UK 37,262 43,422
Total Malaysia
(2) 8,218 6,304
-------------- --------------
Total EnQuest 45,480 49,726
-------------- --------------
(1) Other Upstream: Scolty/Crathes, Greater Kittiwake Area and
Alba
(2) Malaysia production figure for first half of 2023 includes
660 Boepd associated with Seligi gas
Upstream operations
UK operations
Magnus
Average production for the first six months of 2023 was 16,530
Boepd, 29.6% higher than the first half of 2022 (12,754 Boepd).
Production efficiency for the period was 91.4% (2022: 73.0%),
driven by improvements to rotating equipment performance, including
gas compressors and power generation units, following 2022
investment to optimise equipment and reduce obsolescence. Other
improvements relate to the test separator system, where
enhancements have been made to enable the resumption of well
testing and increase the Group's understanding of well composition
and characteristics. The Group's drilling programme is ongoing,
with the North West Magnus injector brought online in May to
provide pressure support for the production well. In addition, slot
recovery activity continued to enable the delivery of future infill
drilling opportunities, with the completion of the B6 well plug and
abandonment ('P&A'). Subsequently, the new B6 infill well came
online on 4 August. The programme in the second half of the year
includes the completion of a further infill well.
Work is ongoing to optimise the ongoing maintenance shutdown,
originally planned for 24 days, with the Magnus team aiming to
align to the Ninian Central outage and shorten the shutdown
duration.
Kraken
Average production of 13,082 Boepd (18,556 Boepd gross) (2022:
19,527 Boepd net; 27,698 Boepd gross) reflected an efficient return
to service of the FPSO following the anomalous failure of hydraulic
submersible pump ('HSP') transformer units during May. Working
alongside the vessel owner, Bumi Armada, the EnQuest asset team
limited the impact on production, resuming production on a single
train basis on 12 June and then reaching 80-90% production capacity
through the refurbishment and reinstatement of a transformer unit
in July. On 7 August, a further transformer unit was brought back
into service, following a rebuild, returning Kraken to full
production. New transformer units were proactively ordered from the
manufacturer and are due for delivery in September, providing
further resilience to production capacity.
The Group reacted quickly to mitigate production losses by
executing maintenance work, originally planned for the third
quarter shutdown during two periods of single train operations. No
further planned maintenance outages are anticipated during
2023.
In light of the direct impact of the EPL on the Group's
available cash flow and the indirect contribution to underlying
inflationary pressures through incentivisation of industry-wide
investment within a defined timeline, the Group took the decision
to delay its plans to progress the Kraken drilling programme.
However, near-field drilling and subsea tie-back opportunities
continue to be assessed, with interpretation of 3D seismic data
ongoing to access the significant opportunity in terms of main
field side-track drilling opportunities, along with further
drilling within the Pembroke and Maureen sands, with c.33 Mmboe of
2C resources available at Kraken. Until drilling resumes, Kraken
production will be subject to natural field decline.
Golden Eagle
Average production in the first half of the year was 4,545 Boepd
net (2022: 7,060 Boepd), while production efficiency remained high
at 91% (2022: 95%). The planned 26-day shutdown was optimised to a
12-day programme of work, which was completed during August.
The delayed 2022 drilling campaign was completed in the first
half of 2023, with first oil from the new well delivered on 24 June
2023. Preparations are underway for the next drilling campaign,
which includes a two-well infill programme, with further well
options, utilising a heavy duty jack up rig and which is expected
to run from September 2023.
Other Upstream assets
Production for the first six months of 2023 averaged 3,105 Boepd
(2022: 4,081 Boepd). This was driven by uptime of 95% (2022: 92%)
at the Greater Kittiwake Area ('GKA'), and the positive impact of
the reinstatement of the Grouse well. The planned three-week GKA
shutdown was deferred from April and has recently been completed,
with production resuming on 19 August following a shutdown of 23
days.
At Bressay, we continue to progress evaluation of the project
through creative development options with potential partners, in
light of the EPL.
Malaysia operations
For the first six months of 2023, average production in Malaysia
was 8,218 Boepd, representing a 30% increase over the same period
last year. This increase includes 660 Boepd associated with Seligi
gas, to which Petronas hold the entitlement, and which is produced
and handled by EnQuest in exchange for a gas handling and delivery
fee. In addition, production in the first half of the year has
benefitted from the workover campaign and three horizontal wells
delivered during 2022. Thus far in 2023, two well workovers have
been completed which, when coupled with the delivery of idle well
restoration work, is expected to add an incremental 2.5 kboed to
PM8/Seligi production.
The planned three-week shutdown at PM8/Seligi to undertake asset
integrity and maintenance activities was optimised and the updated
14-day work programme was completed ahead of schedule during
August, with the completed scopes expected to help improve
reliability and efficiency at the field. Well P&A work will
also continue, primarily funded by a centralised investment fund to
which EnQuest contributes, with six well abandonments planned for
2023 with one delivered to date.
The Group continues to undertake preparatory work ahead of plans
to drill a multi-well infill programme during 2024.
On Block PM409, an area containing several undeveloped
discoveries and situated close to the Group's existing PM8/Seligi
PSC hub, the Group is currently drilling its commitment well, with
results expected in our next operational update.
Decommissioning
Heather and Thistle P&A campaigns are progressing well with
seven wells completed at Heather and a further seven wells
completed at Thistle during the first half of 2023. The Group
continues to demonstrate and develop capability in delivering these
significant decommissioning projects and remains on track to
complete the P&A of 23 wells (12 at Heather and 11 at Thistle)
in 2023.
The Heather project team is looking for further opportunities to
perform P&A activities using supplementary equipment, which
will increase efficiency of the main platform rig, and will further
underpin its expectation that the target to disembark the platform
in the fourth quarter of 2024 will be met. At Thistle, the team aim
to complete disembarkation by the end of the third quarter of 2025.
Both assets remain on track to meet their post-cessation of
production well P&A targets of 39 wells at Heather and 41 wells
at Thistle by the end of 2024.
EnQuest is also planning the P&A of 33 subsea wells at the
Alma/Galia, Dons and Broom fields and aims to be execution-ready
during the second quarter of 2024 and, to that end, aims to put in
place a rig commitment by the end of 2023. The EnQuest team
continues to work on the basis that subsea decommissioning
activities can be optimised by utilising a portfolio approach
across the fields.
The EnQuest Producer FPSO remains in warm stack at Nigg Energy
Park while the Group continues to evaluate options, which include
utilisation on a future project or sale.
Infrastructure and New Energy
The Sullom Voe Terminal ('SVT') and its related infrastructure
maintained safe and reliable performance, with 100% export service
availability during the first half of 2023.
EnQuest continues to develop cost-effective and
capital-efficient plans to transform the terminal and prepare and
repurpose the site to progress decarbonisation opportunities at
scale, focused on carbon capture and storage ('CCS'), production of
green hydrogen and derivatives and electrification. The terminal
site offers several unique competitive advantages, including a
1,000-acre tier 1 COMAH industrial site with access to existing
utilities, oil and gas pipeline infrastructure, a deep-water port
and jetties, the highest wind capacity factor across Europe, and a
highly skilled workforce and local supply chain . In advancing its
Infrastructure and New Energy business, the Group will maintain its
focus on capital discipline and, having secured exclusive rights
from the Shetland Islands Council to progress new energy
opportunities on the site, the Group is well placed to deliver on
its new energy ambitions alongside strategic delivery partners in a
capital-light manner. Delivery of these opportunities is
anticipated to create material value for EnQuest, the Council and
the Shetland Community, contribute to emissions reduction and
retain and create significant local jobs.
Carbon Capture and Storage
The availability of the deep-water port and jetties and a
pipeline network linked to several well-understood offshore
reservoirs presents the opportunity to repurpose infrastructure to
import and permanently store material quantities of CO(2) from
isolated emitters in the UK, Europe or further afield.
EnQuest has successfully secured four carbon storage licences,
incorporating storage sites in the Magnus and Thistle fields
currently operated by EnQuest, as well as the non-operated Tern and
Eider fields. These sites are large, well characterised deep
storage formations connected by significant existing infrastructure
to the Sullom Voe Terminal ('SVT') in Shetland. EnQuest plans to
have carbon dioxide ('CO2') shipped to SVT in liquid form, received
at the existing jetties at the terminal before being transported
via the existing East of Shetland pipeline for injection and
permanent storage offshore. The flexibility afforded by a shipped
solution for carbon storage is expected to enable a service to be
provided to isolated emitter clusters in the UK, Europe and further
afield who may not otherwise be able to access storage
infrastructure. The capability of the existing infrastructure,
including the EnQuest-operated East of Shetland pipeline system,
and storage sites is expected to support a project that could store
up to 10 million tonnes of CO(2) per annum. This quantity of
potential carbon storage represents a multiple of the Group's
existing direct emissions.
Additional geological formations in this area of the North Sea,
which could be connected to SVT infrastructure in the future, have
the potential to store in excess of one billion tonnes of CO(2)
.
Green Hydrogen
The Group is working closely with strategic partners, including
renewable developers and potential local customer offtakers to
explore opportunities to aggregate and use the excess energy
produced by local wind power from onshore and offshore wind farms
to produce green hydrogen and derivatives. The Group is working on
developing a first phase project aimed at decarbonising local
industry with a further scale-up to service customers globally,
leveraging the existing export capabilities and advantaged
renewable power potential.
Electrification
EnQuest continues to progress innovative proposals to harness
local renewable power and SVT's advantaged location to offer robust
and commercially attractive electrification solutions to facilitate
new asset developments in the North Sea basin and to support UK
energy security. In leveraging the Group's existing infrastructure
and subsea projects expertise to facilitate the electrification of
nearby offshore oil and gas assets and planned developments by way
of a grid connection supplemented with renewable power, it is
anticipated that realisation of this opportunity would lead to
significant emissions reductions for platforms which are expected
to operate into the 2050s.
Liquidity and EnQuest net debt
The Group generated $140.0 million in free cash flows during the
first half of 2023, incorporating favourable working capital
movements, including receipt of a joint venture advanced cash call,
and the March refund of the Group's EPL instalment payment in
December 2022 , resulting in EnQuest net debt of $592.1 million at
30 June 2023, down $125.0 million since the end of 2022. This
reduction was driven by accelerated repayments totalling $153.0
million on the Group's RBL facility, with drawings of $247.0
million at 30 June 2023, significantly ahead of the required
amortisation schedule. EnQuest's net debt to adjusted EBITDA ratio
at 30 June 2023 was 0.7x and the Group had total cash and available
facilities of $385.2 million, including restricted funds and
ring-fenced funds held in joint venture operational accounts
totalling $124.1 million (31 December 2022: $348.9 million and
$174.3 million, respectively).
EnQuest net debt has increased to $615.2 million at the end of
August, predominantly due the scheduled contingent consideration
payment of $50 million in relation to the Golden Eagle acquisition.
The outstanding RBL facility, which matures in April 2027, was
reduced to $240.0 million during the month of July.
On 25 August, the Group entered into a new $150.0 million term
loan facility, maturing in July 2027, which will rank junior to the
existing RBL as a secured second lien instrument within the capital
structure. The loan proceeds, which can be used for general
corporate purposes, will provide an additional source of liquidity
for the Group ahead of the October settlement of the remaining
October 2023 7% Sterling retail bond in issue of GBP111.3
million.
2023 outlook
The Group remains on track to achieve net production between
42,000 and 46,000 Boepd, with ongoing drilling campaigns at Magnus
and at Golden Eagle, partially offset by natural declines and
planned maintenance shutdowns at Magnus and GKA in the third
quarter.
Full year expectations for operating, cash capital and
abandonment expenditures remain unchanged from the Group's original
guidance at approximately $425 million, $160 million and $60
million, respectively, with spending expected to be higher during
the second half of the year, in line with activity. EnQuest remains
focused on cost discipline and continues to employ a proactive
approach to engagement with its global supply chain to mitigate the
impacts of cost inflation across all contracts.
EnQuest will pay cash tax in the UK in accordance with the
Energy Profits Levy ('EPL'), with the expected October 2023 cash
payment of c.$75 million reflecting the Group's 2022 tax
liability.
EnQuest hedged a total of c.9.7 MMbbls for 2023 predominantly
using put options, with an average floor price of c.$58/bbl. For
the period July to December 2023, c.3.8 MMbbls of production
remains hedged with an average floor price of c.$60/bbl.
Environmental, Social and Governance
The Group has continued to make excellent progress in reducing
its absolute Scope 1 and 2 emissions, with the achievement of
national emissions reduction targets and the drive to net zero
being a core focus area. Since 2018, EnQuest's UK Scope 1 and 2
emissions have reduced by more than 40%, which is significantly
ahead of the UK Government's North Sea Transition Deal target of
achieving a 10% reduction in Scope 1 and 2 CO(2) equivalent
emissions by 2025 and close to the 50% reduction targeted by 2030.
Among the three discrete and scalable decarbonisation opportunities
being progressed by the Group's Infrastructure and New Energy
business, the CCS project alone has the potential to store up to 10
million tonnes of CO(2) per annum, which represents a multiple of
the Group's existing emissions footprint, providing the opportunity
to go beyond net zero. In support of its decarbonisation ambitions,
and recognising the unique part that the Group can play in the
energy transition, EnQuest's Board recently committed to reach net
zero for scope 1 and scope 2 emissions by 2040.
The health, safety and wellbeing of EnQuest's people is its top
priority and the Group has continued to perform better than the
Offshore Energies UK ('OEUK') benchmark in this regard in the six
months to end June, recording a Lost Time Incident ('LTI')
frequency(1) of 0.79 (Full year 2022: 0.57). Given the increased
frequency rate, which was linked to two LTIs recorded during
routine activities in the first half of 2023, the Group has taken
steps to re-emphasise the need for increased supervision, focus on
situational awareness and dynamic risk assessment. EnQuest has a
strong HSEA and process safety culture and leadership remain
focused on continuous improvement to of systems and procedures for
maintaining safe process operations and preventing personal
injuries, dangerous occurrences and hydrocarbon releases.
(1) Lost Time Incident frequency represents the number of
incidents per million exposure hours worked (based on 12 hours for
offshore and eight hours for onshore). OEUK LTIF benchmark is
1.27.
Corporate governance is an essential part of EnQuest's
governance framework, supporting both risk management and the
Group's core Values. The Board remains focused on Board and
executive succession planning. As part of the Group's rotation of
Directors, Howard Paver, Carl Hughes and John Winterman stepped
down from the Board of Directors following the Group's AGM in June.
The process to appoint new Board members is ongoing, with the clear
aim to enhance the Board with skills required for the next phase in
EnQuest's evolution. Accordingly, EnQuest has appointed Michael
Borrell as a Non-Executive Director with effect from 5 September
2023 (see separate announcement).
EnQuest has announced plans to apply for de-listing of the
Company's shares from Nasdaq Stockholm. The formal application to
de-list will be submitted to Nasdaq Stockholm no earlier then three
months from 5 September (see separate announcement).
- Ends -
For further information, please contact:
EnQuest PLC Tel: +44 (0)20 7925
4900
Amjad Bseisu (Chief Executive Officer)
Salman Malik (Chief Financial Officer)
Craig Baxter (Head of Investor Relations)
Teneo Tel: +44 (0)20 7353
4200
Martin Robinson
Martin Pengelley
Harry Cameron
Presentation to Analysts and Investors
A presentation to analysts and investors will be held at 09.30
today - London time. The presentation will be accessible via a
webcast by clicking here .
EnQuest's investor relations team will be hosting a presentation
via Investor Meet Company, primarily focused on the Company's
retail investors on 13 September at 14:00 - London time.
The presentation is open to all existing and potential
shareholders. Questions can be submitted pre-event via your
Investor Meet Company dashboard up until 9am the day before the
meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add
to meet ENQUEST PLC via:
https://www.investormeetcompany.com/enquest-plc/register-investor
Investors who already follow ENQUEST PLC on the Investor Meet
Company platform will automatically be invited.
Notes to editors
This announcement has been determined to contain inside
information. The person responsible for the release of this
announcement is Chris Sawyer, General Counsel and Company
Secretary.
ENQUEST
EnQuest is providing creative solutions through the energy
transition. As an independent energy company with operations in the
UK North Sea and Malaysia, the Group's strategic vision is to be
the partner of choice for the responsible management of existing
energy assets, applying its core capabilities to create value
through the transition.
EnQuest PLC trades on both the London Stock Exchange and the
NASDAQ OMX Stockholm.
Please visit our website www.enquest.com for more information on
our global operations.
Forward-looking statements: This announcement may contain
certain forward-looking statements with respect to EnQuest's
expectations and plans, strategy, management's objectives, future
performance, production, reserves, costs, revenues and other trend
information. These statements and forecasts involve risk and
uncertainty because they relate to events and depend upon
circumstances that may occur in the future. There are a number of
factors which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements and forecasts. The statements have been made with
reference to forecast price changes, economic conditions and the
current regulatory environment. Nothing in this announcement should
be construed as a profit forecast. Past share performance cannot be
relied upon as a guide to future performance.
Financial review
Financial overview
All figures quoted are in US Dollars and relate to Business
performance unless otherwise stated.
Introduction
EnQuest has continued to make progress against its financial
priorities. EnQuest net debt has been reduced by $125.0 million to
$592.1 million as at 30 June 2023, reflecting the Group's free cash
flow generation, which included favourable working capital
movements and the March refund of the Group's EPL instalment
payment in December 2022. In August, the Group further strengthened
its Balance sheet and improved liquidity ahead of the October
settlement of the remaining October 2023 7% Sterling retail bond in
issue of GBP111.3 million through agreeing additional funding in
the form of a $150.0 million term loan facility. The Group
continues to maintain a strong focus on cost control, with unit
operating expenses at $19.7/Boe for the first half of 2023 (2022:
22.7/Boe), and is optimising capital expenditures with drilling at
Magnus and Golden Eagle. However, the implementation of the EPL and
its high level of non-deductible expenditures related to financing
and decommissioning costs has resulted in the Group reporting an
IFRS post-tax loss of $21.2 million in the period to 30 June 2023
(2022: IFRS post-tax profit of $203.5 million).
Performance overview
Production on a working interest basis decreased by 8.5% to
45,480 Boepd, including 660 Boepd of Seligi Associated gas,
compared to 49,726 Boepd in 2022.
Revenue for the six months ended 30 June 2023 was $732.7
million, 22.3% lower than the same period in 2022 ($943.5 million),
reflecting lower realised prices and lower production. The Group's
commodity hedge programme resulted in realised losses of $22.2
million in the first half of 2023 (2022: losses of $162.3
million).
The Group's operating costs of $162.7 million were 21.9% lower
than in the same period in 2022 ($208.4 million). This decrease is
primarily driven by higher lease charter credits, reflecting
unplanned downtime at the Kraken FPSO in the second quarter of
2023, and lower maintenance and well intervention costs at Magnus
and PM8/Seligi. Unit costs decreased to $19.7/Boe (2022:
$22.7/Boe).
Other cost of sales, which forms part of the total cost of sales
balance, for the six months ended 30 June 2023 of $197.9 million
were 15.0% lower than the same period in 2022 ($232.9 million),
principally as a result of lower Magnus-related third-party gas
purchases reflecting the decrease in associated market prices and
which is offset by lower gas sales, presented within revenue. The
average day ahead gas price decreased from 182p/Therm for the six
months ended 30 June 2022 to 108p/Therm for the six months ended 30
June 2023.
Adjusted EBITDA for the six months ended 30 June 2023 was $399.2
million, down 25.6% compared to the same period in 2022 ($536.3
million), driven by lower revenue offset partially by lower
operating costs.
H1 2023 H1 2022
$ million $ million
--------------------------------- ----------- -----------
Profit/(loss) from operations
before tax and finance
income/(costs) 221.4 416.2
--------------------------------- ----------- -----------
Depletion and depreciation 150.9 177.5
--------------------------------- ----------- -----------
Change in provision 7.2 (32.3)
--------------------------------- ----------- -----------
Change in well inventories 2.0 (0.4)
--------------------------------- ----------- -----------
Net foreign exchange (gain)/loss 17.7 (24.7)
--------------------------------- ----------- -----------
Adjusted EBITDA 399.2 536.3
--------------------------------- ----------- -----------
Note:
1 See reconciliation of Adjusted EBITDA within the 'Glossary -
Non-GAAP measures' starting on page 32
EnQuest net debt to last 12-month adjusted EBITDA ratio at 30
June 2023 is 0.7x, unchanged from the disclosed position at 31
December 2022.
EnQuest net debt decreased by $125.0 million to $592.1 million
at 30 June 2023 (31 December 2022: $717.1 million) as a result of
free cash flow generation of $140.0 million, which includes receipt
of $39.5 million relating to a joint venture advance cash call and
the March refund of the Group's EPL instalment payment in December
2022. EnQuest net debt includes $26.3 million of payment in kind
('PIK') interest that has been capitalised to the principal of the
respective facilities (31 December 2022: $25.1 million). Free cash
flow was primarily used to make further repayments of the Group's
RBL facility, ensuring EnQuest remains ahead of the amortisation
schedule.
EnQuest net debt(1)
----------------------------- ------------------------
30 June
31 December
2023 2022
$ million $ million
----------------------------- ----------- -----------
Bonds 614.7 600.7
----------------------------- ----------- -----------
Senior secured debt facility
('RBL') 247.0 400.0
----------------------------- ----------- -----------
SVT Working Capital Facility 13.6 12.3
----------------------------- ----------- -----------
Vendor loan facility - 5.7
----------------------------- ----------- -----------
Cash and cash equivalents (283.2) (301.6)
----------------------------- ----------- -----------
EnQuest net debt 592.1 717.1
----------------------------- ----------- -----------
Note:
1 See reconciliation of EnQuest net debt within the 'Glossary -
Non-GAAP measures' starting on page 32
In July 2022, the EPL was enacted in the UK which applied an
additional tax of 25% on the profits earned by oil and gas
companies from the production of oil and gas on the United Kingdom
Continental Shelf. In November 2022, the EPL rate was increased to
35% from 1 January 2023 and the end date was extended from 31
December 2025 to 31 March 2028. As such, the Group has estimated a
current tax charge of $73.8 million (30 June 2022: $nil) associated
with the EPL for the period ended 30 June 2023, with a $76.0 milion
charge recognised in Business performance and a $2.2 million credit
recognised in Remeasurements and exceptional items. The Group has
also recognised a net deferred tax credit of $18.8 million at 30
June 2023, with a $26.8 million credit recognised in Business
performance and $8.0 million charge in Remeasurements and
exceptional items (31 December 2022: $153.7 million, with a $25.2
million credit recognised in Business performance and $178.9
million charge in Remeasurements and exceptional items).
The Group's IFRS profit before tax was $112.9 million (2022:
profit of $182.6 million), and IFRS loss after tax was $21.2
million (2022: profit of $203.5 million). The Group's effective tax
rate for the period was 118.8% (charge), primaily reflecting the
impact of EPL and its high level of non-deductible expenditures
related to financing and decommissioning costs (2022: (11.5)%
credit, primarily reflecting the non-cash recognition of $107.9
million of undiscounted deferred tax assets).
The Group has recognised UK North Sea corporate tax losses at 30
June 2023 of $2,318.8 million (31 December 2022: $2,497.7 million).
No significant corporation tax or supplementary charge is expected
to be paid on UK operational activities for several years. However,
the Group expects to make EPL payments for the duration of the
levy. The Group also paid cash corporate income tax on the
Malaysian assets, which will continue throughout the life of the
Production Sharing Contract.
Income statement
Revenue
On average, market prices for crude oil in the first half of
2023 were significantly lower than in the same period of 2022 due
to fears over global recession and high interest rates contributing
to market volatility. The Group's average realised oil price
excluding the impact of hedging was $79.0/bbl for the six months
ended 30 June 2023, compared to $111.0/bbl received during the
first half of 2022. Revenue is predominantly derived from crude oil
sales, which for the first half of 2023 totalled $540.1 million,
36.5% lower than in the same period of 2022 ($851.2 million),
reflecting the lower oil prices and lower production. Revenue from
the sale of condensate and gas in the period was $213.2 million
(2022: $252.9 million), primarily reflecting lower market prices.
Gas revenue mainly relates to the onward sale of third-party gas
purchases not required for injection activities at Magnus. Tariffs
and other income generated $1.5 million (2022: $1.7 million),
including income associated with the transportation of Seligi
Associated gas. The Group's commodity hedges and other oil
derivatives contributed $22.2 million of realised losses (2022:
losses of $162.3 million), as a result of the timing at which the
hedges were entered into. The Group's average realised oil price
including the impact of hedging was $75.8/bbl in the first half of
2023, 15.7% lower than during the first half of 2022
($89.9/bbl).
Note: For the reconciliation of realised oil prices see
'Glossary - Non-GAAP measures' starting on page 32
Cost of sales(1)
H1 2023 H1 2022
$ million $ million
---------------------------- ----------- ----------
Production costs 145.5 181.2
---------------------------- ----------- ----------
Tariff and transportation
expenses 16.1 23.4
---------------------------- ----------- ----------
Realised loss/(gain) on
derivatives related to
operating costs 1.1 3.8
---------------------------- ----------- ----------
Operating costs 162.7 208.4
---------------------------- ----------- ----------
(Credit)/charge relating
to the Group's lifting
position and hydrocarbon
inventory (15.3) (29.9)
---------------------------- ----------- ----------
Depletion of oil and gas
assets 147.9 174.2
---------------------------- ----------- ----------
Other cost of sales 197.9 232.9
---------------------------- ----------- ----------
Cost of sales 493.1 585.6
---------------------------- ----------- ----------
Unit operating cost(2) $/Boe $/Boe
---------------------------- ----------- ----------
- Production costs 17.7 20.1
---------------------------- ----------- ----------
- Tariff and transportation
expenses 2.0 2.6
---------------------------- ----------- ----------
Average unit operating
cost 19.7 22.7
---------------------------- ----------- ----------
Notes:
1 See reconciliation of alternative performance measures within
the 'Glossary - Non-GAAP measures' starting on page 32
2 Calculated using production on a working interest basis
including Seligi Associated Gas
Cost of sales were $493.1 million for the six months ended 30
June 2023, 15.8 % lower than in same period of 2022 ($585.6
million).
Operating costs decreased by $45.7 million, primarily reflecting
lower production costs for the first half of 2023. This decrease
was driven by higher lease charter credits, reflecting unplanned
downtime at the Kraken FPSO in the second quarter of 2023, and
lower maintenance and well intervention costs at Magnus and at
PM8/Seligi. Unit operating costs decreased by 13.2% to $19.7/Boe
(2022: $ 22.7 /Boe), primarily reflecting lower costs partially
offset by lower production.
The credit relating to the Group's lifting position and
hydrocarbon inventory for the six months ended 30 June 2023 was
$15.3 million (2022: credit of $29.9 million). The credit in the
period reflects an increase in the net underlift position to $15.8
million at 30 June 2023 from a $0.8 million net underlift position
at 31 December 2022. This was primarily driven by the unwind of
overlift positions at the GKA hub and Alba from year end and timing
of liftings at Golden Eagle.
Depletion expense of $147.9 million was 15.1% lower than in the
same period in 2022 ($174.2 million), mainly reflecting lower
production volumes.
Other cost of sales, which forms part of the total cost of sales
balance, for the six months ended 30 June 2023 of $197.9 million
were lower than the same period in 2022 ($232.9 million),
reflecting the lower cost of Magnus-related third-party gas
purchases following the decrease in the market price for gas and
which is offset by gas sales presented in revenue.
Other income and expenses
Net other expense of $17.1 million (2022: net other income of
$61.3 million) is primarily due to $7.2 million net increase in the
decommission estimates of fully impaired assets (including the
Thistle linked decommissioning liability, see note 11) and $17.7
million of net foreign exchange losses due to an unfavourable
movement in the Sterling to US Dollar exchange rate. 2022 primarily
reflected $32.3 million reduction in decommissioning estimate of
fully impaired assets and foreign exchange gains of $24.7
million.
Finance costs
Finance costs of $85.5 million were 9.1% lower than in the
comparative period (2022: $94.1 million). This decrease was
primarily driven by recognition of $3.7 million of fees in 2022
associated with the retail bond exchange transaction and an
associated decrease in amortisation of finance fees on loans and
bonds (2023: $3.7 million; 2022: $17.9 million). The remaining
finance costs include loan interest payable of $14.3 million (2022:
$8.6 million), bond interest payable of $31.0 million (2022: $31.5
million), $12.7 million on unwinding of discount on decommissioning
provisions and other liabilities (2022: $8.9 million) and other
financial expenses of $3.2 million (2022: $3.4 million), primarily
being the cost for surety bonds to provide security for
decommissioning liabilities.
Taxation
The tax charge for the six months ended 30 June 2023 of $131.8
million (2022: $142.4 million tax charge), reflects a $45.5 million
non-cash deferred tax impact on the Group's profit before tax,
$10.3 million overseas current tax charge and a $76.0 million
current tax charge associated with the EPL that will be payable in
October 2024 (noting that the EPL was substantively enacted in July
2022).
Remeasurements and exceptional items
Remeasurements and exceptional items resulting in a post-tax net
loss of $27.9 million have been disclosed separately for the six
month period ended 30 June 2023 (2022: profit of $23.5
million).
Revenue included unrealised gains of $37.6 million in respect of
the mark-to-market movement on the Group's commodity contracts
(2022: unrealised losses of $104.7 million) primarily reflecting
the unwind of unrealised losses at 31 December 2022 on open hedge
positions.
Cost of sales included unrealised gains of $9.9 million relating
to the mark-to-market movement on the Group's foreign exchange
contracts and forward UKA purchase contracts (2022: unrealised
losses of $0.5 million) primarily reflecting the strengthening
Sterling position in the first half of 2023.
A net impairment charge of $96.5 million has been disclosed in
remeasurements (2022: $10.1 million reversal). These are primarily
driven by a decrease in EnQuest's future price assumptions.
Other income includes a $43.5 million gain in relation to the
fair value recalculation of the Magnus contingent consideration
reflecting an increase in the discount rate (2022: $31.0 million
loss), $5.2 million reversal of a provision held on acquisition of
Golden Eagle and $4.1 million recognition of an additional
insurance debtor in respect of the Malaysia riser repairs. Other
finance costs mainly relate to the unwinding of contingent
consideration from the acquisition of Magnus and associated
infrastructure of $29.4 million (2022: $17.9 million).
A net tax charge of $2.3 million, which includes a net tax
charge of $5.8 million related to the EPL, (2022: credit of $163.4
million, with nil impact from EPL) has been presented as
exceptional, representing the tax effect on the above items. While
the Group has lowered its near-term oil price assumptions, there is
no change in recognition of undiscounted deferred tax assets at 30
June 2023 (2022: $107.9 million recognition due to the Group's
increased short-term oil price assumptions) as there remains
sufficient headroom in the Group's future cash flows to support
full recognition of relevant tax losses.
EnQuest has recognised UK North Sea corporate tax losses of
$2,318.8 million at 30 June 2023 (31 December 2022: $2,497.7
million).
IFRS results
The Group's results on an IFRS basis are shown on the Group
Income statement as 'Reported in period', being the sum of
EnQuest's Business performance results and its Remeasurements and
exceptional items, both of which are explained above.
EnQuest IFRS revenue reflects the Group's Business performance
revenue, but it is adjusted for the impact of unrealised movements
on derivative commodity contracts. Business performance cost of
sales is similarly adjusted for the impact of unrealised movements
on derivative contracts, together with any exceptional provisions
as noted previously. Taking account of these items, and the other
exceptional items included within the Group Income statement which
are principally related to impairment charges and the change in
fair value of contingent consideration payable, the Group's IFRS
profit from operations before tax and finance costs was $225.2
million (2022: profit of $294.2 million), IFRS profit before tax
was $112.9 million (2022: profit of $182.6 million), and IFRS loss
after tax was $21.2 million (2022: profit of $203.5 million). The
Group's effective tax rate for the period was 118.8% (charge),
primaily reflecting the impact of EPL and its high level of
non-deductible expenditures related to financing and
decommissioning costs (2022: (11.5)% credit, primarily reflecting
the non-cash recognition of $107.9 million of undiscounted deferred
tax assets).
Earnings per share
The Group's Business performance basic profit per share was 0.4
cents (2022 profit per share: 9.8 cents) and diluted profit per
share was 0.4 cents (2022 profit per share: 9.6 cents).
The Group's reported basic loss per share was 1.2 cents (2022
profit per share: 11.1 cents) and reported diluted loss per share
was 1.2 cents (2022 profit per share: 10.9 cents).
Cash flow and liquidity
EnQuest net debt at 30 June 2023 amounted to $592.1 million,
including PIK of $26.3 million, compared with EnQuest net debt of $
717.1 million at 31 December 2022, including PIK of $ 25.1 million.
The movement in EnQuest net debt was as follows:
$ million
--------------------------------- ---------
EnQuest net debt 1 January 2023 (717.1)
--------------------------------- ---------
Net cash flows from operating
activities 371.0
--------------------------------- ---------
Cash capital expenditure (80.0)
--------------------------------- ---------
Magnus profit share payments (38.2)
--------------------------------- ---------
Net interest and finance costs
paid (49.3)
--------------------------------- ---------
Finance lease payments (63.4)
--------------------------------- ---------
Other movements, primarily net
foreign exchange on cash and
debt (15.1)
--------------------------------- ---------
EnQuest net debt 30 June 2023(1) (592.1)
--------------------------------- ---------
Note:
1 See reconciliation of alternative performance measures within
the 'Glossary - Non-GAAP measures' starting on page 32
The Group's reported net cash flows from operating activities
for the six month period ended 30 June 2023 were $371.0 million,
down 25.6% compared to comparative period of 2022 ($498.4 million),
primarily driven by lower prices and volumes, partially offset by
the receipt of $39.5 million relating to a joint venture advance
cash call and the March refund of the Group's EPL instalment
payment in December 2022.
Cash outflow on capital expenditure is set out in the table
below:
H1 2023 H1 2022
$ million $ million
--------------------------- ----------- ----------
North Sea 64.5 43.7
--------------------------- ----------- ----------
Malaysia 11.0 8.9
--------------------------- ----------- ----------
Exploration and evaluation 4.5 2.1
--------------------------- ----------- ----------
80.0 54.7
--------------------------- ----------- ----------
Cash capital expenditure in the period ended 30 June 2023
primarily related to Magnus, Golden Eagle and PM8/Seligi well
campaigns. Cash capital expenditure in 2022 primarily related to
Magnus and PM8/Seligi well campaigns.
Balance sheet
Property, plant and equipment ('PP&E')
PP&E has decreased by $188.8 million to $2,288.2 million at
30 June 2023 from $2,477.0 million at 31 December 2022 (see note
7). This decrease includes depletion and depreciation charges of
$150.9 million, net impairment charges of $96.5 million and a net
decrease in the decommissioning estimate of $9.1 million, partially
offset by other capital additions of $67.8 million.
The PP&E capital additions during the period, are set out in
the table below:
H1 2023 H1 2022
$ million $ million
---------- ----------- ----------
North Sea 67.1 42.0
---------- -----------
Malaysia 0.7 13.1
---------- ----------- ----------
67.8 55.1
---------- ----------- ----------
Trade and other receivables
Trade and other receivables decreased by $11.4 million to $265.0
million at 30 June 2023 compared with $276.4 million at 31 December
2022. The decrease is driven by the timing of cargoes lifted and
associated receipts at the period end.
Cash and EnQuest net debt
The Group had $283.2 million of cash and cash equivalents at 30
June 2023 and $592.1 million of EnQuest net debt, including PIK and
capitalised interest of $26.3 million (2022: $301.6 million, $717.1
million and $25.1 million, respectively).
EnQuest net debt comprises the following liabilities:
-- $140.9 million principal outstanding on the 7.00% Sterling
retail bond, including interest capitalised as PIK of $26.3 million
(2022: $134.5 million and $25.1 million, respectively), which
matures in October 2023;
-- $168.8 million principal outstanding on the 9.00% Sterling
retail bond (2022: $161.2 million), which matures in October
2027;
-- $305.0 million principal outstanding on the high yield bond
11.625% (2022: $305.0 million), which matures in November 2027;
-- $247.0 million drawn down on the refinanced RBL (2022: $400.0 million);
-- $13.6 million relating to the SVT Working Capital Facility (2022: $12.3 million); and
-- $nil drawn down on the Vendor Loan Facility (2022: $5.7 million).
Provisions
The Group's decommissioning provision decreased by $13.7 million
to $677.9 million at 30 June 2023 (2022: $691.6 million), primarily
reflecting utilisation of $23.6 million for decommissioning carried
out in the period and a net decrease in estimates of $3.5 million,
being an increase in the discount rate from 3.5% to 4.6% ($54.0
million, see note 2 to the financial statements for more
information), offset by higher cost estimates of $50.5 million
including the impact of foreign exchange and unwinding of discount
of $12.1 million.
Other provisions, including the Thistle decommissioning
provision, decreased by $8.8 million in the period to 30 June 2023
to $37.3 million (2022: $46.1 million). The Thistle decommissioning
provision of $29.2 million (2022: $32.7 million) is in relation to
EnQuest's obligation to make payments to bp by reference to 7.5% of
bp's decommissioning costs of the Thistle and Deveron fields.
Contingent consideration
The contingent consideration related to the Magnus acquisition
decreased by $52.5 million. In the period to 30 June 2023, EnQuest
paid $38.2 million to bp (2022: nil) under the profit sharing
mechanism. A reduction in fair value of $43.5 million was
recognised in the period (2022: $26.9 million increase in fair
value) reflecting a change in the Group's near term oil price
assumptions and an increase in the discount rate, together with the
unwind of discount which is included in finance costs of $29.4
million (2022: $17.9 million).
The contingent consideration payable associated with the
acquisition of Golden Eagle increased from $48.3 million at 31
December 2022 to $50.0 million at 30 June 2023 representing the
unwind of discount which is included in finance costs. The
liability was calculated based on average oil prices between July
2021 and June 2023 with the balance settled in July 2023.
Income tax
The Group had a total net income tax payable of $162.2 million
(31 December 2022: $37.7 million payable) primarily related to the
UK EPL $149.2 million (31 December 2022: $34.7) and taxable income
in Malaysia $14.0 million (31 December 2022: $4.4 million).
Deferred tax
The Group's net deferred tax asset has decreased from $539.5
million at 31 December 2022 to $491.0 million at 30 June 2023. This
is driven by the utilisation of corporate tax losses.
EnQuest has recognised UK corporate tax losses carried forward
at 30 June 2023 amounting to $2,318.8 million (31 December 2022:
$2,497.7 million).
Trade and other payables
Trade and other payables of $331.1 million at 30 June 2023 are
$95.5 million lower than at 31 December 2022 ($426.6 million) due
to lower accruals predominantly driven by lower gas prices and
settlement of UKA year end accruals during the period. A balance of
$39.5 million, which represents an advanced receipt of a joint
venture cash call, is a long-term liability with the remainder
payable within one year.
Financial risk management
The Group's activities expose it to various financial risks
particularly associated with fluctuations in oil price, foreign
currency risk, liquidity risk and credit risk. The disclosures in
relation to financial risk management objectives and policies,
including the policy for hedging, and the disclosures in relation
to exposure to oil price, foreign currency and credit and liquidity
risk, are included in note 27 of the Group's 2022 Annual
report.
Going concern disclosure
The Group continues to closely monitor and manage its funding
and liquidity position, including monitoring forecast covenant
results, to ensure that it has access to sufficient funds to meet
forecast cash requirements. Cash forecasts are regularly produced
and sensitivities considered for, but not limited to, changes in
crude oil prices and related product differentials (adjusted for
hedging undertaken by the Group), production rates and costs. These
forecasts and sensitivity analyses allow the Group to manage
liquidity.
As set out in Note 8 on page 24 of the Group's financial
statements, as at 30 June 2023 the Group had the following loans
and borrowings:
-- $247.0 million drawn down on the $500.0 million RBL facility (2022: $400.0 million);
-- $140.9 million principal outstanding on the 7.00% Sterling
retail bond, which matures in October 2023;
-- $168.8 million principal outstanding on the 9.00% Sterling
retail bond, which matures in October 2027;
-- $305.0 million principal outstanding on the high yield bond
11.625%, which matures in November 2027; and
-- $13.6 million relating to the SVT Working Capital Facility (2022: $12.3 million).
The amount available to draw under the RBL, which is based on an
amortisation schedule and the borrowing base availability derived
from a semi-annual review, continues to reflect the full impact of
the EPL. As such, the Group has continued to prioritise repayments
of the RBL in order to remain ahead of the required amortisation
schedule, with drawings under the RBL having been reduced by $160.0
million to $240.0 million as at 31 August 2023 following a further
$7.0 million repayment in July 2023.
In August 2023, the Group agreed a $150.0 million secured term
loan, which ranks junior to the existing RBL, in order to provide
additional liquidity in advance of the October 2023 settlement of
the 7.00% Sterling retail bond given the EPL-driven reduction in
available funds under the RBL facility. This facility, which
matures in July 2027 and incurs interest at SOFR + 7.90%, is
forecast to be fully drawn in September 2023.
The Group's latest approved forecast and business plan, which
includes the aforementioned RBL redetermination and new term loan,
underpins management's base case ('Base Case') and is in line with
the Group's production guidance and uses oil price assumptions of
$82.5/bbl for 2023 and $80.0/bbl for 2024, adjusted for hedging
activity undertaken.
The Base Case also reflects the redemption of the GBP111.3
million 7.00% Sterling retail bond and settlement of the Group's
2022 EPL liability in October 2023, along with further RBL
amortisation payments totaling c.$40.0 million over the going
concern period.
The Base Case has been subjected to further testing through a
scenario reflecting the impact of the following plausible downside
risks (the 'Downside Case'):
-- 10.0% discount to Base Case prices resulting in Downside Case
prices of $74.3/bbl for 2023 and $72.0/bbl for 2024;
-- 5 cent increase in the GBP/USD foreign exchange rate to 1.30;
-- Production risking of 5.0% for 2023 and 2024; and
-- 2.5% increase in operating costs.
The Base Case and Downside Case indicate that the Group is able
to operate as a going concern and remain covenant compliant for 12
months from the date of publication of this interim report. The
Directors have also performed a reverse stress test on the Base
Case, with the Group able to maintain headroom across the going
concern period and above the RBL agreements stated minimum cash
balance, at an oil price of c.$61.0/bbl.
Should circumstances arise that differ from the Group's
projections, the Directors believe that several mitigating actions,
including cargo prepayment or other funding options, can be
executed successfully in the necessary timeframe to meet debt
repayment obligations as they become due and maintain
liquidity.
After making appropriate enquiries and assessing the progress
against the forecast, projections, the Directors have a reasonable
expectation that the Group will continue in operation and meet its
commitments as they fall due over the going concern period.
Accordingly, the Directors continue to adopt the going concern
basis in preparing these financial statements.
Risks and uncertainties
The Directors have reviewed the principal risks facing the
Company and concluded the principal risks for the remaining six
months of the financial year are unchanged from those described in
the 2022 Annual Report and Accounts, which was published in April
2023. To reach this conclusion, the Directors considered the
changes in the external environment during the recent period that
could threaten the Company's business model, future performance,
liquidity, and reputation. The Directors also considered
management's view of the current risks facing the Company.
Accordingly, for the purposes of meeting the disclosure
requirements of DTR 4.2.7(2), the Board believes that the Group's
principal risks and uncertainties for the remaining six months
are:
Principal risks and uncertainties
-- Health, Safety and Environment ('HSE')
-- Oil and gas development, production and exploration
activities are by their very nature complex, with HSE risks
covering many areas, including major accident hazards, personal
health and safety, compliance with regulatory requirements, asset
integrity issues and potential environmental impacts, including
those associated with climate change.
-- Oil and gas prices
-- A material decline in oil and gas prices adversely affects
the Group's operations and financial condition as the Group's
revenue depends substantially on oil prices.
-- Production
-- The Group's production is critical to its success and is
subject to a variety of risks, including: subsurface uncertainties;
operating in a mature field environment; potential for significant
unexpected shutdowns; and unplanned expenditure (particularly where
remediation may be dependent on suitable weather conditions
offshore).
-- Lower than expected reservoir performance or insufficient
addition of new resources may have a material impact on the Group's
future growth.
-- Longer -- term production is threatened if low oil prices or
prolonged field shutdowns and/or underperformance requiring high --
cost remediation bring forward decommissioning timelines.
-- Financial
-- Inability to fund financial commitments or maintain adequate
cash flow and liquidity and/or reduce costs.
-- Significant reductions in the oil price, production and/or
the funds available under the Group's reserve based lending ('RBL')
facility, and/or further changes in the UK's fiscal environment,
will likely have a material impact on the Group's ability to repay
or refinance its existing credit facilities and invest in its asset
base. Prolonged low oil prices, cost increases, including those
related to an environmental incident, and production delays or
outages, could threaten the Group's liquidity and/or ability to
comply with relevant covenants. Further information is contained in
the Financial review, particularly within the going concern
disclosure on page 13.
-- Competition
-- The Group operates in a competitive environment across many
areas, including the acquisition of oil and gas assets, the
marketing of oil and gas, the procurement of oil and gas services
and access to human resources.
-- IT security and resilience
-- The Group is exposed to risks arising from interruption to,
or failure of, IT infrastructure. The risks of disruption to normal
operations range from loss in functionality of generic systems
(such as email and internet access) to the compromising of more
sophisticated systems that support the Group's operational
activities. These risks could result from malicious interventions
such as cyber-attacks or phishing exercises.
-- Portfolio concentration
-- The Group's assets are primarily concentrated in the UK North
Sea around a limited number of infrastructure hubs and existing
production (principally oil) is from mature fields. This amplifies
exposure to key infrastructure (including ageing pipelines and
terminals), political/fiscal changes and oil price movements.
-- Subsurface risk and reserves replacement
-- Failure to develop its contingent and prospective resources
or secure new licences and/or asset acquisitions and realise their
expected value.
-- Project execution and delivery
-- The Group's success will be partially dependent upon the
successful execution and delivery of potential future projects,
including decommissioning and Infrastructure and New Energy
opportunities in the UK, that are undertaken.
-- Fiscal risk and government take
-- Unanticipated changes in the regulatory or fiscal
environment, including changes to a tax regime, can affect the
Group's ability to deliver its strategy/business plan and
potentially impact revenue and future developments.
-- International business
-- While the majority of the Group's activities and assets are
in the UK, the international business is still material. The
Group's international business is subject to the same risks as the
UK business (for example, HSEA, production and project execution);
however, there are additional risks that the Group faces, including
security of staff and assets, political, foreign exchange and
currency control, taxation, legal and regulatory, cultural and
language barriers and corruption.
-- Joint venture partners
-- Failure by joint venture parties to fund their obligations.
-- Dependence on other parties where the Group is non-operator.
-- Reputation
-- The reputational and commercial exposures to a major offshore
incident, including those related to an environmental incident, or
non -- compliance with applicable law and regulation and/or related
climate change disclosures, are significant. Similarly, it is
increasingly important EnQuest clearly articulates its approach to
and benchmarks its performance against relevant and material ESG
factors.
-- Human resources
-- The Group's success continues to be dependent upon its
ability to attract and retain key personnel and develop
organisational capability to deliver strategic growth. Industrial
action across the sector, or the availability of competent people,
could also impact the operations of the Group.
Group Income Statement
For the six months ended 30 June 2023
30 June 2023 30 June 2022
----------------------- ----- ------------------------------------------ ------------------------------------------
Notes Business Remeasurements Reported Business Remeasurements Reported
performance and exceptional in period performance and exceptional in period
$'000 items (note $'000 $'000 items (note $'000
4) 4)
$'000 $'000
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Revenue and other
operating
income 5 732,738 37,617 770,355 943,507 (104,672) 838,835
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Cost of sales (493,140) 9,921 (483,219) (585,601) (481) (586,082)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Gross profit/(loss) 239,598 47,538 287,136 357,906 (105,153) 252,753
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Net impairment
(charge)/reversal - (96,459) (96,459) - 10,122 10,122
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
General and
administration
expenses (1,086) - (1,086) (3,063) - (3,063)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Other income 8,292 52,803 61,095 62,300 4,061 66,361
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Other expenses (25,440) - (25,440) (1,019) (30,996) (32,015)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Profit/(loss) from
operations
before tax and finance
income/(costs) 221,364 3,882 225,246 416,124 (121,966) 294,158
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Finance costs (85,545) (29,427) (114,972) (94,107) (17,870) (111,977)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Finance income 2,621 - 2,621 391 - 391
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Profit/(loss) before
tax 138,440 (25,545) 112,895 322,408 (139,836) 182,572
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Income tax (131,782) (2,330) (134,112) (142,382) 163,353 20,971
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Profit/(loss) for the
period
attributable to owners
of the parent 6,658 (27,875) (21,217) 180,026 23,517 203,543
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Total comprehensive
profit/(loss)
for the period,
attributable
to owners of the
parent (21,217) 203,543
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
There is no comprehensive income attributable to the
shareholders of the Group other than the loss for the period.
Revenue and operating (loss)/profit are all derived from continuing
operations.
Earnings per share 6 $ $ $ $
------------------- ----- -------- ------ -----
Basic 0.004 (0.012) 0.098 0.111
------------------- ----- -------- ------ -----
Diluted 0.004 (0.012) 0.096 0.109
------------------- ----- -------- ------ -----
The attached notes 1 to 14 form part of these condensed Group
financial statements.
Group Balance Sheet
At 30 June 2023
30 June
31 December
2023 2022
Notes $'000 $'000
Unaudited Audited
------------------------------ ----- ---------- -----------
ASSETS
------------------------------ ----- ---------- -----------
Non-current assets
------------------------------ ----- ---------- -----------
Property, plant and equipment 7 2,288,211 2,476,975
------------------------------ ----- ---------- -----------
Goodwill 134,400 134,400
------------------------------ ----- ---------- -----------
Intangible assets 48,372 46,498
------------------------------ ----- ---------- -----------
Deferred tax assets 637,732 705,808
------------------------------ ----- ---------- -----------
Other financial assets 9 6 6
------------------------------ ----- ---------- -----------
3,108,721 3,363,687
------------------------------ ----- ---------- -----------
Current assets
------------------------------ ----- ---------- -----------
Inventories 82,004 76,418
------------------------------ ----- ---------- -----------
Trade and other receivables 264,990 276,363
------------------------------ ----- ---------- -----------
Current tax receivable 925 1,491
------------------------------ ----- ---------- -----------
Cash and cash equivalents 283,238 301,611
------------------------------ ----- ---------- -----------
Other financial assets 9 9,707 4,705
------------------------------ ----- ---------- -----------
640,864 660,588
------------------------------ ----- ---------- -----------
TOTAL ASSETS 3,749,585 4,024,275
------------------------------ ----- ---------- -----------
EQUITY AND LIABILITIES
------------------------------ ----- ---------- -----------
Equity
------------------------------ ----- ---------- -----------
Share capital and premium 392,196 392,196
------------------------------ ----- ---------- -----------
Share-based payment reserve 12,863 11,510
------------------------------ ----- ---------- -----------
Retained earnings 59,318 80,535
------------------------------ ----- ---------- -----------
TOTAL EQUITY 464,377 484,241
------------------------------ ----- ---------- -----------
Non-current liabilities
------------------------------ ----- ---------- -----------
Borrowings 8 197,778 281,422
------------------------------ ----- ---------- -----------
Bonds 8 461,519 452,386
------------------------------ ----- ---------- -----------
Lease liabilities 324,794 362,966
------------------------------ ----- ---------- -----------
Contingent consideration 10 479,744 513,677
------------------------------ ----- ---------- -----------
Provisions 11 642,651 667,335
------------------------------ ----- ---------- -----------
Trade and other payables 39,500 -
------------------------------ ----- ---------- -----------
Taxes payable 73,794 -
------------------------------ ----- ---------- -----------
Deferred tax liabilities 146,767 166,334
------------------------------ ----- ---------- -----------
2,366,547 2,444,120
------------------------------ ----- ---------- -----------
Current liabilities
------------------------------ ----- ---------- -----------
Borrowings 8 57,274 131,936
------------------------------ ----- ---------- -----------
Bonds 8 140,879 134,544
------------------------------ ----- ---------- -----------
Lease liabilities 144,794 119,100
------------------------------ ----- ---------- -----------
Contingent consideration 10 106,282 123,198
------------------------------ ----- ---------- -----------
Provisions 11 72,488 70,335
------------------------------ ----- ---------- -----------
Trade and other payables 291,632 426,647
------------------------------ ----- ---------- -----------
Other financial liabilities 9 16,941 50,966
------------------------------ ----- ---------- -----------
Current tax payable 88,371 39,188
------------------------------ ----- ---------- -----------
918,661 1,095,914
------------------------------ ----- ---------- -----------
TOTAL LIABILITIES 3,285,208 3,540,034
------------------------------ ----- ---------- -----------
TOTAL EQUITY AND LIABILITIES 3,749,585 4,024,275
------------------------------ ----- ---------- -----------
The attached notes 1 to 14 form part of these condensed Group
financial statements.
Group Statement of Changes in Equity
For the six months ended 30 June 2023
Share
capital Share-based
and share payments Retained
premium reserve earnings Total
$'000 $'000 $'000 $'000
Unaudited Unaudited Unaudited Unaudited
------------------------------------------ ---------- ----------- --------- ---------
Balance at 1 January 2022 392,196 6,791 121,769 520,756
------------------------------------------ ---------- ----------- --------- ---------
Profit/(loss) for the period - - 203,543 203,543
------------------------------------------ ---------- ----------- --------- ---------
Total comprehensive profit for the period - - 203,543 203,543
------------------------------------------ ---------- ----------- --------- ---------
Share-based payment - 2,068 - 2,068
------------------------------------------ ---------- ----------- --------- ---------
Balance at 30 June 2022 392,196 8,859 325,312 726,367
------------------------------------------ ---------- ----------- --------- ---------
Balance at 1 January 2023 392,196 11,510 80,535 484,241
------------------------------------------ ---------- ----------- --------- ---------
Profit/(loss) for the period - - (21,217) (21,217)
------------------------------------------ ---------- ----------- --------- ---------
Total comprehensive profit for the period - - (21,217) (21,217)
------------------------------------------ ---------- ----------- --------- ---------
Share-based payment - 1,353 - 1,353
------------------------------------------ ---------- ----------- --------- ---------
Balance at 30 June 2023 392,196 12,863 59,318 464,377
------------------------------------------ ---------- ----------- --------- ---------
The attached notes 1 to 14 form part of these condensed Group
financial statements.
Group Statement of Cash Flows
For the six months ended 30 June 2023
30 June 30 June
2023 2022
Notes $'000 $'000
Unaudited Unaudited
----------------------------------------------------- ------ ---------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
----------------------------------------------------- ------ ---------- -----------
Cash generated from operations 13 370,421 522,664
----------------------------------------------------- ------ ---------- -----------
Cash received from insurance - 8,268
----------------------------------------------------- ------ ---------- -----------
Cash received/(paid) on sale/(purchase) of financial
instruments (2,934) (139)
----------------------------------------------------- ------ ---------- -----------
Decommissioning spend (29,333) (28,194)
----------------------------------------------------- ------ ---------- -----------
Income taxes received/(paid) 32,892 (4,224)
----------------------------------------------------- ------ ---------- -----------
Net cash flows from/(used in) operating activities 371,046 498,375
----------------------------------------------------- ------ ---------- -----------
INVESTING ACTIVITIES
----------------------------------------------------- ------ ---------- -----------
Purchase of property, plant and equipment (76,960) (52,113)
----------------------------------------------------- ------ ---------- -----------
Purchase of intangible oil and gas assets (3,074) (2,578)
----------------------------------------------------- ------ ---------- -----------
Payment of Magnus contingent consideration - Profit
share 10 (38,229) -
----------------------------------------------------- ------ ---------- -----------
Interest received 2,398 256
----------------------------------------------------- ------ ---------- -----------
Net cash flows (used in)/from investing activities (115,865) (54,435)
----------------------------------------------------- ------ ---------- -----------
FINANCING ACTIVITIES
----------------------------------------------------- ------ ---------- -----------
Proceeds from loans and borrowings(i) 21,468 77,882
----------------------------------------------------- ------ ---------- -----------
Repayment of loans and borrowings(i) (179,591) (310,531)
----------------------------------------------------- ------ ---------- -----------
Payment of obligations under financing leases (63,412) (59,279)
----------------------------------------------------- ------ ---------- -----------
Interest paid (51,744) (52,513)
----------------------------------------------------- ------ ---------- -----------
Net cash flows (used in)/from financing activities (273,279) (344,441)
----------------------------------------------------- ------ ---------- -----------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (18,098) 99,499
----------------------------------------------------- ------ ---------- -----------
Net foreign exchange on cash and cash equivalents (275) (16,441)
----------------------------------------------------- ------ ---------- -----------
Cash and cash equivalents at 1 January 301,611 286,662
----------------------------------------------------- ------ ---------- -----------
CASH AND CASH EQUIVALENTS AT 30 JUNE 283,238 369,720
----------------------------------------------------- ------ ---------- -----------
Reconciliation of cash and cash equivalents
----------------------------------------------------- ------ ---------- -----------
Total cash at bank and in hand 275,922 360,241
----------------------------------------------------- ------ ---------- -----------
Restricted cash(ii) 7,316 9,479
----------------------------------------------------- ------ ---------- -----------
Cash and cash equivalents per balance sheet 283,238 369,720
----------------------------------------------------- ------ ---------- -----------
(i) For the prior year, $10.4 million has been reclassed between
proceeds from loans and borrowing and repayments of loans and
borrowings to better represent the substance of the transaction
(ii) At 30 June 2023, restricted cash represents $7.3 million on
deposit relating to bank guarantees for the Group's Malaysian
assets
The attached notes 1 to 14 form part of these condensed Group
financial statements.
Notes to the Half Year Condensed Financial Statements
For the period ended 30 June 2023
1. Corporate information
EnQuest PLC ('EnQuest' or the 'Company') is a public company
limited by shares incorporated in the United Kingdom under the
Companies Act and is registered in England and Wales and listed on
the London Stock Exchange and on the Stockholm NASDAQ OMX.
The principal activities of the Company and its subsidiaries
(together the 'Group') are to responsibly optimise production,
leverage existing infrastructure, deliver a strong decommissioning
performance and develop new energy and further decarbonisation
opportunities. The Group's half year condensed financial statements
for the six months ended 30 June 2023 were authorised for issue in
accordance with a resolution of the Board of Directors on 4
September 2023.
2. Basis of preparation
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2023 have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the UK. The presentation currency of the Group financial
information is US Dollars and all values in the Group financial
information are rounded to the nearest thousand ($'000) except
where otherwise stated.
The interim report does not include all the information and
disclosures required in the annual financial statements and should
be read in conjunction with the Group's annual financial statements
as at 31 December 2022.
The financial information contained in this announcement does
not constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006.
Consolidated statutory accounts for the year ended 31 December
2022, on which the auditor gave an unqualified audit report, have
been filed with the Registrar of Companies.
The financial statements have been prepared on the going concern
basis. Further information relating to the use of the going concern
assumption is provided in the 'Going Concern' section of the
Financial Review as set out on page 13. The interim financial
statements have been reviewed by the auditor and its report to the
Company is included within these interim financial statements.
Accounting policies
The accounting policies adopted in the preparation of the
interim condensed financial statements for the six months ended 30
June 2023 are materially consistent with those followed in the
preparation of the Group's financial statements for the year ended
31 December 2022. Any other standard, interpretation or amendment
that was issued but not yet effective has not been adopted by the
Group.
Critical accounting judgements and key sources of estimation
uncertainty
Critical accounting judgements and key sources of estimation
uncertainty were disclosed in the Group's 2022 annual report and
accounts. These are reconsidered at the end of each reporting
period to determine if any changes are required to judgements and
estimates as a result of current market conditions. Key changes
from those judgements and estimates disclosed in the Group's 2022
annual report and accounts are set out below:
Recoverability of asset carrying values - oil price
The Group's un-hedged Brent oil price and associated oil product
price differential assumptions were revised during the first half
of 2023. The Group's Brent assumptions for the remainder of 2023
have changed to reflect a combination of the short term decrease in
oil prices in the first half of 2023 following concerns over global
recessions and high interest rates contributing to market
volatility. For periods after 2023, the Group's longer term Brent
price assumption is unchanged from that disclosed in the Group's
2022 annual report and accounts. The price assumptions used at the
end of 2022 were $84.0/bbl (2023), $80.0/bbl (2024), $75.0/bbl
(2025) and $70.0/bbl real thereafter, inflated at 2% per annum from
2026. Associated oil product price differential assumptions have
been revised to reflect the prevailing product market dynamics
during the first half of 2023. See note 7 for oil price
sensitivities.
Second
half 2023 2024 2025 2026>*
------------------ ----------- ----- ----- -------
Brent oil ($/bbl) 80.0 80.0 75.0 70.0
------------------ ----------- ----- ----- -------
*Inflated at 2% from 2026
Discount rate
75% Magnus acquisition contingent consideration
Following continued volatility in financial markets experienced
in the first half of 2023, the Group reassessed the fair value
discount rate associated with the Magnus contingent consideration.
This was estimated to be 11.3% at 30 June 2023, an increase of 1.3%
since 31 December 2022. See note 10 for discount rate
sensitivities.
Decommissioning provision
The discount rate used for calculating the Group's
decommissioning provision and the Thistle decommissioning related
provision was also reassessed and, due to the prevailing
macroeconomic environment, increased by 1.1% to 4.6% at 30 June
2023. See note 11 for related sensitivity analysis.
New and amended standards adopted by the Group
The following new standards became applicable for the current
reporting period. No material impact was recognised upon
application.
Amendments to IAS 8 Definition of Accounting Estimates
Amendments to IAS 1 and Disclosure of Accounting Policies
IFRS Practice Statement
2
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
IFRS 17 Insurance Contracts
3. Segment information
Segment information for the six month period is as follows:
Adjustments
Period ended 30 June 2023 Total and
All other eliminations
$'000 North Sea Malaysia segments segments (i) Consolidated
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Revenue and other operating income:
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Revenue from contracts with customers 685,980 68,141 - 754,121 - 754,121
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Other operating income/(expense)
(i) 653 - 132 785 15,449 16,234
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Total revenue and other operating
income/(expense) 686,633 68,141 132 754,906 15,449 770,355
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Segment profit/(loss) before tax
and finance income/(costs) (ii) 179,665 27,851 (6,521) 200,995 24,251 225,246
-------------------------------------- --------- -------- --------- --------- ------------- ------------
Adjustments
Period ended 30 June 2022 Total and
All other
$'000 North Sea Malaysia segments segments eliminations(i) Consolidated
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
Revenue and other operating income:
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
Revenue from contracts with customers 1,032,192 72,471 - 1,104,663 - 1,104,663
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
Other operating income/(expense)(i) 1,029 - 138 1,167 (266,995) (265,828)
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
Total revenue and other operating
income/(expense) 1,033,221 72,471 138 1,105,830 (266,995) 838,835
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
Segment profit/(loss) before tax
and finance income/(costs) (ii) 536,871 27,042 1,527 565,440 (271,282) 294,158
-------------------------------------- ---------- -------- --------- ---------- ---------------- ------------
(i) Finance income and costs and gains and losses on derivatives
are not allocated to individual segments as the underlying
instruments are managed on a Group basis
(ii) Inter-segment revenues are eliminated on consolidation. All
other adjustments are part of the reconciliations presented further
below
Reconciliation of profit/(loss):
Period Period
ended ended
30 June 30 June
2023 2022
$'000 $'000
------------------------------------------------------------------- ---------- ---------
Total segments profit/(loss) before tax and finance income/(costs) 200,995 565,440
------------------------------------------------------------------- ---------- ---------
Finance income 2,621 391
------------------------------------------------------------------- ---------- ---------
Finance expense (114,972) (111,977)
------------------------------------------------------------------- ---------- ---------
Gain/(loss) on derivatives(i) 24,251 (271,282)
------------------------------------------------------------------- ---------- ---------
Profit/(loss) before tax 112,895 182,572
------------------------------------------------------------------- ---------- ---------
(i) Includes $23.3 million realised losses (2022: $166.1 million
realised losses) on derivatives and $47.5 million unrealised gains
(2022: $105.2 million unrealised losses) on derivatives
4. Remeasurements and exceptional items
Impairments
Period ended 30 June 2023 Fair value and
remeasurement write Other
$'000 (i) offs (ii) (iii) Total
----------------------------------- -------------- ----------- -------- --------
Revenue and other operating income 37,617 - - 37,617
----------------------------------- -------------- ----------- -------- --------
Cost of sales 9,921 - - 9,921
----------------------------------- -------------- ----------- -------- --------
Net impairment charge - (96,459) - (96,459)
----------------------------------- -------------- ----------- -------- --------
Other income 43,520 - 9,283 52,803
----------------------------------- -------------- ----------- -------- --------
Finance costs - - (29,427) (29,427)
----------------------------------- -------------- ----------- -------- --------
91,058 (96,459) (20,144) (25,545)
----------------------------------- -------------- ----------- -------- --------
Tax on items above (35,787) 29,521 9,779 3,513
----------------------------------- -------------- ----------- -------- --------
UK Energy Profits Levy (32,175) 15,833 10,499 (5,843)
----------------------------------- -------------- ----------- -------- --------
23,096 (51,105) 134 (27,875)
----------------------------------- -------------- ----------- -------- --------
Impairments
Period ended 30 June 2022 Fair value and
write
$'000 remeasurement(i) offs(ii) Other(iii) Total
--------------------------------------------------- ----------------- ----------- ---------- ---------
Revenue and other operating income (104,672) - - (104,672)
--------------------------------------------------- ----------------- ----------- ---------- ---------
Cost of sales (481) - - (481)
--------------------------------------------------- ----------------- ----------- ---------- ---------
Net impairment reversal - 10,122 - 10,122
--------------------------------------------------- ----------------- ----------- ---------- ---------
Other income 4,061 - - 4,061
--------------------------------------------------- ----------------- ----------- ---------- ---------
Other expense (30,996) - - (30,996)
--------------------------------------------------- ----------------- ----------- ---------- ---------
Finance costs - - (17,870) (17,870)
--------------------------------------------------- ----------------- ----------- ---------- ---------
(132,088) 10,122 (17,870) (139,836)
--------------------------------------------------- ----------------- ----------- ---------- ---------
Tax on items above 54,461 (4,049) 5,046 55,458
Recognition of undiscounted deferred tax asset(iv) - 107,895 - 107,895
--------------------------------------------------- ----------------- ----------- ---------- ---------
(77,627) 113,968 (12,824) 23,517
--------------------------------------------------- ----------------- ----------- ---------- ---------
(i) Fair value remeasurements include unrealised mark-to-market
movements on derivative contracts and other financial instruments
and the impact of recycled realised gains and losses out of
'Remeasurements and exceptional items' and into Business
performance profit or loss of a gain of $47.5 million (2022: loss
of $105.2 million). Other income relates to the fair value
remeasurement of contingent consideration relating to the
acquisition of Magnus and associated infrastructure of $43.5
million (note 10) (2022: Net other expense $26.9 million)
(ii) Net impairment charge totalling $96.5 million (note 7) (2022: $10.1 million reversal)
(iii) Other items mainly relate to unwinding of discount on
contingent consideration on the 75% acquisition of Magnus and
associated infrastructure of $29.4 million (note 10) (2022: $17.9
million), recognition of an additional insurance claim debtor
related to the PM8/Seligi asset $4.1 million and reversal of a
provision held on acquisition of Golden Eagle asset of $5.2
milllion
(iv) Non-cash deferred tax credit in 2022 following a
reassessment of deferred tax balances reflecting revisions to
forecast assumptions
5. Revenue and other operating income
The Group generates revenue through the sale of crude oil, gas
and condensate to third parties, and through the provision of
infrastructure to its customers for tariff income. Further details
are described in the last annual financial statements.
Period Period
ended ended
30 June 30 June
2023 2022
$'000 $'000
---------------------------------------------------------- --------- ----------
Revenue from contracts with customers:
---------------------------------------------------------- --------- ----------
Revenue from crude oil sales 540,134 851,206
---------------------------------------------------------- --------- ----------
Revenue from gas and condensate sales(i) 213,249 252,907
---------------------------------------------------------- --------- ----------
Tariff revenue 738 550
---------------------------------------------------------- --------- ----------
Total revenue from contracts with customers 754,121 1,104,663
Realised (losses)/gains on commodity derivative contracts (22,168) (162,323)
---------------------------------------------------------- --------- ----------
Other 785 1,167
---------------------------------------------------------- --------- ----------
Business performance revenue and other operating income 732,738 943,507
---------------------------------------------------------- --------- ----------
Unrealised gains/(losses) on oil derivative contracts(ii) 37,617 (104,672)
---------------------------------------------------------- --------- ----------
Total revenue and other operating income 770,355 838,835
---------------------------------------------------------- --------- ----------
(i) Includes onward sale of third-party gas purchases not
required for injection activities at Magnus. See Operating costs
reconciliation within Non-GAAP measures on page 34
(ii) Unrealised gains and losses on oil derivative contracts are
disclosed as fair value remeasurement items in the income statement
(note 4)
6. Earnings per share
The calculation of earnings per share is based on the profit
after tax and on the weighted average number of Ordinary shares in
issue during the period. Diluted earnings per share is adjusted for
the effects of Ordinary shares granted under the share-based
payment plans, which are held in the Employee Benefit Trust, unless
it has the effect of increasing the profit or decreasing the loss
attributable to each share.
Basic and diluted earnings per share are calculated as
follows:
Weighted average
Profit/(loss) number of Ordinary Earnings per
after tax shares share
-------------------------------------- ------------------ ---------------------- --------------------
Period ended Period ended Period ended
30 June 30 June 30 June
------------------ ---------------------- --------------------
2023 2022 2023 2022 2023 2022
$'000 $'000 million million $ $
-------------------------------------- -------- -------- ---------- ---------- -------- ------
Basic (21,217) 203,543 1,843.5 1,833.9 (0.012) 0.111
-------------------------------------- -------- -------- ---------- ---------- -------- ------
Dilutive potential of Ordinary shares
granted under share-based incentive
schemes - - 18.6 36.9 - -
-------------------------------------- -------- -------- ---------- ---------- -------- ------
Diluted(i) (21,217) 203,543 1,862.1 1,870.8 (0.012) 0.109
-------------------------------------- -------- -------- ---------- ---------- -------- ------
Basic (excluding remeasurements and
exceptional items) 6,658 180,026 1,843.5 1,833.9 0.004 0.098
-------------------------------------- -------- -------- ---------- ---------- -------- ------
Diluted (excluding remeasurements and
exceptional items)(i) 6,658 180,026 1,862.1 1,870.8 0.004 0.096
-------------------------------------- -------- -------- ---------- ---------- -------- ------
(i) Potential ordinary shares granted under share-based
incentive schemes are not treated as dilutive when they would
decrease a loss per share
7. Property, plant and equipment
Office
furniture,
Oil fixtures
and gas and Right-of-use
assets fittings assets Total
$'000 $'000 $'000 $'000
---------------------------------------------------- ---------- ----------- ------------ -----------
Cost:
---------------------------------------------------- ---------- ----------- ------------ -----------
At 1 January 2023 9,037,851 67,321 876,859 9,982,031
---------------------------------------------------- ---------- ----------- ------------ -----------
Additions 40,208 670 26,934 67,812
---------------------------------------------------- ---------- ----------- ------------ -----------
Disposal - - (266) (266)
---------------------------------------------------- ---------- ----------- ------------ -----------
Change in decommissioning provision (9,075) - - (9,075)
---------------------------------------------------- ---------- ----------- ------------ -----------
At 30 June 2023 9,068,984 67,991 903,527 10,040,502
---------------------------------------------------- ---------- ----------- ------------ -----------
Accumulated depreciation, depletion and impairment:
---------------------------------------------------- ---------- ----------- ------------ -----------
At 1 January 2023 7,000,950 56,625 447,481 7,505,056
---------------------------------------------------- ---------- ----------- ------------ -----------
Charge for the period 122,270 1,330 27,297 150,897
---------------------------------------------------- ---------- ----------- ------------ -----------
Net impairment charge 74,539 - 21,920 96,459
---------------------------------------------------- ---------- ----------- ------------ -----------
Disposal - - (121) (121)
---------------------------------------------------- ---------- ----------- ------------ -----------
At 30 June 2023 7,197,759 57,955 496,577 7,752,291
---------------------------------------------------- ---------- ----------- ------------ -----------
Net carrying amount:
---------------------------------------------------- ---------- ----------- ------------ -----------
At 30 June 2023 1,871,225 10,036 406,950 2,288,211
---------------------------------------------------- ---------- ----------- ------------ -----------
At 31 December 2022 2,036,901 10,696 429,378 2,476,975
---------------------------------------------------- ---------- ----------- ------------ -----------
At 30 June 2022 2,214,373 10,599 447,905 2,672,877
---------------------------------------------------- ---------- ----------- ------------ -----------
Impairments
Impairments to the Group's producing assets and reversals of
impairments are set out in the table below:
Impairment (charge)
/ reversal Recoverable amount(i)
--------------------- -----------------------
Period
ended Year ended
30 June 31 December
Period
Period ended
ended 30 30 June
June 2023 2022 2023 2022
$'000 $'000 $'000 $'000
------------------------------ ----------- -------- --------- ------------
North Sea (96,459) 10,122 1,313,483 1,448,391
------------------------------ ----------- -------- --------- ------------
Net pre-tax impairment charge (96,459) 10,122
------------------------------ ----------- -------- --------- ------------
(i) Recoverable amount has been determined on a fair value less
costs of disposal basis. The amounts disclosed above are in respect
of assets where an impairment (or reversal) has been recorded.
Assets which did not have any impairment or reversal are excluded
from the amounts disclosed
The 2023 net impairment charge of $96.5 million relates to
producing assets in the UK North Sea. These are primarily driven by
a decrease in EnQuest's future price assumptions. The cash
generating units ('CGUs') on which impairment charges relate was
$68.6 million for the Kraken CGU, $21.5 million for the Golden
Eagle CGU, $7.5 million for the GKA and Scolty/Crathes CGU and an
impairment reversal of $1.2 million related to the Alba CGU.
The 2022 net impairment reversal of $10.1 million relates to
producing assets in the UK North Sea. The increase in EnQuest's
near-term future oil price assumptions were largely offset by the
increase in discount rate from 10% to 11% and impact of tax
including the UK Energy Profit Levy. The CGUs on which impairment
reversals relate was $14.6m for the GKA and Scolty/Crathes CGU.
Impairment losses of $4.5 million were incurred relating to the
Alba CGU.
Sensitivity analyses
Management tested the impact of a change in cash flows in FVLCD
impairment testing arising from a 10.0% reduction in price
assumptions.
Price reductions of this magnitude in isolation could
indicatively lead to a further reduction in the carrying amount of
EnQuest's oil and gas properties by approximately $269.6 million,
which is approximately 12% of the net book value of property, plant
and equipment as at 30 June 2023. Removing the Group's near-term
associated oil product price differential assumptions could
indicatively lead to an increase in the carrying amount of
EnQuest's oil and gas properties by approximately $8.7 million.
The oil price sensitivity analysis above does not, however,
represent management's best estimate of any impairments that might
be recognised as it does not fully incorporate consequential
changes that may arise, such as reduction in costs and to business
plans, phasing of development, levels of reserves and resources,
and production volumes. As the extent of a price reduction
increases, the more likely it is that costs would decrease across
the industry. The oil price sensitivity analysis therefore does not
reflect a linear relationship between price and value that can be
extrapolated.
Management also tested the impact of a 1.0% change in the
discount rate of 11.0% used for FVLCD impairment testing of oil and
gas properties which is considered a reasonably possible change
given the prevailing macroeconomic conditions. If the discount rate
was 1.0% higher across all tests performed, the net impairment
recognised in first half of 2023 would have been approximately
$54.6 million higher. If the discount rate was 1.0% lower, the net
impairment charge recognised would have been approximately $59.8
million lower.
8. Loans and borrowings
30 June
31 December
2023 2022
$'000 $'000
----------- -------- -----------
Borrowings 255,052 413,358
----------- -------- -----------
Bonds 602,398 586,930
----------- -------- -----------
857,450 1,000,288
----------- -------- -----------
Borrowings
The Group's borrowings are carried at amortised cost as
follows:
30 June 31 December
2023 2022
----------------------------- ----------------------------- ----------------------------
Principal Fees Total Principal Fees Total
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------- --------- -------- -------- --------- ------- --------
RBL facility(i) 247,000 (5,624) 241,376 400,000 (4,609) 395,391
----------------------------- --------- -------- -------- --------- ------- --------
SVT Working Capital facility 13,676 - 13,676 12,275 - 12,275
----------------------------- --------- -------- -------- --------- ------- --------
Vendor Loan Facility - - - 5,692 - 5,692
----------------------------- --------- -------- -------- --------- ------- --------
Total borrowings 260,676 (5,624) 255,052 417,967 (4,609) 413,358
----------------------------- --------- -------- -------- --------- ------- --------
Due within one year 57,274 131,936
----------------------------- --------- -------- -------- --------- ------- --------
Due after more than one year 197,778 281,422
----------------------------- --------- -------- -------- --------- ------- --------
Total borrowings 255,052 413,358
----------------------------- --------- -------- -------- --------- ------- --------
(i) During the period to 30 June 2023, the Group repaid $153.0
million of the outstanding principal, and continues to be ahead of
the required amortisation schedule. At 30 June 2023, after allowing
for letter of credit utilisation of $52.8 million, $89.2 million
remained available for drawdown under the facility.
Bonds
The Group's bonds are carried at amortised cost as follows:
30 June 31 December
2023 2022
----------------------------- ------------------------------ -----------------------------
Principal Fees Total Principal Fees Total
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------- --------- --------- -------- --------- -------- --------
High yield bond 11.625%(i) 305,000 (12,273) 292,727 305,000 (13,815) 291,185
----------------------------- --------- --------- -------- --------- -------- --------
Retail bond 7.00%(ii) 140,879 - 140,879 134,544 - 134,544
----------------------------- --------- --------- -------- --------- -------- --------
Retail bond 9.00%(iii) 168,792 - 168,792 161,201 - 161,201
----------------------------- --------- --------- -------- --------- -------- --------
Total 614,671 (12,273) 602,398 600,745 (13,815) 586,930
----------------------------- --------- --------- -------- --------- -------- --------
Due within one year 140,879 134,544
Due after more than one year 461,519 452,386
----------------------------- --------- --------- -------- --------- -------- --------
Total 602,398 586,930
----------------------------- --------- --------- -------- --------- -------- --------
(i) The total carrying value of the high yield bond as at 30
June 2023 is $292.7 million (31 December 2022: $291.2 million).
This includes bond principal of $305.0 million (2022: $305.0
million) less the amortised original issue discount ('OID') of $3.7
million less unamortised fees of $8.6 million (31 December 2022:
$4.2 million and $9.6 million, respectively). The high yield bond
does not include accrued interest of $5.8 million (31 December
2022: $6.5 million) which is reported within trade and other
payables.
(ii) The total carrying value of the Retail bond 7.00% at 30
June 2023 is $140.9 million (31 December 2022: $134.5 million). The
Retail bond 7.00% does not include accrued interest of $3.6 million
(31 December 2022: $2.6 million), which is reported within trade
and other payables.
(iii) The total carrying value of the Retail bond 9.00% as at 30
June 2023 is $168.8 million (31 December 2022: $161.2 million).
This does not include accrued interest of $2.7 million (31 December
2022: $3.6 million), which is reported within trade and other
payables.
9. Other financial assets and financial liabilities
(a) Summary as at 30 June 2023
30 June 31 December
2023 2022
-------------------------------------- ------------------- -------------------
Assets Liabilities Assets Liabilities
$'000 $'000 $'000 $'000
-------------------------------------- ------ ----------- ------ -----------
Fair value through profit or loss:
-------------------------------------- ------ ----------- ------ -----------
Derivative commodity contracts 59 12,786 4,705 46,537
-------------------------------------- ------ ----------- ------ -----------
Derivative foreign exchange contracts 9,648 - - -
-------------------------------------- ------ ----------- ------ -----------
Derivative UKA contracts - 4,155 - 4,429
-------------------------------------- ------ ----------- ------ -----------
Total current 9,707 16,941 4,705 50,966
-------------------------------------- ------ ----------- ------ -----------
Fair value through profit or loss:
Quoted equity shares 6 - 6 -
Total non-current 6 - 6 -
-------------------------------------- ------ ----------- ------ -----------
(b) Income statement impact
The income/(expense) recognised for derivatives are as
follows:
Revenue and
other operating Cost of sales
income
--------------------------- ----------------------- --------------------
Realised Unrealised Realised Unrealised
Period ended 30 June 2023 $'000 $'000 $'000 $'000
--------------------------- ----------- ---------- -------- ----------
Commodity options (26,375) 31,531 - -
--------------------------- ----------- ---------- -------- ----------
Commodity swaps 4,786 6,086 - -
--------------------------- ----------- ---------- -------- ----------
Commodity futures (579) - - -
--------------------------- ----------- ---------- -------- ----------
Foreign exchange contracts - - 1,737 9,648
--------------------------- ----------- ---------- -------- ----------
UKA contracts - - (2,856) 273
--------------------------- ----------- ---------- -------- ----------
(22,168) 37,617 (1,119) 9,921
--------------------------- ----------- ---------- -------- ----------
Revenue and
other operating Cost of sales
income
--------------------------- --------------------- --------------------
Realised Unrealised Realised Unrealised
Period ended 30 June 2022 $'000 $'000 $'000 $'000
--------------------------- --------- ---------- -------- ----------
Commodity options (165,053) (105,977) - -
--------------------------- --------- ---------- -------- ----------
Commodity swaps 1,387 1,303 - -
--------------------------- --------- ---------- -------- ----------
Commodity futures 1,343 2 - -
--------------------------- --------- ---------- -------- ----------
Foreign exchange contracts - - (3,546) (382)
--------------------------- --------- ---------- -------- ----------
UKA contracts - - (260) (99)
--------------------------- --------- ---------- -------- ----------
(162,323) (104,672) (3,806) (481)
--------------------------- --------- ---------- -------- ----------
(c) Fair value measurement
Quoted
prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level (Level (Level
Total 1) 2) 3)
30 June 2023 Notes $'000 $'000 $'000 $'000
------------------------------------------ ------ --------- ----------- ------------ -------------
Financial assets measured at fair
value:
------------------------------------------ ------ --------- ----------- ------------ -------------
Other financial assets at FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Oil commodity derivative contracts - - - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Gas commodity contracts 59 - 59 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Forward foreign currency contracts 9,648 - 9,648 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Quoted equity shares 6 6 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Total financial assets measured at
fair value 9,713 6 9,707 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Liabilities measured at fair value:
Derivative financial liabilities at
FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Oil commodity derivative contracts 12,786 - 12,786 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Forward UKA contracts 4,155 - 4,155 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Other financial liabilities measured
at FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Contingent consideration 586,026 - - 586,026
------------------------------------------ ------ --------- ----------- ------------ -------------
Total liabilities measured at fair
value 602,967 - 16,941 586,026
------------------------------------------ ------ --------- ----------- ------------ -------------
Liabilities measured at amortised
cost for which fair values are disclosed
below:
------------------------------------------ ------ --------- ----------- ------------ -------------
Interest-bearing loans and borrowings 8 260,676 - - 260,676
------------------------------------------ ------ --------- ----------- ------------ -------------
Retail bond 7.00% 8 140,210 140,210 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Retail bond 9.00% 8 156,850 156,850 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
High yield bond 11.625% 8 277,643 277,643 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Total liabilities measured at amortised
cost for which fair values are disclosed 835,379 574,703 - 260,676
------------------------------------------ ------ --------- ----------- ------------ -------------
Quoted
prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level (Level (Level
Total 1) 2) 3)
31 December 2022 Notes $'000 $'000 $'000 $'000
------------------------------------------ ------ --------- ----------- ------------ -------------
Financial assets measured at fair
value:
------------------------------------------ ------ --------- ----------- ------------ -------------
Other financial assets at FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Gas commodity derivative contracts 4,705 - 4,705 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Quoted equity shares 6 6 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Total financial assets measured at
fair value 4,711 6 4,705 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Liabilities measured at fair value:
Derivative financial liabilities at
FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Oil commodity derivative contracts 46,537 - 46,537 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Forward UKA Contracts 4,429 - 4,429 -
------------------------------------------ ------ --------- ----------- ------------ -------------
Other financial liabilities measured
at FVPL
------------------------------------------ ------ --------- ----------- ------------ -------------
Contingent consideration 636,875 - - 636,875
------------------------------------------ ------ --------- ----------- ------------ -------------
Total liabilities measured at fair
value 687,841 - 50,966 636,875
------------------------------------------ ------ --------- ----------- ------------ -------------
Liabilities measured at amortised
cost for which fair values are disclosed
below:
------------------------------------------ ------ --------- ----------- ------------ -------------
Interest-bearing loans and borrowings 8 417,967 - - 417,967
------------------------------------------ ------ --------- ----------- ------------ -------------
Retail bond 7.00% 8 133,535 133,535 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Retail bond 9.00% 8 153,754 153,754 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
High yield bond 7.00% 8 297,528 297,528 - -
------------------------------------------ ------ --------- ----------- ------------ -------------
Total liabilities measured at amortised
cost for which fair values are disclosed 1,002,784 584,817 - 417,967
------------------------------------------ ------ --------- ----------- ------------ -------------
Fair value hierarchy
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy, based on
the lowest level input that is significant to the fair value
measurement as follows:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities;
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly (i.e.
as prices) or indirectly (i.e. derived from prices) observable;
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
Derivative financial instruments are valued by counterparties,
with the valuations reviewed internally and corroborated with
readily available market data (Level 2). Contingent consideration
is measured at FVPL using the Level 3 valuation processes disclosed
in note 10. There have been no transfers between Level 1 and Level
2 during the period (2022: no transfers).
For the financial liabilities measured at amortised costs but
for which fair value disclosures are required, the fair value of
the bonds classified as Level 1 was derived from quoted prices for
that financial instrument. Interest-bearing loans and borrowings
were calculated using the discounted cash flow method to capture
the present value (Level 3).
10. Contingent consideration
Magnus Magnus
decommissioning-linked Golden
75% liability Eagle Total
$'000 $'000 $'000 $'000
---------------------- -------- ----------------------- ------- --------
At 31 December 2022 566,685 21,853 48,337 636,875
---------------------- -------- ----------------------- ------- --------
Change in fair value (41,928) (1,592) - (43,520)
---------------------- -------- ----------------------- ------- --------
Unwinding of discount 28,334 1,093 1,663 31,090
---------------------- -------- ----------------------- ------- --------
Utilisation (38,229) (190) - (38,419)
---------------------- -------- ----------------------- ------- --------
At 30 June 2023 514,862 21,164 50,000 586,026
---------------------- -------- ----------------------- ------- --------
Classified as:
---------------------- -------- ----------------------- ------- --------
Current 51,868 4,414 50,000 106,282
---------------------- -------- ----------------------- ------- --------
Non-current 462,994 16,750 - 479,744
---------------------- -------- ----------------------- ------- --------
514,862 21,164 50,000 586,026
---------------------- -------- ----------------------- ------- --------
75% Magnus acquisition contingent consideration
The contingent consideration was fair valued at 30 June 2023,
which resulted in a decrease in fair value of $41.9 million
reflecting a change in the Group's near term oil price assumptions
and a 1.3% increase in the discount rate to 11.3% (30 June 2022:
increase of $31.0 million reflecting a change in the Group's short
term oil price assumptions partially offset by a 1.0% increase in
the discount rate to 11.0%). The fair value accounting effect and
finance costs of $28.3 million (30 June 2022: $16.8 million) on the
contingent consideration were recognised through remeasurements and
exceptional items in the Group income statement. Within the
statement of cash flows, the profit share element of the payment,
$38.2 million (2022: nil), is disclosed separately under investing
activities. At 30 June 2023, the contingent consideration was
$514.9 million (31 December 2022: $566.7 million). At 30 June 2023,
the contingent profit-sharing arrangement cap of $1 billion is
forecast to be met in the present value calculations (31 December
2022: cap was met).
Management has considered alternative scenarios to assess the
valuation of the contingent consideration including, but not
limited to, the key accounting estimate relating to discount rate,
the oil price and the interrelationship with production and the
profit-share arrangement. A 1.0% reduction in the discount rate
applied, which is considered a reasonably possible change given the
prevailing macroeconomic conditions, would increase contingent
consideration by $20.3 million. A 1.0% increase would decrease
contingent consideration by $19.0 million. At 30 June 2023, the
contingent profit-sharing cap of $1.0 billion is forecast to be met
in the present value calculations (31 December 2022: cap was
forecast to be met), therefore sensitivity analysis has only been
undertaken on a reduction in the price assumptions of 10%, which is
considered to be a reasonably possible change. This results in a
reduction of $78.7 million to the contingent consideration (31
December 2022: reduction of $73.6 million). The change in value
represents a change in timing of cash flows.
Magnus decommissioning-linked contingent consideration
As part of the Magnus and associated interests acquisition, bp
retained the decommissioning liability in respect of the existing
wells and infrastructure and EnQuest agreed to pay additional
consideration in relation to the management of the physical
decommissioning costs of Magnus. At 30 June 2023, the amount due to
bp, calculated on an after-tax basis by reference to 30% of bp's
decommissioning costs on Magnus, was $21.2 million (31 December
2022: $21.9 million).
Golden Eagle contingent consideration
Part of the Golden Eagle acquisition consideration included an
amount that was contingent on the average oil price between July
2021 and June 2023. The contingent consideration is payable in the
second half of 2023, if between July 2021 and June 2023 the Dated
Brent average crude price equals or exceeds $55/bbl, upon which
$25.0 million is payable, or if the Dated Brent average crude price
equals or exceeds $65/bbl, upon which $50.0 million is payable. The
contingent consideration liability was discounted at 7%. Over the
period July 2021 to June 2023, the average oil price was $89.6/bbl.
As such, at 30 June 2023 the contingent consideration was valued at
$50.0 million with settlement of this liability completed in July
2023.
11. Provisions
Thistle
Decommissioning decommissioning
provision provision Other provisions Total
$'000 $'000 $'000 $'000
---------------------- --------------- ---------------- ---------------- --------
At 31 December 2022 691,584 32,720 13,366 737,670
---------------------- --------------- ---------------- ---------------- --------
Additions 1,191 - 556 1,747
---------------------- --------------- ---------------- ---------------- --------
Changes in estimates (3,461) 442 (5,191) (8,210)
---------------------- --------------- ---------------- ---------------- --------
Unwinding of discount 12,118 573 - 12,691
---------------------- --------------- ---------------- ---------------- --------
Utilisation (23,571) (4,604) (193) (28,368)
---------------------- --------------- ---------------- ---------------- --------
Other - 40 (431) (391)
---------------------- --------------- ---------------- ---------------- --------
At 30 June 2023 677,861 29,171 8,107 715,139
---------------------- --------------- ---------------- ---------------- --------
Classified as:
---------------------- --------------- ---------------- ---------------- --------
Current 54,471 9,910 8,107 72,488
---------------------- --------------- ---------------- ---------------- --------
Non-current 623,390 19,261 - 642,651
---------------------- --------------- ---------------- ---------------- --------
677,861 29,171 8,107 715,139
---------------------- --------------- ---------------- ---------------- --------
Decommissioning provision
The Group's total provision represents the present value of
decommissioning costs which are expected to be incurred up to 2048,
assuming no further development of the Group's assets. The Group's
decommissioning provision has reduced by $13.7 million in the
period. This is primarily reflecting the ongoing decommissioning
programmes and an increase in the discount rate of 1.1% to 4.6%
resulting in a decrease of $54.0 million, offset by higher cost
estimates of $50.5 million including movements in foreign exchange
rates. At 30 June 2023, an estimated $412.2 million is expected to
be utilised between one and five years (31 December 2022: $407.0
million), $74.1 million within six to ten years (31 December 2022:
$67.6 million), and the remainder in later periods.
The Group enters into surety bonds principally to provide
security for its decommissioning obligations. At 30 June 2023, the
Group held surety bonds totalling $249.2 million (31 December 2022:
$227.6 million).
Changes in assumptions, including cost reduction factors, in
relation to the Group's provisions could result in a material
change in their carrying amounts within the next financial year. A
1.0% decrease in the nominal discount rate applied, which is
considered a reasonably possible change given the prevailing
macroeconomic environment, could increase the Group's provision
balances by approximately $49.2 million. The pre-tax impact on the
Group income statement would be a charge of approximately $6.9
million, reflecting the change in estimates for assets which have
already ceased production.
Thistle decommissioning provision
At 30 June 2023, the amount due to bp by reference to 7.5% of
bp's decommissioning costs on Thistle and Deveron was $29.2 million
(31 December 2022: $32.7 million), with the reduction mainly
reflecting the utilisation in the period. Unwinding of discount of
$0.6 million is included within finance income for the period ended
30 June 2023 (30 June 2022: $0.4 million).
Other provisions
During 2021, the Group recognised $8.2 million in relation to
disputes with third-party contractors. In 2022, one dispute was
settled for $0.5 million and the other dispute is ongoing. At 30
June 2023, the provision was $7.4 million (31 December 2022: $7.5
million).
12. Commitments and contingencies
Capital commitments
At 30 June 2023, the Group had capital commitments amounting to
$24.8 million (31 December 2022: $9.5 million).
Other commitments
In the normal course of business, the Group will obtain surety
bonds, letters of credit and guarantees. At 30 June 2023, the Group
held surety bonds totalling $249.2 million (31 December 2022:
$227.6 million) to provide security for its decommissioning
obligations.
Contingencies
The Group becomes involved from time to time in various claims
and lawsuits arising in the ordinary course of its business.
Outside of those already provided the Group is not, nor has been
during the past 12 months, involved in any governmental, legal or
arbitration proceedings which, either individually or in the
aggregate, have had, or are expected to have, a material adverse
effect on the Group's financial position or profitability, nor, so
far as the Group is aware, are any such proceedings pending or
threatened.
13. Cash flow information
Cash generated from operations
Period Period
ended ended
30 June 30 June
2023 2022
Notes $'000 $'000
---------------------------------------------------------- ----- --------- ---------
Profit/(loss) before tax 112,895 182,572
---------------------------------------------------------- ----- --------- ---------
Depreciation 7 3,039 3,295
---------------------------------------------------------- ----- --------- ---------
Depletion 7 147,858 174,209
---------------------------------------------------------- ----- --------- ---------
Net impairment charge/(reversal) 7 96,459 (10,122)
---------------------------------------------------------- ----- --------- ---------
Net disposal/(write down) of inventory 2,048 (360)
---------------------------------------------------------- ----- --------- ---------
Insurance income (4,091) -
---------------------------------------------------------- ----- --------- ---------
Write-off of historical joint venture balance 68 -
---------------------------------------------------------- ----- --------- ---------
Share-based payment charge 1,353 2,068
---------------------------------------------------------- ----- --------- ---------
Change in contingent consideration 10 (12,430) 46,359
---------------------------------------------------------- ----- --------- ---------
Change in provisions 15,303 (22,860)
---------------------------------------------------------- ----- --------- ---------
Amortisation of option premiums 10,567 658
---------------------------------------------------------- ----- --------- ---------
Unrealised (gain)/loss on commodity financial instruments (37,617) 104,672
---------------------------------------------------------- ----- --------- ---------
Unrealised (gain)/loss on other financial instruments (9,921) 481
---------------------------------------------------------- ----- --------- ---------
Unrealised exchange (gain)/loss 16,645 (20,686)
---------------------------------------------------------- ----- --------- ---------
Net finance expense 70,234 84,777
---------------------------------------------------------- ----- --------- ---------
Operating profit before working capital changes 412,410 545,063
---------------------------------------------------------- ----- --------- ---------
Decrease/(increase) in trade and other receivables 16,086 2,214
---------------------------------------------------------- ----- --------- ---------
Decrease/(increase) in inventories (6,771) (17,771)
---------------------------------------------------------- ----- --------- ---------
(Decrease)/increase in trade and other payables (51,304) (6,842)
---------------------------------------------------------- ----- --------- ---------
Cash generated from operations 370,421 522,664
---------------------------------------------------------- ----- --------- ---------
Changes in liabilities arising from financing activities
Loans and
borrowings Bonds Lease liabilities Total
$'000 $'000 $'000 $'000
---------------------------------------------- ----------- --------- ----------------- -----------
At 31 December 2022 (413,528) (597,283) (482,066) (1,492,877)
---------------------------------------------- ----------- --------- ----------------- -----------
Cash movements:
---------------------------------------------- ----------- --------- ----------------- -----------
Repayments of loans and borrowings 179,591 - - 179,591
---------------------------------------------- ----------- --------- ----------------- -----------
Proceeds from loans and borrowings (21,468) - - (21,468)
---------------------------------------------- ----------- --------- ----------------- -----------
Payment of lease liabilities - - 63,412 63,412
---------------------------------------------- ----------- --------- ----------------- -----------
Cash interest paid in period 15,965 30,341 - 46,306
---------------------------------------------- ----------- --------- ----------------- -----------
Non-cash movements:
---------------------------------------------- ----------- --------- ----------------- -----------
Additions - - (26,934) (26,934)
---------------------------------------------- ----------- --------- ----------------- -----------
Interest/finance charge payable (14,294) (30,950) (20,548) (65,792)
---------------------------------------------- ----------- --------- ----------------- -----------
Fee amortisation (515) (1,542) - (2,057)
---------------------------------------------- ----------- --------- ----------------- -----------
Foreign exchange and other non-cash movements (803) (13,629) (3,452) (17,884)
---------------------------------------------- ----------- --------- ----------------- -----------
At 30 June 2023 (255,052) (613,063) (469,588) (1,337,703)
---------------------------------------------- ----------- --------- ----------------- -----------
Reconciliation of carrying value
Loans Lease
and borrowings Bonds liabilities Total
$'000 $'000 $'000 $'000
----------------- --------------- -------- ------------ ---------
Principal 260,676 614,671 469,588 1,344,935
----------------- --------------- -------- ------------ ---------
Unamortised fees (5,624) (12,273) - (17,897)
----------------- --------------- -------- ------------ ---------
Accrued interest - 10,665 - 10,665
----------------- --------------- -------- ------------ ---------
At 30 June 2023 255,052 613,063 469,588 1,337,703
----------------- --------------- -------- ------------ ---------
14. Subsequent events
On 25 August 2023, the Group agreed a second lien Term Loan
facility of $150.0 million. This facility matures in July 2027 and
incurs interest at SOFR +7.90%.
In July 2023, the Golden Eagle contingent consideration of $50.0
million was fully settled (note 10).
Statement of Directors' Responsibilities
We confirm that to the best of our knowledge:
a) the condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.4R;
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
and their impact during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
A list of current Directors is maintained on the EnQuest PLC
website which can be found at www.enquest.com .
By the order of the Board
Amjad Bseisu
Chief Executive Officer
4 September 2023
INDEPENT REVIEW REPORT TO ENQUEST PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the Group Income
Statement, the Group Balance Sheet, the Group Statement of Changes
in Equity, the Group Statement of Cash Flows and related notes 1 to
14.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Company a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our Conclusion, including our Conclusion relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
4 September 2023
Glossary - Non-GAAP measures
The Group uses Alternative Performance Measures ('APMs') when
assessing and discussing the Group's financial performance, balance
sheet and cash flows that are not defined or specified under IFRS
but consistent with accounting policies applied in the financial
statements. The Group uses these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, to provide
stakeholders with additional useful information by adjusting for
exceptional items and certain remeasurements which impact upon IFRS
measures or, by defining new measures, to aid the understanding of
the Group's financial performance, balance sheet and cash
flows.
The use of the Business performance APM is explained in note 2
of the Group's annual consolidated financial statements, published
in April 2023, on page 128.
Period Period
ended ended
30 June 30 June
2023 2022
Business performance net profit attributable to EnQuest PLC
shareholders $'000 $'000
-------------------------------------------------------------- -------- ---------
Reported net (loss)/profit (A) (21,217) 203,543
-------------------------------------------------------------- -------- ---------
Adjustments - remeasurements and exceptional items:
-------------------------------------------------------------- -------- ---------
Unrealised gains/(losses) on derivative contracts (note 9b) 47,538 (105,153)
-------------------------------------------------------------- -------- ---------
Net impairment (charge)/reversal to oil and gas assets (notes
4 and 7) (96,459) 10,122
-------------------------------------------------------------- -------- ---------
Finance costs on Magnus on contingent consideration (note
10) (29,427) (17,870)
-------------------------------------------------------------- -------- ---------
Change in fair value of Magnus contingent consideration (note
10) 43,520 (26,935)
-------------------------------------------------------------- -------- ---------
Other exceptional income (note 4) 9,283 -
-------------------------------------------------------------- -------- ---------
Pre-tax remeasurements and exceptional items (B) (25,545) (139,836)
-------------------------------------------------------------- -------- ---------
Tax on remeasurements and exceptional items (note 4) (C) (2,330) 163,353
-------------------------------------------------------------- -------- ---------
Post-tax remeasurements and exceptional items (D = B + C) (27,875) 23,517
-------------------------------------------------------------- -------- ---------
Business performance net profit attributable to EnQuest PLC
shareholders (A - D) 6,658 180,026
-------------------------------------------------------------- -------- ---------
Adjusted EBITDA is a measure of profitability. It provides a
metric to show earnings before the influence of accounting (i.e.
depletion and depreciation) and financial deductions (i.e.
borrowing interest). For the Group, this is a useful metric as a
measure to evaluate the Group's underlying operating performance
and is a component of a covenant measure under the Group's RBL
facility. It is commonly used by stakeholders as a comparable
metric of core profitability and can be used as an indicator of
cash flows available to service and pay down debt. Due to the
adjustment made to reach adjusted EBITDA, the Group notes the
metric should not be used in isolation. The nearest equivalent
measure on an IFRS basis is profit/(loss) from operations before
tax and finance income/(costs).
Period Period
ended ended
30 June 30 June
2023 2022
Adjusted EBITDA $'000 $'000
-------------------------------------------------------------- -------- ---------
Reported profit/(loss) from operations before tax and finance
income/(costs) 225,246 294,158
-------------------------------------------------------------- -------- ---------
Adjustments:
-------------------------------------------------------------- -------- ---------
Remeasurements and exceptional items (note 4) (3,882) 121,966
-------------------------------------------------------------- -------- ---------
Depletion and depreciation (note 7) 150,897 177,504
-------------------------------------------------------------- -------- ---------
Inventory revaluation 2,048 (360)
-------------------------------------------------------------- -------- ---------
Change in provision 7,247 (32,292)
-------------------------------------------------------------- -------- ---------
Net foreign exchange (gain)/loss 17,683 (24,693)
-------------------------------------------------------------- -------- ---------
Adjusted EBITDA (E) 399,239 536,283
-------------------------------------------------------------- -------- ---------
Total cash and available facilities is a measure of the Group's
liquidity at the end of the reporting period. The Group believes
this is a useful metric as it is an important reference point for
the Group's going concern assessment, see page 13.
Period
ended Year ended
30 June 31 December
2023 2022
Total cash and available facilities $'000 $'000
-------------------------------------------- --------- ------------
Available cash 275,922 293,866
-------------------------------------------- --------- ------------
Restricted cash 7,316 7,745
-------------------------------------------- --------- ------------
Total cash and cash equivalents (F) 283,238 301,611
-------------------------------------------- --------- ------------
Available credit facilities 401,776 500,000
-------------------------------------------- --------- ------------
RBL - drawn down (note 8) (247,000) (400,000)
-------------------------------------------- --------- ------------
Letter of credit (52,800) (52,700)
-------------------------------------------- --------- ------------
Available undrawn facility (G) 101,976 47,300
-------------------------------------------- --------- ------------
Total cash and available facilities (F + G) 385,214 348,911
-------------------------------------------- --------- ------------
Net debt is a liquidity measure that shows how much debt a
company has on its balance sheet compared to its cash and cash
equivalents. With de-leveraging a strategic priority, the Group
believes this is a useful metric to demonstrate progress in this
regard. It is also an important reference point for the Group's
going concern assessment, see page 13. The Group's definition of
net debt, referred to as EnQuest net debt, excludes the Group's
finance lease liabilities as the Group's focus is the management of
cash borrowings and a lease is viewed as deferred capital
investment.
Period
ended Year ended
30 June 31 December
2023 2022
EnQuest net debt $'000 $'000
------------------------------------------ -------- ------------
Borrowings (note 8):
------------------------------------------ -------- ------------
RBL facility 241,376 395,391
------------------------------------------ -------- ------------
SVT Working Capital facility 13,676 12,275
------------------------------------------ -------- ------------
Vendor Loan Facility - 5,692
------------------------------------------ -------- ------------
Borrowings (H) 255,052 413,358
------------------------------------------ -------- ------------
Bonds (note 8):
------------------------------------------ -------- ------------
High yield bond 292,727 291,185
------------------------------------------ -------- ------------
Retail bonds 309,671 295,745
------------------------------------------ -------- ------------
Bonds (I) 602,398 586,930
------------------------------------------ -------- ------------
Non-cash accounting adjustments (note 8):
------------------------------------------ -------- ------------
Unamortised fees on loans and borrowings 5,624 4,609
------------------------------------------ -------- ------------
Unamortised fees on bonds 12,273 13,815
------------------------------------------ -------- ------------
Non-cash accounting adjustments (J) 17,897 18,424
------------------------------------------ -------- ------------
Debt (H + I + J) (K) 875,347 1,018,712
------------------------------------------ -------- ------------
Less: Cash and cash equivalents (E) 283,238 301,611
------------------------------------------ -------- ------------
EnQuest net debt (K - F) (L) 592,109 717,101
------------------------------------------ -------- ------------
The EnQuest net debt/adjusted EBITDA metric is a ratio that
provides management and users of the Group's consolidated financial
statements with an indication of how many years it would take to
service the Group's debt. This is a helpful metric to monitor the
Group's progress against its strategic objective of
de-leveraging.
Period
ended Year ended
30 June 31 December
2023 2022
EnQuest net debt/adjusted EBITDA $'000 $'000
--------------------------------------- -------- ------------
EnQuest net debt (L) 592,109 717,101
--------------------------------------- -------- ------------
Adjusted EBITDA (last 12 months) (E) 842,035 979,084
--------------------------------------- -------- ------------
EnQuest net debt/adjusted EBITDA (L/E) 0.7 0.7
--------------------------------------- -------- ------------
Cash capital expense (nearest equivalent measure on an IFRS
basis is purchase of property, plant and equipment) monitors
investing activities on a cash basis, while cash decommissioning
expense monitors the Group's cash spend on decommissioning
activities. The Group provides guidance to the financial markets
for both these metrics given the materiality of the work programmes
and the focus on the Group's liquidity position and ability to
reduce its debt.
Period Period
ended ended
30 June 30 June
2023 2022
Cash capital and decommissioning expense $'000 $'000
------------------------------------------------------------ --------- --------
Reported net cash flows (used in)/from investing activities (115,865) (54,435)
------------------------------------------------------------ --------- --------
Adjustments:
------------------------------------------------------------ --------- --------
Payment of Magnus contingent consideration - Profit share 38,229 -
------------------------------------------------------------ --------- --------
Interest received (2,398) (256)
------------------------------------------------------------ --------- --------
Cash capital expense (80,034) (54,691)
------------------------------------------------------------ --------- --------
Decommissioning spend (29,333) (28,194)
------------------------------------------------------------ --------- --------
Cash capital and decommissioning expense (109,367) (82,885)
------------------------------------------------------------ --------- --------
Free cash flow ('FCF') represents the cash a company generates,
after accounting for cash outflows to support operations and to
maintain its capital assets. Currently this metric is useful to
management and users to assess the Group's ability to reduce its
debt.
The definition of free cash flow is net cash flow adjusted for
net repayment/proceeds of loans and borrowings, net proceeds of
share issues and
cost of acquisitions.
Period Period
ended ended
30 June 30 June
2023 2022
Free cash flow $'000 $'000
--------------------------------------------------- ---------- ---------
Net cash flows from/(used in) operating activities 371,046 498,375
--------------------------------------------------- ---------- ---------
Net cash flows from/(used in) investing activities (115,865) (54,435)
--------------------------------------------------- ---------- ---------
Net cash flows from/(used in) financing activities (273,279) (344,441)
--------------------------------------------------- ---------- ---------
Adjustments:
--------------------------------------------------- ---------- ---------
Proceeds of loans and borrowings(i) (21,468) (77,882)
--------------------------------------------------- ---------- ---------
Repayment of loans and borrowings(i) 179,591 310,531
--------------------------------------------------- ---------- ---------
Free cash flow 140,025 332,148
--------------------------------------------------- ---------- ---------
(i) For the prior year, $10.4 million has been reclassed between
proceeds from loans and borrowing and repayments of loans and
borrowings to better represent the substance of the transaction
Average realised price is a measure of the revenue earned per
barrel sold. The Group believes this is a useful metric for
comparing performance to the market and to give the user, both
internally and externally, the ability to understand the drivers
impacting the Group's revenue.
Period Period
ended ended
30 June 30 June
2023 2022
Revenue from sales $'000 $'000
---------------------------------------------------------- --------- ---------
Revenue from crude oil sales (note 5) (M) 540,134 851,206
---------------------------------------------------------- --------- ---------
Revenue from gas and condensate sales (note 5) (N) 213,249 252,907
---------------------------------------------------------- --------- ---------
Realised (losses)/gains on oil derivative contracts (note
5) (P) (22,168) (162,323)
---------------------------------------------------------- --------- ---------
Period Period
ended ended
30 June 30 June
2023 2022
Barrels equivalent sales kboe kboe
------------------------------- -------- --------
Sales of crude oil (Q) 6,833 7,667
------------------------------- -------- --------
Sales of gas and condensate(i) 2,404 1,607
------------------------------- -------- --------
Total sales (R) 9,237 9,274
------------------------------- -------- --------
(i) Includes volumes related to onward sale of third-party gas
purchases not required for injection activities at Magnus
Period Period
ended ended
30 June 30 June
2023 2022
Average realised prices $/Boe $/Boe
---------------------------------------------------------- -------- --------
Average realised oil price, excluding hedging (M/Q) 79.0 111.0
---------------------------------------------------------- -------- --------
Average realised oil price, including hedging ((M + P)/Q) 75.8 89.9
---------------------------------------------------------- -------- --------
Operating costs ('opex') is a measure of the Group's cost
management performance (reconciled to reported cost of sales, the
nearest equivalent measure on an IFRS basis). Opex is a key measure
to monitor the Group's alignment to its strategic pillars of
financial discipline and value enhancement and is required in order
to calculate opex per barrel (see below).
Period Period
ended ended
30 June 30 June
2023 2022
Operating costs $'000 $'000
--------------------------------------------------------- ---------- ---------
Reported cost of sales 483,219 586,082
--------------------------------------------------------- ---------- ---------
Adjustments:
--------------------------------------------------------- ---------- ---------
Remeasurements and exceptional items 9,921 (481)
--------------------------------------------------------- ---------- ---------
Depletion of oil and gas assets (147,858) (174,209)
--------------------------------------------------------- ---------- ---------
Credit/(charge) relating to the Group's lifting position
and inventory 15,342 29,896
--------------------------------------------------------- ---------- ---------
Other cost of sales(i) (197,934) (232,904)
--------------------------------------------------------- ---------- ---------
Operating costs 162,690 208,384
--------------------------------------------------------- ---------- ---------
Less realised (gain)/loss on derivative contracts (S) 1,119 3,806
--------------------------------------------------------- ---------- ---------
Operating costs directly attributable to production 161,571 204,578
--------------------------------------------------------- ---------- ---------
Comprising of:
--------------------------------------------------------- ---------- ---------
Production costs (T) 145,465 181,166
--------------------------------------------------------- ---------- ---------
Tariff and transportation expenses (U) 16,106 23,412
--------------------------------------------------------- ---------- ---------
Operating costs directly attributable to production 161,571 204,578
--------------------------------------------------------- ---------- ---------
(i) Includes $186.3 million (2022: $218.4 million) of purchases
and associated costs of third-party gas not required for injection
activities at Magnus which is sold on
Unit opex is the operating expenditure per barrel of oil
equivalent produced. This metric is useful as it is an industry
standard metric allowing comparability between oil and gas
companies. Unit opex including hedging includes the effect of
realised gains and losses on derivatives related to foreign
currency and emissions allowances. This is a useful measure for
investors because it demonstrates how the Group manages it's risk
to market price movements.
Period Period
ended ended
30 June 30 June
2023 2022
Barrels equivalent produced kboe kboe
------------------------------------------ -------- --------
Total produced (working interest) (V) (i) 8,232 9,000
------------------------------------------ -------- --------
(i) Production figure for first half of 2023 includes 660 Boepd
associated with Seligi gas
Period Period
ended ended
30 June 30 June
2023 2022
Unit opex $/Boe $/Boe
---------------------------------------------------- -------- --------
Production costs (T/V) 17.7 20.1
---------------------------------------------------- -------- --------
Tariff and transportation expenses (U/V) 2.0 2.6
---------------------------------------------------- -------- --------
Total unit opex ((T + U)/V) 19.7 22.7
---------------------------------------------------- -------- --------
Realised loss/(gain)/ on derivative contracts (S/V) 0.1 0.4
---------------------------------------------------- -------- --------
Total unit opex including hedging ((S + T+ U)/V) 19.8 23.1
---------------------------------------------------- -------- --------
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END
IR UPUQABUPWPWC
(END) Dow Jones Newswires
September 05, 2023 02:00 ET (06:00 GMT)
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