ENQUEST PLC, 13 August 2013
Results for the 6 months to 30 June 2013
EnQuest production increase of 6% in first half of 2013
Alma/Galia: 'First oil' expected in Q1 2014
Kraken: FDP submitted, Kraken North field confirmed, gross reserves 137 MMboe
Unless otherwise stated, all figures are before exceptional items and depletion
of fair value uplift and are in US dollars.
Highlights
· Production in H1 2013 was 21,455 Boepd, up 5.9% on H1 2012. Development
drilling at our core hub assets delivered good results in H1 2013, this has
continued into H2 2013 with a new well on the Thistle Western Fault Block and
with a new producer/injector pair at Don Southwest. Reservoir performance of all
producing assets has been good.
· Revenue was $455.9 million, with EBITDA of $273.0 million and strong cash
flow of $234.7 million generated from operations.
· Gross profit was $175.0 million, down 14.3% on the prior period, reflecting
a lower oil price, a number of one-off operating costs and a change in the
production mix, resulting in a higher depletion charge.
· Alma/Galia first oil is currently expected in Q1 2014, mainly due to the
increase in scope of refurbishment of the existing FPSO marine and process
systems.
· With Alma/Galia first oil expected in Q1 2014 and stronger Thistle
production in H2 2013, average 2013 EnQuest production should be in the lower
half of the range indicated in March this year; 22,000 Boepd to 27,000 Boepd.
With initial net production anticipated of approximately 13,000 Boepd, the
Alma/Galia development will deliver a substantial increase in EnQuest's
production in 2014.
· A field development plan ('FDP') for Kraken was submitted to the Department
of Energy and Climate Change ('DECC') during H1 2013, gross reserves are 137
MMboe and sanction is expected in H2 2013. The Kraken appraisal well confirmed
a separate second field, to be known as 'Kraken North'; a second heavy oil tax
allowance of £800 million is therefore anticipated. With the sanction of Kraken
and the associated capital investment, EnQuest does not expect to pay cash tax
before 2018.
· EnQuest has acquired a 50% interest in the Avalon prospect, close to the
Scolty and Crathes discoveries. KUFPEC UK Limited and Spike Exploration UK
Limited have farmed into the Cairngorm discovery on a promoted basis, EnQuest
retains a 45% interest and operatorship.
· Business development and new development project activity in 2013 are
expected to result in a substantial addition to 2P reserves, with an increase of
more than 70 MMboe to net 2P reserves, largely driven by the sanction of Kraken.
EnQuest CEO Amjad Bseisu said:
"EnQuest is delivering sustainable growth through increasing production and
increasing reserves, and our assets are performing well.
In H1 2013, with good operational progress, EnQuest delivered a 6% increase in
production, up to 21,455 Boepd; resulting in $235 million of cash flow from
operations. Production was enhanced by the performance of the new West Don
producer/injector pair and by operational efficiency and good well performance
at Heather/Broom. Development drilling at our new Thistle Western Fault Block
well and the new Dons Southwest producer/injector pair has been successful. The
Thistle well came in better than expected and will lead to stronger Thistle
production in H2.
Most of the Alma/Galia subsea work is now complete. The scope of the
refurbishment of the marine and process systems at the FPSO has been extensive
and we now anticipate first oil being rescheduled to Q1 2014. Alma/Galia is set
to deliver a significant increase in EnQuest's production in 2014. The Kraken
FDP has been submitted and Kraken remains on track for sanction in the second
half of this year. Beyond that, EnQuest's recent first move into North Africa
is providing us with short term infill drilling opportunities at Didon and with
further major development opportunities at Zarat.
Through asset acquisitions and new development projects in 2013, we already
expect to increase our net 2P reserves by more than 70MMboe, including over
60MMboe from Kraken. We continue to look at opportunities to acquire assets in
the UK and other regions, where our expertise and capabilities can be applied to
maturing assets and development opportunities."
Summary production statistics and key financials H1 2013 H1 2012 Change
%
Production (Boepd) 21,455 20,253 5.9
Revenue ($m) 455.9 440.1 3.6
Realised oil price $/bbl 108.70 111.58 (2.6)
Gross profit ($m) 175.0 204.1 (14.3)
Profit before tax & net finance costs ($m) 167.2 192.6 (13.2)
Profit after tax & net finance costs ($m) 97.7 129.3 (24.4)
EBITDA (1) ($m) 273.0 287.2 (4.9)
Cash flow from operations ($m) 234.7 239.6 (2.0)
Reported basic earnings per share (cents) 12.2 16.1 (24.2)
Net (debt)/cash (2) ($m) (101.9) 92.6 -
(1) EBITDA is calculated by taking profit/loss from operations before tax and
finance income/(costs) and adding back depletion (adjusted for depletion of fair
value uplift), depreciation, impairment and write-off of intangible oil and gas
assets. (2) Net cash represents cash and cash equivalents less borrowings as
at the reported cash flow statement date of 30 June.
Summary financial review of H1 2013
· Cash generated from operations was $234.7 million. Net debt was $101.9
million at the end of H1 2013, after capital expenditure of $414.8 million.
· H1 2013 revenue of $455.9 million was 3.6% higher than the previous period
reflecting the higher production, partly offset by the lower realised oil price.
· Gross profit was $175.0 million, down 14.3% on the prior period. In
addition to the impact of lower oil prices and increased depletion costs as a
result of a shift in the production mix from Thistle to the Don and
Heather/Broom fields, this reduction also reflects some non-recurring operating
costs at Thistle.
· Profit after tax and net finance costs decreased by 24.4% to $97.7 million,
reflecting the lower gross profit before tax and increased finance costs.
· H1 2013 capital investment on tangible oil assets amounted to $392.9
million. This included $167.2 million invested in EnQuest's existing producing
fields and $173.7 million in executing the Alma/Galia development project plan.
· Tax losses increased to approximately $850 million at the end of H1 2013,
reflecting the investment programme.
Production by field Net daily average Net daily average
H1 2013 H1 2012
(Boepd) (Boepd)
Thistle/Deveron 5,046 7,655
The Don Fields 11,349 8,895
Heather/Broom 4,246 3,703
Alba 814(3) -
Total 21,455 20,253
(3) Net production since the completion of the acquisition at the end of March
2013, averaged over the six months to the end of June.
Summary review of production and developments for H1 2013
Average production for H1 2013 was 21,455 Boepd, up 5.9% on H1 2012.
Thistle/Deveron
· Reservoir performance remains strong, however H1 2013 production was lower
as a result of the shutdown of the third party Brent pipeline in Q1 2013 and
water injection downtime due to an outage of the 'B' turbine generator while the
new 'D' turbine was being commissioned.
· The new Thistle production well in the Western Fault Block reached target
depth in June. The well came in 80ft high to prognosis and has started
production.
· There was a non-recurring increase in operating costs at Thistle of
approximately $6 million over the prior period, mainly as a result of an outage
of the 'old' B turbine generator and of the costs of running the D turbine on
diesel fuel during the commissioning period. The D turbine is anticipated to be
on fuel gas later in H2 2013.
Dons
· Although the Don fields were also impacted by the Brent pipeline shutdowns
in Q1 2013, the West Don W6/W4 producer/injector pair performed well, following
the tie-in of the new W6 injector well in Q1 2013. This contributed to the 28%
H1 2013 year-on-year production growth from the Don fields. A successful new
producer/injector pair has also been drilled in Don Southwest, Area 6.
Heather/Broom
· Heather/Broom delivered 15% year-on-year production growth in H1 2013,
reflecting good well performance at Broom and high operating efficiency at both
Heather and Broom.
· The Heather return to drilling rig reactivation project should be complete
in H2 2013.
Alba
· Alba's H1 2013 reported production of an average 814 Boepd is based on the
three months production since the acquisition completed. The underlying level
of production is continuing at a similar rate.
· Platform well A67 (previously designated as A38z) was successfully
completed. Subsea well D13 successfully appraised an extension to the main field
before reaching the main target. This well is expected to be online in the
second half of the year. Two further platform wells are planned to be drilled in
H2 2013.
Alma/Galia
· The drilling and subsea elements of the project continue on plan. The scope
of the work on the FPSO has expanded, including additional work on the existing
marine and process systems. Depending on weather, first production is expected
to be in Q1 2014. The new schedule and updated project scope will result in
some additional costs. EnQuest is considering moving the FPSO to a yard closer
to the field, for commissioning.
· In February 2013, EnQuest announced that it was extending the field life of
the project and that consequently gross 2P reserves would be increased from 29
MMboe to 34 MMboe.
Kraken
· An Environmental Statement for the Kraken Area development was submitted to
DECC during H1 2013, approval of the Environmental Statement is anticipated in
H2 2013.
· The appraisal well in H1 2013 confirmed a second accumulation of oil north
of Kraken. The FDP for the Kraken area development contains the development plan
for both the Kraken and the Kraken North fields. EnQuest anticipates separate
heavy oil allowances for each field.
· The FDP for the Kraken development has been submitted to DECC. Gross Kraken
development reserves are 137 MMboe; EnQuest expects to book at least a further
net 60 MMboe of 2P reserves in relation to Kraken.
Malaysia (Blocks SB307 & 308)
· Seismic analysis is ongoing; an exploration well will be drilled at the end
of 2013 or in early 2014.
Business development in H1 2013
Didon & Zarat
· In May 2013, EnQuest announced its entry into North Africa through the
acquisition of a 70% operating interest in the producing Didon Oil field and the
Zarat Permit in Tunisia, as part of EnQuest's strategy to create value from
maturing assets and new developments.
· EnQuest signed an agreement with Swedish oil and gas company, PA Resources
AB and certain of its subsidiaries ("PA Resources") to acquire a 70%
participating interest in and operatorship of the offshore Tunisian assets of PA
Resources, including 2 MMboe of net producing 2P oil reserves in the Didon oil
field and over 40 MMboe of net contingent resources in the Zarat discovery, with
additional exploration and appraisal opportunities. A planned programme of two
infill wells in the Didon oil field should add additional reserves.
· The acquisition will be effective upon satisfaction of certain conditions
precedent, and involves upfront cash consideration of US$23m payable upon
completion of the transaction. EnQuest anticipates Didon completion in Q4 2013.
Alba
· In January 2013, EnQuest PLC announced that it had agreed with CIECO Energy
(UK) Limited ('CIECO') to acquire two of its affiliate companies which together
hold an 8% non-operated interest in the producing Alba oil field, for a base
consideration of £18.75 million. The agreement completed at the end of Q1
2013.
Cairngorm
· EnQuest announces that KUFPEC UK Limited ('KUFPEC') and Spike Exploration UK
Ltd ('Spike') are to take 25% and 30% working interests respectively in the
Cairngorm discovery (blocks 16/2b and 16/3d). KUFPEC and Spike have agreed to
pay a premium by way of a promoted carry on the forthcoming Cairngorm appraisal
well and to pay their equity share of back costs
· Cairngorm is an oil discovery in fractured granite with upside potential; an
appraisal well is scheduled in Q4 2013. EnQuest remains the operator. This
agreement completed in early August.
Avalon
· EnQuest farmed into a 50% working interest in the Avalon prospect, block
21/6b in the UK North Sea, located 150km northeast of Aberdeen, close to the
Scolty and Crathes discoveries. An exploration well is to be drilled in 2014;
EnQuest is the operator of this 2014 well, Summit retains block operatorship.
· EnQuest will carry part of its 50% partner Summit Petroleum Limited
('Summit') up to a cap of £12.5m on the proposed well (net to EnQuest); EnQuest
will bear 50% of all other costs relating to the block. Summit is a wholly
owned subsidiary of the Sumitomo Corporation.
Outlook summary
· Production guidance for the full year 2013 is in the lower half of the
previous production guidance range of between 22,000 Boepd and 27,000 Boepd.
This is consistent with first oil from Alma/Galia in Q1 2014; Alma/Galia will
deliver a significant increase in EnQuest's production in 2014.
· Total EnQuest 2013 capital expenditure is still expected to be around $750
million, excluding post sanction Kraken expenditure. If Kraken is sanctioned
in H2 2013 as anticipated, additional capital will be invested in Kraken this
year. The size of the investment will depend on the timing of the final
sanction and of the project's phasing, the additional capex could be in the
region of another $300 million.
· Production and transportation costs for 2013 are expected to be in the range
$300 million to $320 million. The effective tax rate for 2013 is anticipated to
be in the range 32% to 35%. EnQuest does not expect to pay cash tax before
2018.
· Development planning continues on Scolty/Crathes and it is intended to
submit a Field Development Plan in 2014.
· EnQuest continues to look at additional opportunities both in the UK and
internationally
Ends
For further information please contact:
EnQuest PLC
Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Michael Waring (Head of Communications & Investor
Relations)
RLM
Finsbury
Tel: +44 (0)20 7251 3801
Conor McClafferty
Dorothy Burwell
Presentation to Analysts and Investors
A presentation to analysts and investors will be held at 09:30 today. The
presentation and Q&A will also be accessible via an audio webcast - available
from the investor relations section of the EnQuest website at www.enquest.com.
A conference call facility will also be available at 09:30 on the following
numbers:
UK: +44 (0) 20 3427 1918
USA: +1 212 444 0481
Notes to editors
EnQuest is the largest UK independent producer in the UK North Sea. Oil and gas
development and production company EnQuest PLC, trades on both the London Stock
Exchange and the NASDAQ OMX Stockholm. It is a constituent of the FTSE 250
index. Its assets include the Thistle, Deveron, Heather, Broom, West Don, Don
Southwest and Conrie producing fields and the Alma and Galia development. At
the end of H1 2013, EnQuest had interests in 33 production licences covering 45
blocks or part blocks in the UKCS, of which 25 licences are operated by
EnQuest. In addition, EnQuest also has an interest in two blocks offshore in
Sabah, Malaysia.
EnQuest believes that the UKCS represents a significant hydrocarbon basin in a
low risk region, which continues to benefit from an extensive installed
infrastructure base and skilled labour. EnQuest believes that its assets offer
material organic growth opportunities, driven by exploitation of current
infrastructure on the UKCS and the development of low risk near field
opportunities. www.enquest.com
Forward looking statements: This announcement may contain certain forward
-looking statements with respect to EnQuest's expectation and plans, strategy,
management's objectives, future performance, reserves, production, 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 presentation should be
construed as a profit forecast. Past share performance cannot be relied on as a
guide to future performance.
FINANCIAL REVIEW
EnQuest made good progress in the first half of 2013, with EBITDA of $273.0
million pre-exceptional items and fair value adjustments (2012: $287.2 million)
and cash generated from operations of $234.7 million (2012: $239.6 million)
which results in a net borrowing position of $101.9 million at 30 June 2013 (31
December 2012: $89.9 million net cash). The net cash decrease of $191.8 million
is due to the significant capital expenditure programme being undertaken by the
Group.
In Q1 2013, the Group successfully raised £145 million from the issue of a
retail bond, with a 5.5% coupon and a 2022 maturity which allows EnQuest to
diversify its funding base.
As a result of capital investment, tax losses at the end of the half year
increased to approximately $850 million and the effective tax rate for the year
is expected to be in the range 32% to 35%. Assuming the sanction of Kraken and
the associated capital investment, no significant cash outflow for UK tax is
expected before 2018.
Production and revenue
Revenue increased by $15.8 million to $455.9million in the six months ended 30
June 2013 compared with the same period in the prior year and production
averaged 21,455 boepd in the first half of 2013 compared with 20,253 boepd in
the first half of 2012. The production increase primarily arises from higher
production in the Dons fields and the Heather/Broom hub which both benefitted
from higher production efficiency and the impact of 2012 drilling and well
reinstatements. This was partly offset by third party outages on export routes,
lower Thistle production due to a number of one-off factors including B turbine
failure, a valve replacement on a separator and an ESP failure and replacement.
The Group's blended average realised price per barrel of oil sold was $108.7 in
H1 2013, compared with $111.6 per barrel in H1 2012.
Operating costs
Cost of sales pre-exceptional items and fair value adjustments for the Group are
summarised below:
H1 2013 H1 2012
Cost of sales ($ 280.9 236.0
million)
Unit operating
cost, adjusted
for
overlift/underlif
t and inventory
movements ($ per
boe):
Production & 36.1 31.6
transportation
costs
Depletion of oil 26.0 24.3
& gas properties
Total operating 62.1 55.9
cost per barrel
Gross profit pre-exceptional items and fair value adjustments was $175.0 million
(2012: $204.1 million). The decrease in gross profit of $29.1 million is due to
lower oil prices, lower volumes in Thistle and higher one-off diesel and power
generation costs in Thistle following the B turbine failure. In addition,
depletion increased due to a higher mix of production from the Dons and Heather
hubs, which have a higher depletion rate than Thistle. These movements were
partially offset by a contribution to gross profit from the Alba acquisition
which completed at the end of March 2013. EBITDA of $273.0 million was $14.2
million lower than H1 2012 as $15.0 million of the decrease in gross profit was
due to higher depletion. Cost of sales reflects an overlift of $40.1 million
(2012: $32.1 million).
Exploration and evaluation expenses
Exploration and evaluation expenses of $2.3 million for the six months to 30
June 2013 (2012: $9.4 million) mainly relate to expenses incurred in business
development and Norway. Exploration costs in the first half of 2012 included
the Group's 27th UK licensing round applications and the impairment of the
Tryfan exploration well.
General and administrative expenses
General and administrative expenditure (G&A) for the six months to 30 June 2013
was $4.5 million compared with $0.4 million in the same period last year. The
expenses primarily relate to the Group's general management and business
development expenses after recharges to joint venture partners and reflect
business development activity.
Finance costs
Finance costs of $24.7 million (2012: $9.4 million) include non-cash expenses of
$6.1 million (2012: $5.1 million) for the unwinding of the discount on the
decommissioning provision, $1.5 million of amortisation of facility and bond
fees and $9.5 million of a non-cash unrealised accounting mark to market
valuation loss on the Group's outstanding foreign exchange contracts deemed
ineffective for hedge accounting purposes. In addition, there is $4.6 million
of interest accrued on the retail bond, and $2.2 million of costs associated
with the Group's revolving credit facility and letter of credit utilisation
during the six months to 30 June 2013 (2012: $4.2 million).
Finance income
Finance income of $4.8 million (2012: $5.4 million) includes a non-cash
unrealised accounting mark to market valuation gain of $3.3 million (2012: $4.8
million) on the Group's outstanding oil price collars which are deemed
ineffective for hedge accounting purposes together with $0.9 million on the
unwinding of the discount on the financial asset (2012: nil).
Taxation
The income tax charge pre-exceptional items and fair value adjustments of $49.7
million for the first half of the year (2012: $59.5 million) reflects the
expected full year effective tax rate. The effective tax rate remains at a
similar level to 2012 due to the impact of leasing deductions and a material
increase in Ring Fence Expenditure Supplement ('RFES'). These tax rate
reductions are offset by Petroleum Revenue Tax and other minor tax rate
increases.
Exceptional items and depletion of fair value uplift
These items primarily relate to depletion costs of $4.5 million (2012: $4.1
million) relating to the fair value uplift of oil and gas assets on acquisition.
Cash flow, capital investment and liquidity
Cash generated from operations has remained stable at $234.7 million (2012:
$239.6 million). Investment in property, plant and equipment in the period was
$392.9 million (2012: $448.6 million). This relates principally to the re-fit of
the FPSO and related expenditure on the Alma/Galia development, Kraken FEED and
the Kraken North appraisal well, drilling of the Dons DS well and Thistle WFB-P1
well and life extension project. In addition an 8% interest in the Alba field
was acquired for $28.9 million, net of $21.4 million of cash acquired.
Expenditure on intangible oil and gas assets in the period of $21.9 million
(2012: $65.8 million) primarily relates to Kildrummy, Scolty & Crathes, other
prospects in the UK and EnQuest's Malaysian prospects.
At 30 June 2013 the Group had $101.9 million of net borrowings (31 December
2012: $89.9 million net cash) and total available bank facilities of $525
million, of which $181.5 million was utilised for letters of credit (31 December
2012: $123.8 million). Included within the cash balance at 30 June 2013 is
restricted cash of $3.6 million.
Balance sheet
The Group's total asset value has increased by $388.8 million since 31 December
2012 to $2,933.6 million as at 30 June 2013.
Property, plant and equipment increased to $2,270.1 million as at 30 June 2013
from $1,816.6 million at 31 December 2012. The increase of $453.5 million is
mainly due to oil and gas asset additions of $562.5 million, including the re
-fit of the FPSO and related expenditure on the Alma/Galia development, Kraken
FEED and the Kraken North appraisal well, drilling of DS well on Dons fields and
Thistle WFB-P1 well and life extension project and the acquisition of a non
-operated interest in the producing field Alba.
Intangible oil and gas assets have increased to $110.0 million as at 30 June
2013 from $97.5 million at 31 December 2012. The increase of $12.5 million
relates to Kildrummy, Scolty & Crathes, other prospects in the UK and EnQuest's
Malaysian prospects. No exploration drilling has taken place in H1 2013.
The Group's net borrowing position of $101.9 million as at 30 June 2013 compares
to a net cash position of $89.9 million at 31 December 2012. The increase in
borrowings since December 2012 is due to the significant capital expenditure
programme being undertaken by the Group.
The Group's deferred tax liability (net of deferred tax asset) has increased by
$50.4 million since 31 December 2012 to $659.5 million as at 30 June 2013. The
increase is due to accelerated capital allowances arising on the Group's capital
investment programme offset by an increase in tax losses. Tax losses carried
forward at the half year amounted to approximately $850 million plus
approximately $70 million of un-recognised pre-trading expenditure which will
become deductible and recognised for tax purposes upon approval of the Kraken
field development plan.
Trade and other payables have decreased by $47.5 million compared with 31
December 2012, to $282.2 million at 30 June 2013 due to a lower level of
creditors and accruals for the Group's capital programme. Trade and other
receivables have decreased by $50.1 million compared with 31 December 2012, to
$189.6 million at 30 June 2013 due to a reduction in joint venture debtors. The
Group was in an overlift position at 30 June 2013 of $20.5 million (31 December
2012: $9.2 million underlift).
Financial risk management
EnQuest's functional currency is US dollars. Foreign currency risk arises on
purchases, and the translation of assets and liabilities denominated in
currencies other than the US dollar. During the first half of the year, EnQuest
placed Sterling forward currency contracts to hedge a total of £125 million and
Euro forward currency contracts for a total of €63 million to hedge 2013
expenditure.
EnQuest will continue to look at opportunities to enter into foreign exchange
hedging contracts, in line with the policy agreed by the Board which allows for
operating expenditure and capital expenditure to be hedged, in order to mitigate
the risks of fluctuations in the currency markets, specifically the US dollar
versus Sterling, Euro and Norwegian Krone.
The Group is exposed to the impact of changes in Brent crude oil prices on its
revenue and profits. During 2013 the Group entered into 6 put and call options
to hedge exposure to fluctuations in the Brent oil price on approximately 4.6
million barrels of oil production in 2013. These contracts consist of put
spreads between $95/$100 and $70/$75 per barrel with calls at an average of $122
per barrel.
EnQuest PLC
HALF YEAR GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2013
2013
2012
Exceptional
Business items Reported in Business
Depletion Reported in
performance anddepletion period performance of
fair period
of fair
value
value
uplift
uplift (note
(note
4)
4)
US$'000 US$'000 US$'000 US$'000
US$'000 US$'000
Unaudited Unaudited Unaudited Unaudited
Unaudited Unaudited
Revenue 455,863 - 455,863 440,086
- 440,086
Cost of sales (280,854) (6,369) (287,223) (235,992)
(4,091) (240,083)
Gross 175,009 (6,369) 168,640 204,094
(4,091) 200,003
profit/(loss)
Exploration (2,326) - (2,326) (9,395)
- (9,395)
and
evaluation
expenses
Impairment on - (312) (312) -
- -
investments
General and (4,488) - (4,488) (401)
- (401)
administration
expenses
Other expenses (949) - (949) (1,667)
- (1,667)
Profit/(loss) 167,246 (6,681) 160,565 192,631
(4,091) 188,540
from
operations
before tax
and
finance
income/(costs)
Finance costs (24,719) - (24,719) (9,362)
- (9,362)
Finance income 4,786 - 4,786 5,439
- 5,439
Profit/(loss) 147,313 (6,681) 140,632 188,708
(4,091) 184,617
before
tax
Income tax (49,654) 3,949 (45,705) (59,450)
1,289 (58,161)
Profit/(loss) 97,659 (2,732) 94,927 129,258
(2,802) 126,456
for the
period
attributable
to
owners of the
parent
Other
comprehensive
income for the
period
after tax:
Cash flow 759
1,453
hedges:may
be
reclassified
subsequently
to profit
or loss (net
of tax)
(note 10)
Total 95,686
127,909
comprehensive
income for the
period,
attributable
to owners
of the parent
Earnings per US$
US$
share
(note 5)
Basic 0.122
0.161
Diluted 0.119
0.159
GROUP BALANCE SHEET
As at 30 June 2013
30 June 2013 31 December 2012
US$'000 US$'000
Notes Unaudited Audited
ASSETS
Non-current
assets
Property, plant 7 2,270,063 1,816,591
and equipment
Goodwill 107,760 107,760
Intangible oil 8 109,965 97,506
and gas assets
Investments 2,005 2,317
Deferred tax 3,945 23,143
asset
Other financial 10 16,186 19,447
assets
2,509,924 2,066,764
Current assets
Inventories 17,233 15,301
Trade and other 189,564 239,722
receivables
Income tax 3,459 2,007
receivable
Cash and cash 203,756 124,522
equivalents
Other financial 10 9,618 96,472
assets
423,630 478,024
TOTAL ASSETS 2,933,554 2,544,788
EQUITY AND
LIABILITIES
Equity
Share capital 9 113,433 113,433
Merger reserve 662,855 662,855
Cash flow hedge 10 713 (46)
reserve
Share-based (10,335) (11,072)
payment reserve
Retained 623,626 528,699
earnings
TOTAL EQUITY 1,390,292 1,293,869
Non-current
liabilities
Borrowings 83,284 34,600
Bond 217,834 -
Obligations 71 107
under finance
leases
Provisions 264,192 232,952
Other financial 10 1,803 -
liabilities
Deferred tax 663,430 632,230
liabilities
1,230,614 899,889
Current
liabilities
Bond 4,574 -
Trade and other 282,180 329,666
payables
Obligations 35 34
under finance
leases
Other financial 10 23,679 17,570
liabilities
Income tax 2,180 3,760
payable
312,648 351,030
TOTAL 1,543,262 1,250,919
LIABILITIES
TOTAL EQUITY AND 2,933,554 2,544,788
LIABILITIES
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2013
Merger Cash flow Share Total
Share reserve hedge -based Retained
capital reserve payments earnings
reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Unaudited Unaudited Unaudited Unaudited Unaudited Uudited
Balance at 1 113,433 662,855 (46) (11,072) 528,699 1,293,869
January 2013
Profit for - - - - 94,927 94,927
the period
Other - - 759 - - 759
comprehensive
income
Total - 759 - 94,927 95,686
comprehensive
income
for the
period
Shares - - - (2,524) - (2,524)
purchased on
behalf
of Employee
Benefit Trust
Share-based - - - 3,261 - 3,261
payment
charge
Balance at 30 113,433 662,855 713 (10,335) 623,626 1,390,292
June 2013
Balance at 1 113,433 662,855 (2,600) (5,961) 166,481 934,208
January 2012
Profit for - - - - 126,456 126,456
the period
Other - - 1,453 - - 1,453
comprehensive
income
Total - 1,453 - 126,456 127,909
comprehensive
income
for the
period
Share-based - - - 3,466 - 3,466
payment
charge
Balance at 30 113,433 662,855 (1,147) (2,495) 292,937 1,065,583
June 2012
GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2013
2013 2012
US$'000 US$'000
Unaudited Unaudited
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax 140,632 184,617
Depreciation 4,445 746
Depletion 105,371 93,426
Exploration costs impaired and written off 520 4,504
Impairment on available-for-sale investments 312 -
Share-based payment charge 3,261 3,466
Unwinding of discount on decommissioning provisions 6,143 5,093
Unrealised exchange losses 949 1,651
Net finance costs 13,790 (1,170)
Operating profit before working capital changes 275,423 292,333
Decrease/(increase) in trade and other receivables 47,052 (51,968)
Increase in inventories (1,297) (2,028)
(Decrease)/increase in trade and other payables (86,461) 1,265
Cash generated from operations 234,717 239,602
Decommissioning spend - (1,987)
Income taxes paid (5,455) (676)
Net cash flows from operating activities 229,262 236,939
INVESTING ACTIVITIES
Purchase of property, plant and equipment (392,934) (448,610)
Purchase of intangible oil and gas assets (21,874) (65,842)
Interest received 336 677
Net cash flows used in investing activities (414,472) (513,775)
FINANCING ACTIVITIES
Proceeds from bank facilities 49,485 24,980
Proceeds from bond issue 229,883 -
Share purchased by Employee Benefit Trust (2,524) -
Repayments of obligations under finance leases (36) (89)
Interest paid (707) -
Other finance costs paid (4,928) (11,880)
Net cash flows used in financing activities 271,173 13,011
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 85,963 (263,825)
Net foreign exchange on cash and cash equivalents (6,729) 1,959
Cash and cash equivalents at 1 January 124,522 378,907
CASH AND CASH EQUIVALENTS AT 30 JUNE 203,756 117,041
NOTES TO THE GROUP HALF YEAR CONDENSED FINANCIAL STATEMENTS
1. Corporate information
EnQuest PLC (EnQuest or the Company) is a limited liability company registered
in England and is listed on the London Stock Exchange and Stockholm NASDAQ OMX
market.
The Group's principal activities are the exploration for, and extraction and
production of hydrocarbons in the
UK Continental Shelf, Malaysia and the Norwegian North Sea.
The Group's half year condensed financial reporting for the six months ended 30
June 2013 were authorised for issue in accordance with a resolution of the Board
of Directors on 12 August 2013.
2. Basis of preparation and accounting policies
The annual financial statements of EnQuest PLC are prepared in accordance with
IFRSs as adopted by the European Union. The Group condensed financial statements
for the six months ended 30 June 2013 have been prepared in accordance with
IAS34 'Interim Financial Statements' as adopted by the European Union.
The Group half year condensed financial statements do 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 2012.
The financial information contained in this announcement does not constitute
statutory financial statements within the meaning of section 435 of the
Companies Act 2006.
Statutory accounts for the year ended 31 December 2012, on which the auditors
gave an unqualified audit report, have been filed with the Registrars of
Companies. The audit report did not draw attention to any matters by way of
emphasis and did not contain a statement under s498(2) or s498(3) Companies Act
2006.
The Group closely monitors and manages its liquidity risk. Cash forecasts are
regularly produced and sensitivities considered for changes in crude oil prices,
foreign exchange rates, production rates and development project timing and
costs. The Group's forecasts, taking into account reasonably possible changes as
described above, show that the Group will be able to operate within its current
debt facilities and have financial headroom for the 12 months from the date of
approval of the 2013 half-yearly results.
The directors are satisfied that the Group has sufficient resources to continue
in operation for the foreseeable future, a period of not less than 12 months
from this date of this report. Accordingly they continue to adopt the going
concern basis in preparing the condensed financial statements included in this
half-yearly financial report.
Accounting policies
The accounting policies adopted in the preparation of the half year condensed
financial statements are consistent with those followed in the preparation of
the Group's financial statements for the year ended 31 December 2012. The only
standards adopted at 1 January 2013 did not have any impact on the results of
the Group.
The Group has not early adopted any standard, interpretation or amendment that
was issued but not yet effective.
3. Segmental information
Management have considered the requirements of IFRS 8, with regard to the
determination of operating segments, and concluded that as the Group has only
one significant operating segment being the exploration for, and the extraction
and production of hydrocarbons, no segmental information disclosures are
provided in these half year condensed financial statements.
4. Exceptional items and depletion of fair value uplift
Additional depletion arising from the fair value uplift of oil and gas assets on
acquisition of US$4,537,000 before tax is included within 'cost of sales' for
the six months ended 30 June 2013 (2012: US$4,091,000).
The exceptional item disclosed separately in the six months ended 30 June 2013
relates to an accounting valuation of the shareholding in Ascent Resources plc
which resulted in a non-cash impairment of US$312,000.
There were no exceptional items in the six months ended 30 June 2012.
Income tax has been applied on these items at the actual statutory tax rate
where appropriate. In the six months ended 30 June 2012 the Group effective tax
rate was applied.
5. Earnings per share
The calculation of earnings per share is based on the profit after tax and on
the weighted average number of Ordinary shares in issue during the period.
Basic and diluted earnings per share are calculated as follows:
Profit Weighted average number of shares Earnings per share
after tax Six months ended 30 June Six months ended 30 June
Six months
ended 30
June
2013 2012 2013 2012 2013 2012
US$'000 US$'000 Million Million US$ US$
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Basic 94,927 126,456 780.3 784.5 0.122 0.161
Dilutive - - 16.6 11.9 (0.003) (0.002)
potential
of
Ordinary
shares
granted
under
share
-based
incentive
schemes
Diluted 94,927 126,456 796.9 796.4 0.119 0.159
6. Dividends
No dividend was paid or proposed in the six months ended 30 June 2013 (2012:
nil).
7. Property, plant and equipment
Office furniture and equipment Total
Oil and gas
assets
US$'000 US$'000 US$'000
Cost
At 1 January 2013 2,878,569 21,349 2,899,918
Additions 412,263 3,422 415,685
Acquired 54,864 - 54,864
Cost carry 95,302 - 95,302
Change in (2,563) - (2,563)
decommissioning
provision
At 30 June 2013 3,438,435 24,771 3,463,206
Depletion and
depreciation
At 1 January 1,075,884 7,443 1,083,327
2013
Charge for the 105,371 4,445 109,816
period
At 30 June 2013 1,181,255 11,888 1,193,143
Net carrying 2,257,180 12,883 2,270,063
amount: 30 June
2013
31 December 2012 1,802,685 13,906 1,816,591
30 June 2012 1,718,176 6,547 1,724,723
During the six months ended 30 June 2013, the Group acquired a non-operated
interest in the producing oil field Alba, in the UK Continental Shelf, which has
been accounted for as an asset acquisition.
8. Intangible oil and gas assets
US$'000
Cost
At 1 January 2013 200,692
Additions 11,669
Acquisition of interests in licences 1,310
Unsuccessful exploration expenditure written off (520)
Write off of relinquished licences previously impaired (6,553)
At 30 June 2013 206,598
Provision for impairment
At 1 January 2013 103,186
Write off of relinquished licences previously impaired (6,553)
At 30 June 2013 96,633
Net carrying amount: 30 June 2013 109,965
31 December 2012 97,506
30 June 2012 123,402
During the period ended 30 June 2013, the Group completed a farm-in to a 50% non
-operated interest in exploration licence P2006 Block 21/6b (Avalon).
The exploration expenditure written off during the six months ended 30 June 2013
relates to licences which have been relinquished.
9. Share capital
The share capital of the Company as at 30 June 2013 was US$113,433,000 (31
December 2012: US$113,433,000) comprising 802,660,757 ordinary shares of £0.05
each (31 December 2012: 802,660,757 ordinary shares of £0.05 each) and share
premium of US$52,184,000 (31 December 2012: US$52,184,000).
10. Other financial assets/liabilities and cash flow hedge reserve
2013 2012
US$'000 US$'000
Financial instruments at fair value
through other comprehensive income
Current assets
Cash flow hedges:
Forward foreign currency contracts 1,876 -
Current liabilities
Cash flow hedges:
Forward foreign currency contracts 6,529 121
Non-current liabilities
Cash flow hedges:
Forward foreign currency contracts 1,803 -
Financial instruments at fair value
through profit or loss
Current assets
Derivatives not designated as
hedges:
Commodity forward contracts 3,284 1,170
Current liabilities
Derivatives not designated as
hedges:
Commodity forward contracts - 299
Loans and receivables
Current assets
Other receivable 4,458 95,302
Non-current assetsOther receivable 16,186 19,447
Other financial liabilities at
amortised cost
Current liabilities
Other liability 17,150 17,150
Total current assets 9,618 96,472
Total non-current assets 16,186 19,447
Total assets 25,804 115,919
Total current liabilities 23,679 17,570
Total non-current liabilities 1,803 -
Total liabilities 25,482 17,570
The fair value measurements of the financial instruments (excluding Level 1
investments) held by the Group have been derived based on observable market
inputs (as characterised within Level 2 of the fair value hierarchy under
IFRS13).
Commodity forward contracts
At 30 June 2013, the Group held two put and call options in order to hedge the
changes in future cash flows from the sale of Brent oil production for
approximately 2,150,000 barrels of oil in the second half of 2013. These
instruments were deemed to be ineffective and are therefore designated as at
fair value through profit and loss (FVTPL). The derivative instruments had a
net asset fair value of US$3,284,000 (31 December 2012: nil) and unrealised
gains of US$3,284,000 were taken into profit or loss during the period and are
included within finance income (30 June 2012: unrealised gains of US$4,761,000
within finance costs). At 31 December 2012 there were three put and call
options in place to hedge 1,000,000 barrels of oil in the first quarter of 2013,
these derivative instruments had fully unwound by the end of June 2013 and
therefore had no fair value (31 December 2012: US$870,000). The gains of
US$870,000 at 31 December 2012 were reversed during the period and have been
taken to the profit and loss where US$1,170,000 is included in finance costs and
US$300,000 is included within finance income.
Forward foreign currency contracts
At 30 June 2013, the Group held 10 foreign currency contracts to partially hedge
the Group's exposure to fluctuations in foreign currencies, namely Sterling,
Euro and Norwegian Krone. Four of the contracts did not qualify for hedge
accounting, the net fair value of these contracts was a net liability of
USD$8,332,000 (31 December 2012: nil). The losses of US$8,332,000 were taken
into profit and loss during the period and are included within finance costs.
The other six contracts qualify for hedge accounting and the net fair value of
these derivatives was a net asset of US$1,876,000 (31 December 2012: nil). An
unrealised gain of US$713,000 (2012: nil) relating to the hedging instruments is
included in other comprehensive income net of deferred tax of US$1,163,000
(2012: nil). There was no impact in profit or loss during the period in respect
of these contracts (2012: nil).
At 31 December 2012, three foreign currency contracts were held, which had fully
unwound at the end of the period. During the period the unrealised loss of
US$121,000 was reversed through other comprehensive income. There was no impact
in profit or loss during the period in respect of these contracts (2012: nil).
Other receivable
As part of the farm out to KUFPEC of 35% of the Alma/Galia development, KUFPEC
agreed to carry EnQuest up to a cap of US$182,000,000 and agreed to pay EnQuest
a total of US$23,292,000 after production commences over a period of 36 months,
the fair value of which was US$19,300,000. Receivables were recognised for both
these at 31 December 2012. At 30 June 2013, the carry element has fully unwound
and during the six months ended 30 June 2013, US$95,302,000 was capitalised
within property, plant and equipment. The unwinding of discount on the other
receivable of US$866,000 is included within finance income for the six months 30
June 2013 (30 June 2012: nil).
The Group considers there to be no material difference between the fair values
of financial instruments, interest bearing loans and borrowings and their
carrying amount in the balance sheet.
11. Capital commitments and deferred consideration
At 30 June 2013 the Group had capital commitments of US$204,257,000 (31 December
2012: US$192,928,000).
At 30 June 2013, potential future commitments included US$45,000,000 contingent
consideration due to Canamens Limited after acquisition of two of its companies,
US$5,000,000 in respect of the Group's interest in Block 9/2b in the UK North
Sea (Kraken) and a further potential commitment of £7,000,000 (US$11,200,000) is
due in respect of back-in payments associated with the sole risk drilling
undertaken by the previous operator on the Kraken 9/2b-04 appraisal well and
9/2b-04z exploration sidetrack. During 2012 EnQuest acquired interests in
Kraken from Nautical Petroleum plc (25%) and First Oil plc (15%). The amounts
payable are US$150,000,000 to US$240,000,000 and US$90,000,000 to US$144,000,000
respectively, linked to independent reserves determination between 100MMboe and
166MMboe, by way of development carry arrangements in relation to Nautical and
First Oil's remaining interest in Kraken. All will become payable upon approval
of the Kraken Field Development Plan (FDP) by the Department of Energy and
Climate Change. The FDP is expected to be sanctioned in the second half of
2013.
As part of the KUFPEC farm in agreement, a reserves protection mechanism was
agreed with KUFPEC to enable KUFPEC to recoup its investment to the date of
first production. If on 1 January 2017, KUFPEC's costs to first production have
not been recovered or deemed to have been recovered, EnQuest will pay to KUFPEC
an additional 20% share of net revenue (giving them 55% in total). This
additional revenue is to be paid from January 2017 until the actual net revenue
or the deemed net revenue equals or exceeds the costs to first oil.
In addition, there is contingent consideration of US$20,000,000 after the
acquisition of Nio (Sabah) Limited which will be determined based on 2P reserves
associated with an approved FDP on Blocks SB307 and SB308 in Malaysia. An
exploration/appraisal well is expected to be drilled in the area in either the
second half of 2013 or early 2014.
There is also deferred consideration of US$3,000,000 dependent on FDP approval
in relation to the 20% interest in Kildrummy acquired from ENI UK Limited during
2012.
On 10 May 2013, EnQuest completed a farm-in agreement with Summit Petroleum
Limited ('Summit') in respect of the Avalon exploration block. Under the terms
of the agreement, EnQuest will carry Summit up to a cap of £12,500,000
($19,000,000) on the proposed well (net to EnQuest). EnQuest will bear 50% of
all other costs relating to the block.
On 29 May 2013, the Group agreed to acquire a 70% participating interest in,
and operatorship of the offshore Tunisian assets of PA Resources. Consideration
is US$23,000,000 on completion, a carry of up to US$93,000,000 following
sanction of the Zarat Field development and additional consideration of up to
US$133,000,000 depending on capital costs of 2P reserves in the Zarat and Elyssa
fields. The maximum amount of consideration above the initial US$23,000,000
completion payment will not exceed US$226,000,000.
12. Post balance sheet events
In June 2013, EnQuest agreed that KUFPEC UK Limited ('KUFPEC') and Spike
Exploration UK Ltd ('Spike') are to take 25% and 30% working interests
respectively in the Cairngorm discovery (blocks 16/2b and 16/3d). KUFPEC and
Spike have agreed to pay a premium by way of a promoted carry on the forthcoming
Cairngorm appraisal well and to pay their equity share of back costs. This
agreement completed in early August.
Principal risks and uncertainties
The Group's risks and uncertainties are unchanged from those disclosed in the
Group's Annual Report and Accounts 2012.
For the purposes of meeting the disclosure requirements of DTR 4.2.7(2) we
believe that the Group's principal risks and uncertainties for the remaining six
months are:
· Health, Safety and Environment (HSE): Oil and gas development, production
and exploration activities are complex and HSE risks cover many areas including
operational safety, personal health and safety, compliance with regulatory
requirements and potential environmental harm.
· Production:
o The Group's production is critical to its success and is subject to a variety
of risks including subsurface uncertainties, operating in a difficult
environment with mature equipment and potential for
significant unexpected shutdowns and unplanned expenditure to occur.
o Lower than expected reservoir performance may have a material impact on the
Group's results.
o The Group's delivery infrastructure on the UKCS is dependent on the Sullom
Voe Terminal.
· Project Execution:The Group's success will be dependent upon bringing major
new developments such as Alma/Galia and Kraken to production on budget and on
schedule. To be successful, the Group must ensure that project implementation
is both timely and on budget. Failure to do so may have a material impact on
the Group's performance.
· Reserve Replacement: Failure to develop its contingent and prospective
resources or secure new licenses and/or asset acquisitions and realise their
expected value.
· Financial: Inability to fund appraisal and development work programmes.
· Human Resources:The Group's success is dependent upon its ability to attract
and retain key personnel.
· Reputation: The reputational and commercial exposures to a major offshore
incident are significant.
· Oil Price: A material decline in oil and gas prices may adversely affect the
Group's results of operations and financial condition.
· Political and Fiscal:Changes in the political, regulatory or fiscal
environment affecting the Group's ability to deliver its strategy.
· Joint Venture Partners:
o Failure by joint venture parties to fund their obligations.
o Dependence on other parties where the Group is not the operator.
· 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.
We urge you to consider carefully the risks above, full details of which are
contained in the Group's Annual report and Accounts 2012.
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the condensed set of
financial statements for the six months ended 30 June 2013 has been prepared in
accordance with IAS 34 - 'Interim Financial Reporting' as adopted by the
European Union, and that the half year management report includes a fair review
of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and
Transparency Rules.
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
12 August 2013
Independent review report to EnQuest PLC
Introduction
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
2013 which comprises group statement of comprehensive income, group balance
sheet, group statement of changes in equity, group cash flow statement and
related notes 1 to 12. We have read the other information contained in the half
year financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.
This report is made solely to the company in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK and Ireland) "Review
of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-year financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK and Ireland) , "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, 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 Ireland) 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.
Conclusion
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 2013 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
12 August 2013
Half Yearly Report
| Source: EnQuest PLC