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BP gets Magnus money back

Enquest pays off first loan issued in innovative North Sea financing deal

UK independent Enquest has paid back the loan afforded to it by BP when the latter sold it a 25pc stake in the Magnus field in a January 2017 deal, the firm said when reporting results for the first half of the year.

The loan was repaid by Enquest through improved cashflow from Magnus, where the firm has increased production to above purchase case rates and reduced opex by 66pc from $60/bl oe in 2015 to $20/bl oe. "The key driver of our improved cashflow in the [first half of 2019] has been Magnus," says Enquest CFO Jonathan Swinney. "Improved performance from Magnus has accelerated the cashflow from the asset."

Enquest secured the 25pc stake in Magnus for a base consideration of $85mn, a price paid by a vendor loan from BP. That loan was fully repaid in August.

In September 2018, Enquest agreed to take up an option in the initial deal to acquire the remaining 75pc in Magnus. The base consideration for this deal was $300mn—although the 'economic date' of the transaction was set at January 2017. Cash flows from that point onwards were reclassified as accruing to Enquest, reducing the base consideration.

Enquest paid $100mn, which it raised through a right issues, towards the consideration, with the remainder—$200mn less cash flows accrued to Enquest—a second BP vendor loan.

The two firms also agreed to a subsequent entry into a 50/50 share of Magnus net cash flow from the 75pc stake, up to a maximum of $1bn to BP.

"The key driver of our improved cashflow in the [first half of 2019] has been Magnus" — Swinney, Enquest

In the second half of this year, Enquest expects to start the profit share arrangement on the 75pc stake, while still paying down the second vendor loan for the 75pc stake. It began its repayments in December 2108 and the repayment period is five years. At the point of entering the profit share arrangement, Enquest will have its $100mn, plus interest, repaid.

BP has entered into a number of innovation financing deals as it divests non-core North Sea assets, including its November 2017 deal with UK independent Serica for its stakes in the Bruce, Rhum and Keith fields. Serica agreed to pay BP £12.8mn upfront, as well as a share of cash flows over four years, 30pc of BP's post-tax decommissioning costs and additional payments dependent on future asset performance and oil prices.

Enquest also reported that it has reduced its debt-to-Ebitda ratio to 1.8 by the end of the second quarter, ahead of a target of under 2 by the end of the year. The firm would like to operate at the lower end of a 1-2 range, according to Enquest CEO Amjad Bseisu.

Fellow UK independent Premier Oil said in July that it had cut debt by $180mn, or almost 8pc, in the first six months of 2019 and is on target for a $300mn year-on-year cut, a figure that could be boosted by divesting its stake in the Mexican Zama discovery.

Despite Enquest's commitment to fiscal discipline, Bseisu did not rule out acquisitions, although its appetite may depend on the oil price. The firm has a "target-rich environment in its existing assets with very high payback and a low cost of development", says Bseisu. But pursuing the 20+ development opportunities around its key Magnus and Kraken North Sea assets may be more attractive if prices, and thus Enquest's cashflow, go up, and less so if prices are weak.

The North Sea is Enquest's "back yard" and it "will continue to look at opportunities selectively", says Bseisu. "What you have seen us do in late-life assets is differentiated," he continues, as the firm has proven it can "reduce costs very significantly".

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