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A tale of two trading updates

UK independent Enquest’s revised forecast for 2020 may be just six weeks removed from its previous guidance. But it is also a world away

North Sea and Malaysia-focused producer Enquest issued new advice on its 2020 operations on Thursday, a mere 44 days after it last did so and just a week before it announces annual results. It offers a sobering snapshot of the seismic shift in the energy market in recent weeks. 

Revised production, if one takes a midpoint of Enquest’s two ranges, is not so stark, down by a relatively modest 7pc. But two of the firm’s North Sea assets, the Heather and Thistle/Deveron fields—which were characterised as ongoing shutdowns—will now not restart in Enquest’s current working assumption. 

35pc – drop in Enquest capex

Combined production from these fields in 2019 was only c.6,000bl/d oe, admittedly. But the trend for smaller North Sea operators in recent years has been to extract value by prolonging the lifespans of and/or increasing productivity from smaller late-life fields, or even resuscitating previously shuttered assets. For a UK independent to, at least for the foreseeable future, give up on producing fields is a marked shift in trend. 

Expenditure numbers are bleaker—opex down by almost 29pc, mainly due to the non-returning fields, and capex down by just shy of 35pc. Nor does the firm expect this to be a short-term measure, targeting a further capex cut in 2021. Perhaps unsurprisingly, with 24 months of reduced spending, the firm concedes that “production is also likely to be impacted as a result”. 

Enquest hopes that its “quick and decisive action” in lowering its cost base will allow it to hit a target of reducing group free cash flow (FCF) breakeven to c.$38/bl oe in 2020 and $35/bl oe in 2021. 

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