The oil company is purchasing BP’s Magnus oilfield.
Enquest launches $138m rights issue to complete the acquisition
- The group reaffirmed 2018 guidance and reported material growth in production and cash generation
- The shares opened lower in excess of 10% due to deep discounted rights issue and as revenue fell short of expectations
- We recommend Enquest as a ‘buy’ for investors seeking capital growth and willing to accept a medium level of risk.
This morning oil company Enquest posted its half year results; the operating performance has been overshadowed by the announcement of a $138m rights issue to fund the acquisition of the remaining 75% of the Magnus field from BP Plc and to further develop the field further.
The shares in early morning trading have opened lower in excess of 10% which may also be explained by the fact that revenues of $548m fell short of consensus expectations (made up by 1 analyst). But the operating performance showed a material improvement on the previous year as new production facilities ramp up, especially at the Kraken field.
Slightly below expectations, group net production was up by 45.9% to 53,990 barrel of oil equivalent (boepd) while the operating cost per barrel fell further to $22.6 boepd. Along with the rise in production, the rise in oil price also made a significant contribution to rising revenues but these were partially offset by oil hedging strategies.
The group’s reported profits rose to $43.3m from $29.3m while cash generation improved materially to $313.3m which was helped by lower capital expenditure compared to the previous year. The net debt reduced to $1.9bn and management’s focus remains on reducing this further from its improving cash flows.
The steep decline in the share price this morning is partly explained by the lower than expected production and revenues but the bigger impact is the 3 for 7 rights issues at 21 pence a share which is a deep discount by 46% compared to yesterday’s closing price. Although short of expectations, the latest half year results show that Enquest is making progress in developing its portfolio and production facilities and we believe that it will make good headway to reducing its debt. Part of the future success is down to oil prices remaining steady or heading higher but the put options in place for $66 a barrel for the remainder of 2018 and the fact that management have kept their full year production guidance of 50,000-58,000 boepd should provide assurances for the short term.
For the longer term, we and the management remain optimistic as new production facilities come online after years of investment. We therefore maintain our ‘buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk.
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