www.enquest.com
EnQuest believes that the UKCS represents a significant hydrocarbon basin in a low-risk region which benefits from an extensive installed infrastructure base and skilled labour. The 2009 Oil & Gas UK Economic Report estimated that at January 1, 2009, the projected reserves and resources still to be recovered from the UKCS were between 15.5 and 25 billion barrels of oil equivalent.
Goldman Sachs says EnQuest could do more North Sea deals
Investment banking heavyweight Goldman Sachs reckons more deals could be done in the North Sea by EnQuest (LON:ENQ).
The oil firm announced the acquisition of a 20 per cent stake in the Kraken oil discovery, which is operated by AIM quoted Nautical Petroleum (LON:NPE), on Monday.
It gives EnQuest a stake in an oilfield development project which is expected to be approved in the second half of this year.
Goldman analyst Christophor Jost says the Kraken acquisition highlights EnQuest’s ability to execute deals.
“(We) believe that some capacity remains for further deals to be done, especially if additional debt capacity is obtained,” the analyst added in a note to clients.
Goldman today repeated a ‘buy’ recommendation on the stock as it upgraded its target price from 193 to 198p a share to account for the Kraken transaction and the recent disappointment of the Tudor Rose well.
Jost said that EnQuest’s strong core value and production is especially attractive compared to other stocks followed by the bank.
“We are of the opinion that EnQuest’s focus on the North Sea, its financial resources and experienced management team give it the ability to add resources at a competitive cost, thereby generating considerable value, and view the low-risk political environment in which the company operates as a positive,” he said.
Going forward Jost believes that catalysts for the share price are likely to come from strong oil prices and the company’s ability to generate strong operating cash flow.
The conversion of contingent resources into reserves in the firm’s mature fields, such as Thistle and Broom, and the development of the Alma-Galia fields should also provide positive catalysts, he added.
On Monday EnQuest revealed that it was acquiring the stake in Kraken for a total of US$90 million from Canamens Energy.
It is paying an initial US$45 million upfront and a further US$45 million subject to the approval of the field development plan by UK Department of Energy and Climate Change (DECC).
"EnQuest is excited to be participating in the Kraken appraisal,” said chief executive Amjad Bseisu.
“Using the operator's estimates, the Kraken blocks immediately add over 30 per cent to EnQuest's end 2010 contingent resources. It also gives us potential upside from the surrounding exploration opportunities.
“We look forward to working with Nautical, the operator, to assist in taking the project forward.”
Bseisu says EnQuest is starting the year with strong momentum. Today’s news follow the recent sanctioning of the Alma and Galia development project, encouraging results from the Crathes exploration well and a farm-in to the Kildrummy discovery, he highlighted.
Following the transaction a number of analysts claimed that EnQuest may attempt to buy a larger stake in the oilfield development project in the future, while other also pointed out that Nautical may seek to sell some of its equity in the asset to raise project financing.
