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EnQuest buys rest of Magnus fields from BP, production up in first half

Taking all of the Magnus assets gives EnQuest 60mln barrels of reserves and will add significant additional production volumes

oil and gas operations
EnQuest repeated its full production guidance of 50,000 to 58,000 boepd

EnQuest Plc (LON:ENQ) has announced it will acquire a larger stake in the Magnus asset in the North Sea and that is launching a US$138mln rights issue.

In January 2017, the oil firm agreed on a deal with BP to acquire 25% of the Magnus, Thistle and Deveron fields – together referred to as the Magnus acquisition – and, it also received a right to acquire more of the project.

It will deliver a 60mln barrel increase to reserves and add significant additional production volumes.

The option has now been exercised and will give the EnQuest the remaining 75% of the assets, at a cost of US$300mln which will be covered partially by a cash flow sharing agreement between EnQuest and BP. A US$100mln cash consideration will be paid.

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Notably, the ‘economic date’ of the transaction date is set to 1 January 2017 and as such the cash flows attributable to the 75% will be adjusted in the respective company accounts, and, will alter the base consideration and the amount in the financing arrangement.

"The opportunity to add around $500 million of additional net present value to the group and an additional 60 MMboe of 2P reserves through the exercise of the Magnus option, is compelling,” said Amjad Bseisu, EnQuest chief executive.

EnQuest’s decision to take full ownership comes after successful new drilling in 2018, in which it completed the M-62 and M-63 wells, which has given confidence that it can drill effective, low-cost wells on the fields. It intends to spend US$27mln to drill wells at Magnus and the Canute development area.

Bseisu added: “Our view of Magnus as a high-quality asset has been enhanced since acquiring our initial 25% interest through the successful completion of two infill wells and the application of our asset life extension expertise.

“We have also identified two further infill wells, both of which have very strong returns, to drill in 2019.”

Along with the acquisition deal, EnQuest has, in turn, expanded its previously agreed decommissioning arrangement with BP.

First half financial results

Separately, EnQuest released financial results for the six months ended June 30, a period that saw production rise 45.9% to average 53,900 barrels oil equivalent per day. It came as the Kraken field continued to ramp-up and following the additional new wells across the portfolio (at Heather, Magnus and PM8/Seligi, plus work-overs at the Alma/Galia operation).

EnQuest repeated its full production guidance of 50,000 to 58,000 boepd.

Revenue in the half-year rose to US$548.3mln, up from US$294.8mln, while earnings (EBITDA) more than doubled to US$311mln from US$151mln.

Cash generation lifted to US$318mlnm from US$136mln, while capital spending reduced to US$125mln from US$205mln.

The company had US$256.8mln of net cash at the end of the first half, and, it had net debt of US$1.97bn. It told investors that it continues to prioritise maximising cash flow to facilitate the reduction of net debt.

Bseisu said: "We continue to focus on debt reduction and liquidity and have seen the early cancellation of $75 million of the group's credit facility and the execution of a ring-fenced financing agreement in relation to a 15% interest in Kraken.

“The group's improved cash generating capacity will further support a reduction in debt.”

Quick facts: Enquest Plc

Price: 18.1 GBX

AIM:ENQ
Market: AIM
Market Cap: £306.94 m
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