The term 'alternative facts' may now be increasingly present in the public discourse, nonetheless, a pair of stock market updates from Cairn Energy PLC (LON:CNE) and EnQuest plc (LON:ENQ) have presented something of a head-scratcher for investors.
The two companies are joint owners and partners in the Kraken heavy oil field, located in the East Shetland basin, but, evidently, they don’t agree on the amount of oil reserves that exist there.
Cairn is a minority stakeholder in Kraken, with a 29.5% interest, and, as part of its annual results, it told investors that a downgrade of reserves at Kraken had led an impairment of some US$166mln.
In barrel terms, Cairn cut off around 6.8mln the field’s crude endowment.
Quizzically, however, Kraken’s operator EnQuest plc (LON:ENQ) separately issued a statement disputing Cairn’s view of the field’s reserves.
EnQuest instead told its investors that the EnQuest estimate of reserves remains “materially unchanged”.
Tuesday Morning’s dealing saw EnQuest shares slump about 10% lower to 16.67p, whereas Cairn’s price was down 3.95% at 168.6p.
UBS analyst Amy Wong, in a note, said Cairn’s move to impair the reserves was “not surprising given the cuts to Kraken production forecasts over the last 12 months.”
Divergent forecasts for future production
EnQuest noted that the partners “utilise different technical approaches to Kraken production forecasting in preparing their reserve profiles”.
For context, Kraken struggled somewhat (against previous expectations) during 2018 with output rates impeded by problems with the floating production vessel, weather disruption, and higher than expected volumes of water flowing with the crude.
So, whilst the co-owners may perhaps be able to agree on the ultimate volume of oil in the ground beneath Kraken they (or their auditors) have different opinions over how much will be recovered in the future and thus come up with different reserve numbers.
EnQuest, which owns 70% of Kraken and reports its 2018 results on 21 March, today said it does not recognise any impairment charge related to the Kraken asset.
In 2018, Kraken produced an average of 30,300 barrels of oil per day. EnQuest last month told investors that it is forecasting Kraken’s production for 2019 will be between 30,000 and 35,000 bopd.
Investors will presumably now have to watch the performance of the Kraken field closely over the coming year and see which (if any) partner chooses to course correct.