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Enquest’s share price slumps on production guidance, equity raise!

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Oil pipes in an oil field
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UK share prices continue to struggle for traction as Covid-19 concerns stalk investor confidence. But Thursday has proved particularly cruel for the Enquest (LSE: ENQ) share price. The oil producer was recently trading 8% lower from last night’s prior close.

Enquest has slipped following a chilly reaction to a fresh production update. News of an upcoming equity raise to fund an acquisition hasn’t helped matters either. At 12.8p per share, it has erased all gains made in a bubbly start to February. Brent oil’s ascent to one-year highs just below $59 per barrel hasn’t stopped Enquest’s share price from toppling either.

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Production tipped to slip

Enquest pulled an average 59,116 barrels of oil equivalent out of the ground per day in 2020, it said. This was down from the 68,606 barrels of the black stuff it produced in the prior year.

Cheerily, its gigantic Kraken oilfield in the North Sea generated a daily average of 26,450 barrels of oil in 2020. This was at the top end of guidance thanks to the high operation of floating production storage and offloading (FPSO) units at the asset. Enquest’s share of Kraken output averaged 25,172 barrels a day in 2019.

However, the company reckons that group production won’t be quite as rosy in 2021. It estimates average daily output of between 46,000 and 52,000 barrels of oil for this year. This is despite the business anticipating that Kraken will produce somewhere between 30,000 and 35,000 barrels on an average day in 2021.

Enquest said that the decommissioning of its Dons field in the first quarter will impact annual production this year. Meanwhile, low production at its PM8 and Seligi fields in Malaysia — due to riser repairs — will damage output until expected completion during the second half, the company noted. Natural declines across its asset base are expected to take another chunk out of 2021 production.

Enquest acquires Golden Eagle

In other news Enquest announced the purchase of a stake in the Golden Eagle area in the North Sea. The business will purchase the entire 26.69% non-operated equity interest held by Suncor Energy UK for an initial $325m. The territory comprises the Golden Eagle, Peregrine and Solitaire oilfields.

The company’s chief executive has described Golden Eagle area as “a high-quality, low-cost UK North Sea development.” He said it “will add immediate material production and cash flow to EnQuest and will allow us to accelerate use of our substantial tax losses.”

The company reckons that Golden Eagle has “significant” development potential left, with the life of the oilfield stretching into the early 2030s. It plans to finance the acquisition via a new secured debt facility, post-tax cash flows between January 1 2021 and completion, and an equity raise.

Enquest says that an additional contingent consideration of up to $50m will be payable for the Golden Eagle purchase in the second half of 2023. This is dependent upon the prices of Brent crude between July 2021 and June 2023.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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