On the oil price recovery sector guru Peter Brailey has noted HERE that it is becoming very clear that demand is recovering back to pre-Covid levels along with production and storage decline trends. He now sees $100 oil this year as very likely and perhaps inevitable rather than possible. And so to a geared way to play this... An early February update from EnQuest plc (ENQ) noted that 2020 “average group production was 59,116 Boepd… free cash flow generation of approximately $210 million”, that “net debt was $1,280 million” and noted “acquisition of a material interest in Golden Eagle… building on… the acquisition and operatorship of a material interest in the Bressay field that concluded in January”. Taking each statement in turn:
The company’s production is largely from the UK North Sea, with also some in Malaysia. It also noted cash and available facilities of $284 million and existing portfolio 2021 net production guidance of 46,000-52,000 Boepd, with natural declines across the portfolio, anticipated cessation of production at the Dons field and continued low production at PM8/Seligi until repairs are completed. On 21st January 2021 it announced the Bressay transaction had completed, followed by a 4th February 2021 Golden Eagle announcement.
The acquisition of a 40.81% interest in, and operatorship of, Bressay was for £2.2 million and $15 million on regulatory approval of a field development plan, with it noted it one of the largest undeveloped oil fields in the UKCS and appraisal flow rates of up to 2,900 bopd achieved. There then followed an agreement to purchase a 26.69% non-operated interest in the Golden Eagle area of the UK North Sea, comprising the producing Golden Eagle, Peregrine and Solitaire fields, for an initial consideration of $325 million. This will add immediate production of c.10,000 boepd with unit operating expenditure expected to be c. $5/Boe and life of field operating and capital expenditure anticipated to be c. $20/Boe, with anticipated field life extending into the early 2030's.
Pre-those acquisitions and on much lower oil prices, $210 million annual free cash flow compares to a current market cap here of below £400 million, $550 million. The debt is a clear risk, but is also why the share price is where it is currently and there’s now a clear deleveraging opportunity. There is also that the company currently plans to finance the Golden Eagle transaction via some further debt and an up to $50 million equity raise. However, having survived the recent harsh oil price environment, it looks a geared way to play a now upturn and so at up to 25p, with clear potential to regain the circa 37p share price (currently a circa £625 million, $860 million, market cap) of 2018 as a rising oil price combines with existing and new production, Buy.
Filed under: EnQuest, Optibiotix, Ariana Resources, SkinBioTherapeutics, Powerhouse Energy
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