January 24, 2013 10:38 pm

EnQuest bond targets UK private investors

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EnQuest is to become the first oil and gas company to raise funds through a corporate bond aimed specifically at UK private investors.

The FTSE 250 North Sea operator, whose market capitalisation stands at about £1bn, is aiming to raise up to £150m to help finance new projects – including the redevelopment of the UK’s first producing, but now abandoned, North Sea oilfield.

To attract retail investors, the company is offering a 5.5 per cent annual coupon on bonds that mature in 2022.

Jonathan Swinney, chief financial officer at EnQuest, said the company currently had a banking facility that enabled it borrow at an interest rate of 2.25 per cent above Libor, the interbank rate – giving the company an effective borrowing rate of about 2.5 per cent.

However, he explained that EnQuest was keen to add to its existing $900m facilities, which are limited to a maximum timescale of five years, by tapping the nascent retail bond market for longer-term financing.

Mr Swinney said EnQuest could not qualify as an ‘investment grade’ bond issuer because – in spite of its relatively large size and cash flows – it did not meet credit rating agencies’ minimum requirements for oil companies: a $3bn market capitalisation and daily production rates of 50,000 barrels of oil a day.

“We wouldn’t get investment grade from S&P or Moody’s because of their thresholds,” he said.

EnQuest, formed from the merging of UK North Sea assets of Lundin Petroleum and Petrofac, has forecast production for 2012 at 22,000-24,000 barrels of oil a day.

Among its assets are the Alma field, previously known as the Argyll field. Alma was the first oilfield to be developed in the North Sea but was abandoned because of the high water content of output. New technology has made retrieval of oil from the dormant field more economic.

Last May, EnQuest announced it had struck a deal with Kuwait’s national oil company to commit $500m towards financing the $1bn redevelopment project in a deal endorsed by the UK government.

Amjad Bseisu, chief executive of EnQuest, said investment horizons of up to 20 years required for offshore developments made it sensible to seek longer-term debt than typically on offer from banks.

In turning to the London retail bond market, EnQuest joins finance groups Tesco Financial Services and Provident Financial, property companies St Modwen, Unite and Workspace, and utilities National Grid and Severn Trent – all of which have launched debt issues in recent years.

EnQuest’s bond issue will have a minimum initial subscription amount of £2,000 and an offer period expected to close by February 8.

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