April 5, 2011 11:11 pm

N Sea projects threatened over tax rise, warns EnQuest

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EnQuest has warned that hundreds of millions of dollars in potential investment earmarked for North Sea projects is under threat because of the recent UK North Sea tax increase.

Comparing the rise with “a two-by-four in the face”, Amjad Bseisu, chief executive, said EnQuest was reconsidering up to $400m (£246m) of investment in longer-term, marginal oilfields.

“We have about eight or nine undeveloped discoveries and we now will have to look at those quite hard to see which are economic and which are not,” he said.

The North Sea oil producer said it was spending $350m on capital expenditure this year in which it hoped to boost average production to 26,500 barrels a day (b/d), an increase of 26 per cent on 2010.

That forms part of the company’s broader programme to invest $1bn developing North Sea assets – a plan Mr Bseisu said was now “compromised”.

Sanjeev Bahl, an analyst at Numis Securities, said the negative tax increase should not be overdone.

“What EnQuest demonstrated in 2010 is that they can increase their oil reserve base, generate a lot of cash and end the year [oil] with more [oil] than they started . . . they can repeat that in 2011.”

The company’s warning came as it reported its first unaudited annual results since listing last April.

In the year to December 31, turnover rose from $318.9m to $614.3m on a
pro-forma basis, which includes the full-year earnings from the North Sea assets of Petrofac and Lundin Petroleum, which EnQuest acquired in April 2010. Reported revenues rose from $234m to $583.5m.

Pre-tax profits rose from $11m to $56m driven by increased average production, from 13,613 barrels a day to 21,074.

The company said it had no debt and $41m in cash at the end of 2010. The shares closed flat at 137.6p.

FT Comment

EnQuest has been the most vocal critic of the North Sea tax rise. Since the company listed in London a year ago it has become an emblem of the fleet-footed independent companies that have helped revitalise the UK’s North Sea, mostly by snapping up marginal assets. On the day the budget was announced its shares fell 12.5 per cent – a shock its respected chief executive originally put down to “an error” on his BlackBerry. Is the market’s reaction fair? In the short term the company will boost production and cash flow, underpinned by a 2010 increase in its oil reserves to 88.6m barrels, up 10 per cent from 2009. Trading at 11 times 2011 earnings brings it closer to smaller peers such as Ithaca, trading at 10 times, than larger Premier Oil, trading on 20 times. That could prove good value if EnQuest sustains its production profile in the long term.

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