Enquest delivers fresh disappointment

Shares in oil producer Enquest sank to an 18-month low on Wednesday at 116p following news of further delays to first oil at the Alma and Galia fields in the UK North Sea. And while production grew by 18% during the six months to June, significant growth very much depends on getting these fields up and running.

"Construction work in the UK yard has advanced more slowly than expected," said Enquest on Wednesday. "To avoid the worst of the winter weather, sailaway of the floating production, storage and offloading (FPSO) unit is now planned for spring 2015, with first oil in the middle of 2015."

It's the third delay to the project which had been due to begin late last year, and although Enquest maintained full-year average production guidance at between 25,000 barrels of oil equivalent per day (boepd) and 30,000 boepd (it was 25,292 boepd in the first half), the City thinks next year will be a struggle.

"The negative impact of the Alma/Galia delay on production profile will be seen in 2015 with our 2015 estimates decreasing from c.35 thousand barrels of oil equivalent per day (kboe/d) to c.30kboe/d," says Westhouse Securities.

JPMorgan reckons the delay will add a further $100 million (£59.9 million) to project capital expenditure, cutting the broker’s our core net asset value (NAV) by 8-10p per share, or 5-6%.

Revenue grew by over 10% to almost $504 million in the six months to June, said Enquest, although profit after tax and net finance costs fell 23% to $75 million. Westhouse has pencilled in $150 million for the full-year and $153 million for 2015.

"The stock is trading at a 2015 price-to-cash flow ratio (P/CF) multiple of 3.4 - relatively cheap, but not the cheapest in the North Sea peer group," says Westhouse, which calculates a core NAV per share (risked) of 131p and unrisked at 171p

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser..