Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EnQuest PLC (ENQUF, Financial) has significantly reduced its net debt to $320 million from a peak of $1.7 billion.
- The company achieved a high operating efficiency of 93% for the first half of 2024.
- EnQuest PLC (ENQUF) generated $55 million of free cash flow in the first half of the year.
- The company has a strong liquidity position with $566 million of liquid assets available.
- EnQuest PLC (ENQUF) has secured new decommissioning contracts, including a full decommissioning management deal with Shell for the Greater Kittiwake area.
Negative Points
- Production is expected to be in the lower half of the guidance range due to planned shutdown activities and maintenance.
- The UK fiscal regime changes have created a challenging environment, impacting cash flow and investment decisions.
- Gas revenues fell significantly due to lower prices and reduced third-party volumes.
- Unit operating expenses increased to $22.8 per barrel of oil equivalent, reflecting higher tariffs.
- The company faces uncertainties in the regulatory framework for carbon capture and sequestration projects.
Q & A Highlights
Q: Can you provide some color on how you see the market for North Sea assets and your preference in terms of commodity?
A: The market for North Sea assets is strengthening as more packages become available. Despite the volatile tax system, we are now engaging in several M&A fronts in the UK. We prefer gas but will continue to look at assets where we can add value, reduce costs, and make incremental investments. Internationally, we are focusing on Southeast Asia, leveraging our operating capabilities there.
Q: Do you see international opportunities being Malaysia-focused, or are there other locations you're considering?
A: While Malaysia remains a key focus, we are also exploring opportunities in Indonesia and other parts of Southeast Asia.
Q: Have you seen an increase in willing sellers in the North Sea due to the current fiscal environment?
A: Yes, the increase in tax and removal of investment allowances have made cash flows from these assets very low, prompting more operators to consider selling. In our hands, these assets would generate significantly higher cash flows due to our tax cover.
Q: How do the latest proposed changes to the EPL impact your capital spending plans for 2025 and beyond?
A: We are waiting for the government to issue the budget in November before finalizing our 2025 plans. However, we anticipate shifting more projects and capital to Southeast Asia due to its stable fiscal regime.
Q: How should we think about EnQuest leveraging its decommissioning capabilities in the UK and beyond?
A: We are exploring different commercial models for decommissioning, including taking over late-life assets and executing decommissioning. We are also investigating a service approach but have yet to finalize this model.
Q: Can you talk about how a CO2 storage business model might work and its competitiveness with UK and EU emissions trading schemes?
A: We have four fields for carbon capture in East Shetlands and plan to use existing infrastructure to handle CO2. We aim to inject CO2 and get either tax relief or ETS relief, creating a commercial model that doesn't rely on subsidies.
Q: What is the timeline and process for utilizing Bentley tax losses against CT/SCT?
A: The $1.9 billion in tax assets within EnQuest are simple to utilize through transactions. The additional $1.2 billion from Bentley will be recognized in the '25-'26 period. Utilizing these tax assets will uplift the value of any transactions.
Q: Can you give us a sense of how the slowdown in UK investment is affecting the supply chain?
A: The North Sea supply chain is world-class but has seen a reduction in personnel and equipment over the years. While EnQuest maintains good relationships with its supply chain, the government needs to provide a stable framework to protect these skills and jobs.
Q: When do you expect to complete the share buyback, and are you considering dividends to cover any shortfall?
A: We are making good progress on the buybacks and will continue. We will reassess next year to determine whether to continue with buybacks or consider dividends as part of our capital allocation strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
