The largest independent oil producer in the North Sea has drafted in banking advisers to help it slash its debts in the face of the low crude price.
EnQuest’s credit rating was downgraded deeper into junk territory last week by Moody’s Investors Service. The oil company, which has offices in Aberdeen and London, is weighed down by £1.1bn in loans — 10 times its £119m market value.
Faced with a worsening outlook, EnQuest recently held a beauty parade for debt specialists. It is understood that Rothschild, which was hired by rival Premier Oil for a similar mandate, is set to be appointed shortly.
EnQuest’s share price has plunged by two thirds in the past year amid falling profits. Its £145m retail bond, issued in 2013, has fallen from 100p to 39p as of Friday, inflicting heavy losses on investors who backed the offer.
The company is the latest to show the strain of the fall in the oil price from a high of $115 a barrel in summer 2014 to $39.
Advertisement
EnQuest is set to be “cash flow negative” this year and next as it finishes off the £2bn development of a new field, Kraken, and grapples with persistently high operating costs in the North Sea. Having convinced banks last year to relax their lending terms, it is considering other options to shore up its balance sheet. These include the potential sale and leaseback of a £180m production ship, and auctioning a stake in Kraken.
When it was spun out of oil services giant Petrofac in 2010, it billed itself as a North Sea saviour. Its plan was to scoop up older operations as the larger oil companies sold out. The strategy has proved difficult to implement, while the oil-price slump has battered the company’s finances. Several operators have gone bust, including First Oil, which was a partner in the Kraken field.
The chancellor is considering introducing a fresh round of tax cuts for the North Sea in this month’s budget. It is unlikely to do much good, however, because the vast majority of operators are losing money, and so paying no tax.
EnQuest has sold forward about three-quarters of its 2016 production at $68 a barrel, providing some insulation against the weak oil price, and does not face imminent debt payments. The company declined to comment.