Source: Getty Images

North Sea Oil Producer Jumps on Hopes New Field to Ease Debt

  • EnQuest’s Kraken field a ‘catalyst’ for deleverage: Jefferies
  • Project shows execution strength of EnQuest: GMP FirstEnergy

EnQuest Plc climbed the most in three months in London trading on speculation borrowings will fall following the start of production at its Kraken oil field in the U.K. North Sea.

EnQuest rose as much as 11 percent on Monday, the biggest gain since March 15, after saying Kraken’s first oil was delivered on June 23.

“This is the big catalyst for EnQuest that we were looking for to drive material deleverage of the balance sheet,” Niki Kouzmanov, an analyst at Jefferies International Ltd. in London, said in a note. Net debt was $1.91 billion at the end of April.

EnQuest gave the go-ahead for Kraken, in the East Shetland basin, in late 2013, assuming an oil price of $90 a barrel for the 25-year project. Less than a year later, the market entered its worst slump in a generation, forcing explorers to curb drilling plans in the North Sea, one of the world’s costliest places to pump oil. Kraken is one of the few projects in the region to start on time and under budget.

“This has been the exception rather than the norm in the North Sea over recent years,” Stephane Foucaud, an analyst at GMP FirstEnergy in London, said in a note. “This highlights the execution strength of EnQuest.”

Kraken is also the only heavy oil project set to come online this year in the wider North Sea, according to energy consultancy Wood Mackenzie.

Phased Development

“Although other heavy oil fields have produced in the U.K., this is the first of a batch of projects that were discovered some time ago but were previously deemed too challenging technically to develop," Kevin Swann, research manager of U.K. Upstream at Wood Mackenzie, said in a note.

EnQuest, which owns 70.5 percent of the Kraken development, traded up 7.6 percent at 31.75 pence as of 1:51 p.m. local time. Cairn Energy Plc, which owns the rest of the field, was down 0.6 percent to 168.9 pence. Benchmark Brent crude was at $45.63 a barrel.

Kraken’s 13 wells are being brought online in a “phased manner,” EnQuest said Monday in a statement. “EnQuest is moving from a period of heavy capital investment to a focus on cash generation,” Chief Executive Officer Amjad Bseisu said.

Kraken will support more than 1,000 jobs in the U.K. for each year of its lifespan, the U.K. government said in a statement.

“This is a landmark project for EnQuest and the U.K. oil and gas sector as one of the largest new oil fields to come on-stream in the North Sea in a decade,” said Greg Clark, the U.K.’s business and energy secretary.

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