Delays to Kraken project hit production at oil minnow Enquest

NORTH Sea oil company Enquest has taken a 9pc blow to its market value after telling investors that delays to a cornerstone project have cut into its production for this year.

The heavily indebted independent was relying on oil flows from the Kraken project to bring in a $700m (£546m) a year boom to help erode its £1.5bn of debt after a major financial restructuring last year.

But the oil minnow’s latest trading update revealed that Kraken, which began production earlier this year, has failed to reach its full production rate and could drag the average rate for this year down by almost a quarter.

In addition, lower global oil prices could wipe a further 10pc from the project’s revenues. The group’s shares plunged by 9.2pc, or 3p, to end at 29.75p yesterday.

Over the first half of this year Enquest’s production averaged just over 37,000 barrels of oil a day, down from 42,500 barrels a day in the same months last year.

Enquest had expected 2017 to deliver a production boost to between 45,000 and 51,000 barrels a day but this is more likely to be 37,000 barrels a day, it said. The Kraken field, of which Cairn Energy owns 29.5pc, uses a complex floating production and storage (FPSO) vessel. Enquest said the well flows were better than expected but problems commissioning the FPSO vessel had hampered production.

Amjad Bseisu, Enquest’s chief executive, said the group was pleased to have started up Kraken in June after cutting production costs in half, compared to initial estimates. “The FPSO, however, is a complex vessel, designed and built to manage the heavy oil from the Kraken development, and it is taking longer than expected to commission during this initial period,” he said.

Mr Bseisu said he expected the field to increase production in the fourth quarter and to plateau at around 50,000 barrels of oil a day over the first half of next year. The woes were absent from Cairn’s trading update on Tuesday and shares in the non-operating partner took only a 1.5pc hit, falling to 179p early on following Enquest’s trading update.

The Edinburgh-based oil company made a return to profit after generating revenue of $10.8m in the first half of this year, compared to zero in the first half of last year. Its 20pc stake in Premier Oil’s Catcher North Sea project will add to cash flows later this year.