EnQuest have shown great project delivery but macro climate of weak oil prices is a concern for all oil-focused E&Ps
Companies: EnQuest Plc
This morning EnQuest announced first oil on their marquee development project Kraken. The field came on stream both on schedule and under budget, a real achievement and a rare event for a project as big and complex as this.
Management is right to praise the team that has delivered Kraken against a highly challenging backdrop. Richard Hall, Head of Major Projects said:
"I am extremely proud of the EnQuest Kraken team for their dedication, vision and sheer hard work and thank them for this exceptional performance."
The rate of ramp up in production is being left deliberately vague by Management with confirmation that the 13 wells drilled to date will be brought onstream in a phased manner to protect reservoir performance. As the prolonged process at Premier Oil's Solan field shows, there is no guarantee that production will increase quickly and analysts should remain cautious on how quickly production rises.
A more worrying concern for all producing oil companies is the long-term malaise in oil prices. Recent events have shown that any increases in oil price quickly lead to increased activity in shale producing regions. This, along with other recent supply boosts, has caused Brent to fall over 20% from the mid-April high of $57/bbl, down to $45/bbl today.
Costs have come down a lot over the last 2-3 years, but the North Sea is still a relatively high-cost region and if oil prices remain at these levels, cash generation for North Sea-focused producers will remain low.