After rising 100%, is Enquest plc still a buy after today's results?
Shares in North Sea oil producer Enquest(LSE: ENQ) jumped by as much as 5% in early deals this morning after the company issued a rather upbeat trading statement for full-year 2016 and announced an acquisition.
According to today's release, preliminary figures indicate Enquest's production was up 8.7% year-on-year for 2016 with unit operating capex at the lower end of guidance. Management was initially guiding for operating capex of $25 a barrel to $27/bbl. Reported cash capital spending is also expected to come in towards the lower end of management's expectations of $620m to $670m.
Meanwhile, net debt at 31 December 2016 should have been approximately $1.8bn, up from the reported half-year figure of $1.68bn -- even after Enquest's massive financial restructuring conducted during the fourth quarter.
A favourable deal
As well as its year-end trading update Enquest also announced today that it had agreed to acquire 25% of the Magnus Oil Field from BP.
As part of the deal, Enquest is also buying a 3% interest in the Sullom Voe oil terminal and supply facility, 9% of the Northern Leg Gas Pipeline, and 3.8% of the Ninian Pipeline System. The company already owns interests of 3%, 5.9% and 2% respectively of these assets. The net production acquired from this deal is approximately 4.2Mboe/d based on 2016's production figures. Additional reserves acquired are 15.9MMboe.
Enquest isn't paying a penny up front for this extra production capacity. In what can only be described as a sign of how desperate oil majors like BP are to divest uneconomic assets, BP has agreed to $85m for the Magnus stake, which will be funded by a deferred consideration payable from the cash flow of the assets. What's more, Enquest has the option to acquire the remaining 75% of the oilfield as well as BP's interest in the associated infrastructure. And BP has also offered Enquest $50m in exchange for undertaking the management of the physical decommissioning activities for the Thistle and Deveron oil fields.
All in all, after a rough 2016 it looks as if Enquest is well-positioned to take advantage of the rising oil price environment over the next 12 months. Capital spending has been cut to the bone, production is rising and it seems management has sealed the Magnus deal on extremely favourable terms.
City analysts are predicting that the company will report earnings per share 3.1p for 2017 and 23.7p for 2018 as production and oil prices both rise. Based on these figures, even though shares in Enquest have more than doubled over the past six months, I believe there could be plenty of upside still to come for long-term investors.
As shares in Enquest rise following the company's positive trading update, shares in Genel Energy(LSE: GENL) are falling today after the company revealed 2017 production would be below 2016's levels.
During 2016, Genel produced 53,300 boe/d from key Iraqi assets. For 2017 management is guiding for production between 35,000 and 43,000 bopd as $75m of maintenance work is carried out.
Still, the company did have some good news to report today. The Kurdistan government has finally started to pay its bills with $153m received by Genel during the year compared with an invoice value of $210m. Total cash proceeds received by the government during 2016 amounted to $207m including historic receivables.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.