EnQuest, an oil company working to develop the Kraken oilfield in the UK North Sea, has managed to further cut the project costs. It has also reached a deal with creditors over debt restructuring.
The company has already reduced the Kraken costs estimates several times. In a statement on Thursday, EnQuest said that in October 2016, the group “is now reducing its gross full cycle capital expenditure estimate for Kraken by approximately a further $100 million, down to approximately $2.5 billion, mainly as a result of better performance on drilling and subsea production systems.”
The Kraken field is spread over 42 km, at a depth of 1,300 meters below sea level and contains, about 147 million barrels of heavy crude oil in the 2P probable reserves category. It will be developed using an FPSO unit, to be supplied by Malaysia’s Bumi Armada.
Providing an update on the vessel construction, EnQuest said: “The Kraken FPSO is very close to mechanical completion, with the focus now on pre-commissioning and commissioning activities. All four engines and boilers are mechanically complete. The latest reductions in the overall full cycle gross capex estimates for Kraken reduce EnQuest’s 2016 net cash capital expenditure by a further $50 million, now down to between $620 million and $670 million.”
The Kraken development continues to be on track for the first oil in the first half of next year, with the FPSO set for sail away in the second half of 2016.
At the same time, EnQuest has informed that it has reached an agreement in principle with its lenders on debt restructuring.
The company has explained that, without restructuring, the factors such as the low oil price environment, coupled with significant cash resources needed for offshore field developments, would see the Group have insufficient cash resources to bring Kraken to first oil and to meet all of its payment obligations as they fall due.
Jock Lennox, Chairman of EnQuest, said: “We are very pleased to announce today a comprehensive package of measures to place EnQuest on a strong footing to deliver our Kraken development in H1 2017 and ensure that we are well placed to deliver value to our shareholders in the medium term.
“Over the last two years, EnQuest has taken action to implement extensive cost-saving programs to refocus the business for the low oil price environment, including reducing and re-phasing both capital and operating expenditures. Simultaneously, EnQuest has been working on a range of other funding and liquidity options, which culminate in the Restructuring announced today. We have agreed a range of improvements on the terms of our debt facilities and we remain grateful to our RCF lenders for their continuing support. We have also reached agreement with approximately 61 percent of our High Yield Noteholders on the Proposed Note Amendments.”
Lennox said that the proposed restructuring, which encompasses amendments to EnQuest’s existing RCF facility, amendments to the High Yield Notes and the Retail Notes, the renewal of the company’s Surety Bond Facilities and the Placing and Open Offer which is expected to raise £82 million in gross proceeds, will significantly improve the liquidity position of the Company so that EnQuest can deliver first oil from the Kraken development in H1 2017 in accordance with management’s projections.
“The Board remains confident in the long term potential of the EnQuest business plan, and is of the view that the proposed Restructuring, will enhance value for all stakeholders,” Lennox said.