EnQuest has agreed a debt restructuring and equity fundraising package that will strengthen its balance sheet by $400m in a deal designed to keep the company afloat until its $2.6bn Kraken oilfield in the North Sea begins production next year.
The independent UK oil company has been battling to keep Kraken — one of the biggest new heavy oil developments in the North Sea — on track at a time when revenues from its existing production are under pressure from weak oil prices.
A deal agreed on Thursday involved a share issue of up to £82m ($100m) and a capital restructuring worth about $300m to EnQuest in the form of extended repayment schedules and reduced debt service charges.
Amjad Bseisu, founder and chief executive of EnQuest, said the liquidity injection would remove doubts about the company’s ability to bring Kraken on stream. “It gives us the headroom to look to the future with greater confidence,” he added.
Kraken, located east of the Shetland Islands, was given the go-ahead in 2013 when crude prices were above $100 a barrel. In common with other independent oil companies engaged in capital-intensive projects, EnQuest has been left fighting for survival since oil prices crashed in 2014.
The number of bankruptcies has been limited because creditors and shareholders have a strong incentive to help keep such companies alive. Pulling the plug before projects are completed would greatly increase their losses.
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Mr Bseisu, who formed EnQuest in 2010 from UK offshore assets spun off by Lundin Petroleum and Petrofac, has committed at least £28m to the share issue from a fund controlled by his family that already owns 9 per cent of EnQuest.
Shares in EnQuest initially fell by more than 4 per cent on Thursday because of the dilutive effect of the rights issue but the losses were pared back later in the day as analysts gave the restructuring a cautious welcome.
“It buys time and running room,” said Stephane Foucaud, an analyst at FirstEnergy. “It is very reassuring to see Amjad Bseisu committing to over 30 per cent of the amount being raised.”
David Byrne, an analyst at Citi, said investors and creditors would not be able to fully relax until oil begins to flow from Kraken — scheduled for the first half of next year. “EnQuest needs execution and production ramp-up on Kraken to be delivered without any major delays or overruns for it to be able to successfully de-lever.”
The new field has projected peak production of 50,000 barrels a day — more than the total produced from EnQuest’s existing operations — and an expected lifespan of 25 years. Kraken is 70.5 per cent owned by EnQuest, with the remainder held by Cairn Energy, another independent UK oil company.
EnQuest’s total debts had ballooned to $1.7bn at the end of the first half of this year but the company has mitigated the financial pressure with aggressive spending cuts. Operating costs have fallen by 50 per cent since 2014 and total expected capital expenditure on Kraken has been reduced by 18 per cent.
As well as extended maturities, Thursday’s restructuring involved a change of terms that means EnQuest must only pay interest on its debt if oil prices rise above $65 a barrel — more than $13 above the current level.
About 61 per cent of high-yield noteholders have so far agreed to support the deal as well as some large retail bondholders. Jonathan Swinney, finance director at EnQuest, said he was confident of securing the 75 per cent backing needed for the scheme of arrangement to be approved by creditors.
EnQuest had previously held talks about selling a 20 per cent stake in Kraken to Israel’s Delek Group as a way to raise funds but Mr Beisu said Thursday’s restructuring was a better deal for shareholders.
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