More cuts expected
Enquest halts rig work as oil sector issues ‘paper thin’ alert
Enquest is instigating cost cutting measures
Oil E&P company Enquest said it will not re-start production at the Heather and Thistle/Deveron fields as the sector copes with a downturn inflated by the coronavirus.
The company said it has reviewed each of its assets and related spending plans in light of the current lower oil price environment and will be implementing a “material operating cost and capital expenditure reduction programme”.
It added that “this quick and decisive action will significantly lower EnQuest’s cost base”.
Total combined production from these fields in 2019 was c.6,000 Boepd.
Industry body Oil and Gas UK has warned that there will be deep cost-cutting across the oil and gas industry unless it gets more help from the government in the face of falling prices caused by a glut of oil, compounded by the virus.
Oil prices have plummeted to a 17-year low while gas prices have halved.
Enquest said that for 2020, it is targeting base operating expenditure savings of c.$150 million, which would lower operating costs by c.30% to c.$375 million.
In 2021, the group is targeting unit operating expenditures of c.$15/Boe. These savings are driven primarily by cost savings at Heather and Thistle/Deveron, but also through the removal of non-critical and discretionary operating expenditures and support costs.
2020 cash capital expenditure is also expected to be reduced by c.$80 million to c.$150 million. The majority of the Group’s 2020 programme relates to the recently concluded drilling programme at Magnus and the two-well programme now underway at Kraken, with approximately $50 million of 2020 cash capital expenditure relating to the phasing of cash payments into 2020.
The Group’s 2021 capital expenditure programme is expected to reduce further, although production is also likely to be impacted as a result.
In its new business outlook report, OGUK warned production could fall to the lowest level since 2016. Investment in the North Sea, which supports about 250,000 jobs in the UK, could fall by a third.
OGUK has already for a ban on rig workers travelling to offshore oil platforms if they have returned from “hotspot” countries affected by the virus in the previous 14 days.
Brent crude oil prices were up 3.3% this morning to $25.69 after sliding to their lowest level since September 2003 yesterday. Some analysts are warning it could fall as low as $20.
Deirdre Michie, the chief executive of OGUK, said the latest oil price collapse has left the UK’s oil industry in a “paper-thin position”.
She has requested urgent meetings with ministers to establish a response to coronavirus.
“The offshore oil and gas sector is part of the UK’s critical infrastructure, providing the secure and affordable energy the country needs and is a key contributor to the economy in terms of supporting hundreds of thousands of skilled jobs, businesses and our wider economic contribution,” she said.
Ms Michie also warned that the industry’s supply chain is particularly exposed.
Some analysts say that the sector will be able to withstand a degree of pressure as a result of efficiency measures introduced in recent years which has made it more resilient to downturns.