Full Year 2024 EnQuest PLC Earnings Presentation Transcript

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2025-03-27 23:02:53
Summary

    Mar 27, 2025 / 10:00AM GMT
    Presentation
    Mar 27, 2025 / 10:00AM GMT

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    Corporate Participants
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    * Amjad Bseisu
    EnQuest PLC - Chief Executive Officer
    * Jonathan Copus
    EnQuest PLC - Chief Financial Officer
    * Steve Bowyer
    EnQuest PLC - General Manager North Sea
    * Craig Baxter
    EnQuest PLC - Head of Investor Relations

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    Conference Call Participants
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    * Dan Slater
    Zeus Capital - Analyst
    * Mark Wilson
    Jefferies - Analyst

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    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Thank you for being with us today. My name is Amjad Bseisu. I'm the Chief Executive Officer of EnQuest. Joining me today are Chief Financial Officer, Jonathan Copus; and Steve Bowyer, our North Sea Managing Director.

    Steve and Jonathan continue to provide great leadership as we drive EnQuest forward in our second phase despite a challenging fiscal environment in the UK. We remain very much focused on delivering our new growth of our journey.

    As I'm sure you're all aware, I wanted to advise all attendees with regard to discussions on the possible combination between EnQuest and Serica. We are bound by strict takeover panel rules. Accordingly, I'd refer you to the RNS announcement released by EnQuest and Serica on Friday, the 7 March, and confirm that we won't be able to answer any questions relating to this possible combination today.

    Let's start by taking a look at our strong fundamentals that underpin our business. Our strategy is underpinned by our capability as a top quartile operator both in the UK and now in Southeast Asia. This is demonstratable across all our life cycles of our assets. I'm very proud to talk about our production performance in 2024, where our operated assets were 90% production efficiency, and 2025 is off to a similarly impressive start. And that's great considering the vintage of our assets, which is long life.

    With 96% of our 2P reserves under our operatorship, we maintain control over asset management a factor which has been a key to our operational excellence over the years. During 2024, we celebrated 10 successful years of operations in Malaysia by being nominated the operator of the year in the Malaysia Upstream Awards. I was very proud to attend those celebrations for the 10-year anniversary, alongside a wonderful team led by Radzif Ahmed, our General Manager in Malaysia.

    Our expertise is also now extended to decommissioning performance, where in the UK, we've executed a further 22 wells in 2024 across the Thistle and Heather projects. This will take our total over the past three years to 70 wells plugged and abandoned, around 35% of the well P&A activity across the entire Central and Northern North Sea, being the largest P&A activity by a long shot.

    Our performance also in decommissioning extends to Malaysia, where we've been recognized as the best P&A operator by Petronas for 2023 and 2024. It was further validated by the decision to take -- taken by Shell and our GKA joint venture partners to hand over the decommissioning management of the Greater Kittiwake area to EnQuest last year. We see this as a key enabler for us to transact in the UK in the future.

    Equally as impressive, following a period of significant deleveraging, where we paid more than $1.6 billion of debt down, EnQuest now has a balance sheet that is primed for stronger growth. Our net debt at the end of the year was $386 million, following a redetermination of our RBL facility, which remains fully undrawn, our liquidity has increased from $475 million at the end of the year to $549 million at the end of February 2025.

    Our solid footing will mean that we are in a position to build on last year's share buyback. And I'm very pleased to announce that our commitment to return capital continues during 2025 and that we will do that via a $15 million dividend subject to shareholder approval at our Annual General Meeting in May.

    We've been clear in our strategic focus also that executing a transaction, which materially grows our UK business and accelerate the use of our $2.1 billion tax asset is part of our main strategy going forward. When I say that we are a top quartile operator, I wanted just to show you a selection of proof points based on industry metrics.

    As you can see, safety underpins everything that we do, and it is our license to operate. We see ourselves firmly in the upper quartile in the health and safety area. We have a strong track record also in drilling and well workover and our decommissioning performance continues to set new standards. When we took over an asset and we've done so on nine assets over our life, we provide focus to its operations and have been consistently successful in applying our differentiated capability to lower cost and most importantly, increase production uptime.

    Our 2024 group-wide production efficiency of 90% again represents a year-on-year improvement, which is a great achievement, given the maturity of our infrastructure. Magnus, for example, achieved its 40th year, which is great given the uptime performance at Magnus, but also that we've taken it at 7,000 barrels a day and is doing about 15,000 barrels a day today. Our 90% production efficiency is 13% higher than the UK average. These capabilities have enabled us to consistently deliver on target and provide a strong foundation to pursue value-driven growth.

    Next slide, again, in terms of solid performance gives us the ability to grow our business and generate value. In 2024, our 2P reserves were almost fully replaced by Southeast Asia growth and actually would have increased on a comparative basis once the reserves from Vietnam are recognized.

    Since our inception, we've had a 40% reserve replacement ratio -- 140% reserve replacement ratio. We started off with 80 million barrels. We have produced 200 million barrels over our life and still have around 170 million barrels left to access. We operate 90% -- 96% of our 2P reserves, of which 76% represent proven volumes, a very high ratio of proven to 2P.

    Our approach also aligns with our goals of sustainability as a transition company, making the best use of resources and assets that have already been discovered or developed and managing them responsibly. We are set for our foundational growth, while we continue to execute opportunities which provide organic growth, we are very much focused also on delivering transformative acquisition.

    Given our significant relative tax advantage in the UK, I expect us to grow our business materially in the UK by accelerating the value within our tax asset. In recent months, we have shown that we have delivered diversified growth in Southeast Asia, including the Phase 1b project, which adds 70 million SCFs a day in Malaysia and allows us to access the existing resource there, but also in our acquisition of Harbour Energy's business, which we expect in Vietnam, which we expect to complete in the next quarter.

    The recent deals we have agreed in Southeast Asia highlight our commitment to growth, a disciplined approach to M&A and a strategy to invest capital where we identify the most favorable returns. In all of our endeavors, we also look to diversify the portfolio and improve our overall carbon intensity by adding more gas to our commodity mix.

    And as you've seen, our development projects in Asia have focused on gas with Phase 1b and the DEWA cluster, which is a new PSC that we've received in the last year to develop possibly a 500 BCF discovered resource. In short, we have a strong track record of delivery. We have a great team that gives us differentiated capabilities, and we are well placed to execute our strategic claim -- strategic aims.

    Thank you. I'll pass to Jonathan to take us through the financial performance.

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    Thanks very much, Amjad. Good morning, everybody. I thought a good place to start going through the finances -- is just to sort of pause and reflect on our capital structure. And when I stood here last year, I talked about our priorities, and I talked about simplifying our capital structure, but also about capital discipline as well. So fast forwarding a year, we have continued to simplify our capital structure.

    And today, we have a strong foundation of bonds, and we demonstrated the support of those through our tap, which I'll talk about a little bit later. And on top of that, we have a flexible RBL, which is a great tool in terms of managing our growth pathway as well.

    Capital discipline is absolutely essential to everything that we do. It's within our DNA as an organization. And our investment portfolio is focused around fast payback opportunities. And as Amjad has said, what we're really concentrating on here is about delivering growth and about delivering diversification as well. And if we deliver that, we can see we're on this pathway on shareholder returns, and we've made further progress around this pathway at today's results with the declaration of the dividend and also the internationalization that Amjad has spoken about as well.

    So now moving on to look at the income statement. So in 2024, our revenues were $1.2 billion. And as Amjad mentioned, our production was down about 7% year-on-year, and Steve will talk us through that. What we also saw in revenue is that our Magnus gas was lower, both in terms of pricing and volume. But of course, that just passes through that asset and it's offsetting our cost of sales. And so we saw a reduction in our cost of sales to $787 million.

    Within that figure, our production costs were flat year-on-year. On a unit basis, they were $20.6 a barrel. And as we saw at the half year, we continue to see tariff components at SVT increasing, and that was $4.7 a barrel across the year.

    Our adjusted EBITDA was $673 million, and we had an impairment in the year of $71 million, and that reflects the changes to EPL, but also move to a more conservative long-run planning assumption, we use $75 a barrel.

    It was pleasing to report a net profit for the year of $94 million and underlining that was also a group effective tax rate of 44%. Now that's lower than we've seen in past periods. And one important driver of that reduction in terms of our effective tax rate was the additional recognition of tax assets on our balance sheet, so growing that tax loss position.

    If we move on to our balance sheet, our RBL was fully undrawn and remains fully undrawn. We repaid $140 million of the RBL in the first quarter of the year. We had a very positive outcome in terms of our RBL redetermination. We saw a 34% expansion in the RBL capacity at the 1 January.

    And this was a very positive outcome because it was a statement about the tangibility and quality of our assets, but of course, it also came hand in hand to the point where we're seeing EPL stepping up to a higher level as well. So this is about the quality of our assets coming out over and above the fiscal changes we've seen recently in the basin.

    As I mentioned at the start, we further simplified our debt structure. We successfully executed a $160 million tap on our high-yield bonds. We priced that at a 1% premium to par, it was strongly supported in the market and we used it to repay our $150 million term loan, and that has enhanced our access to our RBL capacity as well. And as Amjad mentioned, too, we have no debt maturities now before 2027. Of course, another really important component of our balance sheet are our tax assets. Our recognized tax losses are $2.1 billion at the 31 December. And we have a further $1.2 billion of tax assets, which are to be recognized.

    In terms of cash flow, our cash generation from operations in the period was $686 million, and we reduced our net debt by $95 million. Our net debt at the 31 December was $386 million. And within that, our gross debt totalled $666 million, and our cash balances were $280 million. 2024 was a big year in terms of CapEx for us. Our CapEx totalled $253 million.

    And an important component of that was the Magnus Flare Gas Recovery project, which receives decarbonization allowance. And we finished the year with a strong cash and available facilities position totalling $474 million and post the RBL redetermination at the 28 February that had increased to $549 million.

    In conclusion, let's look to the future. So let's think about the 2025 outlook. So our production guidance for 2025 is 40,000 to 45,000 BOE a day. That's stated on a pro forma basis, and it includes 5,000 barrels a day of production from our Vietnam operations. Underpinning that number is a continuation of our focus campaigns in terms of drilling and maintenance across our assets.

    Operating exposure, our base business is flat year-on-year, including pro forma $50 million of operating costs in Vietnam, our guidance is $450 million. And again, this is about our disciplined approach to cost management and really making sure we're driving the best return out of the capital that we're deploying.

    CapEx comes down to $190 million. We have well work campaigns at Magnus and in Malaysia as well as the continuation of our rightsizing work at SVT. And decommissioning costs are guided at $60 million. And 2025, we'll see the completion of the well P&A campaign at both Heather and Thistle. We're also, of course, announcing today our first dividend, and that will be $15 million. We are delivering that from a position of balance sheet strength, and we will be paying it in June following the AGM.

    Before I finish, though, just a quick -- some thoughts about 2026 outlook as well. Our focus is very much going to be about organic growth. Our focus is also going to be about the Kraken enhanced oil recovery project, which is an exciting upside that Steve will touch on in a minute. From an operating spend point of view, we remain rational investors and we are focused on optimizing our core projects. Our CapEx, we'll still focus on fast payback, low-cost opportunities.

    And decommissioning will move beyond our well P&A campaign into a program of removals. And finally, on shareholder returns. Our focus is very much on sustainable capital allocation framework and shareholder returns are absolutely core to that framework.

    So now handing over to Steve, who will walk through the operations.

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Thank you, Jonathan. Thank you, Amjad. Good morning, everybody. I'll talk you through our operational performance through 2024, and also how operations are looking in 2025. We talk a lot about having a differentiated operating capability at EnQuest, and I think you will see that come through as I talk through the results.

    What does that differentiated operating capability mean? It means we're strong and we display operation excellence across all facets of our business. So that's across upstream, midstream, the energy transition and decommissioning. As Amjad mentioned, underpinning everything we do is delivering safe results. We're doing a great job in Malaysia.

    We were awarded the HSE Excellence Award by Petronas, which was a fantastic achievement by the team. We also achieved three years-plus lost time incident free on Kraken, and we're heading towards 20 years lost time incident free on the Greater Kittiwake Area. So a fantastic safety performance by the team, but we'll keep focused on delivering safe results. That is our license to operate, and it's really important for the business.

    But just touch on our upstream and midstream performance, midstream 100% uptime up at the Sullom Voe Terminal, which is a great performance by the teams up there. But production efficiencies at 90% across our operated asset portfolio is a phenomenal performance and we carry on with our production efficiencies through 2025 with all of our assets above 90%, really strong performance by the team.

    And also in Malaysia, as Amjad mentioned, we were awarded Operator of the Year, which is, again, a testament to the hard work of the teams. And going back to what Jonathan was discussing, cost discipline, extended field lives, strategic management of our assets is core to everything we do. And you can see that in that we've extended field lives by 10 years-plus across our asset portfolio. What does that mean? What does that generate? Well, the Magnus itself have already generated an additional $1 billion worth of revenue. So really strong performance.

    The energy transition is key to everything we do and playing our part in that energy transition. For me, the energy transition starts with oil and gas, and we've achieved material decarbonization across our oil and gas operations. And we've reduced UK emissions by 40% since 2018, which is where the North Sea transition deal baseline starts and we're well ahead of target and hitting the baseline and the target delivery by 2030, a 50% reduction on emissions.

    Again, good performance across the group. You can see we've reduced our emissions by 22%. So not only are there new energy projects, and I'll talk to in a minute, at Veri, we're also decarbonizing our existing oil and gas operations, which is really important.

    In terms of SVT and the Sullom Voe Terminal, that is effectively what we see as the energy transition in the microcosm. It's extending the life of the oil and gas facility as far as possible. It's reducing the cost footprint and it's also reducing the emissions of our existing operations.

    So through the new stabilization facility that we're 75% through completing the installation of and through the grid connection that we'll do in 2026, that will reduce emissions at the Sullom Voe Terminal by 90%, which is a tremendous achievement. That allows us to keep the oil and gas assets running out into the 2030s and allows the new energy projects through Veri Energy to be brought through.

    In terms of Veri, we're looking at onshore wind with two onshore wind turbines being progressed through to FID in the next 12 months. We're also working on carbon storage where we've got -- we've high-graded the four licenses to two, and we're also studying e-fuels. And all of those give us the potential for new energies across the business, which is exciting. Where we can't extend field lives and we can't repurpose the assets, we look at decommissioning. And as Amjad mentioned, we're a sector leader in decommissioning performance.

    We've effectively executed 70 wells over the last three years. That's 35% of the wells P&A over the Northern North Sea and Central North Sea, and we're doing that at 35% of the benchmark NSTA cost, which is a tremendous achievement by the teams.

    More importantly, if you look at building an oil and gas business, it's ensuring you have low exposure to ABEX, which we've done very well, but we also operate at ABEX, and a proof point for what others think of our operating performance and decommissioning is Shell Award and its further operatorship across GKA, which is a great testament to the teams.

    And as we look at decommissioning, we see it as a key enabler for growth in this market. You not only need to be good at upstream cost discipline, extend the lives of assets and production efficiencies, you want to be doing the decarbonization of your existing assets, but you also need to decommission them at the back end.

    Okay. Just to focus in on some of the assets. So Kraken is our FPSO, and as you should be aware, 95% production efficiency. Just so people know production efficiency includes unplanned and planned shutdowns. So that's a phenomenal achievement by the teams. That's done through close collaboration and working with Bumi Armada, who's our duty holder with the right strategic approach from both parties.

    In terms of future upside for Kraken, we're looking at enhanced oil recovery, which Amjad and Jonathan referred to. That's effectively injecting a polymer into the reservoir. We're currently studying the right polymer for the reservoir. That has the potential to change the sweep patterns across Kraken and basically increase our recoverable reserves by 30 million barrels to 60 million barrels.

    We're progressing that project through towards an FID in the next 12 months, probably a phased project, but we see huge potential, and it's quite exciting for the business to see Kraken have an extended field life and extended field of recoverable reserves.

    And Bressay gas is the other project around the Kraken area that we're looking at. That would effectively be involved the subsea tieback of a single well in the Bressay reservoir. That significantly reduces the Kraken emissions footprint and extends the life of the Kraken asset out in the 2030s, and we're looking at progressing that through FID again in the next 12 months for those two projects aligned in terms of timing.

    And just to mention, Jonathan mentioned cost control when we did set up the Kraken vessel contract, the lease contract at the start of the project with a step down in the lease, I'm pleased to say that step-down the lease will occur this year, where we'll see a 70% reduction in the lease cost, which is an $80 million per annum saving across the Kraken asset, which is key.

    And just to mention, obviously, we developed Kraken, we still have that development capability in-house. We see Bressay and Bentley as key developments. And for the North Sea, we obviously need the right fiscal regime. We're maintaining and we're continuing to do technical studies on those assets when the right fiscal regime comes in, which is progressive and encourages investment, where we will kick on with our plans for Bressay and Bentley.

    On to the other end of the life cycle. So as Amjad had mentioned, the Magnus asset celebrated 40 years of asset life, which is a phenomenal achievement. And the production efficiencies when we picked up the asset, production efficiency was below 60%. We're basically through investing in the right equipment, investing in the asset itself, we've managed to transform that to getting up to 83% production efficiency last year. That production efficiency includes an unplanned outage where we had an issue at the Magnus SSIV, which we reported.

    Again, that demonstrates the great work by the team. So although unplanned outage problem subsea a multi-operator collaboration campaign was undertaken. We basically sublet a vessel from another operator that was in the field and with the full east of Shetland production back online within seven days. So a really strong performance by the team, really impressed by that.

    Also, as we move through Magnus, Jonathan has mentioned, we're looking to extend the lives of all of our assets. So the Magnus Flare Gas Recovery project is key to that. We're at the early stages of that project. And we're also now looking at a different phase of Magnus. So we'll carry on drilling as we've mentioned.

    So we've got a drilling campaign ongoing. We'll carry on with well interventions, but it's all about reservoir management. How do we get the water in the right place to maximize recovery. And a proof point of that is we went through a well optimization campaign through 2024. We reduced field water cuts by 2%.

    Now through Magnus, we process about 120,000 barrels of fluid a day. So you can work out, that's about 2,000 barrel of oil at the uplift, which is really, really impressive. We're also increasing our water injection rates in the Magnus by going to five pump water injection. So big potential through low CapEx investment to maximize recovery from the field.

    And that late-life management expertise at Magnus, we've taken that, obviously, in our Southeast Asian portfolio, was mentioned the Malaysian Operator of the Year. But you can see again, production efficiency is up at 94% and a three infill well and three workover program completed through 2024. And as Amjad touched on, we're really pleased to get an expansion of the Seligi 1b gas agreement and first gas is expected in 1H '26, and that allows us to book 155 Bcf of additional gas, which again allows us to diversify our component production between our oil and gas mix, so really important.

    The Malaysian team, I mentioned the excellence award. That was on the back of two years and about 5 million man-hours LTI-free. They remain LTI-free, which is a great performance by them. And we also picked up the DEWA production sharing contract, which is a series of developments that we're studying, which was about 500 Bcf of gas in place. So big potential to expand around our existing position in Malaysia.

    And as Amjad has mentioned, we're also looking at other country entries, which takes me nicely to the Vietnam acquisition. So we've signed an SPA on the Vietnam deal. The deal is progressing through to completion. We expect that deal to complete next quarter, as mentioned by Amjad. It adds about 7.5 million Boe of 2P reserves. We also see 2C reserves that we can potentially convert into 2P. So a really nice acquisition.

    The staff will be fully transferring across the EnQuest and are pleased that EnQuest are coming in, in terms of extending the field life of the asset that have seen credentials, they're delighted to become a partner of EnQuest family. And I think the transition is going really well.

    The Block PSC itself runs to November 2030, but we see the potential to extend that through investing the asset in the right way. At life-of-field asset breakeven, it's about $40 per BOE, and that's high-value crude, about 10% premium to Brent. And there's a number of additional [fast payable] low CapEx, minimal decom opportunities that we'll look to address within the portfolio.

    Okay. Moving into midstream. I've already touched on, we'll be rightsizing the Sullom Voe Terminal over the course of 2024 into 2025. We're about 75% through that project. That project is, again, lost time incident free, which is good performance by the teams.

    The new stabilization facility will obviously allow us to reduce our power demand. That ties in nicely with the grid connection, which we plan to do in 2026, which will transform the emissions footprint up at SVT. It also lowers the operating cost footprint and allows us to carry on with east of Shetland production and west of Shetland production in the 2030s, but clear having the potential to go out in the 2050s. By doing that, that creates the fairway for new energy projects through Veri. And as I mentioned, we're working on carbon storage, onshore wind and e-fuels.

    Just to finish on decommissioning. It's not always the most positive finish, but we are very good at it. So it's worth touching on. It is a key enabler as we see for late-life asset acquisitions. We tend to operate in mature provinces, sort of decommissioning capability is core to everything we do.

    And just to say, our decommissioning expenditure exposure is low. And we're coming to the end of the header decommissioning program. So the full Phase 1 and Phase 2, that's the reservoir and well abandonments were completed just before Christmas, and we disembarked ahead our platform next month, which is a great work by the team. And the team needs to stay focused on safety performance through that critical phase. We'll then lift off the top sites in the summer. It's a single lift done by overseas, and then the jacket will be removed later.

    So good work on Heather, really strong, if you like, validation by our peers, because Shell, one of our Heather partners, and that's why they have extended the operatorship across UK. Thistle, we're at a very low paying equity, but again, tremendous performance by the team. We've only got a few wells left to complete on well P&A and again, we're looking at disembarkation near the end of this year, possibly early next year. So good work again across the board.

    And as I mentioned, we've completed over 35% of the Northern North Sea and Central North Sea well P&As over the last three years. Obviously, through doing that, we've learned lessons, we've applied efficiencies, we've managed to deliver the well P&A cost at 35% of the NSTA benchmark, which is a tremendous achievement.

    So in our view, we've got best-in-class expertise on decom and as I mentioned earlier, our differentiated capability applies to all facets of our business. We need to keep focused on that. So as Amjad mentioned, we've had a really strong start to 2025, and we're keen to maintain that. And as we look at a transformational acquisition, those skills will obviously come to the fore.

    Okay. With that, I'll hand back to Amjad.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Thank you very much, Steve. Thank you, Jonathan. So just in conclusion, I just wanted to highlight that we have a really diversified approach to growth. Both areas of focus are slightly different in terms of how we deal with them. And we are looking at strategy, which is slightly different than the UK, really, it's a declining asset base.

    We're looking at taking late life assets through to our tax advantage. And in Southeast Asia, it's a mix of late-life assets and growth through developments and mostly increased gas component development. So in the UK, again, the compelling and credible position we have as operator, gives us a strong position as consolidator and leveraging our tax is important to extending the assets going forward.

    We bring our skills to bear and continue our track record of extending the economic lives of all assets under our operatorship. And of course, our decommissioning expertise, which is an increasingly important component of the North Sea capability, is a key enabler in that M&A space.

    In Southeast Asia, we've seen growth, it actually shows that we are able to grow now with our new balance sheet and is included gas development blocks in DEWA and Sarawak, an enhanced gas production agreement with the existing Seligi asset, which extremely importantly, it gives us access to up to 2 TCF of reserves in the Seligi/PM8 complex. Even though we started with 155 BCF of booked reserves last year, the infrastructure can take up to 300 million standard cubic foot a day, and we see significant growth in gas requirements in Peninsular Malaysia.

    While our UK targets are focused on the late life operating and transition end of the assets, we see value working across the full spectrum, as I said, from discovery to development and optimized production in Southeast Asia.

    This international growth is aided by our strong reputation, as we mentioned, both in Malaysia and now outside of Malaysia. And that's been a key for our success in the competitive M&A processes that we've seen. So just to summarize, we see a clear plan to add value across both sectors in the business, and we're all energized by the opportunities ahead of us.

    In conclusion, just highlighting the growth strategy in action. We're a top quartile operator. We have a strong balance sheet built through discipline and consistent deleveraging, and we're well positioned to deliver transformative value accretive growth.

    With our deleveraged balance sheet, enhanced liquidity and significant tax asset and our strong fundamentals, we are very well positioned to deliver a transformative value accretive acquisition and growth to our shareholders.

    Thank you all for your attention. We'll now move to the Q&A and hand over to Craig, please.

    Questions and Answers:

    Craig Baxter - EnQuest PLC - Head of Investor Relations

    Hi. Thanks, Amjad. Thanks, gents. We'll take some questions from the floor first before I go to the webcast. And again, just to repeat the reminder that Amjad gave with regard to the ongoing discussions with Serica, we're not able to take any questions on that in line with takeover code rules. Thank you.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Okay. Any questions from the floor? Dave?

    Dan Slater - Zeus Capital - Analyst

    Dan Slater from Zeus Capital. I just wanted to ask about the dividend. Clearly, it's great that you've returned the dividend list and there's a nice strong payment for last year. Can you give us any guidance on how we should think about it going forward? Should we be expecting a sort of flat $15 million? Or might there be a sort of targeted growth rate or a percentage of free cash flow?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    I'll just start, and then maybe, Jonathan, you can continue. So we have -- we made a commitment three years ago about looking now at returning part of our capital allocation going forward, it's returned to shareholders. And so we started with the share buybacks last year. This year, we're committing to a dividend, it's our maiden dividend. And obviously, now we've got the balance sheet and the consistency to continue with that going forward. I don't know if you want to add anything to that?

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    No. I mean all I would add is it's a journey, right? So Amjad, as you said, we started on this journey three years ago. We've been clear in recent years, our number 1 priority has been to put free cash flow into the balance sheet to reduce our debt. We've put $1.6 billion of free cash flow into the balance sheet.

    So three years ago, the team said, well, when we've got the balance sheet in the right place, then we'll turn to returns. And it was great last year to announce the buyback, and that was $9 million last year. I think what the dividend announcement gives shareholders today is the next step on that path is certainty.

    And I think that's a really, really important milestone kind of in this journey. And going forward, the dividend will be core to our capital allocation framework, and we will always look at it as a sustainable part of that capital allocation framework.

    Dan Slater - Zeus Capital - Analyst

    That's it. Thanks very much.

    Mark Wilson - Jefferies - Analyst

    Hi, Mark Wilson, Jefferies. Could you remind us where you stand on a return to drilling at Kraken? Is that still a plan for 2026? That's my question.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    So I'll just start with that and then maybe Steve can add that. So obviously, we had planned two wells for Kraken for this year. I think it's public that our partner is in administration there. And so I think the issues with our partner made us look at the options at the time. And I think we decided in October that we wanted to probably stop the contract, and so we settled with our drilling contractor, and that was also pre the change in the tax.

    So there was an advantage to do that before end of October. And there was an advantage to do that with the uncertainty on our partner funding. So those are kind of the two keys. I think we're still in our program, in our plans, we do still look to return to drilling in Kraken. And I think that will happen in the near future because I do think our partner will resolve their financial issues in the near future.

    Steve, I don't know if you want to add anything?

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Yes. The Kraken opportunities, we're looking at drill mark remain robust. So very robust infill wells. Obviously, I mentioned enhanced oil recovery project. That's exciting. And we've put the wells back to 2027 at the moment.

    We could accelerate those. But as we progress EOR, we will look at how sensible is it to drill those wells with EORs going ahead because EOR has the potential to basically transform the performance of all the wells across the Kraken wells.

    Unidentified Participant

    Chris from Stifel. A question following on from what you said on Kraken on free cash flow. If you look forward to sort of the next two years or three years, it feels like there's more CapEx opportunities now. And it feels like your free cash flow might actually all be consumed by the business. If you sanction Kraken EOR, if you got DEWA as well as the existing CapEx in the business, that feels like that's all your free cash flow.

    So is your balance sheet in the right place now to execute on all those opportunities at once? Also just picking up on the specific point on Kraken. Could you sole risk the EOR development and basically if you'd not rely on Waldorf to have to find the money and therefore, execute on that. And also in terms of risk on DEWA slipping further to the right in terms of timing, again, could you talk about the partner risks there and the ability to fund that 500 BCF gas development?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    I guess I'll start and then -- I think the premise on EOR is its capital light. It's actually operating cost, but it's not significant. So I think the premise that, that will be taking a lot of CapEx, I think, is not in our calculus going forward.

    I think what Steve mentioned is realistic about '27. I do feel the partner issues should be resolved well before '26, which then allow us to plan for activities in 2027. So in terms of sole risking EOR, I think that's difficult because, again, it's using existing wells and existing well stock. However, I think it's clear from the existing JOAs that activities need to be done to continue with the growth prospects of any field. And so I think we'll have enough buttons to be able to execute things, which are right, correct and the right decisions for enhancing and optimizing a field going forward.

    I don't know if you want to add anything to that?

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Yes, you've covered it really well, Amjad. I would just say it's a short pause on Kraken while our partner resolves the issues. You know they're going through restructuring, which is in the press. And I think from my side of things, it's all about getting the right strategy for Kraken the projects we're talking about a material impact on [NPV10]. So that's good for our shareholders and theirs.

    And they are, as Amjad mentioned, capital light. So EOR doesn't need any new wells that's putting the polymer into the existing wells. So it's more an operating cost than a capital cost and it will be managed and phased in the right way.

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    Should I?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    On the capital.

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    I'm doing a reverse. I guess, first thing to say is we're obviously operating under the code at the moment. And one of the absolute building blocks of that is no profit forecast, given where we're at. So I can't answer that part of the question. What I would say, though, around your question though is the one thing that we celebrate in our business is opportunity and optionality.

    And if there's genuine competition for capital in our organization, we will allocate our time and our capital towards the best opportunities. So I think having a full hopper of opportunities and having a strong capital allocation framework within which to deal with those things ultimately speaks to one of our core skill sets, which is making the right decisions about where we spend our time and our money.

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Yes. And I think I would just add it's fantastic to have the growth opportunities we have in our existing portfolio, right? We'll be capital disciplined, as Jonathan said, in terms of how we execute, but we have a good suite of opportunities with them.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Mark?

    Mark Wilson - Jefferies - Analyst

    Actually, on that point about the growth, could you just explain to us what the expansion of the Seligi 1b gas agreement will look like on a run rate basis after first gas in 1H '26 versus today? And yes, what are the next steps on the DEWA PSC that you've been awarded? Thank you.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Okay. So on Seligi 1b, it's the first time we've actually contracted as the main deliver of gas to Petronas in Peninsular Malaysia. We have an agreed price, which was negotiated and agreed take-or-pay. So it's 70 million SCFs, Standard Cubic Foot a day, which is effectively 11,000 -- 12,000 barrels a day equivalent. But the issue is also it comes with a take-or-pay commitment.

    Whereas in our Phase 1, it was kind of a standby commitment. And also it was more of a tariff that they paid for the gas because at that time, the gas was property of Petronas in Seligi, not in PMA, we have two different PSCs there. Seligi is the gas was property of Petronas. We've now annexed the gas rights to the PSC and ourselves in Carigali, which is Petronas' operating affiliate in country.

    So we're excited about, number one, the availability of the gas resource there; and number two, the growth of gas needs in Peninsular Malaysia. So I think this is an important launching pad for growth of gas opportunities to supply gas in existing infrastructure in Malaysia. This first phase is all about non-associated gas. So it's in horizons, which we're drilling and completing to supply non-associated gas from the Seligi field to Peninsular Malaysia.

    And on DEWA, it's a very early phase, but -- so we're very excited about having, again, an opportunity to have 500 BCFs in place in a cluster, very much near existing infrastructure and the existing market, which is actually short of gas.

    So I think we're excited about that development opportunity. Again, in the next 18 months, we will be looking to FID that going forward. And part of the attractiveness is just like Peninsular Malaysia, you get an offtake contract for gas, which again would be a take-or-pay contract, which allows financing to be easily available also.

    Yes, Stephen.

    Unidentified Participant

    Thank you. On Kraken, a few questions and a bit naive. But as part of the [GoA] given the partner -- given that you're the operator and the partner confirm its share, isn't there a mechanism by which you could take the stake of the partner and get 100%? That's my first question. And my second question is in the absence of drilling activities, where would you see Kraken production at least sort of decline compared to '24 and '25 and then '26? Thank you.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Yes. Do you want to start with the production?

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    I'll do the minority.

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Okay, that's fine.

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    So yes, there is a mechanism in the GoA where you could end up with the equity share. But it's -- just to remind you, it's the group companies that are in administration, not the operating companies and operating companies continue to pay their costs as they fall due. So there's no real opportunity there or chance of that occurring at the moment. But we keep a close watch on it, as you can imagine.

    In terms of the Kraken rates, they're pretty much on with the decline rates we'd expect. The field is performing well. We're starting to see that decline flatten off as you do in heavy oil fields. And that's why we see EOR as a great potential for the Kraken reservoir. And Kraken, unlike other EOR-type projects benefits from an underlying shale across the majority of the field. So you'll get a really nice benefit from EOR in terms of change in sweep patterns.

    Unidentified Participant

    5%, 10% here?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    It's an exponential decline. And again, we're getting close to the 90% water cut, so you can kind of look at it and see where it comes in. So it is kind of slowly, very slowly declining now.

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Yes. And just -- with the partner stuff that is we've looked at all the options to do things on our own. But as Amjad mentioned, because we're going on existing wells for anything we do on infill wells or EOR, you need to involve the partner. There's a good working relationship at the partnership level. So it's just a case of working with Waldorf until those issues have been resolved.

    Unidentified Participant

    Thank you.

    Craig Baxter - EnQuest PLC - Head of Investor Relations

    Do we have anything else in the room? If not, we do have some questions on the webcast, gents. Some of them do relate to the Seligi discussions, which obviously we can't cover as Amjad laid out. The question I will ask is actually based on a couple of questions, including one from Charlie Sharp at Canaccord, and it's kind of a 2-claused question, if you don't mind. One is around the future of decommissioning for our organization beyond the Thistle and Heather campaigns that Amjad and Steve and Jonathan have talked to. And then how are those funded, which might be a section for Jonathan. How is the future of decom funded?

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    Do you want me to take the first part?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Yes. Let me just -- so in terms of strategically, the future of decom is still not clear, but we know that we have this capability. And what this capability has enabled us to do in the past and continues to enable us to do in the future is taking late-life assets which have cash flows and are able to generate cash flows during the T minus 5 or T minus 10 period, just like we've done with Heather, with Thistle, including the Dons, even Southeast Asia. So that business model is clear. We -- again, we are clearly performing at a very high level, like Steve said, 35% below the average. And so we continue to look at opportunities to expand our business model.

    Again, it's great that the Shell and the Greater Kittiwake area partners wanted us to do the decom, and that's a great confidence in our team and shows that the industry recognizes that confidence. So I think the future of decom remains a strategy that is part of our T minus 5, T minus 10 strategy, where we extract value from the late-life production, but then execute that as part of it. Do you want to add to that?

    Steve Bowyer - EnQuest PLC - General Manager North Sea

    I think it's clear. It's good.

    Jonathan Copus - EnQuest PLC - Chief Financial Officer

    I think -- yes, from -- the important thing about us in terms of decommissioning is that we are a very active decommissioner. As Steve said, 35% of the wells decommissioned in the North Sea, delivering at 35% lower than the average cost in the basin. However, alongside that, we have done deals where we have left the decommissioning liability mostly behind. So whereas we have very high equity interest from a production point of view on assets, we have very low equity interest in terms of the decommissioning amount.

    And to put that into the basin context, if you look at our decommissioning costs and you divide them by our 2P reserves, we are amongst the three or four lowest in the North Sea in terms of decommissioning cost exposure. And so what that means is that we have this great combination.

    We have a lot of activity and expertise, which we execute in-house, but we don't have a huge amount of cost exposure to those projects. And that's important because when we come to look at transactions, generally, that is something of value to the people that we are talking to because it means that we can execute those projects in a safe way, in a timely way and a cost-effective way. So it's a core part of our offering that backs up our really strong operational production performance as well.

    Craig Baxter - EnQuest PLC - Head of Investor Relations

    Thanks, gents. There's no further questions from the webcast. Amjad, I don't know if you want to maybe to give a couple of closing remarks?

    Amjad Bseisu - EnQuest PLC - Chief Executive Officer

    Yes. No, thank you, everyone, for being here. Again, I think we are at a kind of a pivot point both in the UK with our tax asset. And the shrinking pot in terms of the players in the field, but also in Southeast Asia, where we've now been able to start growing. And I think we actually see people approaching us and recognizing our capability there, too.

    So I think we're in a pivotal point, a seminal point in terms of the company with the balance sheet and the availability now of additional credit. And hopefully, we'll have a lot of value-accretive opportunities in the not-too-distant future. So thank you for being here, everyone. I look forward to seeing you in the mid-year results. Thank you.

    Craig Baxter - EnQuest PLC - Head of Investor Relations

    Thanks very much.

    Call participants:

    Corporate Participants

    Amjad Bseisu, EnQuest PLC - Chief Executive Officer
    Jonathan Copus, EnQuest PLC - Chief Financial Officer
    Steve Bowyer, EnQuest PLC - General Manager North Sea
    Craig Baxter, EnQuest PLC - Head of Investor Relations

    Conference Call Participants

    Dan Slater, Zeus Capital - Analyst
    Mark Wilson, Jefferies - Analyst

    Refinitiv StreetEvents Transcript
    Full Year 2024 EnQuest PLC Earnings Presentation
    Mar 27, 2025 / 10:00AM GMT

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