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Enquest returns to lenders to waive debt terms as it plunges to a loss

Embattled oil explorer Enquest has returned to its lender base less than a year after a full-scale financial restructuring to ask for its debt terms to be waived after plunging to a half year loss.
The downturn-hit North Sea minnow has been betting on the start up of its Kraken project east of the Shetland islands to reverse its shrinking oil production and help pay off its $1.8bn of debt.
However, the $2.5bn project has been slow to reach its full production rate due to teething issues with the equipment.
The delays helped to drag Enquest to a loss for the first six months of the year, putting the company within a breath of breaching the debt to earnings ratios agreed with its lenders last year as part of a major rescue deal.
Amjad Bseisu, Enquest’s chief executive, said he received “unanimous” support when he talked to lenders ahead of the September loan test asking them for a waiver while Kraken production ramps up.
He said: “The disappointment is that the Kraken start-up has been slower than expected. We’ve had teething problems and instrumentation issues. But things are getting better."
Enquest returns to lenders to waive debt terms as it plunges to a loss

Enquest chief executive Amjad Bseisu

Credit:
Andrew Crowley
The first full cargo of oil is due to set sail from the project east of the Shetland islands within days, but the slower than expected ramp up of production caused its first half average production ??? to fall well below the previous year to drive the company to a first-half loss.
The lower than expected production of 37,000 barrels of oil a day in the first half of the years, down from 42,500 barrels a day in the first six months of 2016, hit the oil company at the same time that its market hedges unwound, leaving Enquest more exposed to stubbornly low oil prices.
Together with its weighty financial costs the explorer fell to a first half loss of $21.3m for the six months to June 30, down from a profit of $74.9m in the same period of last year.
Under the terms of Enquest’s refinancing it must keep its net debt within 2.7 times its earnings before interest, tax, debt and amortisation. By the end of the year the ratio tightens further to 2.25 times earnings, meaning that further waivers are likely to be necessary.
“All our lenders have been very supportive and they can see now that the project is delivering on schedule and below budget so we’re entering a phase of higher cash flows,” Mr Bseisu added.
The oil company admitted to investors last month that Kraken has failed to reach its full production rate and could drag its annual average production down by almost a quarter.
Enquest had expected 2017 to deliver production boost to between 45,000 to 51,000 barrels a day but this is more likely to be 37,000 barrels a day, it said.  
The group’s shares plunged over 10pc to 29p, its lowest ebb since last November. Since the announcement the share price has weakened further to around 25p.
Separately Enquest said it would bolster its board with the appointment of industry veteran John Winterman as a non-executive director, effective immediately. Mr Winterman is currently a non-executive director of CC Energy, the energy division of the privately held construction company CCC.
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