EnQuest PLC

Good morning, ladies and gentlemen, and welcome to our 2022 half-year results presentation. I'm Amjad Besseyso, and I'm the Chief Executive Officer of Enquest. Joining me today at this presentation are Salman Malik, our new Chief Financial Officer, and Richard Hall, to my left, our Managing Director, Global Operations and Development. Selman will present after me the financial results, with Richard then covering our global operations performance. This is a continued volatility time in financial and commodity markets, and of course it's of concern to us that there is yet to be a conclusion to the conflict in Ukraine. The ongoing crisis in Ukraine, coupled with rapid inflation in the UK, has highlighted the importance of affordable and secure energy supply, including the long-term transition to renewable energy. We'll talk a lot about this today. Companies like ourselves continue to have an important role in making the most of the resources we have to meet society's energy demand as we make the transition to lower carbon economy over time. For some time now, our strategy has been focused on our three pillars of deliver, deliver, and grow. And this slide lays out a summary of our key areas of progress. With a strong safety performance, again, safety is our first priority, production towards the top end of guidance, and the successful execution of our well programs in the UK and Malaysia, we remain on track to deliver against our 2022 guidance targets. Also reflecting our strong operational delivery and higher commodity prices, we have generated a very strong $332 million of free cash flow in the first half of the year. As such, we've maintained our strong trajectory to accelerated deleveraging with net debt at the half-year of $880 million and at the end of August at $818 million. We've made excellent progress in bringing our net debt to EBITDA below our target of one. As you see, we are at 0.9%. and towards our new stated target of 0.5 times net debt to EBITDA. This strong cash flow generation also enables us to look at greater optionality as we look to refinance the high-yield bond. A stronger balance sheet also will provide a platform to balance future organic and inorganic investments, further deleveraging, and in the longer term, returns to shareholders as part of our capital allocation framework. We continue to assess our future organic growth opportunity set across our business, remaining very disciplined in our investment decisions. And we will continue to mature the strategically important and advantaged opportunity set we have in our infrastructure and new energy business, as I will outline. We remain focused on maximizing value by investing in highly economic opportunities in our existing assets, as well as unlocking value through new development opportunities in upstream and decarbonization. Starting with our existing assets, at Magnus, PMH Seligi, and Golden Eagle, we have plans to deliver multi-year wealth programs to mitigate decline, drive growth, and maximize recovery from these mature assets. At Kraken, we are excited about future drilling opportunities where we plan to drill a sidetrack well and further develop the western flank in the coming years. We'll finalize our seismic interpretation work that started this year. We also have the opportunity to unlock significant value from new developments in the traditional oil and gas and new energy areas. We're exploring options with Petronas to unlock development of a material gas resource at Seligi. In Bresset and Bentley, which each have around 1 billion barrels of oil in place, we're working diligently with our partners to progress field development studies for Bresset. And the Bresset team and the Bentley team is focused on re-evaluation of the existing subsurface data at present. These two projects are not without challenges, but we're working to utilize our experience in this heavy oil area to move these projects forward. And of course, we have an extensive new energy and decarbonization opportunities at Salambo Terminal, a very valuable resource and infrastructure. I'm very confident that Enquest's core strength of operational excellence, value enhancement, and differential operating capability, underpinned by financial discipline, positions us well to execute the opportunities which exist in this arena. As you see in this slide, and with this mix of opportunities, I truly believe Enquest is a unique transition company. We operate across the asset lifecycle to deliver UK's twin objectives of energy security and decarbonization. Energy security by developing and maximizing the life of existing fields through cost management and selective investment while reducing emissions. We have reduced our emissions by over 40% from the UK government guidelines. and decarbonization by repurposing our existing infrastructure, pipelines, and reservoirs to deliver material emission reductions. We are demonstrating this ambition and capability at the Selangor Terminal and the Magnus and Thistle Reservoirs. I'll talk more about this shortly. Lastly, we're demonstrating and building capability delivering significant decommissioning projects, including successful vessel off-station projects at Alma and the Dons, as well as a concurrent major well plug-in abandonment programs and projects at both Heather and Thistle. In summary, our business model supports delivery of energy security through new developments and life extension of existing assets. We then look to repurpose existing infrastructure as assets to deliver significant decarbonization projects like carbon capture and storage, electrification, and green hydrogen. Then we take the assets further into decommissioning, truly maximizing the full value potential from these assets. Moving on to the new and exciting area of infrastructure and new energy. We continue to develop cost-effective and efficient plans to transform the Salambo terminal and prepare and repurpose the site to progress decarbonization opportunities at scale, focused on carbon capture, storage, electrification, and green hydrogen. We have secured exclusivity from the Shetland Islands Council to progress these opportunities on the site, and we'll look to deliver our new energy ambitions along delivery partners in a very capital light manner. We're progressing three opportunities, one which is more advanced, the carbon capture and storage. At Salambo, we've access to deep water ports with four jetties, some of the deepest water ports in the UK. We have a pipeline network linked to several well-understood offshore reservoirs that present an opportunity to repurpose the infrastructure and import and permanently store material quantities of carbon dioxide from isolated emitters. Initial studies have indicated the capability to use the existing infrastructure, including the Anquist-operated East of Shetland pipeline system and storage sites to support a project of 5 to 10 million tons per annum of carbon dioxide injection. This is a huge amount of CO2 that we could safely and securely remove from the atmosphere. To give you an idea of the scale and purpose compared to our existing emission footprint, we've included an indicative graph to the right-hand side of the slide. We've reduced our emissions from probably over 1.5 million tons a year to just above 1, but this will make a marked difference in giving us a truly net negative footprint. On electrification, we're in discussions with the West of Shetland field owners to provide a shore-based electrification solution for their fields. Salimbo is very well positioned in this respect, having power and being connected possibly to the grid in the future. On hydrogen, we sit at the heart of an enormous amount of offshore wind resources being developed. we believe the site is well positioned to harness the resource into green hydrogen and its derivatives. As you can see, we've made great strides in reducing our scope one and two emissions over the last few years. I've mentioned we are 40% below the 2018 baseline, and we continue to explore opportunities for further reduction of our emission footprint. However, It's clear the step change can come from progressing our carbon capture and storage initiative, and a multiple of our own emissions would effectively allow us to become beyond net zero contributor, and indeed a net negative contributor. Our strategy is anchored on our unique infrastructure position, with a strong engineering capability and execution capability. Therefore, we expect to unlock these opportunities in a capital-like manner with support from strategic and financial partners. As I've outlined, we have a great opportunity set in our core business, Upstream, with investment opportunities in assets like Magnus, PM8, Seligi, and unlocking new development potential in Bresset and Bentley. Our energy transition strategy also provides significant repurposing potential while lowering our carbon footprint in the long term. As we move through the energy transition spectrum, I look forward to making further progress in each of these areas in a disciplined and innovative manner. I will now hand over to Salman to go through the financial performance in the first half.

Thanks, Amjad, and good morning, everyone. Let's begin with a summary of our financial performance. So turning to slide eight. During the first half of the year, we achieved record revenue of $944 million, representing an 82% increase relative to the same period last year. This increase was primarily driven by higher commodity prices, as well as strong production performance on the back of completion of the Golden Eagle transaction last year. During this period, our sales barrels were lower than our production barrels as we moved from an overlift position at the beginning of the year to an underlift position at the end of the half year. In terms of costs, we witnessed an increase during this period as a result of contribution from the Golden Eagle acquisition, an increase in diesel and chemical costs, and higher emission costs. We also increased our spend on maintenance and well-work activities on our fields, including Magnus and PM8. Overall, despite the increase in costs, we witnessed an 82% increase in our cash generated from operations of $523 million. We also generated record-free cash flow of $332 million, which is a record in a half year since the inception of the company. However, despite the strong cash generation, we remain focused on cost control, maintaining capital discipline, and deleveraging the balance sheet. We produced the group's net debt position from over 1.2 billion at the beginning of the year to 880 million by half year, bringing our net debt to EBITDA ratio below 0.9 times. Turning over to slide nine. The BRIT chart on the left-hand side shows the key components that help deliver a $342 million reduction in our net debt since the beginning of the year. As I mentioned earlier, we generated cash flow operations of $523 million. This was offset by $25 million of net expenditure on decommissioning, tax, and insurance proceeds. We spent $55 million on CapEx. 52 million in cash interest on our debt facilities, and 59 million in lease payments, predominantly relating to the Kraken FPSO. Now I would like to talk about the movement in different elements of our capital structure. So starting with our RBL facility, we reduced our drawings from 415 million at the beginning of the year to 115 million by half year. and a subsequent reduction to $90 million at the end of August, far ahead of our amortization schedule. In relation to our U.S. high-yield bond, as we announced in our operations update, we've embarked on a program to selectively buy back some of those bonds. By the end of August, we had bought back $33 million of those bonds from the market, bringing the outstanding balance down by 4% from $827 million to $794 million. In terms of the sterling bond, back in April this year, we extended the maturity of some of the bonds with £133 million now maturing in October 2027. Overall, we delivered strong free cash flow and reduced and extended our debt instruments across the board. Turning to slide 10. As you can see from the chart on the right-hand side of the slide, our financial position continues to strengthen. We've steadily reduced our net debt position and leverage ratio over the last few years. Our net debt of $880 million at the end of June now stands at its lowest level since 2014. And our indicative net debt at the end of August is $818 million. Similarly, from a leverage perspective, our net debt to EBITDA ratio has declined steadily over the last few years to around 0.9 times at mid-year, demonstrating excellent progress towards our target of 0.5 times. We have a hedge program that seeks to balance our desire to protect cash flows while providing reasonable exposure to the strong commodity price environment that will help drive further deleveraging. We have 8.7 million barrels during 2022, of which 3.4 related to the second half of the year, as an average floor price of 60 and a ceiling of 79. For 2023, we have 3.5 million barrels hedged, predominantly relating to the first half of the year, at an average floor price of $57 a barrel and a ceiling of $77 a barrel. Going back to our capital structure, our priority is to further strengthen the balance sheet. We continue to explore a variety of financing options in advance of the maturity of our 2023 US high-yield bond. We believe the appropriate financing solution would provide us with greater financial flexibility, help reset the capital structure, and bring our weighted average cost of capital down. Turning on to slide 11 and our expectations for 2022. So overall our expectations for 2022, they remain unchanged. We expect full year OPEX at 430 million, CAPEX of 165 million and decommissioning expenditure of $75 million. We're also maintaining our full year production guidance of 44,000 to 51,000 barrels. On a year to date basis, by the end of June, we averaged 49,726 barrels. Activities in the second half of 22 include our shutdown campaigns at Magnus and Kraken, as well execution of our extensive well work program at Magnus and PMH Saligi. As you can see from the charts, our expenditure in the first half of the year was lower than the expectation for the second half. Accordingly, our free cash flow is weighted towards the first half of the year. The second half of 2022 would also see our first payment of the energy profits levy in December this year. We also expect to make a profit share payment for Magnus to BP during the second half of the year. Total operating expenses are tracking in line at the end of June, and the $430 million in corporate cost inflation, including increased emission costs, diesel costs, with partial offset from a favorable foreign exchange rate. We expect an uptick in CAPEX and DECOM expenditures in the second half of the year, reflecting the phasing of our various work programs, but are comfortable that we will remain in line with our original guidance. Now turning over to slide 12. As Amchad and I have outlined, we've made significant progress on our strategic objectives of deliver, deliver and grow. The balance sheet is already in a lot stronger position with strong cash generation, acceleration of debt reduction and partial extension of our debt maturities. We intend to leverage our improving balance sheet, our material tax position and build on our ability to maximize value from existing assets by focusing on operations, differential capability to deliver life extension, and with the additional impact of our strong new energy and renewable opportunity pipeline, we believe we're well-placed to deliver five key financial priorities. Number one, continue to deliver the balance sheet towards our target of 0.5 times. Number two, reset the capital structure by pursuing appropriate refinancing opportunities. Number three, exercise capital discipline and optimize the execution and delivery of our capital program in light of the energy profits levy. Number four, unlock accretive M&A and progress the maturation of renewables and decarbonization opportunity set at Selam Vo in a manner that involves limited capital exposure for Enquest. As Amjad said, we would look to do that in partnership with strategic and financial partners. And then last but not least, number five, create a pathway to deliver shareholder returns in the long term. Thank you. I will now hand over to Richard to take you through our operational performance.

Yeah, thank you, Salman, and good morning, everyone. Let me start with an overview of our performance before moving on to each of the assets in detail. Overall, we've delivered a strong performance in the first half of this year, with production up almost 8% on the same period last year and towards the top end of our full-year guidance range. In general, strong uptime has been a feature across our portfolio of assets, including the continuation of of top quartile production efficiency at Kraken, which is an FPSO. Although we've had further equipment and well-related challenges, as you would imagine and expect at Magnus, to manage the asset being 40 years old. Our high uptime performance can in part be attributed to the focused management of critical components and work scopes. And we've been mitigating shortages of personnel and equipment within the industry at the same time. Further to this, we've moved to globalize certain key operational roles, and that entails a more consistent approach to managing operations across our asset portfolio, which includes Malaysia. And as you would imagine in this time of skill shortages, access to our Malaysia talent pool is very helpful to the organization. Our well intervention programs in Magnus and Malaysia during the first half represented low cost production enhancement scopes. And we've clearly benefited also on the production side from the acquisition of the Golden Eagle asset. So if I go to the assets in more detail, you'll see Kraken here was ahead of guidance with average daily production of 19,500 barrels per day net. Production and water injection efficiency As I said, for an FPSO, we're very strong at 92% and 95% respectively. And the subsurface and well performance from the asset continues to be good with year on year reduction, which you see there at 18%, essentially reflecting the natural decline of the reservoir. The near term focus on this asset is our planned maintenance shutdown program, which will begin later this week. We've optimized the work scope to minimize disruption to our production. So for half of the two week duration, we will operate in a single processing train and we'll have a full shutdown for the rest of the period. Looking further ahead, we are continuing to assess near field drilling and subsidy tieback opportunities. And we're looking at 2024 for a drilling program in the western area and probably a sidetrack, as Amjad has already alluded to. Magnus, on the right-hand side of the slide, you'll see the production efficiency is noted as 73%, but I should tell you that excluding the impact of wellhead issues, which we've been very open about previously, that Magnus production efficiency is currently around 85%. Wellhead failures are there. They reflect ageing equipment and the limitations of a 40-year-old design, but we're on top of this and looking at a reinvigoration program later this year. Notably, one of our best producers has unfortunately been impacted by wellhead issues, but we will be working this over as soon as possible after completion of the Northwest Magnus well, which I'll turn to now. So in support of our 2022 programme, we completed the restart of the rig after two years without any drilling at Magnus. So that was a significant achievement which stands us in good stead for the future. Two wells were successfully returned to service during the first half of the year, and the Northwest Magnus infill well was successfully drilled and logged in late July. Now, this well has the longest reservoir section drilled since 2000, anywhere. It's 1,900 metres, and it's got the longest liner ever run in Magnus, which is over 6,000 metres. So far, so good. Log results are very encouraging. and we expect to complete the well later this month after the planned maintenance shutdown. That planned maintenance shutdown is already underway and should be completed very shortly. Our well work programme then will continue, and it's evolving from the originally envisaged programme. One of the things I'd like to point out is one of the wells, A6, was nominated as a drill prospect, but actually we've used a value accretive execution technique using an alternative approach, which has delivered similar barrels to those expected from the originally planned sidetrack, but at an appreciably lower cost. So the change in programme focus means it's unlikely we will drill any further wells in 2022, that's infill wells, but we do plan to continue that infill drilling in 2023 and in future years, given the extensive opportunity set on Magnus. Once again, I would emphasise that the A6 interventions effectively replaced one of our planned infill wells in the first half. If I turn now to Golden Eagle, This acquisition has proved a highly cash generative addition to the group's portfolio, and the asset has already generated around $200 million of the $250 million we spent in cash acquisition costs. Production efficiency is strong, 95%, and the annual shutdown was executed in two days rather than four. And the joint venture has indeed approved a two-well infill drilling campaign, which is going to commence this quarter. with first oil expected early next year. And we are proactively working with the operators to share insights on the field performance. On the right-hand side of your slide, you'll see a 16% increase in other UK assets, and that's most notably the Greater Kittywake area, GKA, and the continued positive impact of work that we undertook to complete in the first quarter to optimise gas lift delivery pressures. Also of note is that we completed the shutdown, the planned shutdown in 11 days instead of 14. And in continuation of our innovative approach to managing our assets, we've taken a subsea gas accumulator concept right the way through to implementation. And this has now mitigated the need for gas import to support any GKA restart requirements. Moving next to my alma mater in Malaysia. I'm really pleased to report that production during the first half of the year increased 31% to 6,300 barrels a day. And the team over there has delivered excellent performance again following the early replacement of the riser system back at the start of the year. Production efficiency very high, 93%. And we've seen very efficient delivery of our well program It was a comprehensive well program. Four planned workovers were completed on budget and ahead of schedule. Production has been in line with expectations. And we've also successfully done a three well P&A, that's plug and abandonment campaign, 30% below budget. In recognition of some of this work, which was done with a hydraulic workover unit, we've received three Petronas recognition awards. based on our commitment to safety, application of new technology, and leveraging of efficiencies in schedule and cost savings. The Malaysia team has also had further success in bringing the group's first horizontal well at this PM8 asset online. It was drilled at the Seligi Charlie platform. It was on stream in July with very encouraging initial production rates. So all in all, a good first half, and we actually reached a good spot rate of 18,000 barrels a day gross from the platforms. That was the last seen about three years ago. The drilling rig that we've used on Charlie is a semi-tender. We've moved that now to the Saligi Delta satellite platform, where we have two further horizontal wells to drill. And looking further ahead to next year, we have a three-well infill drilling programme, which is consistent with our asset strategy to optimise recovery of the significant oil and gas resources still in place at Saligi. We also plan an exploration well next year in block PM409, which is a potential tie-back to the Saligi complex. I'll move on just further to repurposing at Salon Vaux. So the Salambo terminal has already been mentioned by Amjad, and it's a place where we continue to explore options to repurpose areas of the terminal to progress our energy transition opportunities. very important to this is the right sizing of the plant there it's high on our agenda to bring efficiencies for existing users and provide space for our decarbonization ambitions and as part of our upcoming carbon capture and storage licensing round applications also previously mentioned we will be outlining our plans to leverage the existing site infrastructure and our desire to continue to investigate the potential for transforming some of our previously depleted reservoirs offshore into carbon storage acreage. Finally, decommissioning. In terms of the extensive decommissioning work we are undertaking at both Heather and Thistle, the P&A campaign there, is progressing well. Six wells have been completed at Heather and nine wells at Thistle, with a target which we should attain of 16 wells at each installation by the end of the year. We've also been out to market for heavy lift vessels to take out the top sides and jackets, and that effort has now been concluded. And at the dons, The subsea infrastructural removal is progressing as expected, with two phases already completed in the first half of the year, the final phase will be done this quarter. This follows off from work last year to remove the northern producer floating facility itself from its station. And since then, it's been very pleasing to hear that the North Sea Transition Authority has described the project as an example of exemplary execution and best-in-class performance in the North Sea for prompt asset removal, reduction of post-cessation production OPEX, and reduction of carbon dioxide. So I'm sure everyone would appreciate the achievements of our decommissioning team in delivering such a strong performance. So in summary, let me summarise this. We've had a good first half of the year and remain confident in delivering on our near-term targets while progressing further barrel-adding opportunities. We remain focused on maximising value from our existing assets through targeted maintenance and enhancement programmes and by identifying repurposing opportunities. So with that, I'll now hand you back to Amjad for some closing remarks. Thank you.