LONDON (Alliance News) - EnQuest PLC on Friday said it swung to a profit from a loss in the first half of the year due to a fair value adjustment on its Magnus field purchase option, as it set out plans for a GBP107 million rights issue of shares to exercise the option.
Shares in EnQuest were down 11% at 34.28 pence on Friday.
Pretax profit was USD19.1 million for the six months to June 30, swinging from a USD21.3 million loss in the prior year due to an adjustment on the Magnus option
This was led by re-measurements and exceptional items in the half year, which included the Magnus option, and produced a total profit of USD34.5 million. This reversed the company's USD20.0 million loss on exceptional items the year before.
EnQuest's business performance in the half year produced a USD15.4 million loss, widening from USD1.3 million year-on-year.
Revenue and other operating income came to USD550.8 million, up from USD342.4 million.
The oil & gas production and development company holds a 25% stake in the field, and retains an option to acquire the remaining 75% from BP PLC.
Post year-end, EnQuest announced that it intends to exercise its option and fully acquire Magnus. To this end, the company will undertake a GBP107 million rights issue whose proceeds will be used both in the acquisition of Magnus and for the drilling of two infill wells in the field, which is in the northern North Sea.
"The consideration for the exercise of the Magnus option is USD300 million base consideration, and the entry into a cash flow sharing arrangement whereby EnQuest and BP share the net cash flow generated by the 75% interests on a 50:50 basis," said EnQuest
"USD100 million of the base consideration, to be funded by the rights issue, will be payable in cash by EnQuest with the remainder funded as a non-recourse loan from BP and repaid out of net cash flow generated by the 75% interests," the company added.
EnQuest is proposing to exercise its option to increase its increase its payment obligation and take on the physical management and decommissioning of the Thistle and Deveron fields from BP. BP would pay EnQuest USD20 million for the deal.
Both the Thistle and Magnus transactions are expected to complete in the fourth quarter of 2018.
Moving forward, EnQuest is focused on reducing its debt, having cancelled USD75 million of its credit facility early. The company expects that its increased stake in Magnus will immediately increase its production and reserves.
BP (BP.)
Enquest (ENQ)