Friday 18 March 2016

A change in UK legislation giving oilfield operators tax relief on decommissioning costs when they sell an asset will speed up such deals in the North Sea, producer EnQuest said on Thursday.

Chancellor George Osborne announced the change on Wednesday to attract more buyers to squeeze as much oil and gas as possible out of old fields in the North Sea.

EnQuest expects to benefit as other groups will see cost advantages in selling it late-life oil and gas fields, an area in which it specialises in maximising output using new technology.

"The tax changes facilitate late-life asset transfers because decommissioning tax relief is a big part of the transfer," Jonathan Swinney, EnQuest's finance chief said.

"Over the medium term it will be positive," he added.

Earlier the largely North Sea-focused oil producer reported a 20 percent fall in full-year core earnings, as it was forced to write down $626 million on the value of some of its assets due to the recent slump in oil prices.

EnQuest's earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $465 million from $581 million in 2014, but the result was better than the $408 million expected by analysts polled by Reuters.

"EnQuest has delivered a robust set of results, in our view demonstrating its ability to squeeze value out of its producing asset base," said David Round, analyst at BMO Capital Markets.

Shares in EnQuest were trading up 24 percent at 0946 GMT, outperforming a 2 percent rise of the exploration and production companies index .SXEP.

EnQuest said it would further reduce costs this year to deal with weaker revenue. It expects operating costs to fall to $25-27 per barrel this year, down from $29.7 per barrel in 2015 as it cuts rates for suppliers and operates more efficiently.

The company also said its 2016 overall spending would come in at the lower end of its $700-750 million forecast, despite investing more in the Kraken field after increasing its stake.

Source: Reuters (Editing by Greg Mahlich and Alexander Smith)