Providing creative solutions through the energy transition
Annual Report and Accounts 2020
Our purpose
Providing creative solutions through the energy transition
Our strategy
EnQuest's strategic vision is to be the operator of choice for maturing and underdeveloped hydrocarbon assets by focusing on operational excellence, differential capability, value enhancement and financial discipline.
Our business model
Contents
STRATEGIC REPORT 01 Highlights
- Stakeholder engagement
- Key performance indicators
- Our purpose
- Protecting our people
- Chairman's statement
- Chief Executive's report
- Transforming our business
- Operating review
- Reserves and resources
- Hydrocarbon assets
- Financial review
-
Environmental, Social and Governance
34 A responsible operator
38 Our people and communities
46 Robust risk management framework
- Business conduct
- Task Force on Climate-related Financial Disclosures
CORPORATE GOVERNANCE
64 | Board of Directors |
66 | Executive Committee |
68 | Chairman's letter |
70 | Corporate governance statement |
75 | Audit committee report |
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STRATEGIC
PILLARS
BUSINESS
FOCUS
BUSINESS
MODEL
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82 | Directors' remuneration report |
102 | Governance and nomination |
105 | committee report |
Safety, climate and risk | |
107 | committee report |
Technical and reserves | |
109 | committee report |
Directors' report |
FINANCIAL STATEMENTS
- Statement of Directors' Responsibilities for the Group Financial Statements
- Independent Auditor's Report
to the Members of EnQuest PLC
125 | Group Income Statement |
126 | Group Balance Sheet |
127 | Group Statement of Changes |
De-lever Grow
in Equity |
128 Group Statement of Cash Flows |
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129 Notes to the Group Financial |
Statements
169 | Statement of Directors' |
Responsibilities for the Parent | |
170 | Company Financial Statements |
Company Balance Sheet | |
171 | Company Statement of Changes |
172 | in Equity |
Notes to the Financial Statements |
Read more
See pages 01, 06 to 07, 10 to 23 and 26-33
- Glossary - Non-GAAP measures
- Company information
Strategic report
Corporate governance
Financial statements
Highlights
EnQuest's quick and decisive actions in early 2020 have transformed the Company, materially lowering its cost base and free cash flow breakeven1. Production for the year was in line with guidance, reflecting a better than expected performance
at Kraken offset by lower production in Malaysia, while operating and capital expenditures were reduced by $296 million. Free cash flow generation of $211 million was strong, facilitating a further reduction in net debt. Business performance gross profit of $71.4 million was 84.8% lower than 2019, primarily reflecting lower market prices for oil. The Group recorded a Business performance loss before finance costs and tax of $20 million, reflecting the increased non-cash decommissioning provision for fully impaired assets.
The proposed acquisition of the Golden Eagle assets in the UK North Sea will strengthen the business, adding material low-cost production and cash flows.
2020 statutory reporting metrics
2020 performance
Net production (Boepd)
59,116
-14%
Unit opex1
($/Boe)
15
-26%
EBITDA1
($ million)
551
-45%
Free cash flow breakeven2
($/Boe)
32
-35%
2021 outlook3
Net production range (Boepd)
c.46,000 to 52,000
Operating expenditure
($ million)
c.265
Cash capital and abandonment expenditure
($ million)
c.120
Read more
See pages 04, 10 to 23 and 26 to 31
2020 | 2019 | Change |
$m | $m | % |
Revenue and other operating income | 865.6 | 1,646.5 | (47.4) |
Profit/(loss) before tax | (566.0) | (729.1) | 22.4 |
Basic earnings/(loss) per share (cents) | (37.8) | (27.4) | (38.0) |
Net cash flow from operating activities | 522.1 | 962.3 | (45.7) |
Net assets/(liabilities) | (64.6) | 559.1 | (114.0) |
Notes:
- See reconciliation of alternative performance measures within the 'Glossary - Non-GAAP measures' starting on page 176
- Based on the Group's aggregate cash outflows prior to any debt repayments and $37.3 million of Magnus-relatedthird-party gas purchases divided by net working interest production
- Based on the Group's existing portfolio
This Strategic report includes details of EnQuest's strategy, business model, capabilities, Values, performance and key risks. The Group's performance since the last Annual Report and current outlook is covered within the Chairman's statement, the Chief Executive's report, the Operating and Financial reviews and the Environmental, Social and Governance section.
Unless otherwise stated, all figures quoted in the Strategic report are on a Business performance basis and are in US Dollars.
EnQuest PLC | Annual Report and Accounts 2020 | 01 |
Stakeholder engagement
Section 172
Statement
The Directors have always had regard for the potential impact of the Group's activities on its various stakeholders.
In the majority of cases, information and feedback are provided throughout the year to the Directors by the Group's Executive Directors, senior and functional management and external advisers through a variety of Board reports, presentations and ad hoc correspondence. When appropriate, the Directors may advise further engagement is required, which could potentially be direct engagement by the relevant Director, and/or request additional information to ensure they have a full appreciation of a given situation prior to making any decisions. As such, the Directors are able to fulfil their duty to promote the long-term success of the Company for its stakeholders.
The Directors consider the items disclosed on the following page to be principal decisions on the basis of materiality of the incremental impact these are anticipated to have on
a number of stakeholders and/or the Company.
Stakeholder | Why they are important | Direct Board-level |
engagement in 2020 | ||
A. Workforce | Our employee and contractor workforce is critical to | Employee forum; video |
the delivery of SAFE Results and EnQuest's success. | messages; subject matter | |
As such, we are committed to ensuring EnQuest | expert virtual attendance at | |
remains a great place to work. We have a strong set | Board and Board Committee | |
of Values that underpin our way of working and are | meetings; physical and virtual | |
dedicated to delivering SAFE Results. We provide a | safety leadership | |
rewarding work environment, with opportunities for | engagement visits, corporate | |
growth and learning while contributing to the | purpose evolution; and | |
delivery of our strategy. | interactive virtual town halls. | |
B. Investors | Our investors support management in the execution | Virtual meetings, calls and |
of EnQuest's business strategy, including the | direct correspondence in | |
provision of capital for management to develop | relation to the Group's | |
the business in order to deliver returns in a | financial and operating | |
responsible manner. | performance, purpose | |
statement, ESG philosophy, | ||
emissions reduction targets | ||
and the Group's proposed | ||
Remuneration Policy updates. | ||
C. Partners | We collaborate with our joint venture partners, | None. |
securing their support to deliver our asset plans. We | ||
value their contribution to the effective operational | ||
and financial management of our assets as we | ||
deliver on our business strategy. |
D. Host | EnQuest works closely with the host governments | Video meetings and calls with |
governments | and regulators in the jurisdictions in which it | the Oil and Gas Authority in the |
and regulators | operates. The Group complies with the necessary | UK and Malaysian Petroleum |
regulatory requirements, including those related to | Management in Malaysia. | |
environmental matters such as reducing emissions, | ||
to ensure the Company maintains a positive | ||
reputation and licence to operate, enabling the | ||
effective delivery of the Group's plans for its existing | ||
portfolio and providing access to appropriate | ||
growth opportunities. | ||
E. Suppliers | EnQuest relies on its suppliers to provide specialist | None. |
equipment and services, including skilled | ||
manpower, to assist in the delivery of SAFE Results. |
1 Based on the Group's existing portfolio at 1 January 2021
F. Communities | Making a positive contribution and appropriately | None. |
managing our environmental impact in the | ||
communities in which we live and work around the | ||
world remains a key part of our activities. Our | ||
communities provide a potential source of | ||
employees, contractors and support services, and | ||
are important in supporting EnQuest's social licence | ||
to operate and maintaining a positive reputation. | ||
G. Customers | Our customers help facilitate the provision of | None. |
hydrocarbon-related products to meet a variety of | ||
consumer demands and, as such, require a reliable | ||
supply of hydrocarbons to meet their needs. |
02 | Annual Report and Accounts 2020 | EnQuest PLC |
Strategic report
Corporate governance
Financial statements
Other 2020 activities
See pages 16 and 17 for an overview of the UK's Transformation 2020 programme and pages 38 to 43 of the ESG section which detail the various people-related initiatives implemented during the year, including the employee survey results and our people's safety and wellbeing, particularly in relation to the asset integrity issues faced in 2020, combined with the dual impacts of EnQuest's response to COVID-19 (also see pages 08 to 09) and the UK Transformation programme.
See the Strategic report on pages 01 to 63 which explains the Company's performance and investment decisions during 2020.
Page 72 of the Corporate governance statement outlines how the Group engages with its investors.
The Group has regular engagement with its joint venture partners on day-to-day asset management and the execution of the longer-term asset strategy. This occurs through a combination of formal interactions, governed by joint operating agreements, and via informal engagement, including sharing of relevant industry experience, insights and best practice and/or developing performance improvement initiatives.
See pages 18 to 23 of the Strategic report for further details on operational and financial activities and decisions undertaken across our assets.
Joint venture partners are recognised as one of the Group's principal risks and uncertainties on page 57.
For further details, see pages 08 to 09 for our COVID-19 response which was aligned to government and regulatory advice, the Strategic report on pages 01 to 63 and the Group's Principal Risks and Uncertainties on pages 46 to 59, which outline EnQuest's strong relationships with governments and regulators. Pages 32, 33 and 63 of the ESG section and pages 110 to 113 of the Directors' Report outline further details on the Group's regulatory compliance activities.
The Group has continued its active and positive engagement with its suppliers through various supplier forums, performance reviews, ad hoc virtual meetings and industry events, including those related to the Group's future decommissioning programmes. The Company continues to monitor and report its supplier payment performance. Please also see the Group's Principal Risks and Uncertainties on pages 46 to 59, a number of which are impacted by the Group's supplier relationships.
For further details on the Group's community engagement and environmental considerations, see pages 32, 33 and 45 of the ESG section, with the importance of maintaining a positive reputation outlined in the Group's Principal Risks and Uncertainties on page 50.
The Company has maintained strong relationships with its existing customers, including fuel oil blenders to whom it supplies Kraken oil as an unrefined constituent of IMO 2020 compliant low-sulphur bunker fuel. By selling directly to the fuel oil market, Kraken cargoes avoid refining‑related emissions.
Principal decision and impacted | Stakeholder impacts considered |
stakeholders | |
Cessation of production | Separate cessation of production decisions were made |
decisions | for the Heather and Thistle assets in early 2020, however |
the stakeholders impacted and the associated | |
Impacted stakeholders: | considerations are the same |
Role reductions and change in day-to-day activities | |
A, B, C, D, E, F and G | |
balanced by new decommissioning and/or other | |
asset/office roles | |
Lowering of production targets and reserves and | |
resources balanced by re-focusing the Group's | |
operations on the lowest cost assets; impacts on | |
near-term cash flow and liquidity balanced with | |
long-term reserve and resource maturation and | |
development | |
Decommissioning activities impacting production and | |
cash flows | |
Change in focus for supply chain, sector employment | |
and lower UK North Sea CO2e emissions | |
Changing focus for and timing of supply chain activities | |
Impacts on the local economy | |
Potential cargo delivery interruption and impact on | |
product blend | |
Business transformation and | Role reductions and change in day-to-day activities |
deferral of investment | balanced by new decommissioning and/or other |
programmes | asset/office roles |
Lowering of production targets and reserves and | |
Impacted stakeholders: | resources; impacts on near-term cash flow and liquidity |
A, B, C, D, E and F | balanced with long-term reserve and resource |
maturation and development | |
Decommissioning activities impacting production and | |
cash flows | |
Change in focus for supply chain and sector | |
employment | |
Changing focus for and timing of supply chain activities | |
Impacts on the local economy | |
Environmental, Social and | Clear and transparent articulation of EnQuest's |
Governance ('ESG') strategy, | approach to ESG, demonstrating that its business |
and particularly committing to | model is the right one from a financial perspective, and |
a 10% reduction in Scope 1 and 2 | that it makes a positive contribution to society by |
supporting government, regulators' and societies' goals | |
emissions over three years from | and objectives in a prudent and economic manner, |
a year-end 2020 baseline1, with | allowing informed decisions to be made by all |
the achievement linked to | stakeholders |
reward | Commitment from the Group's workforce to ensure |
Impacted stakeholders: | delivery of carbon reduction in the Group's existing |
operational portfolio | |
A, B, C, D, E, F and G | Developing a carbon reduction strategy and |
incorporating a carbon price in our investment | |
evaluations when considering potential acquisitions | |
Revised Company purpose | Ensure there is a clear and transparent articulation of |
EnQuest's purpose that underpins delivery of the | |
Impacted stakeholders: | Group's strategy, goals and objectives to enable |
A, B, C, D, E, F and G | stakeholder groups to assess the alignment of interests |
and consequently impact on their likelihood of | |
engagement with EnQuest | |
Establishing workforce focus groups during the | |
purpose development process to provide insight, | |
review and challenge |
EnQuest PLC | Annual Report and Accounts 2020 | 03 |
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EnQuest plc published this content on 25 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 April 2021 15:23:03 UTC.