(Reuters) - North Sea-focused oil producer EnQuest cut its full-year production forecast on Wednesday, citing a slower than expected start-up of its flagship Kraken field, sending its shares to a two-month low.
The company said that 2017 output could be as much as 18 percent lower than previously expected after delays in bringing Kraken’s floating production, storage and offloading (FPSO) vessel into operation and lower production from some of its other North Sea fields.
EnQuest shares touched a two-month trough of 28.75 pence on the news and were down 10 percent at 29.50 pence at 0748 GMT.
Kraken is one of a string of new North Sea fields that have started producing in recent months, heralding a small revival in the mature basin despite persistently weak oil prices.
Enquest’s output, however, has also been dented by operational issues at other fields, including wax build-up in a pipeline connecting the Scolty/Crathes fields and storm damage affecting Alma/Galia.
Analysts at UBS said the production drop would hit free cash flow and is likely to restrict EnQuest’s ability to repay debt.
“It now looks like EnQuest may need to seek covenant waivers from lenders,” they said, adding that they expect lenders to be accommodating given the expected ramp-up in Kraken output.
EnQuest said it is not concerned about its cash flow situation because charter payments to Kraken FPSO operator Bumi have been reduced “significantly” until full production is reached.
Last year Bumi was forced to pay EnQuest $65 million for the delayed delivery of the vessel.
Despite the delays, EnQuest said that initial oil flow rates from Kraken have exceeded expectations and that current operational issues would not continue into the new year.
“We expect the field to increase production in Q4 and to achieve plateau production of approximately 50,000 barrels per day gross in H1 2018,” said CEO Amjad Bseisu.
Average daily production for 2017 is now expected to be similar to the first-half production rate of 37,015 barrels of oil equivalent per day (boepd), plus or minus 10 percent, the company said.
That equates to a range of between 33,313.5 and 40,716.5 boepd, against previous guidance of 45,000 to 51,000 boepd.
The oil producer, which reports half-year results on Sept. 7, also announced a further $100 million reduction in capital expenditure on Kraken because it has managed to drill wells more quickly than expected.
Reporting by Arathy S Nair in Bengaluru and Karolin Schaps in Amsterdam; Editing by David Goodman