Stock of the week: Enquest
This is an oil company where the main production and exploration takes place in the North Sea. Through the use of the latest technology, it is able to economically explore and produce in what are mature and declining fields.
Naturally, its performance is heavily reliant on the price of oil and given that oil prices continue to trend higher, the company is set to benefit and therefore Enquest makes a fitting stock tip of the week.
The group’s operations are primarily focused on the UK continental shelf. This means it is unlikely to suffer the political problems that most other oil companies face in politically sensitive regions.
Indeed, investors should appreciate it has increased the number of production licences off the UK continental shelf and continues to invest heavily.
Reserves have increased quite significantly as the Kraken Field (one of the biggest subsea heavy-oil field projects in the UK) starts production. This is expected to boost Enquests’ production levels in 2018 to between 50,000 and 58,000 barrels of oil per day.
A key concern for investors in the sector generally, is the fact that lower oil prices means many companies will struggle to meet their debt obligations. Enquest announced it has agreed with its banks on restructuring its debt covenants giving it much more legroom to try and operate unhindered.
Investors should also be encouraged that the cash flows have improved significantly as a result of ramped up production and this also should help alleviate concerns on the debt level to a certain extent.
Operationally, the business looks sound but the company’s fate clearly lies with the price of oil and the magnified impact that its larger debt position may have. We continue with our high risk ‘buy’ recommendation for investors taking an approach that oil prices will continue to trend higher.