TIDMENQ
RNS Number : 4826M
EnQuest PLC
13 October 2016
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED
UNDER THE MARKET ABUSE REGULATION (EU NO. 596/2014).
THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND DOES NOT CONSTITUTE A
PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING HEREIN SHALL
CONSTITUTE AN OFFERING OF HIGH YIELD NOTES, RETAIL NOTES OR NEW
ORDINARY SHARES. ANY DECISION TO PURCHASE, SUBSCRIBE FOR, OTHERWISE
ACQUIRE, SELL OR OTHERWISE DISPOSE OF ANY NEW HIGH YIELD NOTES,
EXISTING RETAIL NOTES, AMED RETAIL NOTES OR NEW ORDINARY SHARES
MUST BE MADE ONLY ON THE BASIS OF THE INFORMATION CONTAINED IN AND
INCORPORATED BY REFERENCE INTO THE PROSPECTUS OR THE EXPLANATORY
STATEMENT (AS APPLICABLE) ONCE PUBLISHED.. COPIES OF THE
EXPLANATORY STATEMENT WILL, FOLLOWING DISTRIBUTION ELECTRONICALLY,
BE AVAILABLE UPON REQUEST AT THE OFFICES OF ASHURST LLP, BROADWALK
HOUSE, 5 APPOLD STREET, LONDON EC2A 2AG AND ON THE COMPANY'S
INFORMATION AGENT WEBSITE AT WWW.LUCID-IS.COM/ENQUEST AND THE
PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE FROM THE
REGISTERED OFFICE OF ENQUEST PLC AND (SUBJECT TO CERTAIN
RESTRICTIONS) ON ITS WEBSITE AT WWW.ENQUEST.COM.
THE NEW ORDINARY SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE US SECURITIES ACT OF 1933, AS AMED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE NEW ORDINARY SHARES WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT AND WILL NOT BE OFFERED
OR SOLD TO THE PUBLIC IN THE UNITED STATES.
THE NEW HIGH YIELD NOTES TO BE ISSUED PURSUANT TO THE SCHEME
WILL NOT BE REGISTERED UNDER THE SECURITIES ACT AND WILL BE ISSUED
IN RELIANCE UPON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT PROVIDED BY SECTION 3(a)(10) THEREOF.
EnQuest PLC, 13 October 2016
Launch of the proposed financial restructuring of EnQuest
PLC
**Amendment: Lucid website link has been changed to the correct
address**
Overview
The Board of EnQuest PLC today announces the launch of a
proposed financial restructuring of the Group (the "Restructuring")
which the Company has agreed with its key stakeholders following an
extensive period of engagement and negotiation.
The Restructuring is comprised of a number of key elements,
including the implementation of the Proposed RCF Amendments and the
Proposed Note Amendments, the renewal of the Surety Bond Facilities
and the Placing and Open Offer (which terms are explained further
below). All of these elements are inter-conditional, meaning that
none of the elements will become effective if any one of them is
not delivered. So the Restructuring would not proceed if for
example, the Scheme to effect the Proposed Note Amendments is not
approved by the requisite majorities of Scheme Creditors or if the
shareholder Resolutions in connection with the Placing and Open
Offer are not approved by Shareholders.
The Company believes that, if successful, the Restructuring will
provide the Group with a stable and sustainable capital structure,
reduced cash debt service obligations and greater liquidity. These
will all contribute to the continued delivery by the Group of its
strategic objectives.
Jock Lennox, Chairman of EnQuest, said:
"We are very pleased to announce today a comprehensive package
of measures to place EnQuest on a strong footing to deliver our
Kraken development in H1 2017 and ensure that we are well placed to
deliver value to our shareholders in the medium term.
Over the last two years, EnQuest has taken action to implement
extensive cost saving programmes to refocus the business for the
low oil price environment, including reducing and re-phasing both
capital and operating expenditures. Simultaneously, EnQuest has
been working on a range of other funding and liquidity options,
which culminate in the Restructuring announced today. We have
agreed a range of improvements on the terms of our debt facilities
and we remain grateful to our RCF lenders for their continuing
support. We have also reached agreement with approximately 61 per
cent of our High Yield Noteholders on the Proposed Note
Amendments.
The proposed Restructuring, which encompasses amendments to
EnQuest's existing RCF facility, amendments to the High Yield Notes
and the Retail Notes, the renewal of the Company's Surety Bond
Facilities and the Placing and Open Offer which is expected to
raise GBP82 million in gross proceeds, will significantly improve
the liquidity position of the Company so that EnQuest can deliver
first oil from the Kraken development in H1 2017 in accordance with
management's projections. The Kraken development continues to be on
track with the FPSO set for sail away in H2 2016.
The Board remains confident in the long term potential of the
EnQuest business plan, and is of the view that the proposed
Restructuring, will enhance value for all stakeholders."
Overview of the Restructuring
The key features of the Restructuring are:
Proposed RCF Amendments
-- Certain amendments to the Existing RCF (the "Proposed RCF
Amendments"), to, amongst other things:
o extend the final maturity date of the Existing RCF to October
2021;
o split the maximum aggregate commitments into a term loan
facility and a revolving credit facility, amend the margin on each
of the facilities and cancel the existing accordion feature;
o amend the Existing RCF amortisation profile;
o relax certain of the financial covenants in the Existing RCF;
and
o incorporate terms to allow for new super senior hedging.
-- All of the Existing RCF Lenders and all of the Group's
Hedging Banks have locked-up to support the Restructuring by
entering into a formal agreement (the "Lock-up Agreement") pursuant
to which they have agreed to, among other things, vote in favour of
the Proposed RCF Amendments.
Proposed Note Amendments
-- Certain amendments to the High Yield Notes and the Retail
Notes (the "Proposed Note Amendments") are being proposed to,
amongst other things:
o add a condition to payment of interest in cash based on,
amongst other things, the average prevailing oil price (dated Brent
future (as published by Platts)) for the six month period
immediately preceding the day which is one month prior to the
relevant interest payment date being at least $65.00/bbl; otherwise
interest payable is to be capitalised;
o amend the maturity dates of the High Yield Notes and the
Retail Notes to April 2022, with an option exercisable by the
Company (at its absolute discretion) to extend the maturity date by
one year and an automatic further extension of the maturity date to
October 2023 if the Existing RCF is not fully repaid or refinanced
by October 2020; and
o amend certain of the financial indebtedness baskets under the
High Yield Notes, remove the financial covenants under the Retail
Notes, add new cross default provisions and restrict the Company
from paying any dividend or distribution on any class of its shares
until it has repaid or redeemed all capitalised interest (if any)
accruing on the Notes in cash at par, together with any accrued but
unpaid interest thereon.
-- The Proposed Note Amendments will be effected through an
English scheme of arrangement (the "Scheme"), which must be
approved by 50 per cent. in number and 75 per cent. in value of
Scheme Creditors attending and voting at a meeting convened with
the permission of the English Court to consider the Scheme (the
"Scheme Meeting"). The High Yield Noteholders and the Retail
Noteholders will form a single class of creditors for the purpose
of voting on the Scheme and further information has been provided
to each of them today with further detail on the proposed terms of,
and significant dates in relation to, the Scheme. As noted above,
all of the elements of the Restructuring are inter-conditional,
meaning that the Scheme will not become effective unless each of
the other elements of the Restructuring are approved and/or
completed. In addition, the Scheme is subject to the Company
obtaining recognition of the Scheme under chapter 15 of Title 11 of
the United States Code.
-- High Yield Noteholders representing approximately 61 per
cent. of the High Yield Notes have locked-up to support the
Restructuring by entering into the Lock-up Agreement, pursuant to
which they have agreed to, among other things, attend the Scheme
Meeting in person or by proxy and to vote in favour of the Proposed
Note Amendments. These High Yield Noteholders have also agreed not
to take any enforcement action in relation to the interest payment
due in respect of the High Yield Notes on 17 October 2016.
-- Due to the diverse nature of the holdings of the Retail Notes
it was not possible for the Company to approach all Existing Retail
Note Holders in advance, but the Restructuring proposal has been
considered by a number of significant Existing Retail Noteholders
approached by the Company on a confidential basis. The feedback
from such Existing Retail Noteholders was positive and the sample
indicated support for the Restructuring from professional
investors.
Renewal of Surety Bond Facilities
-- The Group's Surety Bond Providers (who provide instruments
covering certain decommissioning security obligations) have agreed
to renew the Surety Bond Facilities for a period of two years to
the end of 2018 (with renewal in 2017 conditional on there being no
relevant default at the time), provided that the other elements of
the Restructuring are completed.
Placing and Open Offer
-- The Company proposes to raise aggregate gross proceeds of
approximately GBP82.0 million (equivalent to SEK 884 million at
exchange rate of SEK 1.00 = GBP 0.0928, or approximately $100
million at an exchange rate of US$1.00 = GBP 0.8199, each on 12
October 2016), before expenses, of additional equity capital
pursuant to the Placing and Open Offer.
Background to and reasons for the Restructuring proposal
The decline in oil prices since 2014 and the continuing
challenging oil price environment have had a significant negative
impact on the Group's revenues, liquidity and available cash
resources.
In response to the decline in oil prices, the Group has set a
number of strategic priorities, including delivering on execution,
streamlining operations and strengthening the Group's balance
sheet. The Group has continued to focus on delivering a strong
operational performance and has also taken a number of additional
measures to address the impact of the decline in oil prices and the
Group's cash flow constraints, including the following:
-- Negotiating the relaxation of certain financial covenants in
the Existing RCF and the Retail Notes
-- Engaging in commodity hedging activities
-- Divesting non-core assets
-- Reducing operating costs
-- Reducing capital expenditure on the Kraken development
-- Improving future cash flows through the development of Kraken and Scolty/Crathes
-- Deferring certain trade creditor obligations
These measures have been significant steps in maintaining the
Group's viability in the current environment. However, a longer
term solution is needed to strengthen the Group's liquidity
position, to reduce the burden of the Group's cash debt service
obligations and in order for the Group to continue pursuing its
business strategy and, in particular, to bring Kraken to first
oil.
As noted above, these elements of the Restructuring are
inter-conditional, meaning that none of the elements will become
effective if, for example, the Scheme to effect the Proposed Note
Amendments is not approved by the requisite majorities of Scheme
Creditors or if the shareholder Resolutions in connection with the
Placing and Open Offer are not approved by Shareholders.
The Restructuring has the support of stakeholders across the
Group's capital structure:
-- all of the Existing RCF Lenders have locked-up to support the
Restructuring, including by voting in favour of the Proposed RCF
Amendments;
-- all of the Group's hedging banks (the "Hedging Banks") have
locked-up to support the Restructuring, including by voting in
favour of the Proposed RCF Amendments;
-- holders representing approximately 61 per cent. in aggregate
principal amount of the High Yield Notes (the holders of the High
Yield Notes, the "High Yield Noteholders") have locked-up to
support the Restructuring, including by voting in favour of the
Scheme (as defined below) to effect the Proposed Note Amendments
(as defined below) and by agreeing not to take any enforcement
action in relation to the interest payment due in respect of the
High Yield Notes on 17 October 2016;
-- due to the diverse nature of the holdings of the Retail Notes
it was not possible for the Company to approach all Existing Retail
Note Holders in advance, but the Restructuring proposal has been
considered by a number of significant Existing Retail Noteholders
approached by the Company on a confidential basis; the feedback
from such Existing Retail Noteholders was positive and the sample
indicated support for the Restructuring from professional
investors; and
-- the Company has received the support of its surety bonds
providers, who have agreed to renew the Surety Bond Facilities
subject to the successful completion of the Restructuring.
Please see below the anticipated key transaction dates (a more
detailed timetable is included in Appendix II):
-- 14 November 2016: Shareholder General Meeting
-- 14 November 2016: Scheme Meeting
-- 16 November 2016: Open Offer Period ends
-- 16 November 2016: Scheme sanction hearing
-- 17 November 2016: Chapter 15 recognition obtained. Results of Placing and Open Offer
-- 21 November 2016: Restructuring becomes effective. Settlement
of newly issued shares (T+2) - Transaction close
Current trading and future prospects, including trend
information
Since 30 June 2016, the date of the Group's most recent
unaudited interim financial statements, the Group has delivered
against its strategic priorities in the continuing lower price
environment. Further action to reduce operating and capital
expenditure has been accompanied by sustained strength in
operations.
The Group announced in September 2016 that as a result of the
further phasing of milestone payments and despite additional
capital expenditure on drilling the Eagle discovery it was
expecting to reduce full year 2016 cash capital expenditure by
approximately $30 million. The Kraken and Scolty/Crathes
development projects are continuing ahead of budget; the Kraken
FPSO is on track for sail away in the second half of 2016 and for
first oil in H1 2017. In October 2016, the Group is now reducing
its gross full cycle capital expenditure estimate for Kraken by
approximately a further $100 million, down to approximately $2.5
billion, mainly as a result of better performance on drilling and
subsea production systems. The Kraken FPSO is very close to
mechanical completion, with the focus now on pre-commissioning and
commissioning activities. All four engines and boilers are
mechanically complete. The latest reductions in the overall full
cycle gross capex estimates for Kraken reduce EnQuest's 2016 net
cash capital expenditure by a further $50 million, now down to
between $620 million and $670 million. The Scolty/Crathes
development is also ahead of schedule, with first oil expected to
be delivered around the end of 2016. Average production guidance
for the full year 2016 continues to be in the range of 42,000 Boepd
to 44,000 Boepd. Unit operating expenditure for the first half of
2016 was $23/bbl, ahead of target. The Company anticipates full
year unit operating expenditure around the lower end of the
$25-$27/bbl guidance for the full year 2016. The Company continues
to seek cost reductions across the supply chain.
Substantial works have continued on Alma/Galia. The K1 (AP4)
well required a chemical treatment which has been successful and
the workover of the K3z (AP1) well, was carried out by early
August, further increasing production. The drilling of well K7, the
replacement for the uncompleted K6, is in progress, with completion
operations underway. K7 should be online around the 2016 year end.
On GKA, the planned shutdown during the second half of the year was
delivered securely and successfully.
In line with its internal financial policies, the Group has
continued to enter into hedging arrangements. Since 30 June 2016,
the Group has hedged 1MMbbl of 2017 production (83kbbls/month) at a
fixed price of $51.50. The Group has also sold 500,000 bbls per
month for the first half of 2017 (3 MMbbls total) at a fixed price
of $49/bbl and has bought a call (nil cost) for the same notional
quantity, with a strike at $57.25. Should the price rise above
$57.25, the Group will receive the difference to offset the loss it
would make on the $49/bbl swaps). In addition, the Group has hedged
500,000 bbls for the first half of 2017 at $54.50.
Update on EnQuest Board Sub-committees
EnQuest also announces the following changes to the Audit and
Remuneration Committees with immediate effect
-- Helmut Langanger has joined the Audit Committee; and
-- Phil Holland has joined the Remuneration Committee.
Stefan Ricketts, General Counsel and Company Secretary, is
arranging release of this announcement on behalf of the
Company.
Unless otherwise defined herein, all capitalised terms used in
the body of this announcement shall have the meaning given to them
in Appendix III.
EnQuest PLC Tel: +44 (0)20
Amjad Bseisu (Chief Executive) 7925 4900
Jonathan Swinney (Chief Financial
Officer)
Michael Waring (Head of Communications
& Investor Relations)
Restructuring Adviser Tel: +44 (0)20
Rothschild 7280 5000
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/4826M_-2016-10-13.pdf
IMPORTANT NOTICE
This announcement has been issued by and is the sole
responsibility of EnQuest. The information contained in this
announcement is for background purposes only and does not purport
to be full or complete. No reliance may or should be placed by any
person for any purpose whatsoever on the information contained in
this announcement or on its accuracy or completeness. The
information in this announcement is subject to change.
Copies of the Explanatory Statement will, following distribution
electronically, be available upon request at the offices of Ashurst
LLP, Broadwalk House, 5 Appold Street, London EC2A 2AG and on the
Company's information agent website at www.lucid-is.com/enquest and
copies of the Prospectus will, following publication, be available
from the registered office of EnQuest and, subject to certain
restrictions, on EnQuest's website at www.enquest.com. The
Prospectus is not, subject to certain exceptions, available
(through the website or otherwise) to Shareholders and prospective
investors in the United States, Australia, Canada, Japan and the
Republic of South Africa. Neither the content of EnQuest's website
nor any wite accessible by hyperlinks on EnQuest's website is
incorporated in, or forms part of, this announcement. The
Explanatory Statement will provide further details of the Scheme
and Prospectus will provide further details of the New Ordinary
Shares being offered pursuant to the Placing and Open Offer.
This announcement does not contain or constitute an offer to
sell or the solicitation of an offer to purchase securities to any
person with a registered address in, or who is resident in, any
Excluded Territory or in any jurisdiction in which such an offer or
solicitation is unlawful. None of the securities referred to herein
have been or will be registered under the relevant laws of any
state, province or territory in any Excluded Territory.
The New Ordinary Shares have not been and will not be registered
under Securities Act, and may not be offered or sold in the United
States absent registration or an applicable exemption from the
registration requirements of the Securities Act. The New Ordinary
Shares will not be registered under the Securities Act and will not
be offered or sold to the public in the United States.
The New High Yield Notes to be issued pursuant to the Scheme
will not be registered under the Securities Act and will be issued
in reliance upon the exemption from the registration requirements
of the Securities Act provided by section 3(a)(10) thereof.
This announcement is for information purposes only and is not
intended to and does not constitute or form part of any offer or
invitation to purchase or subscribe for, or any solicitation to
purchase or subscribe for, any securities in any jurisdiction. No
offer or invitation to purchase or subscribe for, or any
solicitation to purchase or subscribe for, any securities will be
made in any jurisdiction in which such an offer or solicitation is
unlawful.
This announcement has been prepared in accordance with English
law, the EU Market Abuse Regulation and the Disclosure Guidance
Rules and Transparency Rules of the Financial Conduct Authority and
information disclosed may not be the same as that which would have
been prepared in accordance with the laws of jurisdictions outside
England.
The distribution of this announcement into jurisdictions other
than the United Kingdom and Sweden may be restricted by law, and,
therefore, persons into whose possession this announcement comes
should inform themselves about and observe any such restrictions.
Any failure to comply with any such restrictions may constitute a
violation of the securities laws of such jurisdiction.
Recipients of this announcement and/ or the Explanatory
Statement and/or the Prospectus should conduct their own
investigation, evaluation and analysis of the business, data and
property described in this announcement and/or if and when
published the Prospectus and/or if and when distributed
electronically the Explanatory Statement. This announcement does
not constitute a recommendation concerning any investor's options
with respect to the Restructuring. The price and value of
securities can go down as well as up. Past performance is not a
guide to future performance. The contents of this announcement are
not to be construed as legal, business, financial or tax advice.
Each investor or prospective investor should consult his, her or
its own legal adviser, business adviser, financial adviser or tax
adviser for legal, financial, business or tax advice.
Notice to all investors
N M Rothschild & Sons Limited ("Rothschild"), which is
authorised and regulated by the Financial Conduct Authority in the
United Kingdom, is acting for EnQuest solely in the capacity of
financial advisor to the Restructuring. Rothschild will not be
responsible to anyone other than EnQuest for providing the
protections afforded to clients of Rothschild nor for providing
advice in relation to the Restructuring.
Apart from the responsibilities and liabilities, if any, which
may be imposed upon Rothschild by the FSMA, Rothschild does not
accept any responsibility or liability whatsoever and makes no
representation or warranty, express or implied, for the contents of
this announcement, including its accuracy, fairness, sufficiency,
completeness or verification or for any other statement made or
purported to be made by it, or on its behalf, in connection with
EnQuest or the Restructuring and nothing in this announcement is,
or shall be relied upon as, a promise or representation in this
respect, whether as to the past or future. Rothschild accordingly
disclaims to the fullest extent permitted by law all and any
responsibility and liability whether arising in tort, contract or
otherwise (save as referred to above) which it might otherwise have
in respect of this announcement or any such statement. Rothschild
provides financial advisory services to EnQuest from time to
time.
No person has been authorised to give any information or to make
any representations other than those contained in this announcement
and the Prospectus and, if given or made, such information or
representations must not be relied on as having been authorised by
EnQuest or Rothschild. Subject to the Listing Rules, the Prospectus
Rules and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority, the issue of this announcement shall
not, in any circumstances, create any implication that there has
been no change in the affairs of EnQuest since the date of this
announcement or that the information in it is correct as at any
subsequent date.
Cautionary statement regarding forward-looking statements
This announcement may contain certain forward-looking
statements, beliefs or opinions, with respect to the financial
condition, results of operations and business of EnQuest and the
Group.
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". The words "believe,"
"estimate," "target," "anticipate," "expect," "could," "would,"
"intend," "aim," "plan," "predict," "continue," "assume,"
"positioned," "may," "will," "should," "shall," "risk" their
negatives and other similar expressions that are predictions of or
indicate future events and future trends identify forward-looking
statements. An investor should not place undue reliance on
forward-looking statements because they involve known and unknown
risks, uncertainties and other factors that are in many cases
beyond the Company's or the Group's control. By their nature,
forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that may or may
not occur in the future. The Company cautions investors that
forward-looking statements are not guarantees of future performance
and that its actual results of operations and financial condition,
and the development of the industry in which it operates, may
differ materially from those made in or suggested by the
forward-looking statements contained in this announcement and/or
information incorporated by reference into this announcement. In
addition, even if the Company's or the Group's results of
operation, financial position and growth, and the development of
the markets and the industry in which the Group operates, are
consistent with the forward-looking statements contained in this
announcement, these results or developments may not be indicative
of results or developments in subsequent periods. The cautionary
statements set forth above should be considered in connection with
any subsequent written or oral forward-looking statements that the
Company, or persons acting on its behalf, may issue.
Past performance of the Company cannot be relied on as a guide
to future performance. As a result, you are cautioned not to place
undue reliance on such forward-looking statements. A variety of
factors may cause the Company's or the Group's actual results to
differ materially from the forward-looking statements contained in
this announcement. Forward-looking statements speak only as of
their date and the Company, its parent and subsidiary undertakings,
the subsidiary undertakings of such parent undertakings, Rothschild
and any of such persons' respective directors, officers, employees,
agents, affiliates or advisers expressly disclaim any obligation to
supplement, amend, update or revise any of the forward-looking
statements made herein, except where it would be required to do so
under applicable law.
No statement in this announcement is intended as a profit
forecast or a profit estimate and no statement in this announcement
should be interpreted to mean that earnings per share of EnQuest
for the current or future financial years would necessarily match
or exceed the historical published earnings per share of
EnQuest.
Further Information in relation to the Restructuring
Introduction
The Company announced the Restructuring following negotiations
with relevant stakeholders, including the Existing RCF Lenders, the
Hedging Banks and the Ad Hoc Noteholder Committee. The key features
of the Restructuring are (i) the Proposed RCF Amendments extending
the final maturity date of the Existing RCF to October 2021,
splitting the maximum aggregate commitments into a term loan
facility and a revolving credit facility, amending the amortisation
profile, relaxing certain of the financial covenants in the
Existing RCF and incorporating terms allowing for new super senior
hedging; (ii) the Proposed Note Amendments to be effected by way of
an English scheme of arrangement amending the High Yield Notes and
Retail Notes, amongst other things, to provide that interest will
only be payable in cash on any interest payment date if certain
conditions are met (including that the prevailing average oil price
is at least $65.00/bbl for a six-month period, otherwise interest
will be capitalised), to enable the Company (at its absolute
discretion) to extend, at any time, the final maturity dates to
April 2023 and automatically to extend the maturity dates to
October 2023 if the Company has not repaid or refinanced the
Existing RCF by 15 October 2020, to remove certain financial
covenants from the Retail Notes, amend certain financial
indebtedness baskets in the High Yield Notes and include a
restriction on certain payments to shareholders (and their
affiliates) if the Company has not redeemed in cash the capitalised
interest in respect of the High Yield Notes and the Retail Notes
together with any accrued but unpaid interest thereon; (iii) the
Placing and Open Offer; and (iv) the renewal of the Surety Bond
Facilities.
Background to and reasons for the Restructuring
Against the backdrop of challenging market conditions, the Group
has achieved a robust operational performance in its most recent
financial periods, as demonstrated by its increasing production and
cost efficiency, as it continues to pursue its strategy of turning
opportunities into value by targeting maturing assets and
undeveloped oil fields and exploiting its existing reserves.
Nevertheless, the decline in oil prices during and since 2014 and
the continuing low oil price environment have had a significant
negative impact on the Group's revenues, liquidity and available
cash resources. This situation has been exacerbated by the Group's
level of debt and the significant cash resources required to
service the interest on this debt, as well as by the significant
capital expenditure required for development assets including, in
particular, the Group's Kraken development asset, the Group's
largest project to date. These factors combined have put
considerable pressure on the Group's cash flows. As a result, the
Directors are now of the view that, without substantial changes to
the Group's capital and debt structure, the Group will have
insufficient cash resources to bring Kraken to first oil and to
meet all of its payment obligations as they fall due. In
particular, if the Placing and Open Offer and the Restructuring as
described in this announcement do not proceed, the Directors
believe that there is a substantial risk that the Group will be
unable to pay the interest payment due in respect of the High Yield
Notes on 17 October 2016. If not remedied within the applicable 30
day grace period, and there is no interest payment standstill
agreed by the requisite majority of High Yield Noteholders (being
90 per cent. or more in value), this would constitute a default
under the High Yield Notes and a cross default under certain of the
Group's other debt instruments and facilities, including the
Existing RCF and the Retail Notes. In addition, the Group has,
since January 2015, obtained waivers from the Existing RCF Lenders
in respect of the liquidity covenant contained in the Existing RCF
and the current waiver from this covenant expires on 31 December
2016. To the extent the Group is unable to improve its liquidity
position or obtain further waivers from the Existing RCF Lenders,
the Group could fail to meet the liquidity covenant in the Existing
RCF when next tested on 31 December 2016 or on a subsequent test
date, which would constitute an event of default under the Existing
RCF. In either of these circumstances, there is a risk that the
Company and/or its subsidiaries may become subject to enforcement
action which if not terminated or withdrawn could result in the
majority Existing RCF Lenders appointing an administrator to the
Company, with a view to the administrator commencing (and/or
continuing, if already commenced by the Company at such time) a
marketing process for the sale of the Group on an accelerated
basis. However, the Ad Hoc Noteholder Committee may propose an
alternative debt restructuring and seek to engage in negotiations
with the Existing RCF lenders and the Company (which may involve
providing a standstill of the October Interest Payment if the
requisite majority has approved such standstill) and the Existing
RCF Lenders may or may not accept such proposal or may consider
such proposal in the context of the sales process.
Although the Group has already undertaken a number of measures
to mitigate the impact of the low oil price environment (as
described further below), the Directors believe that in order to
continue its operations as currently envisioned the Group must
strengthen its balance sheet, reduce the impact of the Group's
current debt on its cash flows and increase the Group's cash
resources. The Directors are therefore proposing the Restructuring.
The Directors believe that the completion of the Restructuring will
put the Group in a stronger position to meet current oil market
conditions, as they continue to believe that the Group's
fundamental business, with its strategy of targeting mature and
marginal oil assets and its focus on cost efficiency, is well
placed to withstand a prolonged period of low oil prices, and will
be even better placed to do so after completion of the Kraken
development.
The recent significant decline in oil prices began in the second
half of 2014, with the average realised price for the Group's UKCS
and Malaysian oil sales (excluding hedging) together decreasing
from $100.6 per barrel for the year ended 31 December 2014 to $50.9
per barrel for the year ended 31 December 2015, and from $58 per
barrel for the six months ended 30 June 2015 to $41 per barrel for
the six months ended 30 June 2016. The Brent crude oil benchmark
(which is the benchmark against which the Group's UKCS production
is priced) reached a low of $27.88/bbl on 20 January 2016. Although
oil prices have stabilised somewhat, they remain significantly
below the levels that prevailed in 2013 and the first half of 2014
(with the Brent crude oil benchmark at a high of $118.9 on 8
February 2013). The Brent crude oil benchmark was $51.7/bbl as of
12 October 2016.This reduction in oil prices has had a negative
impact on the Group's revenues and cash flows from operating
activities.
In response to the decline in oil prices, the Group has set a
number of strategic priorities, including delivering on execution,
streamlining operations and strengthening the Group's balance
sheet. The Group has continued to focus on delivering a strong
operational performance, as demonstrated by the 31.1 per cent.
increase in the Group's net daily average production in 2015 and a
43.3 per cent. increase in net daily average production in the six
months ended 30 June 2016 (compared to the same period in the prior
year) and reduced operating costs described in more detail below.
The Group has also taken a number of additional measures to address
the impact of the decline in oil prices and the Group's cash flow
constraints, including the following:
-- Negotiating amendments to certain financial covenants in the
Existing RCF and the Existing Retail Notes: In January 2015, the
Group negotiated temporary amendments to certain of its financial
covenants in the Existing RCF, raising the net debt/EBITDA covenant
to five times and reducing the ratio of EBITDA to financing charges
to a minimum of three times, both until mid-2017, providing the
Group with additional headroom in the low oil price environment. In
May 2015, following approval by the holders of the Existing Retail
Notes, the financial covenants in the Existing Retail Notes were
amended for consistency with the amendments to the Existing RCF.
The Company is seeking further changes to the Existing RCF and
Existing Retail Notes as part of the Restructuring as mentioned
above.
-- Engaging in commodity hedging activities: In line with its
financial policies, the Group entered into a number of commodity
hedging contracts in 2014, partially hedging the Group's exposure
to fluctuations in oil prices, and entered into additional hedging
contracts in 2015 as a response to the continued low oil price
environment. As of 31 December 2015, the Group's commodity hedging
contracts included bought put options over 8MMbbls, maturing
throughout 2016, with an average strike price of $68/bbl and oil
swap contracts to sell 2MMbbls at an average price of $66.64/bbl
maturing throughout 2016. These hedging arrangements considerably
mitigated the fall in the Group's revenues in 2015, as the Group
recognised $261.2 million in realised gains from its hedging
activities (relating to the portion of the Group's commodity
hedging contracts that were ineffective for hedging purposes or
held for trading purposes) during the year ended 31 December 2015.
As of 30 June 2016, the Group's commodity hedging contracts
included bought put options over 4.3MMbbls at an average price of
$68/bbl maturing throughout 2016 and oil swap contracts to sell
1.3MMbbls at an average price of $67/bbl maturing throughout 2016.
During the first six months of 2016, the Group realised $128.1
million in revenue relating to its commodity hedging activities,
which partially offset the decline in oil sales. Since 30 June
2016, the Group entered hedging arrangements over 1MMbbl of 2017
production (83kbbls/ month) at a fixed price of $51.50. The Group
has also sold 500,000bbls per month for the first half of 2017 (3
MMbbls total) at a fixed price of $49/bbl and has bought a call
(nil cost) for the same notional quantity, with a strike at $57.25.
Should the price rise above $57.25, the Group will receive the
difference to offset the loss it would make on the $49/bbl swaps).
In addition, the Group hedged 500,000 bbls for the first half of
2017 at $54.50.
-- Divesting non-core assets: In 2015, as part of its investment
prioritisation programme, the Group disposed of its interests in
assets in Norway, Egypt and Tunisia and its exploration assets in
Malaysia. The Group also relinquished its interests in a number of
exploration licences in the UK. These divestments have allowed the
Group to focus on enhancing production at its currently producing
assets, including bringing Alma/Galia into full production, and
developing its core development assets, being Kraken and
Scolty/Crathes.
-- Reducing operating costs: In line with the Group's focus on
cost efficiency, it has made further significant cuts to its cost
base since the decline in oil prices, including through lowering
supply chain, contractor and staff costs, moving its procurement
team to Dubai to take advantage of lower cost structures and
working with the SVT operator to reduce gross cost levels. EnQuest
reduced average unit operating costs in 2015 to $30/bbl (compared
to $42/bbl in 2014) and in the first half of 2016 to $23/bbl
(compared to $39/bbl in the first half of 2015). The Directors
expect average unit operating costs for the full year 2016 to be
around the lower end of the guidance of $25-$27/bbl and expect that
unit operating costs will decrease to the low $20s per barrel when
Kraken comes fully on-stream.
-- Reducing capital expenditure on the Kraken development: The
gross full cycle capital expenditure estimate for Kraken has been
reduced to approximately $2.5 billion from $3.2 billion at sanction
in 2013.
-- Improving future cash flows through the development of Kraken
and Scolty/Crathes: The Directors expect that Kraken will deliver
first oil in the first half of 2017 and that the Scolty / Crathes
fields will deliver first oil around the end of 2016. The increase
in production and, as a result, revenues brought about by the
completion of these developments, combined with reduced capital
expenditure and operational costs, would improve the Group's cash
flow position.
-- Deferring certain trade creditor obligations: The Group has
also recently agreed the deferral of certain payments owed to
several of its trade suppliers, which the Directors believe
demonstrate trade suppliers' willingness to support the Company.
Pursuant to these arrangements, these trade suppliers have agreed
for outstanding liabilities to be deferred in accordance with
agreed repayment profiles, allowing the Group to repay these
liabilities through periodic payments extending to between October
2016 and April 2019. These measures have been significant steps in
maintaining the Group's viability in the current environment.
The Directors recognise, however, that in order to allow the
Group to continue to pursue its current strategy (and, in
particular, to bring Kraken to first oil) and to maintain the
viability of the Group's business going forward, a longer term
solution is needed to strengthen the Group's liquidity position and
reduce the burden of the Group's debt service obligations on its
business. Having negotiated with relevant stakeholders, including
the Existing RCF Lenders and the Ad Hoc Noteholder Committee, the
Directors have therefore proposed the measures comprised in the
Restructuring.
All of the elements of the Restructuring are inter-conditional,
meaning that none of the components of the Restructuring will be
completed if the other components of the Restructuring are not
consented to and/or completed.
Financial effects of the Restructuring
On a pro forma basis and assuming that the Restructuring had
taken place on 30 June 2016, the Group would have had net assets of
approximately $833.4 million, compared with net assets of $738.1
million reported as at 30 June 2016.
The Directors believe that the proposed Restructuring will
improve the Group's capital structure and improve the ongoing
liquidity position of the Group, putting it in a stronger position
to withstand a prolonged period of low oil prices.
APPIX I -DEFINITIONS
Ad Hoc Noteholder Committee the informal ad hoc committee of the Existing High Yield Noteholders from
time to time
Amended Retail Notes the Existing Retail Notes, as amended by the Proposed Note Amendments
Application Form the personalised application form being sent to Qualifying Non-CREST
Shareholders for use
in connection with the Open Offer
Board the board of directors of the Company
Boepd barrels of oil equivalent per day
Company or EnQuest the public limited company named EnQuest PLC with company number 07140891
and with registered
office address at 5th Floor Cunard House, 15 Regent Street, London, SW1Y
4LR
Disclosure Guidance Rules the Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority
Excluded Territory/Territories Australia, Canada, Japan, the Republic of South Africa and any other
jurisdiction where the
extension or availability of the Placing and Open Offer (and any other
transaction contemplated
thereby) would breach applicable law
Existing High Yield Notes the $650,000,000 7% senior notes due 15 April 2022 issued by the Company
Existing Noteholders the Existing High Yield Noteholders and the Existing Retail Noteholders
Existing Notes the Existing High Yield Notes and the Existing Retail Notes
Existing Ordinary Shares the Ordinary Shares in issue at the date of this announcement
Existing RCF the senior secured revolving credit facility dated as of 6 March 2012, as
amended, restated
or otherwise modified or varied from time to time, entered into by, among
others, EnQuest,
as the borrower, BNP Paribas, as facility agent, and certain lenders
party thereto
Existing RCF Lenders the original lenders under the Existing RCF and any lender which has
acceded as a lender thereunder,
which in either case has not ceased to be a party to the Existing RCF in
accordance with the
terms
Existing Retail Noteholders the holders of the Existing Retail Notes
Existing Retail Notes the GBP155,000,000 5.5% notes due 15 February 2022 issued by the Company
under its GBP500,000,000
euro medium term note programme
Explanatory Statement the explanatory statement in respect of the Scheme
EU Market Abuse Regulation the Market Abuse Regulation (EU) No 596/2014
FSMA the UK Financial Services and Markets Act 2000 (as amended)
General Meeting the extraordinary general meeting of the Company to be held at Ashurst
LLP, Broadwalk House,
5 Appold Street, London, EC2A 2HA on 14 November 2016 at 9.00 a.m.
Group the Company and its subsidiaries and subsidiary undertakings from time to
time
Letter of Credit the letter of credit to be issued by Credit Suisse AG in favour of the
Company in connection
with Double A's participation in the Placing
London Stock Exchange London Stock Exchange plc
MMbbl millions of barrels, i.e. oil barrels corresponding to 159 litres
New High Yield Notes the new $650,000,000 7% senior notes issued by the Company to the
Existing High Yield Noteholders
in exchange for the Existing High Yield Notes on a dollar-for-dollar
basis
New Ordinary Shares 356,738,114 new Ordinary Shares to be issued by the Company pursuant to
the Placing and Open
Offer
October Interest Payment the interest payment due on the Existing High Yield Notes on 17 October
2016
Open Offer the offer to Qualifying Shareholders constituting an invitation to apply
for the Open Offer
Shares on the terms and subject to the conditions set out in this
document, and in the case
of Qualifying Non-CREST Shareholders, the Application Form
Ordinary Shares the ordinary shares of 5 pence each in the capital of the Company
Placing the conditional placing of the Open Offer Shares (other than the
Committed Shares) with Placees,
subject to clawback to satisfy valid applications by Qualifying
Shareholders under the Open
Offer
Placing and Open Offer the Placing and Open Offer
PM8/Seligi Production Sharing Contract the production sharing contract between EP Malaysia, PETRONAS Carigali
Sdn Bhd, E&P Malaysia
Venture Sdn Bhd (as contractors) and PETRONAS dated 10 December 2014, as
discussed in this
announcement
Proposed Note Amendments certain amendments of the Existing Notes, and issue of the Warrants, as
discussed in this
announcement
Proposed RCF Amendments certain amendments of the Existing RCF, as discussed in this announcement
Prospectus the prospectus to be issued by the Company in respect of the Placing and
Open Offer, together
with any supplements or amendments thereto
Regulation S Regulation S under the Securities Act
Resolutions the resolutions set out in the notice of General Meeting
Restructuring the financial restructuring as proposed by the Company, as discussed in
this announcement
Scheme the proposed scheme of arrangement under Part 26 of the Companies Act
between the Company
and the Scheme Creditors to implement the Proposed Note Amendments with,
or subject to, any
modification, addition or condition which the Court may consider fit to
approve or impose
Scheme Creditors includes each Existing High Yield Noteholder and each Existing Retail
Noteholder
Securities Act the United States Securities Act of 1933, as amended
SEK the lawful currency of Sweden
Shareholders the holders of Ordinary Shares in the capital of the Company
Sullom Voe Terminal or SVT the oil terminal located in the Shetland Islands that receives oil from
the Brent and Ninian
pipeline systems
Surety Bond Facilities The surety bonds provided by the Surety Bond Providers aggregating to
GBP89.2 million and
$5.0 million, of which GBP2.0 million mature in September 2016 and with
the remaining amount
maturing in December 2016
Surety Bond Providers HCC International Insurance Company PLC and Liberty Mutual Insurance
Europe
Tanjong Baram Risk Service Contract the contract dated 27 March 2014 between the Group, Uzma and PETRONAS to
develop and produce
the Tanjong Baram field for a period up to March 2023
Trustees Capita Trustees Limited, acting in their capacity as trustees of the
EnQuest EBT
UKCS United Kingdom Continental Shelf
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland
United States or US the United States of America, its territories and possessions, any state
of the United States
of America, and the District of Columbia
US$ or $ or USD or US dollars US dollars, the lawful currency of the United States
GBP or pounds sterling or sterling or GBP pounds sterling, the lawful currency of the United Kingdom
This information is provided by RNS
The company news service from the London Stock Exchange
END
CARFFMFFDFMSEFS
(END) Dow Jones Newswires
October 13, 2016 07:25 ET (11:25 GMT)
Enquest (LSE:ENQ)
Historical Stock Chart
From Apr 2024 to May 2024
Enquest (LSE:ENQ)
Historical Stock Chart
From May 2023 to May 2024