EnQuest : HYFR Half-year Results

CORPORATE

EnQuest PLC

Results for the six months ended 30 June 2023

5 September 2023

Unless otherwise stated, all figures are on a Business performance basis and are in US Dollars.

Comparative figures for the Income statement relate to the period ended 30 June 2022 and the Balance sheet as at 31 December 2022. Alternative performance measures are reconciled within the 'Glossary - Non-GAAP measures' at the end of the Financial Statements.

EnQuest Chief Executive, Amjad Bseisu, said:

"Strong operational performance, including the efficient return to service of Kraken, has enabled free cash flow generation totalling $140 million in the first half of 2023, driving further reduction in EnQuest net debt to $592

million. Within the core business, we have a significant work programme in the second half of the year, including further drilling at Magnus and at Golden Eagle and a continuation of well plug and abandonment activities at Heather and Thistle, which we expect to deliver in line with 2023 guidance.

"EnQuest continues to play an active role in supporting the UK's twin objectives of delivering energy security and decarbonisation. Following the successful awards of carbon capture and storage licenses, I'm delighted that the Board has established a commitment for EnQuest to reach net zero for scope 1 and scope 2 emissions by 2040.

"The UK's oil and gas sector faces significant challenges and loss of competitiveness due to uncertainty following the adverse changes to the fiscal regime. While we appreciate the Government's intentions to improve the attractiveness of the sector through the Energy Security Investment Mechanism, we believe timely legislative reform is required to restore confidence in the UK oil and gas sector to protect jobs and deliver both energy security and decarbonisation.

"As we navigate the challenges posed by the EPL, we remain focused on further strengthening our Balance

sheet, to unlock organic and inorganic growth opportunities, as well as our differentiated tax advantage, to grow the business and deliver returns to shareholders."

H1 2023 performance

• Group net production averaged 45,480 Boepd (2022: 49,726 Boepd)
• Revenue and other operating income of $732.7 million (2022: $943.5 million) and adjusted EBITDA of $399.2
  million (2022: $536.3 million) reflects lower realised oil prices of $75.8/Boe (2022: $89.9/Boe) and lower production.
• Operating costs were $162.7 million (2022: $208.4 million), reflecting higher lease charter credits reflecting unplanned downtime at Kraken, as well as lower maintenance and well intervention costs at Magnus and at PM8/Seligi
• Reported profit before tax was $112.9 million (2022: $182.6 million). Reported loss after tax was $21.2 million
  (2022: profit of $203.5 million) driven by the impact of the UK Energy Profits Levy
• Reported cash generated from operations was $370.4 million (2022: $522.7 million); with cash capital
  expenditure of $80.0 million (2022: $54.7 million) and cash abandonment expenditure of $29.3 million (2022: $28.2 million)
• Free cash flow generation, including favourable working capital movements, of $140.0 million (2022: $332.1 million)
• Awarded four carbon storage licences by the North Sea Transition Authority

End June EnQuest net debt reduced by $125.0 million from year end; EnQuest net debt to adjusted EBITDA maintained at 0.7x

• At 30 June 2023, EnQuest net debt reduced to $592.1 million (end 2022: $717.1 million). EnQuest net debt to last-12 months adjusted EBITDA ratio as at 30 June 2023 remains at 0.7x, as it was at the end of 2022
• At the end of June, $247.0 million (end 2022: $400.0 million) remained outstanding on the Group's senior secured debt facility ('RBL') following accelerated repayments totalling $153.0 million

CORPORATE

• At 30 June, EnQuest retained strong liquidity with total cash and available facilities of $385.2 million (end 2022: $348.9 million)
• At 31 August 2023, EnQuest net debt increased to $615.2 million due to the July payment of $50 million contingent consideration in relation to the Golden Eagle acquisition.
• The outstanding RBL, which matures in April 2027, was reduced by a further $7.0 million to $240.0 million
• In August 2023, the Group agreed a term loan facility totalling $150.0 million, maturing in July 2027, which will rank junior to the existing RBL as a secured second lien instrument within the capital structure. The loan proceeds, which can be used for general corporate purposes, provide an additional source of liquidity for the Group in advance of the October settlement of the 7% Sterling retail bond
• The remaining October 2023 7% Sterling retail bond in issue is £111.3 million and is expected to be settled in cash at maturity

Guidance and outlook

• 2023 average net Group production is still expected to be within the guidance range of 42,000 Boepd to 46,000 Boepd reflecting strong first half performances across the majority of the portfolio and the efficient return to service at Kraken, which mitigated losses associated with a period of production shut-in following the decision to accelerate maintenance work originally planned for the third quarter
• Operating costs, cash capital and abandonment expenditures are all expected to be in line with prior guidance of c.$425 million, c.$160 million and c.$60 million, respectively, with operating costs expected to be higher in the second half of the year in line with increased activity
• EnQuest has hedged a total of c.3.8 MMbbls in the second half of 2023 with an average floor of c.$60/bbl through the use of put options. For the first half of 2023, the Group hedged a total of c.5.9 MMbbls with an average floor price of c.$57/bbl and an average ceiling price of c.$76/bbl applicable to 3.1 MMbbls
• EnQuest has hedged a total of c.3.2 MMbbls in 2024 and a total of 0.1 MMbbls in 2025 through the use of put options, all with the same floor of $60/bbl

Production and financial information

Business performance measures	For the period	For the period	Change
	to 30 June	to 30 June	%
	2023	2022
Production (Boepd)1	45,480	49,726	(8.5)
Revenue and other operating income ($m)2	732.7	943.5	(22.3)
Realised oil price ($/bbl)2,3	75.8	89.9	(15.7)
Operating costs ($m)	162.7	208.4	(21.9)
Average unit operating costs ($/Boe)3	19.7	22.7	(13.2)
Adjusted EBITDA ($m)3	399.2	536.3	(25.6)
Cash expenditures ($m)	109.3	82.9	31.8
Capital	80.0	54.7	46.3
Abandonment	29.3	28.2	4.0
Free cash flow ($m)3	140.0	332.1	(57.8)
	30 June 2023	31 December
		2022
EnQuest net debt ($m)3	(592.1)	(717.1)	(17.4)

CORPORATE

Statutory IFRS measures	For the period	For the period	Change
	to 30 June	to 30 June	%
	2023	2022
Reported revenue and other operating income ($m)4	770.4	838.8	(8.2)
Reported gross profit ($m)	287.1	252.8	13.6
Reported profit/(loss) after tax ($m)	(21.2)	203.5	-
Reported basic earnings/(loss) per share (cents)	(1.2)	11.1	-
Cash generated from operations ($m)	370.4	522.7	(29.1)
Net increase/(decrease) in cash and cash equivalents ($m)5	(18.1)	99.5	-

Notes:

1. Production figure for first half of 2023 includes 660 Boepd associated with Seligi gas
2. Including realised losses of $22.2 million (2022: realised losses of $162.3 million) associated with EnQuest's oil price hedges
3. See reconciliation of alternative performance measures within the 'Glossary - Non-GAAP measures' starting on page 32. Note, EnQuest defines net debt as excluding finance lease liabilities
4. Including net realised and unrealised gain of $15.4 million (2022: net realised and unrealised losses of $267.0 million) associated with EnQuest's oil price hedges
5. Excludes foreign exchange impact of $(0.3) million (2022: $(16.4) million)

Summary financial review

(all figures quoted are in US Dollars and relate to Business performance unless otherwise stated)

Revenue for the six months ended 30 June 2023 was $732.7 million, 22.3% lower than the same period in 2022 ($943.5 million), reflecting lower realised prices and lower production. Revenue is predominantly derived from crude oil sales, which for the first half of 2023 totalled $540.1 million, 36.5% lower than in the same period of

2022 ($851.2 million). Revenue from the sale of condensate and gas in the period was $213.2 million (2022: $252.9 million), primarily reflecting lower market prices. Gas revenue mainly relates to the onward sale of third- party gas purchases not required for injection activities at Magnus.

The Group's commodity hedges and other oil derivatives contributed $22.2 million of realised losses (2022: realised losses of $162.3 million), as a result of the timing at which the hedges were entered into. The Group's average realised oil price excluding the impact of hedging was $79.0/bbl for the six months ended 30 June 2023, compared to $111.0/bbl received during the first half of 2022. The Group's average realised oil price including the impact of hedging was $75.8/bbl in the first half of 2023, 15.7% lower than during the first half of 2022 ($89.9/bbl).

Total cost of sales were $493.1 million for the six months ended 30 June 2023, 15.8% lower than in same period of 2022 ($585.6 million).

Operating costs decreased by $45.7 million to $162.7 million, primarily reflecting lower production costs for the first half of 2023. This decrease was driven by higher lease charter credits, reflecting unplanned downtime at the Kraken Floating, Production, Storage and Offloading ('FPSO') in the second quarter of 2023, and lower maintenance and well intervention costs at Magnus and at PM8/Seligi. Unit operating costs decreased by 13.2% to $19.7/Boe (2022: $22.7/Boe), primarily reflecting lower costs partially offset by lower production.

Total cost of sales included non-cash depletion expense of $147.9 million, 15.1% lower than in the same period in 2022 ($174.2 million), mainly reflecting lower production volumes.

Also within cost of sales, the credit relating to the Group's lifting position and hydrocarbon inventory for the six months ended 30 June 2023 was $15.3 million (2022: credit of $29.9 million). The credit in the period reflects an increase in the net underlift position to $15.8 million at 30 June 2023 from a $0.8 million net underlift position at 31 December 2022.

Other cost of sales, which forms part of the total cost of sales balance, for the six months ended 30 June 2023 of $197.9 million were lower than the same period in 2022 ($232.9 million), reflecting the lower cost of Magnus- related third-party gas purchases following the decrease in the market price for gas and which is offset by gas sales presented in revenue.

Adjusted EBITDA for the six months ended 30 June 2023 was $399.2 million, down 25.6% compared to the same period in 2022 ($536.3 million), driven by lower revenue offset partially by lower operating costs.

CORPORATE

The tax charge for the six months ended 30 June 2023 of $131.8 million (2022: $142.4 million tax charge), reflects a $45.5 million non-cash deferred tax impact on the Group's profit before tax, $10.3 million overseas current tax charge and a $76.0 million current tax charge associated with the EPL (noting EPL was substantively enacted in July 2022).

Remeasurements and exceptional items resulting in a post-tax net loss of $27.9 million have been disclosed separately for the six month period ended 30 June 2023 (2022: profit of $23.5 million).

Revenue included unrealised gains of $37.6 million in respect of the mark-to-market movement on the Group's commodity contracts (2022: unrealised losses of $104.7 million). Cost of sales included unrealised gains of $9.9 million relating to the mark-to-market movement on the Group's foreign exchange contracts and forward UKA purchase contracts (2022: unrealised losses of $0.5 million). Other remeasurements and exceptional items includes a non-cash impairment charge of $96.5 million (2022: $10.1 million reversal) and a $43.5 million

gain (2022: $31.0 million loss) in relation to the fair value recalculation of the Magnus contingent consideration reflecting an increase in the discount rate. A net tax charge of $2.3 million, which includes a net tax charge of $5.8 million related to the EPL, (2022: credit of $163.4 million, with nil impact from EPL) has been presented as exceptional, representing the tax effect on the above items. While the Group has lowered its near-term oil price assumptions, there is no change in recognition of undiscounted deferred tax assets at 30 June 2023 (2022: $107.9 million recognition due to the Group's increased short-term oil price assumptions) as there remains sufficient headroom in the Group's forecast future cash flows to support full recognition of relevant tax losses.

The Group's IFRS profit before tax was $112.9 million (2022: profit of $182.6 million), and IFRS loss after tax was

$21.2 million (2022: profit of $203.5 million). The Group's effective tax rate for the period was 118.8% (charge), primaily reflecting the current tax impact of EPL and its high level of non-deductible expenditures related to financing and decommissioning costs (2022: (11.5)% credit, primarily reflecting the non-cash recognition of $107.9 million of undiscounted deferred tax assets).

EnQuest has recognised UK North Sea corporate tax losses of $2,318.8 million at 30 June 2023 (31 December 2022: $2,497.7 million).

The Group's reported net cash flow from operations for the six months ended 30 June 2023 was $371.0 million (2022: $498.4 million), and included favourable working capital movements, including the receipt of a joint venture advance cash call, and the March refund of the Group's EPL instalment payment in December 2022. Free cash flow for the six months ended 30 June 2023 was $140.0 million (2022: $332.1 million) which was utilised as part of the Group's repayments totalling $153.0 million on the Reserve Based Lending ('RBL') facility.

EnQuest net debt at 30 June 2023 was $592.1 million, a decrease of 17.4% compared to 31 December 2022

($717.1 million) and includes $26.3 million of payment in kind interest ("PIK interest") that has been capitalised to the principal of the facility and bonds (31 December 2022: $25.1 million). As at 31 August 2023, EnQuest net debt had increased to $615.2 million due to the $50 million Golden Eagle contingent payment made in July. In August 2023, the Group entered into a new $150.0 million term loan facility, maturing in July 2027, which will rank junior to the existing RBL as a secured second lien instrument within the capital structure. The loan proceeds, which can be used for general corporate purposes, provide an additional source of liquidity for the Group ahead of the October settlement of the remaining October 2023 7% Sterling retail bond in issue of £111.3 million.

Operating review

Production details

Average daily production on a	For the period to	For the period to
net working interest basis	30 June 2023	30 June 2022
	(Boepd)	(Boepd)
UK Upstream
- Magnus	16,530	12,754
- Kraken	13,082	19,527
- Golden Eagle	4,545	7,060
- Other Upstream1	3,105	4,081
Total UK	37,262	43,422

CORPORATE

Total Malaysia2	8,218	6,304
Total EnQuest	45,480	49,726

1. Other Upstream: Scolty/Crathes, Greater Kittiwake Area and Alba
2. Malaysia production figure for first half of 2023 includes 660 Boepd associated with Seligi gas

Upstream operations

UK operations

Magnus

Average production for the first six months of 2023 was 16,530 Boepd, 29.6% higher than the first half of 2022 (12,754 Boepd). Production efficiency for the period was 91.4% (2022: 73.0%), driven by improvements to rotating equipment performance, including gas compressors and power generation units, following 2022 investment to optimise equipment and reduce obsolescence. Other improvements relate to the test separator system, where enhancements have been made to enable the resumption of well testing and increase the Group's understanding of well composition and characteristics. The Group's drilling programme is ongoing, with the North West Magnus injector brought online in May to provide pressure support for the production well. In addition, slot recovery activity continued to enable the delivery of future infill drilling opportunities, with the completion of the B6 well plug and abandonment ('P&A'). Subsequently, the new B6 infill well came online on 4 August. The programme in the second half of the year includes the completion of a further infill well.

Work is ongoing to optimise the ongoing maintenance shutdown, originally planned for 24 days, with the Magnus team aiming to align to the Ninian Central outage and shorten the shutdown duration.

Kraken

Average production of 13,082 Boepd (18,556 Boepd gross) (2022: 19,527 Boepd net; 27,698 Boepd gross) reflected an efficient return to service of the FPSO following the anomalous failure of hydraulic submersible pump ('HSP') transformer units during May. Working alongside the vessel owner, Bumi Armada, the EnQuest asset team limited the impact on production, resuming production on a single train basis on 12 June and then reaching 80-90% production capacity through the refurbishment and reinstatement of a transformer unit in July. On 7 August, a further transformer unit was brought back into service, following a rebuild, returning Kraken to full production. New transformer units were proactively ordered from the manufacturer and are due for delivery in September, providing further resilience to production capacity.

The Group reacted quickly to mitigate production losses by executing maintenance work, originally planned for the third quarter shutdown during two periods of single train operations. No further planned maintenance outages are anticipated during 2023.

In light of the direct impact of the EPL on the Group's available cash flow and the indirect contribution to underlying inflationary pressures through incentivisation of industry-wide investment within a defined timeline, the Group took the decision to delay its plans to progress the Kraken drilling programme. However, near-field drilling and subsea tie-back opportunities continue to be assessed, with interpretation of 3D seismic data ongoing to access the significant opportunity in terms of main field side-track drilling opportunities, along with further drilling within the Pembroke and Maureen sands, with c.33 Mmboe of 2C resources available at Kraken. Until drilling resumes, Kraken production will be subject to natural field decline.

Golden Eagle

Average production in the first half of the year was 4,545 Boepd net (2022: 7,060 Boepd), while production

efficiency remained high at 91% (2022: 95%). The planned 26-day shutdown was optimised to a 12-day programme of work, which was completed during August.

The delayed 2022 drilling campaign was completed in the first half of 2023, with first oil from the new well delivered on 24 June 2023. Preparations are underway for the next drilling campaign, which includes a two-well infill programme, with further well options, utilising a heavy duty jack up rig and which is expected to run from September 2023.

Other Upstream assets

Production for the first six months of 2023 averaged 3,105 Boepd (2022: 4,081 Boepd). This was driven by

uptime of 95% (2022: 92%) at the Greater Kittiwake Area ('GKA'), and the positive impact of the reinstatement of