By Ron Bousso
LONDON (Reuters) - EnQuest (L:ENQ) has started oil production from the Kraken field in the North Sea, the latest addition to the ageing oil and gas basin that has enjoyed a revival despite a drop in crude prices.
The field, some 125 km (80 miles) east of the Shetland Islands, delivered its first oil on June 23 and is expected to produce 50,000 barrels per day at its peak, the company said in a statement on Monday.
Shares in London-listed EnQuest were trading 9.3 percent higher at 0957 GMT following the announcement.
The decision to develop the field to produce heavy oil was taken in 2013 when oil prices were above $100 a barrel and it was expected to have a life of more than 25 years with an average forecast for crude of $90 a barrel.
The initial budget was about $2.8 billion but following a more than halving of oil prices since 2014, the company has sought to reduce Kraken's construction costs and its budget is now estimated at $2.5 billion, according to the EnQuest.
The start of production is welcome news for EnQuest which is undergoing financial restructuring under Chief Executive Officer Amjad Bseisu in the face of the oil market downturn.
EnQuest had $1.8 billion of debt at the end of last year and has a market value of $433.7 million (341 million pounds).
"With production from Kraken, EnQuest is moving from a period of heavy capital investment, to a focus on cash generation and deleveraging the balance sheet," Bseisu said.
EnQuest has a 70.5 percent interest in Kraken and Cairn Energy (L:CNE) owns the remaining 29.5 percent.
EnQuest, which specialises in squeezing the remaining oil from ageing fields, was producing nearly 38,000 barrels of oil equivalent per day (boepd) at the end of April and expects 2017 production to average between 45,000 boepd and 51,000 boepd.
Analysts at Barclays (LON:BARC) said the first oil from Kraken was, "clearly a positive milestone for both EnQuest and Cairn; however, past experience tells us development risks remain through the production ramp-up phase."
New North Sea projects over the next two years will add a combined 1.2 million barrels per day (bpd), offsetting a drop in output from other fields in the oldest deepwater basin which produces the world's benchmark crude Brent.