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EnQuest reports small rise in annual profit despite weak oil prices

By Karolin Schaps

LONDON (Reuters) - North Sea-focused oil producer EnQuest (ENQ.L) reported a small rise in annual core earnings on Tuesday, despite weak oil prices, as it brought down costs and hedged its output against low prices.

The British company, which is set to bring its large Kraken oil field on stream in the second quarter, said it would lower costs further this and next year as it negotiates discounts with suppliers.

"People see us as the future of the North Sea so they're very happy to work with us as we're expanding," Chief Financial Officer Jonathan Swinney told Reuters.

EnQuest is targeting unit operating costs in the low $20s per barrel once Kraken is on stream. It brought costs down 17 percent in 2016 to $24.60 a barrel.

This helped it maintain profits together with a successful hedging programme that generated revenue of $256 million as it locked in prices at an average of $63.80 a barrel, compared with Brent prices of around $44 a barrel.

EnQuest's full-year earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $477 million from $474 million and topped the $469 million expected by analysts polled by Reuters.

Earnings per share returned to positive territory after two years of losses, reaching 22.7 cents.

"Performance has been a pleasant surprise and it is good to see company returning to profit ahead of a large project start-up," said analysts at Cenkos Securities.

EnQuest shares were up 1.8 percent at 0847 GMT.

The company, which targets production of 45,000-51,000 barrels per day (bpd) this year, said the North Sea would benefit from further deals like one it concluded in January with BP when it bought a 25 percent stake in BP's Magnus oil field and surrounding assets.

Swinney said the UK government's review of its decommissioning tax and transfer of asset losses was positive for dealmaking in the mature basin.

EnQuest's strategy has been to buy up interests in mature fields for bargain prices and to apply new technologies and stricter spending programmes to squeeze more out of ageing infrastructure.

"Pushing out decommissioning and getting more out of mature fields is absolutely what we do extremely well. Anything that the government does to help that I think we are very keen to be part of," Swinney said.

(Editing by Louise Heavens and Jason Neely)