Harbour Energy LON:HBR, was somewhat miffed at the government this week claiming that windfall taxes had “all but wiped out our profit for the year”, according to the company’s CEO, Linda Cook.
The North Sea-focussed oil and gas exploration and production company announced in its full-year results to 31st December 2022, that pre-tax profits were up 681% to USD2.46bn (GBP2.1bn), compared to USD315m in 2021.
However, once taxes were taken into account, Harbour said it made a USD8m profit after tax, down 92% from USD101m in 2021.
Cook’s comment seems fair looking at these figures, but the whole concept of a windfall tax is that it is levied on companies that experience unexpectedly high profits or revenue. In the case of the oil and gas companies fuel costs rose because of the War in Ukraine and the removal of Russian gas from the energy mix.
Unexpected event
This was the definition of an ‘unexpected event’ as the oilcos profits were a result of factors outside their control – they didn’t get any better at extracting oil and gas, or their product wasn’t ‘special’ and therefore attract a premium.
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Likewise, the price that people had to pay to heat their homes and fill their cars went up stratospherically in 2022 (and is still higher than many in society can manage). In this case the government stepped in and for the good of society intervened financially, using money to alleviate societal problems – a society that the oilcos are part of.
Fancy accounting
Harbour Energy’s CEO’s comments have subsequently sparked a Twitter storm with various commentators accusing the company of “fancy accounting” to get pre-Budget headlines. One analyst, Greg Muttit, of IISD Energy claimed that Harbour Energy had counted all of its windfall tax payments for the next five years into this year’s accounts, which will lead to big after-tax profits in four year’s time.
Muttit claimed that as Harbour has front-loaded its tax liabilities, it meant that it seemed the tax rate imposed last year was 99.7%, which bears no relation to the actual windfall tax levy raised last year which was around 22%.
The creativity in the accountancy is that the USD1.7bn windfall tax charge is a front-loaded estimate – the amount is not payable this year and will not necessarily arise.
Shareholder returns
Other commentators also noted that despite the financial hardship that Cook was claiming, the Houston-based oil and gas company was still able to announce a USD200m share buyback scheme and a USD100m final dividend, with shareholder returns of around USD1bn since December 2021. The company has also been paying back a significant amount of its debt burden, making USD1.5bn of repayments.
At the same time, the company said it was starting redundancies to save USD40m that could see hundreds of job cuts, though Cook has been coy about the figures in recent media interviews. The CEO said that the jobs cuts were a direct result of the windfall tax, however, since Harbour’s acquisitions Chrsyaor and Premier Oil, there was a lot of duplication across the group, leaving its payroll somewhat bloated, and these job cuts would likely have been in the wind regardless of the windfall tax.
Production up
Production rose by about 19% to 208,000 barrels of oil a day (bpd) and reiterated 2023 production guidance of 185,000bpd to 200,000bpd and total capex of around USD1.1bn, including around USD0.2bn on decommissioning, of which 85% will be on UK sites. The company also operates in Norway, Vietnam, Indonesia and Mexico.
Harbour Energy has been listed on the FSTE250 since June 2021 and was formed in 2021 through the merger of Chrysaor Holdings and Premier Oil. Harbour Energy’s operations focus on the exploration, development, and production of oil and natural gas resources. The company’s assets include offshore platforms, drilling rigs, and pipelines. In the North America, Harbour Energy’s operations are primarily focused on the Gulf of Mexico. The company’s assets in the Gulf of Mexico include offshore platforms and a number of producing oil and gas fields.
In the United Kingdom, Harbour Energy has interests in a number of North Sea oil and gas fields. The company’s assets in the North Sea include the Balmoral and Everest oil fields, as well as the Tolmount gas field.
The company opened trading today (10th March) at 283.8p and has offered a year-to-date return of -7.4% and a one-year return of -28%. The 52-week price swung between 269.7p and 553.75p. Harbour Energy has a market capitalisation of USD2.4bn.
Bridgewise rates Harbour as a ‘Hold’. The analyst said: “…Harbour’s growth and income factors appear positive and give support for optimism regarding the likelihood of continued positive performance. Overall, Harbour’s growth and income factors are trending positively, and we, therefore, give Harbour an overall grade of 71.”
