Harbour Energy LON:HBR, the North Sea-focussed oil and gas exploration and production company will publish its interim results on Thursday (24th August). As previously reported in March, Linda Cook said that its 2022 profits were “all but wiped out” as a result of the UK Government’s windfall tax on the oil and gas industry in light of the dramatic rise in the price of natural gas and oil following the hostilities between Ukraine and Russia.
Cook’s claim was at the time described as creative, “fancy accounting” by Greg Muttit, of IISD Energy, who said 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. The creativity in the accountancy is that the USD1.7bn windfall tax charge is an estimate – the amount is not payable this year and will not necessarily arise.
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Although analysts and commentators might have a bone to pick with Harbour Energy, shareholders have been left happy as at the time Harbour Energy announced a USD200m share buyback scheme – a scheme that management has been energetically pursuing; as at 18th August Harbour had bought back 50,578,118 ordinary shares – and announced a USD100m final dividend, with shareholder returns of around USD1bn since December 2021.
Harbour Energy in Talos talks
The company has not only been busy buying-back its own shares, but is rumoured, according to Reuters to be in talks with the US’ Talos Energy NYSE:TALO, which it had been courting for most of the year, according to Reuters’ report.
As reported, 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.
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Harbour operates in Norway, the North Sea, Mexico, Vietnam and Indonesia and has an office in the Falkland Islands. However, earlier this month Harbour announced the sale of its Vietnam business, which includes a 53% interest in the Chim Sao and Dua producing fields operated by Premier Oil to Big Energy Joint Stock Company, a wholly-owned subsidiary of Big Capital Joint Stock Company, a Vietnamese independent, for USD84m. Harbour hopes to complete the sale by the end of this year.
Harbour Energy to release latest results on Thursday. Will the UK tax rate have a continued effect on the O&G production company’s investmentHarbour Energy threw its toys out of the pram over the UK’s windfall tax and has been scaling back its investment in the North Sea, cutting around 350 UK jobs. Looking for opportunities abroad, a Talos-Harbour merger would increase the London-based company global reach and could well lead to a US listing. Talos operates in the Gulf of Mexico, producing 71,000 barrels of oil equivalent a day (bpod), although Talos itself sold its 49.9% stake in Zama oilfield to Grupo Carso, a Mexican conglomerate owned by Carlos Slim, who was the world’s richest man between 2010 and 2013.
There is historical crossover between Talos and Harbour in Mexico, as both are, or were, involved in the Zama field alongside Petroleos Mexicanos, also known as Pemex, and Wintershall Dea. Pemex, the operator, submitted a Unit Development Plan for Zama in March to the Mexican government, proposing two shallow-water offshore platforms connected to land via a pipeline to Terminal Maritima Dos Bocas. The proposal will need further engineering assessment before the partnership takes a final investment decision.
Carbon Capture
Harbour hasn’t completely abandoned the UK. In April the firm announced a partnership with BP LON:BP. to develop the Viking Carbon Capture and Storage, with BP buying a 40% stake in the CCS project in the Humber, building on a collaboration in the Lincolnshire Offshore Gas Gathering System pipeline. Harbour is also a partner in the Acorn CCS project, and both received Track Two status in the UK Government’s CCS cluster sequencing process in July, allowing both projects to move into front end engineering and design (FEED) and discussions with the government over the terms of the economic licences, ahead of final investment decisions.
It’s not been an amazing year for Harbour Energy’s share price. The O&G producer’s shares closed trading at 245.2p. That’s down -16.3% year to date and -39.5% over one year with shares ranging between 500.2p and 217.1p over a 52 week period.The company has a market capitalization of GBP1.9bn.
Bridgewise has upgraded its rating for Harbour from a ‘Hold’ to an ‘Outperform’. The analyst said: “…Harbour’s recently released results from 4Q22 indicate that Harbour is performing reasonably well and on par with its peers. It is highly likely that Harbour will be mostly tethered to market performance and sector movements for the near term. Therefore, Harbour received an overall score of 76, translating into an ‘Outperform’ ranking..”
Investors can probably expect further profit and further dividends, but analysts will be most-interested in Cook’s current take on the industry’s tax burden. As reported, Harbour put aside GBP1.2bn to pay future tax, but how much tax is actually due? If less-than-expected materialises, what is Harbour going to do with the money it set aside to pay HMRC? Earlier this year the UK government said it will think of phasing out the windfall tax if prices fall below USD71.4 for a barrel of oil, or 54p a therm of gas. Will the company continue its scale-down of UK operations in favour of new overseas opportunities like its projects in Indonesia?
A clearer picture should emerge on Thursday.
