Harbour Energy (HBR.L, Market Capitalisation: £1.7bn, 218p, 4.8% of JIC Portfolio, Medium Risk/High Reward =5.0% target weight). www.harbourenergy.com
Harbour Energy is a pure play, upstream, global oil and gas company holding a leading position in the UK as well as interests in Indonesia, Vietnam, Mexico and Norway. It employs 1,700 people worldwide and has global production >200k boepd. It is low-cost operator (c.$15/boe) with roughly a 50/50 mix between oil and gas.
Trading update to 30th September. The full statement is below my conclusion.
Conclusion: Boring but okay! Boring in that everything is in line with previous guidance. Reiterated was used twice and unchanged three times. Okay, in that having not heard from the company since 24 August, it is reassuring to know it continues to generate oodles of cash despite the high Energy Profits Levy. A levy means it is looking to invest its strong balance sheet outside the UK rather than in the North Sea. Investing in the North Sea would improve the UK’s energy security, be far greener than importing from abroad, improve the UK’s balance of payments and protect jobs. But the politicians know that. Rant over. I hazard a guess that, at the very minimum, it will return the same amount to shareholders next year as it has this. That means if it buys back another $240m shares, it will shrink the number of shares in issue by 11.3 per cent, thus enhancing the value per share in issue. If it pays the same dividends of $200m, that leads to a dividend yield of over 10 per cent. Given the dire share price performance, I hope it does not abandon its strategy of returning cash to shareholders and pursuing M&A activity. Eventually, the market will give it credit. I think patience will be rewarded on balance, but my patience is wearing thin.
Harbour Energy plc provides the following unaudited Trading and Operations Update for the nine months to 30 September 2023.
§ Production averaged 189 kboepd (2022: 207 kboepd), split c.50% liquids, c.50% gas. Full year guidance of 185-195 kboepd is unchanged.
§ Operating costs averaged $16/boe (2022: $14/boe) for the period. Full year guidance unchanged at c.$16/boe, with strong cost control offset by lower volumes.
§ Strong safety record with total recordable injury rate of 0.9 per million hours worked
§ High return, short cycle, infrastructure-led UK investment opportunities progressed, supporting future production and cash flow
- Tolmount East production start-up underway, increasing future rates from the Tolmount area
- Leverett discovery, close to Harbour's operated Britannia infrastructure, successfully appraised with good flow rates achieved; planned final appraisal side track underway
- Talbot on track to deliver first oil, via the Harbour operated Judy platform, around the end of 2024, with two of the three development wells completed
§ International growth projects advanced with the potential to materially increase our reserve life
- The drilling of Layaran, the first of a multi-well Andaman Sea (Indonesia) exploration campaign, is ongoing. This follows the Timpan-1 gas discovery in 2022. Three additional prospects on the Andaman South and Andaman II licenses will be drilled as part of this campaign.
- Zama (Mexico) commercial agreements progressed with preparation for FEED underway
- Kan (Mexico) appraisal plan submitted to the regulator following the oil discovery in April with drilling scheduled for 2024
§ Continued progress on Harbour's CCS projects. For the Harbour-led Viking project, this includes entering FEED and the successful submission of the Development Consent Order for the onshore pipeline, marking important milestones for the project.
§ Estimated revenue for the period was $2.9 billion with realised post-hedging oil and UK gas prices of $77/bbl and 53 pence/therm, reflecting legacy hedging put in place at the time of the Premier acquisition
§ 2023 total capex guidance of c.$1 billion reiterated, reflecting increased drilling activity in the second half of the year
§ Forecast 2023 free cash flow of c.$1 billion, after expected total cash tax payments of $0.4 billion, and before shareholder distributions, reiterated
§ Shareholder distributions of c.$440 million completed year to date. This includes c.$240 million of share buybacks and an interim dividend paid in October of c.$100 million. The dividend payment was in line with our $200 million annual dividend policy and represented a nine per cent dividend per share growth year-on-year
§ Net debt of c.$0.3 billion at period end, an increase on half year mainly due to UK tax payments made in the third quarter; potential to be net debt free in 2024 unchanged
§ Successful outcome of RBL facility amendment and extension on favourable terms with borrowing base increased to $1.3 billion and maturity extended to December 2029
Linda Z Cook, Chief Executive Officer, commented:
"We have continued to maximise the value of our UK oil and gas portfolio and to progress our diversification opportunities in Mexico, Indonesia and CCS while maintaining strong cost control and capital discipline. This has enabled significant free cash flow generation and a robust balance sheet, supporting material shareholder returns over and above our base dividend.
We also continue to evaluate a number of material M&A opportunities in line with our stated strategy, as we seek to build a global and diverse oil and gas company. Recent large transactions in our sector and our own discussions with potential counterparties indicate that market conditions for M&A are improving. We remain disciplined, balancing the return of excess capital to shareholders with ensuring flexibility for meaningful, value accretive M&A which would support shareholder returns over the longer run."