ii view: Harbour Energy ups shareholder returns

Benefiting from both a previous merger and elevated energy prices. We assess prospects.

First-half results to 30 June

• Revenue up 78% to $2.67 billion (£2.27 billion)
• Adjusted profit more than doubled to $2.02 billion (£1.72 billion)
• Net debt of $1 billion, down from $2.15 billion at the end of 2021
• Interim dividend of 11 US cents per share 
• Increased share buyback programme to $300 million from $200 million

Guidance:

• Expects production of between 200-210 kboepd (thousand barrels of oil equivalent per day), up from a previous 195-210 kboepd

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Chief executive Linda Z Cook said:

“We delivered a strong first-half performance, realising value from past acquisitions, increased production efficiency and significant investment in our asset base. 

“In an environment of considerable fiscal, economic and geopolitical uncertainty, our strategy to build a global, diversified oil and gas company focused on safe and responsible operations, value creation and shareholder returns remains valid.”

ii round-up:

Harbour Energy (LSE:HBR) today reported both revenues and profit that beat City forecasts, pushed by higher-than-expected production and helping it to raise its share buyback programme. 

An interim dividend of 11 US cents per share adds to an increase in the share buyback programme to $300 million from $200 million and came as management’s production estimate for the full year was upped to between 200 to 210 kilo barrels of oil equivalent per day (kboepd) from a prior 195 to 210 kboepd. 

Shares for Harbour Energy, which previously acquired Premier Oil, rose by more than 10% in UK trading having come into this latest announcement up by around a fifth year-to-date. Brent crude oil is up by close to 30% during 2022, pushed higher by the war in Ukraine. Shares for BP (LSE:BP.) and Shell (LSE:SHEL) are up by around 40% year-to-date. 

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Harbour, which has operations in the UK, Norway, Indonesia, Vietnam, Brazil, Mexico and the Falkland Islands, detailed production for the six months to the end of June of 211 kboepd. That’s up 40% from the first half of 2021 and beat analyst estimates nearer to 201 kboepd. 

Unit operating costs helped by the acquisition of Premier Oil, fell 5% year-over-year to 14.2 dollars per barrel of oil equivalent. Forecast free cash flow for the year, aided by higher energy prices, was raised to between $1.8 billion and $2 billion, up from a previous $1.7 billion to $1.9 billion. 

Net debt fell to $1 billion from a previous $2.15 billion with Harbour maintaining its hopes to become debt free during 2023. Broker Morgan Stanley reiterated its overweight stance on the shares following the results. 

ii view:

In 2021, and via a reverse takeover, Chrysaor merged with Premier Oil plc to create Harbour Energy. The deal completed in March 2021, whereupon Premier changed its name from Premier Oil to Harbour Energy Plc. Today, Harbour is a major FTSE 250 UK-listed independent oil and gas company, employing more than 1,500 people. 

For investors, the highly volatile price of oil and gas, combined with the speculative nature of exploration, leave shares in industry players such as Harbour generally for investors with a medium to higher-risk appetite. The highly uncertain economic outlook, with its influence on oil demand and energy prices, needs to be remembered. As does the possibility for increased government taxation. 

More favourably, opportunities to raise efficiency following its merger are being taken, while a recovery in energy prices from the depths of the Covid crisis, and pushed further by the war in Ukraine, is benefiting it. A sustainability policy was previously established, while a raised share buyback programme and a forecast future dividend yield of around 4% are not to be ignored. In all, and with the consensus analyst estimate of fair value currently sat at over 550p per share, more speculative investors are likely to stay long-term patient. 

Positives: 

• Geographically diverse operations 
• Potential to be debt free by 2023

Negatives:

• Highly volatile oil and gas price
• Uncertain economic outlook

The average rating of stock market analysts:

Buy