Harbour Energy: North Sea’s largest producer falls to post-tax loss

Shares in Harbour Energy (LON: HBR) dipped this morning as the North Sea’s largest producer reported an $8m loss after tax.

The half-year results are a stark reversal of Harbour’s $1billion post-tax profits in the first half of 2022.

The windfall tax – or Energy Profits Levy – has been named as the main driver, though the company highlighted it generated $1bn free cash flow during the period, and remains “focused on maximising the value” of its UK portfolio.

It comes as Harbour has scaled back activities in certain areas as a result of the windfall tax, including hundreds of job cuts in Aberdeen.

Harbour Energy said its results reflect an effective tax rate of 102% due to “several period-specific adjustments”, compared to H122’s 34% rate, and the UK’s statutory rate of 75%.

This is “primarily caused” by the windfall tax introduction at a 35% rate for Harbour from January 1 (there was no charge in its H122 results as legislation had not yet been “substantively enacted”).

Had these changes not occurred, Harbour would have seen an effective rate of 79%, it said.

Harbour had significantly lower taxable income during the period at $400m before tax, compared to $1.5bn in the same period in 2022.

That came amid lower oil and gas prices and a drop in production.

Revenues dropped from $2.65bn to $1.9bn.

Production – ‘delays and deferrals’

© Supplied by Apache

Production totalled 196,000 barrels of oil equivalent per day, down from 211,000 boe/d, split equally between gas and liquids.

Realised crude oil prices were at $76/barrel, versus $82 in H122, and UK natural gas was 58p per therm, down from 69p.

Production was bolstered by new wells at the Tolmount and J-Area hubs during the period, but Harbour narrowed full year guidance to 185-195 boe/d due to “delays and deferrals” at partner hubs (185-200 kboepd previously).

Apache’s Beryl is the primary cause – after the firm said it would not continue with platform and subsea drilling in its North Sea portfolio.

Harbour said the outlook is “materially impacted” by that decision and over delays to two new wells coming online at Beryl, which started !2.

Harbour also narrowed its capital expenditure for the year by $1million to $1bn, mainly due to delayed arrival of rigs at the Andaman and Greater Britannia Areas.

The firm said new production is coming online in areas including Tolmount East, Talbot and elsewhere.

Strong outlook for H2 for Harbour Energy

The firm said it intends to close 2023 in a small debt position and to go net debt free in the first half of 2024.

It will continue “disciplined M&A”; the firm said it will exit Vietnam by year’s end and is expanding in Mexico.

For 2023, it expects to generate free cash flow of $1bn.

Meanwhile the firm enjoyed success in carbon capture and storage as its operated Viking CCS and partnered Acorn projects were selected for government funding.

CEO Linda Cook said: “We remain focused on maximising the value of our UK oil and gas portfolio, advancing our organic development projects and disciplined capital allocation.

“This has allowed us to continue to generate significant free cash flow supporting material shareholder distributions while maintaining capacity for meaningful but disciplined M&A. We have also progressed our strategic investment opportunities outside of UK oil and gas – in Indonesia, in Mexico and in CCS.

“These have the potential to materially increase our reserve life, support shareholder returns and diversify our company over time.”