Harbour Energy has become the latest UK energy group to report booming profits on the back of higher prices, while consumers struggle with their household budgets during a cost of living squeeze.
The biggest oil and gas producer in UK waters on Thursday unveiled a more than tenfold increase in first-half pre-tax profit to $1.49bn, and said it was looking to add more “upside exposure” in commodity markets.
Total production in the six months to June 30 rose 40 per cent against a year earlier, largely because of the full inclusion of production from Premier Oil, whose reverse takeover by Harbour only completed at the end of the first quarter of 2021.
Private equity backed Harbour has snapped up a host of ageing assets in the North Sea over the past five years.
Harbour paid a total tax bill of $506mn in the first half, including a levy on the small portion of its production outside the North Sea. The bill excludes the so-called windfall tax on oil and gas companies as it “was not substantively enacted as at June 30”, the company said.
It expects the impact from the levy to be about $300mn for this year, projecting an average Brent crude price of $100 a barrel and UK natural gas price of 200p a therm.
Chief executive Linda Cook has been a vocal opponent of the UK’s decision to introduce a windfall tax in response to soaring gas prices.
She said the company was increasing investment by 30 per cent compared with last year, in development wells in the UK over the second half, and it was looking to proceed with two UK carbon capture and storage projects.
Harbour, formally known as Chrysaor, will extend its $200mn share buyback scheme initiated in June to $300mn. The company announced a $200mn dividend in March.
The earnings included a one-off gain in foreign currency movements of $360mn related to its gas hedging. Realised prices were $82 a barrel for oil and 69p a therm for gas.
Profits from gas producers have become politically charged in the UK as the country grapples with a cost of living crisis driven by soaring energy costs.
Wholesale gas prices in the UK traded above 120p a 100,000 British Thermal Units throughout the first six months of the year, soaring to as high as 600p following Russia’s invasion of Ukraine.
The company said strong free cash flow from “higher production and strong realised commodity prices” had allowed it to reduce its net debt to $1.1bn from $2.3bn at the end of last year. Harbour expects to be net debt free in 2023.
The reduction in debt has allowed the company to have less stringent hedging requirements from its lenders, “which gives us more flexibility to take advantage of upsides from any strengthening of [commodity prices],” chief financial officer Alexander Krane told analysts.
“We can all see the volatility in oil and gas markets these days. We are doing our utmost in navigating these waters . . . but at the same time trying to retain more of the upside exposure to commodity prices,” he said.
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