Harbour tied in to the energy zeitgeist

Logic dictates that the financial performance of resources companies will wax and wane in line with underlying commodity prices. But companies will only benefit from an upswing in the price cycle if they’re able to exploit it.

Harbour Energy (HBR), as the largest independent oil and gas company trading in London, certainly falls into that category, at least judging by the $2bn (£1.7bn) in earnings before interest, tax, depletion, amortisation, and exploration expense it generated over the first half of 2022.

Beyond the North Sea, it has several international projects which could add materially to future production, such as the Zama field in Mexico and the Tuna field in Indonesia. Closer to home it has approved the Talbot development and Leverett appraisal wells as it seeks to drive scale and replacement barrels. Given current energy concerns it’s timely that Harbour brought the $700mn Tolmount gas development onstream in April, thereby increasing UK domestic gas production by over 5 per cent. The start-up of Tolmount and progress on maintenance work has enabled the driller to narrow 2022 production guidance to 200-210 thousand barrels of oil equivalent (boe) per day, from a previous range of 195-210.   

Operating costs equated to $14.20 per boe due to higher volumes combined with favourable exchange rates and sterling continues to falter against the greenback. Planned shutdowns will result in a slight production fall in the second half, so costs are now being pitched at the lower end of the $15-$16/boe guidance range.

Harbour Energy's present incarnation is largely the result of a reverse takeover between Chrysaor Holdings and Premier Oil. As such, it is still faced by a sizeable debt overhang, but given that it generated free pre-distribution cash flow of $1.4bn and gas accounts for 47 per cent of the production split, we now feel the shares are worth holding despite the wider economic slowdown. Hold.  

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