25th Aug 2022 14:53
(Alliance News) - Harbour Energy PLC's shareholders could be in store for further strong returns as the oil and gas company reported a sharp rise in profit on Thursday, though a windfall tax on earnings continues to cast a shadow.
For the six months to June 30, revenue and other income was USD2.67 billion, surging 78% from USD1.50 billion last year and pretax profit was USD1.49 billion, multiplied from USD120.2 million.
This was on production of 211,000 barrels of oil equivalent per day, up 40% on a year ago.
"The 40% increase in production compared to the first half of 2021 is driven by a full contribution from the Premier portfolio and our significant UK investment programme which has seen new wells brought on-line," the company said.
Harbour said it achieved realised, post-hedging oil and UK gas prices of USD82 per barrel in the half, up from USD58 a year before, and 69p per therm, up from 38p.
Crude oil sales amounted to USD1.54 billion, up from USD897 million last year.
Turning to returns, Harbour increased its USD200 million share buyback initiated in June to USD300 million. Further, it declared an interim dividend of 11 cents.
Looking ahead, Harbour narrowed full-year production guidance to a range of 200,000 to 210,000 barrels per day, from a range of 195,000 to 210,000 previously. Forecast free cash flow is expected around USD1.8 billion to USD2.0 billion, raised from the forecast of USD1.5 billion to USD1.7 billion given alongside its 2021 results.
Harbour Energy shares were up 13% at 488.10 pence, the best performer in the FTSE 250 on Thursday.
"Excellent interim results from Harbour beat on all metrics, with financials pushing net debt lower than expectations and operations 'narrowing' production guidance to the upper end of the range. Most important for stock valuation, however, is a new, increased, share buyback. It won't be the last, in our view," said Jefferies analyst Mark Wilson.
The results come as Labour called on Tory leadership hopefuls Rishi Sunak and Liz Truss to expand the windfall tax on oil and gas companies amid a cost-of-living crisis.
Centrica PLC's British Gas on Thursday pledged to donate 10% of its profit during the energy crisis to help people struggling with rising bills.
The money will be provided through the British Gas Energy Support Fund, which gives grants to those most in need.
Thousands of customers will receive an average GBP750 per household, according to the firm.
This comes as Ofgem, the industry regulator, is expected to announce another huge rise in the energy cap on Friday as global gas prices soar.
Households are bracing for a forecast 80% increase in bills to be announced on Friday going into the winter period, with analysts Cornwall Insight now predicting average costs will increase to GBP3,554 in October and GBP4,650 in January.
CMC Markets analyst Michael Hewson commented that for oil majors BP PLC and Shell PLC, a windfall tax on UK earnings is "almost an irritant", given the duo generates most of their revenue outside the UK. This means any tax is unlikely to raise anywhere near the amount of revenue that politicians expect, even with the increase in tax rate from 40% to 65%, the analyst said.
However, for Harbour Energy which is one of the UK's biggest North Sea energy producers, the implementation of a windfall tax is much more grave.
"Nearly all its profits would be taxed at the higher rate of 65%, given that 90% of its production takes place in the UK through 5 key hubs, and that over the last 10 years profitability has been non-existent, due to low oil and gas prices," said Hewson.
"Against that backdrop it wouldn't surprise to see the company target future investment efforts towards its smaller interests in order to diversify its revenue streams, with the directors of the company saying that investment in the UK now comes with elevated fiscal risks," Hewson added.
By Arvind Bhunjun; [email protected]
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