Harbour Energy PLC (LSE:HBR) said it plans to expand outside the UK after the windfall tax “all but wiped out” its profits for last year, though it still churned out piles of cash to increase shareholder returns and slash debt.
While profit after tax fell to US$8mln from US$101mln, the company still generated US$2.1bn of free cash flow, up from US$0.7bn a year earlier and guidance of US$1.8-2bn in August, after shelling out US$0.9bn of capital expenditure and US$551mln on tax payments.
It said the windfall tax had resulted in a US$1.5bn “one off non-cash deferred tax charge”.
The FTSE 250-listed group proposed a US$200mln share buyback and a final dividend 12 cents per share, making US$200mln of dividends for the year and US$400mln of buybacks.
Since December 2021 it has declared US$1bn of shareholder returns, yet warned it plans to cut UK staff numbers following last November’s hike in the windfall tax on North Sea oil and gas production.
Selling prices were massively boosted by the effect of the Russian-Ukraine war, with oil sold for an average of US$78 per barrel and gas at 86p per therm, up from US$59 and 54p respectively a year earlier.
Production of oil and gas was up 19% to 208,000 barrels of oil equivalent per day in the company’s first year as a public company after the merger of formerly listed Premier Oil and Chryasor.
Boss Linda Z Cook said higher production and improved margins enabled the group to pay down US$1.5bn of net debt and make the US$600mln of shareholder distributions.
“However, the UK Energy Profits Levy, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security.
“For Harbour, the UK's largest oil and gas producer, it has all but wiped out our profit for the year. This has driven us to reduce our UK investment and staffing levels.
“Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.
“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.”
After deleveraging the balance sheet she said Harbour has “significant optionality over our future capital allocation including for continued organic investments, meaningful M&A and additional shareholder returns”.
For 2023, production guidance was reiterated for 185-200 kboepd and total capex of circa US$1.1bn, including around US$0.2bn on decommissioning, of which 85% will be on UK sites.
Harbour still plans to spend capex on UK projects, targeting “high return, near field and/or infrastructure-led opportunities”, but said it plans to complete a review of the UK organisation “to align with lower activity levels” at some point during the second half of the year.
It promised “continued efforts” to reduce emissions, including making a final investment decision on UK carbon capture and storage projects.
Free cash flow is expected to be around US$1bn, based on selling prices of US$85 per barrel and 150p per therm, with “the potential to be net debt free in 2024”.