The chief executive of Harbor Energy (LON:HBR) said another set of bumper results will see the company reduce its net debt to zero within months, but criticized the impact of the government tax on profits exceptional.
London-listed Harbour, on Thursday reported a 12-fold increase in pre-tax profit in its first-half results, which jumped to $1.49 billion from $120 million in the same period last year.
Revenue also jumped more than 70% to $2.6 billion during the period, while free cash flow reached $1.4 billion.
Significant hedging means Harbor has not been fully exposed to the surge in oil and gas prices over the past year, although it has still made substantial returns.
Speaking on an investor call on Thursday, chief executive Linda Cook said: “By hedging to protect us from periods of low oil prices like we did in 2020, we were able to lock in returns while by protecting the balance sheet and we now plan to be net debt free in just a few months.
Ms Cook said “rapid deleveraging” saw net debt fall from $2.9bn following its merger with Premier Oil in mid-2021 to $1.1bn at the end of June 2022.
“With operating costs averaging around $15 a barrel, margins are strong. This leads to significant cash flow generation that supports both continued investment and high-return projects, as well as the capacity for shareholder returns,” she added.
A bumper free cash flow also prompted Harbor to increase its shareholder buyouts from $200 million to $300 million, alongside a $98 million dividend declared in May.
Chief Financial Officer Alexander Krane said the reduction in leverage meant the company was now looking to increase its exposure to market prices. Earlier, he said the group’s hedging strategy had largely been determined by the requirements of its reserve-based lending facility (RBL).
“Hundreds of millions” less to spend
Meanwhile, Harbor has joined other North Sea players in beginning to calculate the implications of the government’s Energy Profits Tax (EPL).
Mr Krane said the group expects liabilities of $300 million for this year, of which $170 million would be paid in December and the balance in early 2023.
Asked about the impact of the EPL’s investment allocations on the company’s plans, Ms Cook said: ‘Honestly, I’m scratching my head a bit on this. Yes, there is an additional allowance we get – it helps the economy of some projects slightly – but the biggest impact is that we have hundreds of millions of dollars less to spend because our taxes are higher .
She said new developments in the field require years of work, from seismic to drilling, engineering and procurement, and that in the current market environment, it was a process more difficult and longer than ever.
“The idea that all of a sudden, because the investment allocation is a little bit more attractive, we can do a lot more work in 2023 is kind of unreasonable. Most of our platforms for the year next are already locked down, so it’s very difficult to just change the investment plans,” she continued.
The current EPL terms would also not allow Harbor to claim allowances for investment in its carbon capture and storage (CCS) projects, she said.
As a result, she suggested that the additional tax burden would incentivize the explorer to pursue his plans for more diversified areas of exploitation.
“Our strategy has always been to have a more diversified portfolio than today. We have always been uncomfortable with the fact that we have a lot of eggs in the UK basket and we have the ambition to establish a physical base of production in at least one other region,” said Mrs Cook.
“It remains the same as it always has been and I think that has just been reinforced by what we have seen recently with the tax measures taken in the UK.”