Harbour Energy production falls, costs rise in 2023

(Sharecast News) - Harbour Energy shares were in the red on Thursday, after the company reported a fall in production and an increase in costs in a 2023 trading update. The FTSE 250 company said full-year production averaged 186,000 barrels of oil equivalent per day, with a 50% liquids and 50% gas split, which was within guidance but was lower than the 2022 average of 208,000 equivalent daily barrels.

Operating costs averaged $16 per barrel equivalent, aligning with guidance but slightly higher than the prior year's $14 per barrel.

The firm's safety performance improved, with a total recordable injury rate of 0.7 per million hours worked, down from 0.8 in 2022.

Harbour Energy noted the successful start-up of Tolmount East in the fourth quarter, as well as the Talbot development and the appraisal of the Leverett discovery in the UK being completed in 2023, along with a significant gas discovery at Layaran-1 in Indonesia.

Regulatory approval was obtained for the Zama Field Development Plan in Mexico, and the Kan oil discovery on Block 30 was made in April.

Additionally, Harbour made significant progress on its two UK carbon capture and storage (CCS) projects, securing Track 2 status from the UK government and earning front-end engineering design (FEED) for the Viking project.

It also announced a transformative acquisition of the Wintershall Dea asset portfolio in December, with completion expected in the fourth quarter of 2024.

In terms of financial performance, Harbour reported revenue of $3.9bn, down from $5.4bn in 2022, influenced by realised post-hedging oil and UK gas prices of $78 per barrel and 54p per therm, respectively, compared to $78 per barrel and 86p per therm in the prior year.

Estimated total capital expenditure was $1bn, including $0.3bn for decommissioning, in line with guidance.

The company's estimated free cash flow totalled $1bn, after total cash tax payments of $0.4bn and before shareholder distributions, aligning with expectations.

Shareholder distributions amounted to $441m, comprising around $200m in dividend payments and $241m in share buybacks.

Net debt was reduced to $0.2bn by the end of 2023, down from $0.8bn at the close of 2022.

Looking ahead to 2024, Harbour Energy anticipated production of 150,000 to 165,000 barrels of oil equivalent per day, influenced by planned shutdowns at operated hubs and the Beryl area, along with pipeline outages.

The guidance also considered deferred partner-operated wells in the UK and the sale of the Vietnam business.

Unit operating costs were pencilled in at $18 per barrel equivalent, higher than 2023 due to lower volumes, but with operating costs generally flat year-on-year.

Total capital expenditure was set to rise to $1.2bn, driven by higher investment in the UK and internationally, including increased drilling activity, advancements in UK carbon capture and storage projects, and international growth projects.

Estimated free cash flow totalled $0.2bn, assuming oil and gas prices at $85 per barrel and 100p per therm.

That projection accounted for estimated tax of around $1.2bn and the use of UK corporation tax losses in the first half of 2024.

Harbour said it also planned to pay $200m in dividends in 2024, following its annual dividend policy.

It said it expected to become net debt-free during the first half of 2024, ending the year with a small net debt position.

Looking ahead to 2025, Harbour said it expected production to remain similar to 2024, with unit operating costs and capital expenditures remaining stable or decreasing, resulting in significantly higher free cash flow and a substantial net cash position by year-end.

Finally, Harbour Energy noted its acquisition of Wintershall Dea's upstream assets, announced on 21 December for $11.2bn, was subject to shareholder and regulatory approvals and was expected to be completed in the fourth quarter.

It said shareholders representing over 25% of Harbour's issued share capital had already given irrevocable undertakings to vote in favour of the acquisition.

"We made significant progress against our strategic goals in 2023," said chief executive officer Linda Z Cook.

"We continued to maximise the value of our UK production base while ensuring disciplined capital allocation, resulting in significant free cash flow and shareholder returns over and above our base dividend.

"We also advanced our UK CCS projects and our international growth opportunities in Indonesia and Mexico, delivering against key milestones."

Cook noted that at the end of the year, Harbour announced the transformational acquisition of the Wintershall Dea portfolio.

"Looking ahead to 2024, our priorities are for the continued safe and responsible operations of our existing portfolio and the successful completion of the Wintershall Dea acquisition.

"We are proud of our achievements over the past year and excited about the future of the company."

At 1034 GMT, shares in Harbour Energy were down 9.25% at 287.5p.

Reporting by Josh White for Sharecast.com.