Harbour Energy today announces its unaudited half-year results for the six months ended 30 June 2024.

HIGHLIGHTS(1)

Solid operational delivery

• Production of 159 kboepd (H1 2023: 196 kboepd), split broadly equally between liquids and gas
• Continued strong safety record with TRIR of 0.7 per million hours worked (H1 2023: 0.8)
• Harbour-operated UK capital projects, including Talbot, on track to significantly increase production in Q4
• Further exploration success in Indonesia with the significant Tangkulo discovery; Layaran appraisal drilling underway
• Strategic investment opportunities Zama (Mexico) and Viking CCS (UK) progressing through FEED

Financial performance in line with expectations

• Revenue of $1.9bn (H1 2023: $2.0bn) and EBITDAX of $1.2bn (H1 2023: $1.4bn)
• Profit before tax of $0.4bn (H1 2023: $0.4bn); profit after tax of $0.1bn (H1 2023: loss of $8m) with an effective tax rate of c.85% reflecting Harbour's current UK concentration
• Free cash flow of $0.4bn (H1 2023: $1.0bn), after $0.1bn of acquisition-related fees, resulting in a small net cash position at period end
• Declared $100m (13 cents per share) interim dividend, in line with $200m annual dividend policy and representing 8% dividend per share growth year-on-year

Improved 2024 production guidance with outlook for 2025 reiterated

• Production guidance narrowed to 155-165 kboepd (from 150-165 kboepd), reflecting good progress on our capital projects and planned maintenance shutdowns
• Unit operating cost and total capital expenditure guidance reiterated at c.$18/boe and c.$1.2bn, respectively
• At $85/bbl Brent, 70 pence/therm UK NBP, expectation to be marginally free cash flow positive for the full year unchanged with current estimate of $100m-$200m
• In line with prior guidance, 2025 free cash flow expected to be significantly higher versus 2024 reflecting similar levels of production and operating costs but materially lower capital expenditure

Targeting early Q4 2024 for completion of Wintershall Dea portfolio acquisition

• Financing workstreams substantially completed, including the voluntary bondholder consent process relating to the porting of the $4.9bn investment grade bonds and the syndication of the $3bn RCF and $1.5bn bridge facility
• Prospectus and shareholder circular published; Harbour shareholder approval received with 99.99% of votes in favour of the acquisition
• Regulatory, anti-trust and foreign direct investment (FDI) approvals progressing as planned including, post period end, receipt of UK FDI approval and UK regulatory consent from the NSTA
• Acquisition now on track to complete in early Q4 2024

Linda Z Cook, Chief Executive Officer, commented:
"During the first half of 2024 we maintained our focus on safe operations, maximising the value of our existing portfolio and advancing our organic growth projects. At the same time, we made significant progress towards completing the Wintershall Dea acquisition, which is now expected early in the fourth quarter.

The acquisition will transform the scale, geographical diversity and longevity of our portfolio and strengthen our capital structure enabling us to deliver enhanced shareholder returns over the long run while also positioning us for further opportunities."

(1) All operational and financial highlights, guidance and outlook exclude the impacts of the announced Wintershall DEA asset portfolio acquisition and any fees relating to the acquisition as well as the recently proposed changes to the UK Energy Profits Levy, unless stated otherwise.

Solid operational delivery

Production averaged 159 kboepd (H1 2023: 196 kboepd), split 53 per cent natural gas and 47 per cent liquids.

First half production was underpinned by strong reservoir performance and high operating efficiency across our operated GBA, AELE, Tolmount and Catcher hubs in the UK. GBA and AELE also benefitted from active well intervention programmes helping to mitigate natural decline while Tolmount production was bolstered by Tolmount East which achieved first gas at the end of 2023. This was offset by a prolonged shutdown at East Irish Sea and the start of the significant planned UK maintenance shutdowns in May.

2024 production guidance is narrowed upwards to 155-165 kboepd. This reflects good progress to date on the maintenance shutdowns and our UK capital projects which are on track to materially increase production in the fourth quarter. 2024 guidance has also been updated to include an extra six months contribution from Chim Sáo due to the deferred sale of our Vietnam business (c.2 kboepd annualised). 

Operating costs for the first half were broadly flat at $0.5 billion (H1 2023: $0.5 billion), reflecting strong cost control in the face of ongoing inflationary pressures and a stronger sterling to US dollar exchange rate. On a unit of production basis, operating costs were higher at $18/boe (H1 2023: $15/boe) mainly because of lower volumes. 2024 unit operating cost guidance of c.$18/boe is unchanged.

The first half saw us continue to deliver a strong safety record with a total recordable injury rate of 0.7 per million hours worked (H1 2023: 0.8).

Total capital expenditure for the period was $0.6 billion (H1 2023: $0.4 billion), with full year forecast reiterated at c.$1.2 billion. The increase on the prior period is driven by the Andaman exploration and appraisal campaign in Indonesia which is nearing completion and higher investment in our UK operated hubs.

Maximising the value of existing portfolio

Higher 2024 UK investment is driven by the Talbot development and accelerated drilling activity focused around our operated hubs targeting high return, short cycle investment opportunities. In February, we returned to drilling at the Britannia satellite fields with the Callanish F6 infill well. The well was successfully brought on-stream post period end, materially increasing production from our GBA hub ahead of its scheduled c.40-day maintenance shutdown starting in August. Preparations are also well advanced for further drilling at Brodgar, including a development well later this year.

At AELE, the North West Seymour well spudded in June with production start-up expected towards the end of the third quarter. This, together with plant modifications, has the potential to extend Armada's field life beyond 2030. Regarding the Talbot oil field development, the topside modifications to the Judy platform to allow for Talbot production were completed during the planned J-Area shutdown in June and the bulk of the subsea infrastructure has now been installed. The project remains on track for start-up around the end of the year.

During the first half, Harbour successfully amended its gas sales agreements with the Singapore buyers of Natuna Sea Block A gas in Indonesia, increasing the take-or-pay commitment under a tiered pricing structure, enabling the potential for increased production.

Looking to 2025 and excluding the impact of proposed acquisitions and disposals, we anticipate production from Harbour's existing portfolio to remain broadly stable compared to 2024 with increased volumes from new wells and projects coming on-stream in the second half of 2024 and early 2025 substantially offsetting natural decline.

Strategic, long life investment opportunities progressed

The first half saw us reach key milestones on our organic growth projects. Accounting for c.60 per cent of our c.0.5 billion boe 2C resource base, these projects have the potential to materially add to our reserves and production over time.

In Indonesia, we made a significant gas discovery at Tangkulo (20 per cent interest) in May. This follows the major Timpan (Harbour-operated, 40 per cent interest) and Layaran (20 per cent interest) gas discoveries, and underscores the play's multi-TCF potential. The Tangkulo well flowed 47 mmscf/d of gas while constrained by the testing facilities, reflecting the good porosity and permeability of the reservoir. The rig has since moved to appraise the Layaran discovery, the final well of the campaign. Development options for the Andaman area are in the early phase of evaluation.

Elsewhere in Indonesia, the sales process for our partner's interest in the Harbour operated Tuna project (50 per cent interest) is well advanced. If successful, this would enable Harbour to commence FEED on the approved plan of development for the Tuna oil and gas field with an estimated recoverable volume of c.100mmboe gross.

In Mexico, FEED for the Zama development (c.12 per cent interest) commenced in June, marking an important milestone. Once completed, the Zama unit partnership will look to tender the major contracts to secure refreshed cost and schedule estimates ahead of a final investment decision. Zama has the potential to add reserves equivalent to over a year's worth of Harbour's current production. Our interest in Zama will increase to c.32 per cent following completion of the Wintershall Dea portfolio acquisition.

To the southwest of Zama in Block 30, preparations are well advanced for the appraisal of the Kan oil discovery (30 per cent interest) with drilling scheduled to commence in the third quarter of 2024. In parallel, Harbour and its partners are undertaking early engineering studies on a potential development. As a result of the acquisition of the Wintershall Dea portfolio, Harbour will become operator of Block 30 with a 70 per cent interest.

The first half of the year saw continued progress at our two UK CCS projects, the Harbour-operated Viking project (60 per cent interest) and Acorn (30 per cent interest). At Viking, this included commencement of FEED in January and significant momentum on the Development Consent Order for the onshore pipeline which will connect the emitters in the Humber to the offshore transportation system. Viking, which has the potential to store 10 mtpa of CO2 by 2030, is one of the largest planned CCS projects in the world.  

Active portfolio management

We continue to actively manage our portfolio, looking to divest assets in countries or regions where we see no pathway to scale, either organically or via M&A.
In June 2024, we took the decision to terminate the previously announced sale of our Vietnam business. We have since relaunched the sales process with an aim to complete a sale in early 2025, as we continue to ensure that our capital and resources are deployed in line with our strategy.

Targeting early Q4 2024 for completion of the Wintershall Dea portfolio acquisition

We are on track to complete the Wintershall Dea portfolio acquisition early in the fourth quarter of 2024. This will mark our fourth major acquisition since Harbour was founded in 2014 and will transform the Company into one of the world's largest and most geographically diverse independent oil and gas companies.

With respect to the financing of the acquisition, the syndication of the $3 billion RCF and $1.5 billion bridge facility and the voluntary bondholder consent process relating to the porting of the $4.9 billion investment grade bonds were successfully completed in the first quarter.

In June we published the shareholder circular and prospectus for the acquisition. This included a Competent Person's Report which certified the target portfolio's 2P oil and gas reserves of 1.1 billion boe with an estimated value of $10.5 billion, and 2C resources of 1.2 billion boe, as at year end 2023. Harbour shareholder approval was subsequently received at a General Meeting held in July with 99.99 per cent of votes in favour of the acquisition.

All regulatory, anti-trust and foreign direct investment approvals are progressing as expected. These include clearance from the Federal Ministry of Economics and Climate Action in Germany and consent from the Norwegian Ministry of Energy. Post period end, in July, Harbour received clearance under the National Security Investment Act for BASF to acquire a greater than 25 per cent shareholding in Harbour, satisfying the UK foreign direct investment closing condition. In addition, in early August, Harbour received UK regulatory consent from the NSTA. The small number of outstanding approvals required for completion, including Mexico regulatory consents, are expected during the third quarter.

We have also made significant progress on the workstreams which are focused on ensuring business continuity and the safe and responsible transfer of operations. This includes the design and implementation of the corporate organisation and systems required to support the enlarged company post-completion.
As a result of the significant progress made to date on the workstreams and approvals required for completion, Harbour now expects to complete the acquisition early in the fourth quarter.

Strong financial position and outlook

Revenue for the period was $1.9 billion with realised oil and UK gas prices of $85/bbl and 61 pence/therm, respectively.  Our realised UK gas price was impacted by our first quarter hedging with c.70 per cent of our UK gas production hedged at c.45 pence/therm. For the second half of 2024, we have hedged c.40 per cent of our UK gas production at an average price of c.80 pence/therm. Harbour's 2024 oil hedges are distributed broadly evenly over the year with c.25 per cent of production hedged at c.$84/bbl.

Free cash flow during the first half was $0.4 billion, after $0.1 billion of financing and other fees associated with the acquisition, resulting in a small net cash position at period end. Our 2024 free cash flow is weighted towards the first half driven by the phasing of UK tax payments partially offset by our more attractive hedge book for the last six months of the year. As a result, at $85/bbl Brent and 70 pence/therm UK NBP, and before the impacts of the acquisition, we continue to anticipate to be marginally free cash flow positive for the year - current estimate $100 million to $200 million - with the improved production outlook offsetting the effect of the deferred Vietnam sale. 

In line with our $200 million annual dividend policy, a $100 million final dividend in respect of the 2023 financial year was paid in May. The Board is today declaring an interim dividend for 2024 of $100 million, equating to 13 cents per share and reflecting dividend per share growth of 8 per cent year-on-year.

Looking to 2025, our current portfolio is expected to generate significantly higher free cash flow compared to 2024, reflecting broadly stable production, with increased volumes from new wells and projects substantially offsetting natural decline, and materially lower capital expenditure.

Financial position and outlook

Revenue for the period was $1.9 billion with realised oil and UK gas prices of $85/bbl and 61 pence/therm, respectively.  Our realised UK gas price was impacted by our first quarter hedging with c.70 per cent of our UK gas production hedged at c.45 pence/therm. For the second half of 2024, we have hedged c.40 per cent of our UK gas production at an average price of c.80 pence/therm. Harbour's 2024 oil hedges are distributed broadly evenly over the year with c.25 per cent of production hedged at c.$84/bbl.

Free cash flow during the first half was $0.4 billion, after $0.1 billion of financing and other fees associated with the acquisition, resulting in a small net cash position at period end. Our 2024 free cash flow is weighted towards the first half driven by the phasing of UK tax payments partially offset by our more attractive hedge book for the last six months of the year. As a result, at $85/bbl Brent and 70 pence/therm UK NBP, and before the impacts of the acquisition, we continue to anticipate to be marginally free cash flow positive for the year - current estimate $100 million to $200 million - with the improved production outlook offsetting the effect of the deferred Vietnam sale. 

In line with our $200 million annual dividend policy, a $100 million final dividend in respect of the 2023 financial year was paid in May. The Board is today declaring an interim dividend for 2024 of $100 million, equating to 13 cents per share and reflecting dividend per share growth of 8 per cent year-on-year.

Looking to 2025, our current portfolio is expected to generate significantly higher free cash flow compared to 2024, reflecting broadly stable production, with increased volumes from new wells and projects substantially offsetting natural decline, and materially lower capital expenditure.

KeyFacts Energy: Harbour Energy UK country profile