After lowering its natural gas price projections, Britain’s largest oil and gas producer anticipates generating less free cashflow this year than expected.
Harbour Energy’s free cashflow will be “marginally” positive after cutting its forecast of gas prices to 70p per therm this year, down from $100p in January. It also maintained its expectation for an oil price at $85 a barrel. It had previously expected to generate $200 in free cashflow for this year. This is a significant reduction from the $1 billion it generated last year.
The European gas price has fallen significantly in recent months. It is now similar to the prices before the Ukraine war, which caused turmoil on the energy markets as Europe tried to wean itself from Russian gas. The mild weather in Europe has helped boost gas storage, and the sharp increase in US liquefied gas imports have helped further.
Harbour Energy’s pre-tax profit fell from $2.5 billion to $597 millions in 2022. This was due to lower production and gas prices. However, it was in line with analyst expectations.
A $214 million impairment charge was also made against the group’s assets. This included decommissioning expenses, but also a reduction in the value for one of the assets located in the North Sea due to the weaker outlook on gas prices.
The final dividend for 2022 was increased to 13 cents per share from 12 cents, which gives a dividend of 25 cents per share. Net debt dropped from $800,000,000 in 2022 to $200,000,000, representing only 0.1 of adjusted earnings before taxes, interest and other charges.
The capital expenditure increased to $1 billion from $900 millions, as a result of greater exploration in international markets, which offset a reduction in investment in North Sea due to the UK windfall taxes. The company was charged $525 million for British windfall tax, which included some taxes due from previous years.
The UK windfall tax has been extended by another year, to 2029.
Harbour stated that it is “currently assessing the potential impact” of the announcement made by the chancellor this week, that the profits tax will be extended another year until March 2029. Peel Hunt, a broker, estimated that Harbour would incur additional windfall taxes of $288 million for the extra year.
The deal to buy most of Wintershall Dea’s oil and natural gas assets will likely be concluded in the last three months of the year. A prospectus is expected to be released during the second quarter when shareholders will vote on the deal. The $11.2 billion deal is expected to more than double Harbour’s production, and diversify the geographic exposure of the group by bringing assets from Europe, Latin America, and Africa.
To date, shareholders with a combined 35 percent stake have voted for the deal. However, the majority of shareholders must vote in favor of the transaction to allow the takeover to proceed.
Wintershall’s bonds are expected to have low interest rates, which will allow Harbour to benefit from lower financing costs.
Harbour Energy shares fell by 3 1/2p or 1.2% to 270p.