Member Info for dan222

The GS analysis says they think Hbr is over valued because GS are predicting European gas prices for the year to average 12 euros. Harbour's forecast uses 11 euros! When has a GS forecast ever been accurate anyway, I'm amazed they can move the market with such a long track record of putting out rubbish

Https://www.fool.co.uk/2026/02/03/my-20000-in-this-superb-8-9-yielding-ftse-income-share-could-make-me-25451-a-year-in-dividends-over-time/

FTSE oil and gas giant Harbour Energy (LSE: HBR) is a standout income share in my portfolio aimed at making retirement much more comfortable

Nav Mike, I've been looking at the tax charges. In the 2022 accounts Harbour included £2.5 billion tax expense. In 2023 0.6billion and 2024 1.2 billion. They're not the cash amounts that were actually paid, which were significantly less (and that's why there was cash for dividends), meaning that in those years cash flow was a lot higher than accounting profit. Going forward, accounting profit should be higher than cash flow, or at least be boosted by the unwinding of the deferred tax, so given they have 1.1 billion cash flow in 2025, accounting profit should be pretty high - though I haven't dug into what the depreciation/amortisation charge might be, and that will I guess be quite high due to the Wintershall assets (but then again that's why revenue will be high as well)

Tax is cash, depreciation and amortisation are ultimately cash (already spent or borrowed) as well. They can't consistently make cash but no profits. I don't really understand why, but I believe the losses the last couple of years have been down to tax adjustments, which can't keep happening every year if cash is being made, as eventually either the tax has to be paid or the previous adjustments reversed.

NAV Mike, if they're making cash they're making profits. The only other ways of getting cash would be borrowing, selling assets, or new share issues for cash, and we know it's none of those. Profit is guaranteed in these results.

If you put all the tuna and Waldorf money against the debt that brings us down to 6.6 billion. Then with the cash flow forecast of 0.6 billion you would assume very little would remain after dividends, so we could be looking at 6.5 billion debt at the start of 2027 - that's probably worst case if oil prices remain where they are, but very possible if the oil price falls.

Net debt is $4.4bn in the trading update. Add on $2.7bn for LLOG, that makes $7.1bn. Even if $1bn is paid in 2026 we'll still go into 2027 with over $6bn debt.

Servalan, the dividend isn't particularly high, it's just that the share price is low. If the share price was £3 rather than £2, the dividend yield would be 1/3 less.

Harbour have debt because they borrowed to buy Wintershall, then borrowed again to buy LLOG. Before that their debt was pretty much zero. So it's 'good' debt, in that it's been incurred to acquire assets, they're not borrowing to cover losses.

I don't think there are any plans to make a big cut to distributions, it's more that they're going to reduce dividends and increase buybacks instead. My own view is that they should reduce distributions and pay debt down, but I don't think that's what they're going to do, and to be fair their debt is easily manageable at the moment, though they have said their priority is to bring it down.

I get that UK is expected to fall off a bit but how does Harbour only get to only 500k BOPD ?????

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I think 2 reasons:

1. They seem to like to be conservative in their forecasts.

2. Maybe they are going to reduce capital spending to pay down debt. Even if production remains at 500k, cash flow should increase as Harbour will focus capital spending on the areas which produce the most cash (I would guess that's mainly LLOG for the next couple of years). I also think Argentina and Mexico won't be producing much for a couple of years, but will be requiring capital spend.

Replying to myself as my maths was slightly wrong - a 10% dividend only costs $450m with the rest going on debt repayment anyway, so I suppose if you have both you still get some capital appreciation, but it's slower. I guess with the dividend I can appreciate my own capital in any case by reinvesting it, but companies with high debt worry me.

At our current £3bn valuation (4bn in dollars) paying off $1bn should add 25% to the share price. Then pay off another $1bn in 2027 and in theory the share price should have risen almost 50% in 2 years just due to debt repayment. I would think most shareholders would be happy with 25% added capital value in place of a 10% dividend. Obviously this assumes stable free cash flow of $1bn/year whereas in reality it may be more or it may be less (and that will also impact the share price), but I don't think going all-in on debt repayment would be a bad option at all.

Dividend was $450m last year. If you were the management and you could either spend all of that on dividends, buybacks or debt repayment in 2026, which would you choose?

Of the 3, I think dividends are my least favoured option. Buybacks are good if you believe the share is undervalued, and also worth doing based on 10% current dividend yield vs debt interest costs.

So maybe I'd go for buybacks whenever the share price is below £2, but overall I think debt repayment would be my preferred option. Given that Hbr will be repaying debt anyway, if all spare cash flow went to debt repayment instead of dividends and buybacks they could probably shave around a billion off debt in 2026, which would surely push the share price up considerably.

News today that there's likely to be a by-election in Manchester and he'll be returning to parliament. If that happens, it's likely he'll be PM by this summer. I know he's supported the windfall tax in the past, has there been anything about what his current views are?

I haven't been here as long as you, I must be 3 or 4 years now. I think the board are doing a good job, which is why I stay invested. Eventually it'll come good - the last couple of years the oil price has been steadily trending down, when that changes this company should do very well. 2026 forecasts are based on very low commodity prices, so there's potential upside but when they bought LLOG it was always going to be short term pain for long term gain

People are incredibly impatient. If you are only interested in the short-term shouldn't you be trading bitcoin or oil futures? The board are running a business and have long-term goals, it looks to me like they're doing a great job, and those of us who are patient and happy to own shares in a good company will eventually be rewarded very well.

Are they doing one of those live videocall presentations today?

I think the most interesting part of the 2026 forecast (not reflected in the 0.6bn FCF figure) is the last paragraph, given the impact tax has had on past results

- Effective tax rate to start to reduce, reflecting limited US tax payments near term and as we benefit from acquired Waldorf UK tax losses

I'm not so sure blindly following FCF forecasts is the way to value this company in any case. It seems to be a company that's going places, with very good management, at some point the oil price will go significantly higher and when it does harbour's share price will explode. In the meantime there are the usual one- offs to anticipate at some point - removal of the windfall tax and US listing.

They tend to always under-promise then over-deliver slightly. Debt will be quite high when the LLOG transaction goes through, but it's not like they're just building up debt for no reason, and they say reducing it is a priority.

2026 share price will depend a lot on oil and gas price, which goes without saying really, but the debt probably accentuates this. It's not at problem levels, though - even with very low prices harbour should have no problems servicing it, and at higher prices it will quickly come down.

US gas up another 18% today. But wasn't LLOG mainly (all?) oil?