Sapan Gai, CCO at Sovereign Metals, discusses their superior graphite test results. Watch the video here.
“Harbour Energy (LON:HBR) Is Posting Promising Earnings But The Good News Doesn’t Stop There”
The stock was sluggish on the back of Harbour Energy plc's (LON:HBR) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.
Examining Cashflow Against Harbour Energy's Earnings
Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.
That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".
For the year to December 2023, Harbour Energy had an accrual ratio of -0.75. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of US$1.3b, well over the US$32.0m it reported in profit.
Our Take On Harbour Energy's Profit Performance
Happily for shareholders, Harbour Energy produced plenty of free cash flow to back up its statutory profit numbers. Based on this observation, we consider it possible that Harbour Energy's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year.
O&G prices are flying very nicely at the moment:
https://tradingeconomics.com/commodities
Drilling Activity and Discoveries
Wintershall Dea will begin drilling the Kan-2 appraisal well on Block 30 offshore Mexico in the second half of 2024, following up the company’s discovery at the Kan exploration prospect made in April 2023.
UK operator Harbour Energy has reported a small gas discovery at its Ametyst exploration well located offshore Norway.
Harbour Energy has recently confirmed a gas discovery in its Ametyst well offshore Norway and the Norwegian Offshore Directorate (NOD) has now shared details about discovered resources.
https://www.marinelink.com/news/esgian-week-report-new-discoveries-uk-512307
“Berenberg upgraded Harbour Energy on Wednesday to ‘buy’ from ‘hold’ and lifted the price target to 360p from 280p as it said that cash flow supports higher returns.”
“What is the Fair Price of HBR when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.”
HBR Valuation - Today’s “Fair Value” £7.81
https://simplywall.st/stocks/gb/energy/lse-hbr/harbour-energy-shares/valuation
Good to note that Brent, UK, European (and Natural Gas) prices are all nicely up once again and with gas prices looking particularly bullish at the moment while Brent is now also trading clearly above it’s old USD $84 resistance mark:
https://tradingeconomics.com/commodities
“BASF and LetterOne will continue to be the owners of the segment of Wintershall Dea associated with Russia. This decision highlights the strategic approach taken by both entities to maintain a presence in the Russian oil and gas market.”
https://www.chemanalyst.com/NewsAndDeals/NewsDetails/basf-and-letterone-extend-ownership-of-russian-oil-and-gas-company-wintershall-25484
BASF and LetterOne Extend Ownership of Russian Oil and Gas Company Wintershall
BASF, the German chemical giant, and LetterOne, an investment group led by Mikhail Fridman, have decided to maintain their ownership stakes in the Russian business of the oil and gas company Wintershall Dea. This decision comes despite the ongoing sale of foreign assets to Harbour Energy, a transaction that involves the transfer of Wintershall Dea's oil and gas business to Harbour Energy. However, the deal excludes Russia-related businesses and the gas transmission business in Germany. The legal separation of these Russia-related businesses is part of an ongoing process.
The anticipated completion of the transaction involving BASF, LetterOne, and Harbour Energy is slated for the fourth quarter of 2024. The report indicates that even as the foreign assets are being divested, BASF and LetterOne will continue to be the owners of the segment of Wintershall Dea associated with Russia. This decision highlights the strategic approach taken by both entities to maintain a presence in the Russian oil and gas market.
Mario Mehren, the head of Wintershall, acknowledged the serious consequences of the withdrawal from Russia. The company is currently undergoing a restructuring process, which involves adjusting its operations and portfolio to align with the changing dynamics of the oil and gas industry. The decision to retain ownership of the Russia-related businesses signifies a commitment to maintaining a foothold in the Russian energy market despite the divestiture of certain assets.
Wintershall Dea positions itself as the largest independent producer of gas and oil in Europe, with operations spanning Norway, Germany, and Russia (in collaboration with Gazprom). The company also has a significant presence in Latin America, Egypt, and the Middle East. The ongoing restructuring is expected to streamline its operations and enhance efficiency in response to market challenges.
https://www.chemanalyst.com/NewsAndDeals/NewsDetails/basf-and-letterone-extend-ownership-of-russian-oil-and-gas-company-wintershall-25484
Ukrainian Drones Attack Another Russian Refinery
Ukrainian drones attacked early on Friday a small privately-owned refinery 40 miles from Moscow’s outskirts, a source at the Ukrainian intelligence services told Reuters.
The refinery in the Kaluga region, which has a capacity to process some 24,000 barrels per day (bpd) of crude, was damaged, according to a Reuters’ source.
Ukraine's military intelligence agency, HUR, carried out the attack, a source at the agency confirmed to the Kyiv Independent. The extent of damage is being verified.
Four drones were shot down, Kaluga region’s governor Vladislav Shapsha said, without mentioning an attack on a refinery. There are no injuries or damage to infrastructure, he added.
In recent weeks, Ukraine has intensified drone attacks targeting Russian refineries.
Earlier this week, a fire erupted at an oil refinery in a region southeast of Moscow following a suspected Ukrainian drone attack, ahead of this weekend’s presidential election in Russia, in which Vladimir Putin is running unopposed and sure to win another six-year term in office.
A drone attacked early on Wednesday an oil refinery in the region of Ryazan, whose main city of the same name is some 120 miles southeast of Moscow, the region’s governor Pavel Malkov wrote on Telegram.
A Lukoil refinery in western Russia caught fire after a drone attack on Tuesday. A crude processing unit at the refinery in Nizhny Novgorod is on fire after a drone attack was carried out on Tuesday morning, Gleb Nikitin, governor of Nizhny Novgorod, wrote on his Telegram channel.
A few hours earlier, a drone attack was launched at a fuel and energy facility in the Oryol region. One of the fuel tanks caught fire as a result of the attack, a representative of the local authorities told Russian news agency TASS.
Lower refining capacity in the second quarter, due to refinery maintenance and emergency repairs following the attacks, could be one of the reasons why Russia said it would focus on cuts to oil production instead of exports in its voluntary supply reduction as part of OPEC+ in the second quarter, analysts say.
https://oilprice.com/Latest-Energy-News/World-News/Ukrainian-Drones-Attack-Another-Russian-Refinery.html
Oil Price
“Oil Could Rise More than Anyone Expects This Year”
Morgan Stanley's Martijn Rats: oil prices could rise so sharply that they might take some by surprise.
The Energy Information Administration this week revised upwards its forecast for U.S. oil production growth this year, but adjusted its global production outlook downwards.
Tighter oil markets could come sooner rather than later this year.
https://oilprice.com/Energy/Oil-Prices/Oil-Could-Rise-More-than-Anyone-Expects-This-Year.html
“Bullish Sentiment Finally Breaks Out in Oil Markets”
https://oilprice.com/Energy/Energy-General/Bullish-Sentiment-Finally-Breaks-Out-in-Oil-Markets.htmlAs
Https://www.bloomberg.com/news/articles/2024-03-14/oil-markets-face-supply-deficit-all-year-on-opec-cuts-iea-says
https://oilprice.com/Latest-Energy-News/World-News/IEA-Sees-OPEC-Cuts-Pushing-Oil-Markets-Into-a-Supply-Deficit.amp.html
Oil Markets Face Supply Deficit on OPEC+ Curbs, IEA Says
IEA boosts forecasts for global oil demand in 2024 once again
Agency assumes that OPEC+ will extend cuts to end of the year
Global oil markets face a supply deficit throughout 2024, instead of the surplus previously expected, assuming that OPEC+ continues output cuts in the second half of the year, according to the International Energy Agency.
Saudi Arabia and its partners agreed earlier this month to prolong roughly 2 million barrels day of production curbs to the middle of the year. The IEA assumes the measures will in fact continue until the end of 2024, reflecting the “bloc’s efforts to balance oil markets,” it said in a report.
“The changed assumptions shift our implied balance into a slight deficit rather than the hefty build in last month’s report,” said the Paris-based agency, which advises major economies. It also boosted forecasts for global demand this year.
While OPEC+ hasn’t fully implemented its latest curbs, the measures are helping buoy crude prices against slowing consumption growth and abundant supplies from the Americas. Brent futures closed at a four-month high above $84 a barrel on Wednesday.
The IEA bolstered forecasts for world oil demand growth in 2024 by 110,000 barrels to 1.3 million barrels a day, on a stronger US outlook and the increased need for ship fuel, as vessels take longer routes to avoid Houthi attacks in the Red Sea.
As a result of the diversions, the amount of oil aboard ships at sea soared to almost 1.9 billion barrels at the end of last month, the second-highest level since the height of the Covid-19 pandemic, according to the report.
Global Demand
Global oil demand will average a record 103.2 million barrels a day this year, it said. The agency has boosted its 2024 growth forecast by roughly 50% since it was introduced last June, but it remains below growth rates expected by major traders like Vitol Group. The Organization of Petroleum Exporting Countries sees 2.2 million barrels a day of demand growth.
The agency estimates that consumption growth is decelerating sharply from last year’s 2.3 million barrels a day, as the post-pandemic rebound has run its course and the transition away from fossil fuels gathers pace. China’s expansion will slow by two-thirds this year “under the gathering weight of a challenging economic environment and slower expansion in its petrochemical sector,” it added.
Rising oil consumption this year will be surpassed by swelling supplies from the Americas — primarily the US, Brazil, Canada and Guyana — which would leave world markets in surplus were it not for the OPEC+ cutbacks.
If OPEC+ were to fully unwind its current production cuts from July, the oil market could return to surplus in the second half, Toril Bosoni, head of the oil markets division at the IEA, said in a Bloomberg television interview.
https://www.bloomberg.com/news/articles/2024-03-14/oil-mar
Norway: Harbour Energy confirms gas discovery in well 15/9-25 in the Norwegian North Sea
Harbour Energy and its partners have confirmed a gas discovery in well 15/9-25 in the North Sea. The gas discovery has previously been proven in two other exploration wells.
The gas was first proven in wells 16/7-2 and 16/7-10, drilled in 1982 and 2011, respectively.
15/9-25 is the first well in production licence 1138, which was awarded in Awards in Pre-defined Areas (APA) in 2021.
The overall gas volume is calculated at between one and three million standard cubic metres (Sm3) of recoverable oil equivalent (o.e.).
The well was drilled using the Noble Integrator rig northeast of the Sleipner area, about 210 kms west of Stavanger.
Licensees Harbour Energy, Sval and Aker BP will consider whether there is a technical and financial basis for tying the discovery into existing infrastructure in the area.
Geological information
The primary exploration target for the well was to prove petroleum in Middle Jurassic and Triassic reservoir rocks in the Hugin and Skagerrak formations.
The secondary exploration target was to delineate gas proven in wells 16/7-2 and 16/7-10 in reservoir rocks in the Ty Formation from the Palaeocene.
In the primary exploration target, well 15/9-25 encountered a 22-metre thick layer of aquiferous sand with very good reservoir quality in the Hugin Formation in the Vestland Group. In the Ty Formation, the well encountered a 10-metre gas column in a 118-metre thick sandstone reservoir with very good reservoir quality. The gas/water contact was encountered 2330 metres below sea level, which confirms the contact encountered in nearby wells.
The well was not formation-tested, but extensive data acquisition and sampling were carried out.
Well 15/9-25 was drilled to a measured depth of 2872 metres below sea level, and was terminated in the Smith Bank Formation in the Upper Triassic.
Water depth at the site is 84 metres. The well has been permanently plugged and abandoned.
https://www.energy-pedia.com/news/norway/harbour-energy-confirms-gas-discovery-in-well-15-9-25-in-the-norwegian-north-sea-194506
11 March 2024
Drax signs MoU with Harbour Energy and bp to explore options to transport and store CO2
Drax Group (Drax) has agreed a memorandum of understanding (MoU) with Viking CCS, the Humber-based CO2 transportation and storage network led by Harbour Energy, together with non-operated partner bp, to assess options to transport and store CO2 in the Humber region.
The MoU will see the companies work together on an early pipeline study to explore options that could connect Drax Power Station to the depleted Viking gas fields in the southern North Sea.
Once operational, and subject to final investment decision, the Viking CCS cluster could capture and store up to 10 million tonnes of UK emissions per annum by 2030 and up to 15 million tonnes by 2035.
https://www.drax.com/uk/press_release/drax-signs-mou-with-harbour-energy-and-bp-to-explore-options-to-transport-and-store-co2/
Brent Oil, UK and European Gas prices all now positive/up at the moment:
https://tradingeconomics.com/commodities
Windfall tax extension ‘surprising choice’ for UK Govt – Wood Mackenzie
Analyst firm Wood Mackenzie has highlighted pitfalls in the UK Government’s plan to extend the windfall tax by another year.
Graham Kellas, SVP for Global Fiscal Research said it was a “surprising choice” as it won’t generate any income for the government for at least four years.
“And a tax that is now expected to have a seven-year lifespan under stable prices does not abide by most definitions of a ‘windfall’ tax,” he added.
The Chancellor unveiled the extension, bringing the Energy Profits Levy (EPL) “sunset” to 2029, during Wednesday’s Spring Budget, which he said would generate an extra £1.5bn for Treasury coffers.
Wood Mackenzie has separately modelled that as much as £4.1bn of cash flow from companies could be transferred to the UK Government by the measure.
The firm said it is dependent on assumptions about future oil and gas prices and production and it is not possible to reconcile their estimates with that of government without knowing what has been assumed in their models.
Wood Mac assumes fairly stable prices and production in 2027-28.
Risk of early decommissioning
Mr Kellas added that, by retaining the current allowance and tax rates, the government is assuming that the extension will not change investment plans.
The industry has warned that investment is at risk due to the ongoing fiscal turbulence.
“Taken on its own – the extension of the EPL is unlikely to impact investment decisions,” Kellas said. “However, the cumulative fiscal instability has really unsettled North Sea investors. And, in an election year, the opposition Labour party’s tax plan has added significantly to the fiscal uncertainty”.
Steven Wilson, senior associate at Vinson and Elkins in London, warned that companies may move to early decommissioning of assets in response to the EPL extension.
“While the Chancellor plans to raise £1.5 billion by extending the levy to 2029, there is a risk that some oil and gas fields may be decommissioned and abandoned earlier than scheduled, with the UK Government exposed to the tax relief for oil and gas companies’ decommissioning costs.”
He added: “Investors in the UK inevitably seek fiscal certainty – this further moving of the goal posts is unlikely to attract investment to the country’s oil and gas sector in the face of warnings from industry that prolonging the levy risks deterring investors from entering the North Sea basin and postponing new development.
“The health of the UK’s offshore supply chain is critical for the emergence of “North Sea 2”, as the UK seeks to grow the offshore wind sector and support the development of new CCUS and hydrogen industries.”
https://www.energyvoice.com/oilandgas/north-sea/549600/windfall-tax-wood-mackenzie/
Windfall tax extension ‘surprising choice’ for UK Govt – Wood Mackenzie
Analyst firm Wood Mackenzie has highlighted pitfalls in the UK Government’s plan to extend the windfall tax by another year.
Graham Kellas, SVP for Global Fiscal Research said it was a “surprising choice” as it won’t generate any income for the government for at least four years.
“And a tax that is now expected to have a seven-year lifespan under stable prices does not abide by most definitions of a ‘windfall’ tax,” he added.
The Chancellor unveiled the extension, bringing the Energy Profits Levy (EPL) “sunset” to 2029, during Wednesday’s Spring Budget, which he said would generate an extra £1.5bn for Treasury coffers.
Wood Mackenzie has separately modelled that as much as £4.1bn of cash flow from companies could be transferred to the UK Government by the measure.
The firm said it is dependent on assumptions about future oil and gas prices and production and it is not possible to reconcile their estimates with that of government without knowing what has been assumed in their models.
Wood Mac assumes fairly stable prices and production in 2027-28.
Risk of early decommissioning
Mr Kellas added that, by retaining the current allowance and tax rates, the government is assuming that the extension will not change investment plans.
The industry has warned that investment is at risk due to the ongoing fiscal turbulence.
“Taken on its own – the extension of the EPL is unlikely to impact investment decisions,” Kellas said. “However, the cumulative fiscal instability has really unsettled North Sea investors. And, in an election year, the opposition Labour party’s tax plan has added significantly to the fiscal uncertainty”.
Steven Wilson, senior associate at Vinson and Elkins in London, warned that companies may move to early decommissioning of assets in response to the EPL extension.
“While the Chancellor plans to raise £1.5 billion by extending the levy to 2029, there is a risk that some oil and gas fields may be decommissioned and abandoned earlier than scheduled, with the UK Government exposed to the tax relief for oil and gas companies’ decommissioning costs.”
He added: “Investors in the UK inevitably seek fiscal certainty – this further moving of the goal posts is unlikely to attract investment to the country’s oil and gas sector in the face of warnings from industry that prolonging the levy risks deterring investors from entering the North Sea basin and postponing new development.
“The health of the UK’s offshore supply chain is critical for the emergence of “North Sea 2”, as the UK seeks to grow the offshore wind sector and support the development of new CCUS and hydrogen industries.”
https://www.energyvoice.com/oilandgas/north-sea/549600/windfall-tax-wood-mackenzie/
Diversification is clearly the best road to success!
Windfall tax extension ‘surprising choice’ for UK Govt – Wood Mackenzie
"A tax that is now expected to have a seven-year lifespan under stable prices does not abide by most definitions of a ‘windfall’ tax."
Analyst firm Wood Mackenzie has highlighted pitfalls in the UK Government’s plan to extend the windfall tax by another year.
Graham Kellas, SVP for Global Fiscal Research said it was a “surprising choice” as it won’t generate any income for the government for at least four years.
“And a tax that is now expected to have a seven-year lifespan under stable prices does not abide by most definitions of a ‘windfall’ tax,” he added.
The Chancellor unveiled the extension, bringing the Energy Profits Levy (EPL) “sunset” to 2029, during Wednesday’s Spring Budget, which he said would generate an extra £1.5bn for Treasury coffers.
Wood Mackenzie has separately modelled that as much as £4.1bn of cash flow from companies could be transferred to the UK Government by the measure.
The firm said it is dependent on assumptions about future oil and gas prices and production and it is not possible to reconcile their estimates with that of government without knowing what has been assumed in their models.
Wood Mac assumes fairly stable prices and production in 2027-28.
Risk of early decommissioning
Mr Kellas added that, by retaining the current allowance and tax rates, the government is assuming that the extension will not change investment plans.
The industry has warned that investment is at risk due to the ongoing fiscal turbulence.
“Taken on its own – the extension of the EPL is unlikely to impact investment decisions,” Kellas said. “However, the cumulative fiscal instability has really unsettled North Sea investors. And, in an election year, the opposition Labour party’s tax plan has added significantly to the fiscal uncertainty”.
Steven Wilson, senior associate at Vinson and Elkins in London, warned that companies may move to early decommissioning of assets in response to the EPL extension.
“While the Chancellor plans to raise £1.5 billion by extending the levy to 2029, there is a risk that some oil and gas fields may be decommissioned and abandoned earlier than scheduled, with the UK Government exposed to the tax relief for oil and gas companies’ decommissioning costs.”
He added: “Investors in the UK inevitably seek fiscal certainty – this further moving of the goal posts is unlikely to attract investment to the country’s oil and gas sector in the face of warnings from industry that prolonging the levy risks deterring investors from entering the North Sea basin and postponing new development.
“The health of the UK’s offshore supply chain is critical for the emergence of “North Sea 2”, as the UK seeks to grow the offshore wind sector and support the development of new CCUS and hydrogen indust
ENERGY VOICE 07/03/2024
‘Not windfall conditions’: Serica boss hits out at EPL tax extension
Serica Energy CEO Mitch Flegg has criticised the Chancellor’s decision to extend the windfall tax on North Sea producers.
In a trading update, he said current oil and gas prices “do not represent windfall conditions” and the effect will be greater imports, leaving the UK less resilient.
Chancellor Jeremy Hunt unveiled a year-long extension to the windfall tax, known as the Energy Profits Levy (EPL), during Wednesday’s Spring Budget, bringing the “sunset” to 2029.
Investment incentives remain, meaning it “could have been worse” as one source told EV, however the fourth tax change in two years now makes it “impossible” to plan investment according to trade body OEUK.
Mr Flegg of Serica Energy said: “It would be remiss not to express considerable disappointment with the extension of the EPL announced in the Budget yesterday.
“Current oil and gas prices do not represent windfall conditions for UK producers and increasing the tax burden on domestic oil and gas production again will be damaging for UK jobs and the economy.
“The achievements delivered by Serica have added to domestic sources of energy. The kind of approach exhibited in the Budget will lead to more imports and reduce the ability of our industry to enhance the UK’s resilience to potential energy shocks in the future.”
Boost to reserves
Serica Energy’s (LON: SQZ) trading update highlighted a 10 million boost annual to reserves as of 31 December to 140m barrels of oil equivalent.
That follows Serica’s recent acquisition of Tailwind Energy.
Mr Flegg said nearly all of the reserves additions are from fields which are already producing, limiting its incremental emissions.
“Production in the early part of 2024 has been encouraging and we look forward to the future impact of executing our investment programme this year. We are on track to commence the planned well intervention and drilling activities on the Bruce and Triton assets during the coming month,” he added.
https://www.energyvoice.com/oilandgas/north-sea/549550/serica-energy-windfall-tax/
Proactive Investors:
Harbour Energy reports results ‘in line’ as it works to close Wintershall deal
Harbour Energy PLC (LSE:HBR) reported production in line with expectations, whilst its financial results statement reflected a business in steady state ahead of its next phase of consolidation.
Harbour, which was formed in 2021 through the combination of London-listed Premier Oil and private equity North Sea firm Chrysaor, is now working to close its deal to acquire $11.2 billion of upstream assets from Germany’s Wintershall.
Adding substantial operations in Norway, Germany, Argentina and Mexico to its existing portfolio of assets in the North Sea, Asia and Africa, the deal promises to create “one of the world's largest and most geographically diverse independent oil and gas companies”
The company, today, noted “significant progress” toward closing the transaction.
It expects to publish a prospectus and hold necessary shareholder meetings in the second quarter, and it is progressing through its checklist of regulatory and legal approval processes.
It has, so far, successfully received approval from certain bondholders, as needed, and has successfully agreed syndication for financing facilities.
Harbour said it continues to expect the deal’s completion by the end of 2024.
In regards to its current business, the company reported average production of 186,000 barrels of oil equivalent per day, noting an average operating cost of $16 per barrel – with both metrics described as within guidance and forecast.
Revenue was reported at $3.7 billion, down from $5.4 billion, with the company citing the reduction from exceptionally prior high gas prices for the decline.
Profit before tax reduced to $600 million, from $2.5 billion, and after-tax adjustments the company reported a $32 million profit.
Chief executive Linda Cook, in her accompanying comments, highlighted Harbour’s cash flow generation, as well as its growth opportunities and carbon capture and storage (CCS) projects.
"Harbour materially advanced its strategy during 2023,” she said in the statement.
“We improved our safety performance, generated material free cash flow, and progressed our international growth opportunities and CCS projects, while maintaining our capital discipline.
“This enabled continued shareholder returns over and above our base dividend while retaining the flexibility that allowed us to announce a transformational acquisition in December.”
Cook added: "We remain focused on the successful completion of the Wintershall Dea acquisition and the ongoing safe and efficient management of our existing portfolio.
“We are excited about our future as we look to continue to build a geographically diverse, large scale, independent oil and gas company focused on safe and responsible operations, value creation and shareholder returns."
https://www.proactiveinvestors.co.uk/companies/news/1042633/harbour-energy-rep