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The $400m spent on buybacks have increased the dividend from about 6% to roughy 6.6%.
Paying the money in cash would have given shareholders an 18% return into their pocket (based on the current share price).
I know which one I would choose, but each to their own and all that.
Are the fool as bad as your take from the 27th Jan, Smartie?
“I think we’re going to see a change of fortune today. I have a gut feeling we’re going to fly later. And this move won’t stop”
Filtered.
Newyorker, if Harbour are ‘printing money’ why is the share price so low?!
The problem with a lot of these posts, that go completely unchallenged I would add, is that they simply ignore what is happening in reality.
Post tax earnings & FCF will drop this year due to a combination of the EPL and the *current* significantly lower energy prices.
Next year, once the tax losses are fully utilised, post tax earnings and FCF will take another step down if the forward curve for both Oil & Gas proves correct. Yes the hedges will role off, EBITDA will increase, but we’ll be paying near $2bln a year in tax to HMRC.
This isn’t a doom & gloom post, I’m just trying to add a counterbalance on why the share price is where it is. On an EV basis, by year end, the company will have halved in value since in inception. This is a sad reflection on just how badly designed the EPL is. Investors want to buy companies where EPS are increasing, not decreasing year upon year.
Harbour are probably still a good buy (no one can say for sure), the company has a strong balance sheet and will undoubtedly make an acquisition this year, but there are reasons why the share price is in the doldrums.
Thanks for the reply Stevo.
Very good point on the EBITDA number, I missed removing the international operations from the EPL calculation.
Now adjusted, my estimated EPL charge still comes out significantly more than your own, but then I haven’t assumed any CAPEX will be included in the additional green allowance. Your assumption does seem a touch aggressive, but as a holder, and given how attractive the tax savings are, I certainly hope it’s closer to 50% than 0%.
I believe we’ll get FCF guidance during the year-end results, so should stop the guessing game. I’d probably go a little lower at $1bln for 2023, but that should just about clear the net debt (the company shouldn’t obsess about this) before UK FCF takes a step down next year due to likely full utilisation of the company’s tax losses in 2023.
Not sure about what happens with the EPL going forwards. Once energy bills come down somewhat there might be an opportunity to sort this mess out without it being a vote killer. I’m still surprised a Conservative Party would introduce such a punitive tax rate without a mechanism to adjust for the cyclical nature of the industry, but I guess there’s not much to choose between the two main parties these days.
Stevo,
Just checking your numbers for 2023 FCF.
Using the same numbers, I have $520m lower.
$200m of lease costs - this isn't including in OPEX (FPSO) - You don't have this?
$50m cash G&A - Again, you don't have this.
$770m of EPL - You have $500m
EPL Calculated as $3.4bln EBITDA - Minus $0.2bln lease costs - Minus 129% of UK Capex - Minus G&A Costs = $2.2bln
EPL charge 35% of $2.2bln = $770m.
More than happy to be corrected on this if you/others feel this is wrong.
“If you could rely on Labour not to amend the current tax policy (which I recognise you cannot), the new EPL regime could be considered to be a more attractive regime than the previous one to stimulate investment and improves the return on capital while reducing risk to the operator. Happy to share the maths behind my logic but clearly O&G execs are probably looking more at Labour policy than current tax regime.”
Very interested to see the maths on this Stevo.
Three things can be true at exactly the same time.
One, you can believe Harbours long-term prospects are massively reduced by the government increasing the tax rate to 75%. This is a company that operates in a cyclical market, with zero downside protection from falling commodity prices. Tax losses will reduce the tax take this year, but after that, HMRC are the main benefactor of the company’s UK operations.
Two, you can believe that the current share price isn’t the right time to exit your investment, with a potential run up in the share price (hopefully to £4) as Oil prices firm over the summer months (assuming no collapse in Gas prices, which is debatable).
Three, you can believe operationally Harbour are doing a good job. Linda Cook is arguably the best CEO in the industry, it isn’t her fault that the company needs to hand over the vast majority of the company’s UK profits to HMRC. Obviously Harbour will make an overseas acquisition this year, when that happens the companies prospects may look more favourable.
Lastly, if anyone thinks that people posting on this forum can influence the share price of a £2.5bln company, then I’ve got a bridge to sell you.
Pearls, sadly I agree.
If Gas prices drop in the summer due to the record high European storage levels then we’ll be left picking up the scraps whilst HMRC continue to receive a healthy bounty.
UK investment is now low risk with the relatively attractive investment allowance, but the returns will be pathetic in a low commodity price environment. Moreover, given the bigger risk of fields being a total flop (Solan $2bln hole in the ground as an example) the risk/reward is no longer that attractive. Yes firms should and will continue to invest in the UK, but getting access to new debt & equity will be challenging/expensive.
Personally, I don’t want to be in the position of cheering on extortionately high energy prices just to get a decent return, so I’ll be looking for an exit.
Unfortunately, I need 30% just to break-even, so won’t be anytime soon.
As one lady once said, the problem with socialism is that you eventually run out of other peoples money.
Back in the PMO days, the company was run mainly for the benefit of creditors. Now the company’s main benefactor is HMRC.
The real problem is energy prices reverting towards more normal levels (oil already have when adjusted for inflation). If oil prices continue to stick around these levels but gas prices drop to say £1 per therm, then FCF drops dramatically in 2024 as the tax losses are utilised.
By my calcs, from 2024, FCF would have been better at 60p a therm (without EPL) than 150p a therm with it (assuming a stable oil price).
Harbour need a major international acquisition to diversify away from this disastrous Conservative policy.
Stevo,
I think the question mark about whether the UK government would rescind the tax should gas prices fall is the big one.
Taking into account inflation over the last two years, Oil is definitely not in Windfall territory. Gas prices most definitely still are, but taking into account Harbours hedging, we only have around 16% of our total production for 2023 that is (currently) receiving significantly inflated commodity prices. That does improve next year as the hedges drop off, but if Gas prices do fall to 100p a therm or less, then they'll be a huge amount of pressure from the industry for the tax to be repealed.
It really is disappointing that this poorly designed tax has been implemented by a Conservative government, the original 25% with the attractive investment allowance was difficult to argue against given the pressure on household bills, but at 35% with the investment allowance significantly reduced and no plans to repeal if commodity prices fall is very poor.
We may get some form of guidance from the board come the January update so will reframe from discussing FCF for 2023 given how close it is. I'd also like to see a suspension of the buybacks, implementation of a $75m quarterly dividend (10% yearly yield) and noises about a major international acquisition, although I'm sure others will have differing views.
A company that produces mostly fixed priced gas, does have limited exposure to OIL prices numbnuts.
You really are the most ridiculously stupid person I’ve ever encountered on these forums. The fact you’re investing money when you don’t know the difference between CFFO and FCF is astounding.
No Luckcounts, it’s oil and condensate, but then you’re an idiot so you wouldn’t know the difference.
The oil price is a factor in the North Sea and Senegal, I never said it wasn’t, so maybe pipe down or you’ll just continue to make yourself look stupid.