Member Info for Sekforde

To be honest the company should invest a whole lot more in the North sea. Unlike the rest of the sector it only will pay tax on 35%. The rest it will keep. And the upfront capital allowance is a real incentive.

Final stab at FCF for 2023. Assume post hedging price of $80 per boe and 44,000 per day. Gross receipts $1284.8M. Less $425M $80M and $160 (from this morning's statement) less lease payments $120m (see last year's accounts) and interest $50M (average 2023 debt $550M and average interest 9%) = $449.8M before tax. Windfall tax say $100M (Company said would have been $5.7M from 26th May to 30th June 2022 but tax then 25% but oil price and profits much higher). FCF $349M for 2023.

If you assume $13M per month that is 53 months or 4 years and 5 months. But interest is taken into account in those figures. So you do not need to add it back in. It has been paid and still there is a net debt reduction. The debt reduction in January 2023 was $19M during which month windfall tax was paid. February and March should have high production and no tax. 48000 x say $80 (post hedge) x 59 (no days = $226.5M gross income less (opex $70M decom $10M capex $26M interest contingencies and leasing $30M) $136M = $90M debt reduction for February and March. Any how it really only makes sense to try to do these forward calculations over a year since so much seems to depend on timing of incurred costs and tax.

PYUCK if the debt were paid off at the rate of $17M a month then it would take 41 months to clear a debt of $698M not 6 years. Interest is taken into account. In fact the elimination of $500m in a year of debt should be saving the company just under $60M a year in interest.

Tommo the tax credits were $2,627M as a 30th June 2022. The windfall tax applies regardless but no ordinary corporation tax should be payable for the foreseeable future. In effect therefore this company will be taxed at 35% not 75%.

Stevo yes you are right. The net debt was $880m on 30th June 2022 and was $717M on 31st December 2022. The reduction implies FCF of $163M for the 2nd half of 2022. Production in the 2nd half was just over 45000 bpd. The middle forecast range is 44000 for the whole of 2023. That 2nd half had a windfall tax of 25%. It is now 35%. And we may have slightly higher production costs. Against that is the post hedging price should be a little better in 2023 than in the 2nd half of 2022 and we should be paying less interest as the expensive debt recedes. So I am hoping for FCF of $300m for 2023 and we end the year with net debt of $417m. That is in line with a ratio to EBITDA of 0.5 on your assumed $75 per barrel. At that point with good hedging already in place for 2024 the company could safely announce an annual dividend of $100m whilst continuing to invest and reduce less expensive debt. Of course there is huge uncertainty in any forecast. I am intrigued by the fact that the US's strategic reserve has been reduced to the lowest level since 1983 as 600,000 barrels a day have been used to tame the market, Russia has announced a reduction of 500,000 a day and Chinese imports rose to 11M a day in December from an average of 10M for 2022 . So there could be some upside which transforms the numbers.

There will not be any dividends this year. But with the net debt down to around $200 to $300M at the end of the year, there would be no reason not to start them in 2024.

The modest reduction of net debt is probably attributable to the timing of the Windfall tax payments. But a $50M reduction since September is 10% of market cap.

We now have an update. I was too optimistic on production for 2023. Taking the middle figure of 44,000 barrels a day. and assuming average oil price of $82 post hedging, the gross income should be $1,317 M. Deduct the suggested opex of $425M, the decommissioning of $60m and the capex of $160M and overall taxes of $180M, the free cash flow would be $492M for 2023. The hedging for 2024 looks good.

Always a bit of a stab in the dark at this stage but it is worth attempting to calculate free cash flow for the year. Assuming 48000 boe a day and a post hedging average price of $82 gross income should be $1.436bn. Operating costs could be $440M, capex $150M, decommissioning $60m and overall tax $200m. That leaves $586M of free cash flow. Net debt was $750M on 30th September 2022. It should have been around $650M on 31st December 2022. So this year the company could more or less free itself of debt. A market cap of just $500M is just plain silly. In 2024 the company could comfortably pay a dividend of $200M giving a yield of 40% at today's sp. I have gone 10,000 a point long with IG - the equivalent of £210,000 at today's price. Long term hold.

Stevo I think you are right. The allowance upfront makes all these projects virtually risk free provided there are profits being made from existing operations. And because the allowance is upfront the political risk of going ahead is much less.

I agree. There is no point in buying another company and paying a premium when Harbour's shares remain so undervalued. I think the company should focus only on its existing assets. It should aim to buy 15% of outstanding share capital a year and keep the dividend at $200M.

Good post as ever Stevo. The Uk government said it intended to raise £40Bn from the windfall tax. Harbour's share should be around £6bn as it produces 15% of gas and oil. That is of course a sum greatly in excess of the entire market cap.

Stevo on the FCF forecast for 2023, the company has re-iterated it will be debt free in 2023 (not clear when) and it will not reduce the dividend . This means that in its view the minimum FCF for 2023 will be $1bn ($800M and $200M.) But it has carried on with the buyback programme at some pace so it must consider that the FCF will be well above $1bn. Prices of oil and gas are rather lower than for 2022, we have the more windfall tax than in 2022, we have slightly higher production costs and we have slightly lower forecast production. Against that we have slightly better hedging and lower interest to pay as a result of lower debt. I estimate FCF will be between $1,2bn and $1,5 bn for this year. But we should never forget 2024 in coming when the bad hedging is over.

The results are simply in line with what the board forecast on their last update. I was hoping for a FCF of $2.3 bn. The significant points for me is that the dividend now at around 6% is safe, the share buybacks will continue. and we will still be debt free in 2023. The Government has been sent a clear message that you cannot raise taxes with impunity. There needs to be a cross party consensus as to a fair fiscal regime for the longer term in the North Sea.

I do not agree. If we spend $1bn CAPEX in the north sea it costs net $90M with the upfront tax relief. The employees have enormous value. They are all happy living in Scotland. They are a huge asset. The company has so little debt for its size that it can borrow any money it needs. This will all work out really well in the end.

Stevo in the Energy Taxes Fact Sheet issued on 17th November 2022, the Government stated that the cash value of the investment allowance would remain unchanged. Moreover the levy was extended from 31st December 2025 to 31st December 2028 and yet the total sum projected to be raised from the tex was said to rise from $20bn to $40bn. Given that the period of the tax was almost doubled this does not suggest that the tax would rise quite as much as you have suggested for 2023. But all should be cleared up in the next trading update.

Stevo. All other things being equal the tax would be $400M x 219/365 x 35/25 = $933 M. The old windfall tax applied from 26th May 2022. Accordingly the additional tax would be $533M of which a decent chunk would in fact be payable in January 2024. Gas has averaged well above 200 pence a therm for the period 30th September 2022 to date has it not? I am struggling to obtain clear historic data. But have been following it on IG. Brent has averaged just above $90 a barrel since the 30th September but the recent weakness could pull the average down to say $88 against the assumed $90.

HeresHopin. It is simply a matter of time. The fact that the price has fallen since the buyback began augments the case for continuing with them. If someone wants to sell a share for £3 which yields £1.50 per year - be my guest!

Thunder2040. See my previous post. Harbour can maintain production if it spends $1.2bn a year on CAPEX. I assume present prices. No more no less. That is conservative because inflation should cause prices to rise over time.