Member Info for Sekforde

Let us suppose there is a windfall tax. When the proposal first reared its ugly head the it was to raise £2bn. I cannot see much of that being heaped on a company with 1/20 of the market cap of BP and 1/40 of the market cap of Shell which is investing more in the North Sea than any other company. Even if one assumes that the tax is imposed and raises £5bn, I would be amazed if Harbour had to bear more than £100 M of it. That is about 30 days of free cash flow. And it really may not happen to Harbour at all given the recent promise to spend £6bn over 4 years.

I am now 1190 long on Harbour with IG. My average purchase price was £4.91. When I last dared to look I was £85,000 down. I closed some BP positions which I hated doing because BP is also a raging buy. But I have sold a flat which was yielding 5% with lots of hassle. And Harbour is yielding close to 50% if one accepts that all that free cash flow ultimately belongs to shareholders. You just have to accept these moments of nonsense and avoid panicking. I have done a few divorce cases where private companies have had to be valued. Free cash flow is often used by accountants and I do not remember a case where a valuer suggested that a company was worth less than 6 times its free cash flow. I keep going over the maths and looking at the price of Brent and thinking this is a simple business. Money is pouring in day after day and the company has authority to buy shares. Must turn the corner soon.

Clueless? In 5 years there will be I hope a substantial shift away from use of hydrocarbons throughout the world. But there is a transition to take place and we will be burning some fossil fuels in 30 years time never mind 5. There is also much that can be done to reduce or offset completely carbon emissions. Harbour is doing a great deal in that direction and plans to be Carbon neutral in 2035. Quite some goal and should be supported.

There is no logical reason for the shares to be this low. The last real news was the trading statement on 11th May 2022. That confirmed that all was well and that $600M had been paid off in a quarter. Free cash flow is one of the most important metrics if you are like me a value investor. The company when publishing the annual results for 2021 forecast between $1.5 - 1.7bn of free cash flow for 2022. That is of course after paying a dividend of $200M and investing around $1.4bn and paying any taxes that are due. The accounts for 2021 showed that some $375M was spent in 2021 on debt finance. That sum should almost be completely eliminated come 2023. With in addition higher oil prices, the bad hedges unwinding my estimate of free cash flow for 2023 is above $2.3 bn. Other than pure sentiment and perhaps a forced large seller, there is no rational explanation for the company to have a market cap of just $5bn when it is debt free and capable of generating $2.3 bn of free cash flow a year and rising. Linda Cook has said in express terms that if oil prices remain elevated the company would look at greater share holder returns. The current dividend could comfortably be trebled to $600m giving a yield of 12%. It would have no impact on the company's investment plans or its ability to pay any windfall tax. It would be wholly sustainable even if oil prices fall. I think it may well happen. And it could also be that Harbour follows BP and Shell and starts to buy its shares. This really enhances the true yield to investors further.

Harbour has announced that it will invest £6bn over four years in the North Sea. Think about that. A company worth £3.9bn at today's close can afford to do that? The answer is it can. Free cash flow for 2022 about £1.3bn. After debt paid off in December 2022. Free cash flow around £1.7bn. And remember free cash flow is cash after tax CAPEX and dividend. I am going all in tomorrow. Selling every other position and buying Harbour.

I would think it better to look at forward prices for oil rather than worry about monkeypox. Monkeypox is not a particularly infectious disease and most people recover after about a month. Inflation is not good news. But it has some positive effects. It hugely erodes the real value of the national debt. This stands at about £2.4 trillion. It also erodes the value of all our mortgage debts. I think inflation will be temporary. I think the Ukrainians will win the war and the grain will flow again. I think the windfall tax will either not happen or it will be very mild. Time to add at the point when all seems dark I say.

Neversellshell I agree with you. All this "dog of a company" stuff is boring and childish. If you are a value investor and you see a company valued now on the market at exactly £4bn and you work out that it may well be debt free at the end of the year and capable of producing up to £1.3bn in free cash flow in 2022 and more in 2023 as the bad hedges unwind then it is reasonable to be optimistic. There may be a forced seller depressing value and sentiment. But we all know how quickly that can change. I added yesterday and am well down overall. But it is just about being patient. All will be well in the end.

The share buy backs simply need to be approved by shareholders. This happened at the AGM. Harbour may buy up to 15% of the shares. The capital restructuring does require approval by the Court of Sessions in Scotland. But that will be approved probably in July.

Ah I stand corrected!

I am not sure this can be right. Pink Floyd were in Moscow in 1989. The Rosneft IPO was in 2006.

Dividends are credited by IG the moment any stock goes ex dividend. And they are credited gross. Once a stock goes ex dividend it become less valuable as it no longer carried the right to receive the dividend. Spread betting with IG is just a way of gearing an investment. You pay interest on the money you are effectively borrowing, but that interest is less than the dividend payments at the moment for BP. The company seeks to balance buyers and sellers and buys a derivative instrument to cover the difference. It is all very fair. Most punters lose because they cannot resist trading and that is giving away the spread. Best to buy and hold and hold as long as you can.

At the present price £4.30 the current dividend is $0.054 a quarter which is at $1.24 to the £ £0.044 or 17.6 p a year. The current yield is therefore 4.09% (17.6/430). Motley misstated the yield by some margin. We have been told that the dividend will be increased by 4% so the forward yield is 4.2567%. But you have to include share buybacks when calculating yield. It is better than receiving a dividend because it does not have any immediate tax implications. And those share buybacks are running at almost 10% a year of the market cap. So the true forward yield to investors is about 14% at 430p as compared to 0.1% for cash. But whilst paying a yield of 14% the company is paying off the debt and investing for future increased returns. So investors who bale out now are just missing out. The best is yet to come.

All the oil companies could have mounted a much stronger defence against the proposed Windfall tax. They have five good arguments. 1 They already pay an enhanced rate of corporation tax effectively almost 40%. 2. Shareholders have in fact had a torrid time over the recent two decades with the sector producing some of the worst returns overall. 3. A windfall tax discourages investment in the North Sea which is riskier than elsewhere. 4. Other companies and people have benefitted from inflated price - farmers and tobacco companies for example. 5. A company like Harbour was forced to hedge much of its production so is not in fact benefitting very much from these prices. But the tex will probaly happen. It will not be very much in the grand scheme of things.

Yes I noticed that gap narrowing and then disappearing and wondered why. I thought the usual premium of Brent was because of its superior quality.

A company capable of producing $1.7Bn of free cash flow year after year for the foreseeable future is worth at least 14 times that free cash flow. I make that $23.8 bn. Harbour is worth just $5.2bn. Nuts. There is a crazy forced seller in the market and it takes time for all those shares to be absorbed. Keep the faith. Buy more. And hold.

The debt is not expensive and the average interest is under 5%. So I am not advocating that that is the best thing to do. I would prefer the company bought 15% of the shares using the permission obtained last week. But a much higher dividend is also a possibility.

I agree if the company starts buying oil fields then the debt will not be cleared. But the CEO talked about the advantage of rapid deleveraging whilst prices remained high in her presentation last March and I suspect she will want to do that. They have plenty of fields to develop. And yes Hurricane, Tullow and of course BP are all steals at these prices if you are a value investor. But I cannot remember a time when a company was trading on a sustainable forward PE of 2. And that is what makes Harbour so extraordinary. For some reason the market just is not doing the maths.

And also the reason I think the debt will be paid off by Christmas is that $600M of the $2.3Bn has been paid off already in the first quarter. True CAPEX was only $160M in the first quarter and will be higher for the remaining three. BUT the interest on debt is reducing and the overall prices are higher on the unhedged output than the average for the first quarter. And of course we have the Tolmount contribution.

With the debt paid off which I think it will be by Christmas, there is no need to hedge into 2024. Forward prices into 2024 are much higher than the hedging prices into 2022 and 2023. So if it did hedge into 2024 HBR could book a much higher stream of certain income. But Harbour energy has such low production costs that it can afford to take the spot prices whatever they are. The reason I think one should ignore the bad hedging into 2022 and 2023 is that it is a bit like a landlord giving a tenant a 2 year discount on the rent. A rational property market values the property on the full market rent payable into the future and ignores the short term discount (to a very large extent).

From where do get the $7M a day ? Hedging aside it is surely 215,000 x 98 (profit per barrel) = $21,070M a day. In a sense one should ignore hedging because it is temporary and very little is hedged into 2024. But even allowing for hedging of two thirds it is surely much more than $7m a day.