TIDMHBR
RNS Number : 1556X
Harbour Energy PLC
25 August 2022
Harbour Energy plc
("Harbour" or the "Company" or the "Group")
Half-year results for the six months to 30 June 2022
25 August 2022
Harbour Energy plc today announces its half-year results for the
period ended 30 June 2022. Performance for the comparator 2021
period is provided on a reported basis with Premier Oil's portfolio
included from 31 March 2021.
Strong operational performance
-- Production of 211 kboepd, a 40 per cent increase on H1
2021
-- Unit operating costs of $14.2/boe, a 5 per cent decrease on
H1 2021
-- Improved safety performance with Total Recordable Injury Rate
of 0.7 (H1 2021: 1.6)
-- Tolmount project start-up, boosting UK domestic natural gas
supplies by over 5 per cent
-- Investment decisions taken on two UK projects - Talbot
development and Leverett appraisal
-- Material gas discovery at the Timpan prospect in the Andaman
Sea (Indonesia)
-- GHG intensity improved to 20.6 kgCO(2) e, a decrease of 13
per cent on H1 2021; UK CCS projects progressed
Robust financial results
-- Realised, post-hedging, oil and UK gas prices of $82/bbl and
69p/therm
-- EBITDAX of $2.0 billion
-- Profit after tax of $984 million including a pre-tax $360
million foreign exchange gain (relating to unrealised UK gas
hedging losses) and income tax expense of $506 million
-- Earnings per share of $1.1
-- Total capex of $391 million, predominantly in the UK
-- Free cash flow of $1.4 billion after tax,
pre-distributions
-- Net debt (excluding unamortised fees) and leverage reduced to
$1.1 billion and 0.3x respectively
-- Successful RBL redetermination: liquidity of $2.2 billion,
greater hedging flexibility going forward
-- Maiden dividend of $98 million paid in May; $100 million
interim dividend declared
-- $200 million share buyback initiated in June and today
increased to $300 million
2022 Guidance
-- Production guidance narrowed to 200-210 kboepd (195-210
kboepd previously)
-- Forecast unit opex expected towards the lower end of
$15-16/boe guidance
-- Total capex reduced to $1.2 billion ($1.3 billion
previously), primarily due to the delayed arrival of two drilling
rigs in the UK
-- Forecast free cash flow(1) for the full year 2022 increased
to $1.8-2.0 billion (after c. $500 million of UK tax payments,
before dividends and share buybacks); forecast to be net debt free
in 2023 unchanged
Linda Z Cook, Chief Executive Officer, commented:
"We delivered a strong first half performance, realising value
from past acquisitions, increased production efficiency and
significant investment in our asset base. We improved our safety
record, materially increased production, reduced GHG intensity and
progressed our CCS projects while continuing to invest in our
existing portfolio. Our Tolmount project alone - brought onstream
in April - has increased UK domestic natural gas supply by over 5
per cent. At a time when many are struggling with high energy
prices, we are increasing investment by c.30 per cent compared to
last year, focusing on doing what we can to deliver reliable,
domestic oil and gas from our existing portfolio in a safe and
responsible manner.
In an environment of considerable fiscal, economic and
geopolitical uncertainty, our strategy to build a global,
diversified oil and gas company focused on safe and responsible
operations, value creation and shareholder returns remains valid.
We are financially strong and have continued to deleverage our
balance sheet at pace. As a result, we have significant optionality
over our future capital allocation including for continued organic
investments, meaningful M&A and additional shareholder
returns."
(1) Assumes Brent averages $100/bbl and UK NBP averages
200p/therm for the full year 2022 and 2023.
Enquiries +44 20 3833 2421
Harbour Energy plc
Elizabeth Brooks, Head of Investor Relations
Brunswick +44 20 7404 5959
Patrick Handley, Will Medvei
An analyst presentation will be held at 09.30 today and will be
webcast live via our website.
Summary of 2022 half-year performance
Strong operational performance, increasing UK domestic energy
supplies
Production averaged 211 kboepd (H1 2021: 151 kboepd), split 196
kboepd UK / 15 kboepd International and 111 kboepd liquids / 100
kboepd gas over the period.
The c.40 per cent increase in production compared to the first
half of 2021 is driven by a full contribution from the Premier
portfolio and our significant UK investment programme which has
seen new wells brought on-line, including at J-Area, Everest and
Tolmount. Production also benefitted from fewer planned shutdowns
during the period and materially improved operating reliability,
especially at Elgin-Franklin. Excluding the benefit of the
additional three months contribution from the Premier portfolio,
production was up 17 per cent compared to the first half of
2021.
In April, we delivered first production from the c. $700 million
Tolmount gas development. The field has since ramped up to plateau
production levels with rates averaging c.45 kboepd (gross, Harbour
50 per cent interest) during June, increasing UK domestic gas
production by over five per cent and supporting the UK's energy
security.
Operating costs for the first half were $542 million, equating
to $14.2/boe on a unit of production basis (H1 2021: $15.0/boe),
lower than the prior period due to higher volumes and a weaker
Pound Sterling to US Dollar exchange rate. Harbour now expects unit
operating costs on a full year basis to be at the low end of the
$15-16/boe guidance range, assuming a $1.25/GBP exchange rate for
the remainder of the year. Total capital expenditure in the first
half was $391 million. Full year 2022 capex guidance is reduced
from $1.3 billion to $1.2 billion, primarily due to the delayed
arrival of two rigs in the UK. The revised guidance reflects an
increase of c.30 per cent over 2021 and includes significant
drilling activity in the second half of the year including at
J-Area and Beryl in the UK, Chim Sao in Vietnam and Block 30 in
Mexico.
Following the start-up of Tolmount and completion of the
majority of the summer maintenance campaigns, we have narrowed our
2022 production guidance to 200-210 kboepd, reflecting reduced
uncertainty. Second half production is anticipated to be slightly
lower than in the first half, reflecting planned shutdowns at
Beryl, AELE and Catcher in July and August (now largely
completed).
Improved safety performance
Safety is Harbour's highest priority. During the first half, we
continued to embed our process safety fundamentals and life-saving
rules across the Company and to investigate all incidents and
near-misses. With nearly six million hours worked in the first
half, we recorded no serious injuries or significant spills and our
safety record improved with Total Recordable and Lost Time Injury
Rates of 0.7 (H1 2021: 1.6) and 0.35 (H1 2021: 1.0), respectively,
per million hours.
Targeted, high return UK investment
Harbour seeks to maximise value from its high-quality asset base
through investing in short cycle, high return projects to maintain
production levels while generating substantial free cash flow. Such
projects, which include infill drilling and well intervention
programmes, satellite tiebacks and infrastructure-led exploration,
typically have high returns, breakeven at low commodity prices and
have low GHG emissions.
At J-Area, the Jade-JM and Judy-RD infill wells commenced
drilling at the start of the year and are expected on-line during
the second half. The three-well Catcher drilling programme
commenced in the second quarter and is nearing completion. While
the Catcher North well is expected to be tied into production
during the third quarter, the Laverda well encountered
sub-commercial volumes and was not completed. The rig is now
drilling the third of these wells - the Burgman Far East infill
target.
Our investment programme will continue in the second half with
several infill and development wells and well intervention
programmes planned, including at J-Area, Beryl and Tolmount East in
the UK, helping support near-term production levels. Post period
end Harbour executed an exchange agreement with NEO to equalise
interests across the Leverett licences, located close to our
Greater Britannia Area. Harbour and NEO plan to appraise the
Leverett structure in the first half of 2023. Also post period end,
Harbour approved the Talbot development comprising a multi-well
subsea tie-back to J-Area. Development drilling is expected to
start later this year ahead of first oil targeted for around end
2024.
International growth opportunities
Harbour has several international growth projects which could
add materially to future production. These include the Zama field
in Mexico where Harbour is actively working with its partners to
finalise the field development plan ahead of submission to the
Mexican government next year. Upon approval, the partners would
then move towards a final investment decision anticipated later in
2023. Harbour is also looking to progress its Tuna field in
Indonesia to a final investment decision around the end of 2023
with the next milestone being the submission of a Plan of
Development to the Indonesian government later this year.
While Harbour's exploration strategy is focused around low risk,
infrastructure led opportunities, we are drilling certain
greenfield exploration wells from the legacy Premier portfolio
during 2022. Notably, in July, we made a material gas discovery
offshore Indonesia with the play-opening Timpan-1 well on our
Andaman II licence. We, together with partners BP and Mubadala, are
now evaluating the commerciality of the discovery, prior to making
a decision regarding further exploration and/or appraisal drilling
which could begin in late 2023. Harbour also plans to participate
in the drilling of two exploration commitment wells, Kan and Ix, on
Block 30 in Mexico in the second half of the year.
In line with our strategy, we are in the process of divesting
our Falkland Islands interests, including our position in Sea Lion
to Navitas. Post period end we received approval from the Falkland
Islands Government and the transaction is expected to complete
imminently.
It remains our intention to grow and diversify internationally,
establishing material production in at least one other region via
the acquisition of high quality, conventional producing assets. We
have a strong track record of executing large scale M&A and
will remain disciplined and focused on strategic fit and value
creation.
Investing in the Energy Transition
Harbour is committed to proactively addressing its environmental
impact and taking action to achieve its 2035 Net Zero goal. For the
first six months of 2022, the GHG emissions intensity (Scope 1 and
2), from our operated assets was 20.6 kgCO(2) e/boe (H1 2021: 23.8
kgCO(2) e/boe). This improved performance reflects more efficient
operations and the implementation of decarbonisation projects
within our operated hubs, including resizing of compression
equipment and plant optimisation activities.
Harbour is participating in two early-stage CCS projects in the
UK, V Net Zero and Acorn. Once developed these projects could
capture and store multiple times Harbour's annual emissions. Key
achievements during the period for our V Net Zero project, which
has the potential to transport and store c.10 million tonnes per
annum of CO(2) by 2030, include progress on delivering the Viking
carbon storage licence work programme and the placing of major
engineering contracts including for the design of the CO(2)
transportation and storage system. In addition, the non-statutory
consultation with members of the public around the proposed onshore
pipeline was completed during the first half of 2022 with
preparation for statutory land-owner consultations now
underway.
Harbour, together with its partners, also continues to progress
the Acorn project. In March, Shell was appointed technical
developer for the capture, transportation and storage modules of
the project which has the potential to address up to 9 million
tonnes per annum of CO(2) .
Subject to receiving clarity on inclusion of V Net Zero and
Acorn in Track 2 of the UK government's process to sequence the
deployment of Carbon Capture and Storage projects, as well as the
fiscal, regulatory and commercial framework, Harbour is aiming to
progress both CCS projects to a final investment decision in 2024
with first CO(2) injection as early as 2027.
A solid financial position underpins increased shareholder
returns
Harbour aims to produce reliable and robust cash flows through
the commodity price cycle, supported by a disciplined approach to
hedging. During the first half, Harbour generated $1.4 billion of
free cash flow. This was driven by higher production and strong
realised commodity prices, albeit materially below market prices
due to our historical hedging programme. As a result, Harbour
continued to deleverage during the period with net debt, before
unamortised fees, reduced to $1.1 billion from $2.3 billion at year
end, and Group leverage (Net debt / EBITDAX) reduced to 0.3x from
0.9x. We retain significant liquidity of $2.2 billion at period
end.
In line with our dividend policy announced in December 2021, we
paid our first distribution of $98 million as a final dividend in
respect of the 2021 financial year on 18 May 2022. Today we
declared an interim dividend of $100 million to be paid in October
2022. In addition, following receipt of shareholder authority at
our Annual General Meeting and with leverage well below 1x, we
commenced a $200 million buyback programme in June. As of 24
August, 38.2 million of shares had been repurchased. We have
increased that programme today by $100 million and will continue to
regularly review the potential for additional shareholder returns
within the context of our existing capital allocation
framework.
At the end of June we successfully completed the annual
redetermination of our Reserve Based Lending (RBL) facility with
the new borrowing base availability (excluding Letters of Credit)
set at $2.75 billion. We also accelerated the first scheduled
facility amortisation of our RBL by six months and reduced the
facility from $4.5 billion to $4.1 billion whilst increasing the
Letters of Credit sub-limit to $1.5 billion. The next scheduled
amortisation of the facility is at the next RBL redetermination on
30 June 2023. As part of the redetermination, our minimum hedging
requirements under the RBL were reduced by 10 percentage points to
40 per cent of forecast production in year one and 30 per cent in
year two, providing us with greater flexibility around our hedging
strategy.
Post period end in July the Energy Profits Levy (EPL) was
enacted in the UK and applies an additional tax on profits earned
from production of UK oil and gas from 26 May 2022. At an average
Brent price of $100/bbl and UK natural gas price of 200p/therm for
the full year 2022, we expect our 2022 UK EPL liability to be of
the order of $300 million, with c. $170 million expected to be paid
in December 2022 and the balance in January 2023.
Well placed for value creation, growth and shareholder
returns
As we enter the second half of the year, commodity prices
continue to be extremely volatile. We remain alert to the potential
impacts of an economic recession and inflationary cost pressures as
well as the on-going financial impacts on our UK business of the
EPL.
Against this uncertain backdrop, we remain in a strong financial
position, supported by a diverse and high-quality asset base. At
$100/bbl and 200p/therm average oil and gas prices for the full
year 2022, we forecast free cash flow (after tax, before
shareholder distributions) of $1.8-2.0 billion, with higher
expected production and lower expected capex offset by the impact
of the EPL. We continue to have the potential to be net debt free
in 2023 and retain significant optionality over our future capital
allocation, including for value accretive M&A and additional
shareholder returns.
Financial Review
The 2021 comparative results for the Income Statement are
representative of three months of Chrysaor only (January to March
2021) and three months of Harbour (April to June 2021, post-merger
of Chrysaor and Premier Oil on 31 March 2021).
These 2022 half-year results represent 6 months of Harbour
through to 30 June 2022.
Summary of financial results
6 months 6 months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
Production - kboepd 211 151
Revenue and other income - $ million 2,670 1,496
Post-hedging realised prices:
Crude oil - $/boe 82 58
UK natural gas - p/therm 69 38
Indonesia natural gas - $/mscf 16 11
Operating costs per boe - $/boe 14.2 15.0
EBITDAX (1) - $ million 2,024 843
Pre-tax profit - $ million 1,490 120
Profit after tax - $ million 984 87
Shareholder returns:
Dividends 98 -
Purchase of own shares 54 -
Basic earnings per share - $/share 1.1 0.1
Total capital expenditure (1) -
$ million 391 375
Operating cash flow - $ million 1,862 646
Free cash flow (1) - $ million 1,353 302
30 June 31 Dec 2021
2022 Audited
Unaudited
Net debt $ million (1)
(net of unamortised fees) 992 2,147
======================================= =========== ============
(1) See Glossary for the definition of non-GAAP measures
Harbour reported average production for the first half of 2022
of 211 kboepd (H1 2021: 151 kboepd), an increase of 40 per cent.
The production split was 53 per cent liquids (2021: 54 per cent)
and 47 per cent gas (2021: 46 per cent). The Company has narrowed
its guidance for production to 200 to 210 kboepd for the full
year.
Harbour reported total revenue and other income of $2,670
million (H1 2021: $1,496 million).
Revenue was higher than the prior period primarily as a result
of an increase in both realised liquid and gas prices, and higher
production volumes associated with having a full six months of
Premier production compared to only three months in H1 2021.
Operating costs per barrel for the period were $14.2/boe (H1
2021: $15.0/boe) with the decrease driven primarily by the increase
in production and a foreign exchange benefit of Pound Sterling
weakening against the US Dollar. The Company expects to be at the
low end of guidance within the $15-16/boe range for the full
year.
EBITDAX amounted to $2,024 million (H1 2021: $843 million) due
to higher revenue partially offset by higher operating costs within
the period and benefitting from having a full six months of Premier
production compared to only three months in H1 2021.
Pre-tax profits were $1,490 million (H1 2021: $120 million) and
profit after tax amounted to $984 million (H1 2021: $87 million).
This increase in profit is primarily due to higher revenue,
recognising a full six months of Premier earnings, foreign exchange
gains of $360 million offset by a total tax charge of $506 million.
The foreign exchange gain consists mainly of unrealised gains
arising from revaluation of open gas hedges denominated in Pound
Sterling.
Earnings per share was $1.1 per share compared to $0.1 per share
for H1 2021. The increased earnings per share is driven by
increased profit after tax. The weighted number of ordinary shares
was 925 million compared to the prior period of 816 million, with
the increase reflecting the shares issued as part of the Merger
agreement effective 31 March 2021.
Total capital expenditure in the period amounted to $391 million
(H1 2021: $375 million). The Company expects capital and
decommissioning spend to be c. $1.2 billion for the full year.
Free cash flow amounted to $1,353 million (H1 2021: $ 302
million), driven by the factors described previously.
The growth in free cash flow has allowed the Company to initiate
returns to shareholders during the period. A dividend of $98
million (H1 2021: $ nil) representing the final dividend for 2021
at 11 cents per share was paid in May 2022. In the period the
Company also repurchased 11.9 million of its own shares at a cost
of $54 million (H1 2021: $ nil) as part of a $200 million share
buyback programme which commenced on 16 June 2022.
As at 30 June 2022, net debt of $992 million (Dec 2021: $2,147
million) consisted of a $1.4 billion drawn down on the Reserves
Based Lending facility (RBL), a $500 million retail bond and an
Exploration Financing Facility (EFF) of $51 million less
unamortised deferred fees of $114 million and cash balances of $845
million. The decrease since year end is mainly due to the
repayments on the RBL facility.
Available liquidity, being undrawn RBL facility plus cash
balances, was $2.2 billion at the end of the period.
Income Statement
6 months ended 6 months
30 June 2022 ended
$million 30 June
Unaudited 2021
$million
Unaudited
Revenue and other income (note
4) 2,670 1,496
Crude 1,542 897
Gas 970 395
NGL 129 72
Tariff income and other revenue 18 13
Other income 11 119
EBITDAX 2,024 843
Pre-tax profit 1,490 120
Profit after tax 984 87
Basic earnings per share - $/share 1.1 0.1
====================================== =============== ===========
Revenue
Total revenue and other income amounted to $2,670 million (H1
2021: $1,496 million) of which revenue earned from hydrocarbon
production and tariff income amounted to $2,659 million (H1 2021:
$1,377 million) after realised hedging losses of $1,603 million (H1
2021: $207 million). Some of Harbour's hydrocarbon production is
sold pursuant to fixed-price contracts, as described below under
'Derivative financial instruments' per note 14. The rest is sold at
market values, subject to standard quality and basis
adjustments.
Crude oil sales amounted to $1,542 million (H1 2021: $897
million), with a post-hedge realised price of $82/boe (H1 2021:
$58/boe). Gas revenue was $970 million (H1 2021: $395 million),
split between UK natural gas of $857 million (H1 2021: $359
million) and International of $113 million (H1 2021: $36 million).
The post-hedge realised price of UK natural gas was 69p/therm (H1
2021: 38p/therm), with the Indonesia natural gas price $16/mscf (H1
2021: $11/mscf). Condensate sales amounted to $129 million (H1
2021: $72 million), while tariff income and other revenue was $18
million (H1 2021: $13 million).
Other income amounted to $11 million (H1 2021: $119 million)
representing partner recovery on related lease obligations of $12
million (H1 2021: $12 million) and mark to market losses on EUA
emissions hedges of $1 million (H1 2021: gains of $61 million). H1
2021 included a receipt of $40 million from ConocoPhillips in
relation to an adjustment to consideration relating to Chrysaor's
purchase of the ConocoPhillips UK business in 2019.
Costs of Operations
6 months 6 months
ended ended
30 June 30 June
2022 2021
$million $million
Unaudited Unaudited
Operating costs
Field operating costs (1) 560 422
Tariff income and other revenue (18) (13)
------------------------------------------- ----------- -----------
Total 542 409
------------------------------------------- ----------- -----------
Operating costs per barrel ($ per barrel) 14.2 15.0
Depreciation, Depletion and Amortisation
(DD&A) before impairment charges
Depreciation of oil and gas properties
(Cost of operations only) 742 522
Amortisation of intangible assets 1 1
------------------------------------------- ----------- -----------
Total 743 523
------------------------------------------- ----------- -----------
DD&A before impairment charges ($ per
barrel) 19.4 19.1
=========================================== =========== ===========
(1) includes mark-to-market losses on emissions hedges reported
in Other income of $1 million (H1 2021: gains of $61 million),
excludes non-cash depreciation on non-oil and gas assets
The decrease in operating costs per barrel is largely due to
higher production volumes compared to the comparative period and a
foreign exchange benefit of Pound Sterling weakening against the US
Dollar.
DD&A unit expense which reflects the depreciation of
capitalised producing assets costs over production was $19.4/boe
(H1 2021: $19.1/boe).
EBITDAX
EBITDAX was $2,024 million (H1 2021: $843 million), driven by
higher production and higher commodity prices, partially offset by
higher operating costs.
6 months 6 months
ended ended
30 June2022 30 June
2021
$million $million
Unaudited Unaudited
Operating profit 1,247 227
Depreciation, depletion and amortisation 762 545
Impairment of property, plant and equipment 3 10
Exploration and evaluation and new ventures 20 30
Exploration costs written-off 2 31
Gain on disposal (10) -
EBITDAX 2,024 843
============================================= ============== ============
Impairment
The Group has recognised a pre-tax impairment charge of $3
million (H1 2021: $10 million) as a result of increases to
decommissioning estimates on the Group's non-producing assets.
Exploration and evaluation expenditure and new ventures
During the period, the Group expensed $22 million (H1 2021: $61
million) for exploration and appraisal activities. This is mainly
related to pre-development costs associated with UK Carbon Capture
and Storage (CCS) projects of $10 million and ongoing pre-licence
expenditure.
Gain on disposal
The gain on disposal of $10 million relates to the release of a
provision associated with Premier's sale of its legacy Pakistan
assets in 2019.
Net financing costs
Financing expenses totalled $155 million (H1 2021: $145
million), including interest expenses incurred on debt facilities
of $48 million (H1 2021: $54 million). Also included are bank and
facility fees of $39 million (H1 2021: $32 million), the unwinding
of discount on provisions, primarily associated with future
decommissioning obligations, of $32 million (H1 2021: $40 million),
lease interest of $10 million (H1 2021: $8 million) and $18 million
derivative losses related to changes in the fair value of an
embedded derivative within one of the Group's gas contracts (H1
2021: gains of $6.3 million).
Finance income amounted to $397 million (H1 2021: $37 million).
Finance income includes foreign exchange gains of $360 million (H1
2021: losses of $4 million) which consists mainly of unrealised
gains arising from revaluation of open gas hedges denominated in
Pound Sterling . Finance income also includes gains of $31 million
(H1 2021: $10 million) on interest rate and foreign currency
derivatives.
Taxation
The tax expense for the period amounted to $506 million (H1
2021: $34 million), split between a current tax expense of $348
million (H1 2021: $46 million), and a deferred tax expense of $158
million (H1 2021: credit of $12 million). The total tax expense for
the period represents an effective tax rate of 34 percent (H1 2021:
28 percent). The higher effective tax rate for the six months ended
30 June 2022 is caused by a higher proportion of profits being
generated in the UK compared to overseas offset by the recognition
of previously unrecognised deferred tax assets, investment
allowance and credits related to prior periods.
On 26 May 2022, the UK Government announced the introduction of
an Energy Profits Levy ('EPL') on the profits earned from the
production of oil and gas in the UK with effect from that date. The
EPL enabling legislation, the Energy (Oil and Gas) Profits Levy Act
2022, was substantively enacted on 11 July 2022. The EPL is charged
at the rate of 25 per cent on taxable profits in addition to ring
fence corporation tax of 30 per cent and the Supplementary Charge
of 10 per cent.
As the legislation was not substantively enacted as at 30 June
2022, the tax charge in the half-year results does not include the
impact of EPL for the period which will instead be reflected in the
second half of 2022. If the EPL had been considered in the interim
period, an additional current tax liability of an estimated $48
million would be expected to arise from business performance in the
period 26 May 2022 to 30 June 2022. The EPL tax is a temporary
measure and as enacted will cease to apply on 31 December 2025.
Had the EPL been fully enacted before 30 June 2022, these
half-year results would have included the recognition of an
estimated additional one-off non-cash net deferred tax asset of
$1.0 billion in respect of the EPL through to the end of 2025. The
anticipated additional net deferred tax asset arises mainly due to
an increase in the deferred tax asset associated with unrealised
derivative balances of $1.6 billion, offset by an increase in
deferred tax liabilities associated with the carrying value of oil
and gas assets within fixed assets of $0.6 billion. The deferred
tax asset associated with the unrealised derivative balances held
at 30 June 2022 represents the estimated reduction in EPL liability
that could arise if the fair value loss on those derivatives
crystalised and reduced taxable profits subject to EPL in the
periods to 31 December 2025.
The amounts disclosed above are provisional and the overall
current and deferred tax impact for the year will be included in
the full-year results.
Earnings per share was $1.1 per share compared to $0.1 per share
for H1 2021. The increased earnings per share is driven by
increased profit after tax. The weighted number of ordinary shares
was 925 million compared to the prior period of 816 million, with
the increase reflecting the shares issued as part of the Merger
agreement effective 31 March 2021.
Shareholder Distributions
A final dividend with respect to 2021 of 11 cents per Ordinary
Share was approved by shareholders at the AGM on 11 May 2022. The
dividend was paid on 18 May 2022 to all shareholders on the
register as at 8 April 2022, totalling $98 million.
In line with dividend guidance issued by the Company on 17 March
2022, the Board is pleased to announce an interim dividend of 11
cents per ordinary share to be paid on 19 October 2022 to
shareholders on the register on 9 September 2022 (the "Record
Date"). A dividend re-investment plan ("DRIP") is available to
shareholders who would prefer to invest their dividend in the
shares of the Company. To participate in the DRIP, shareholders
must submit their election notice to be received by 28 September
2022 (the "Election Date").
As part of a $200 million share buyback programme approved by
shareholders at the AGM, as at 30 June 2022 Harbour had repurchased
11.9 million of its own shares at a cost of $53.5 million (H1 2021:
$ nil). Between 1 July 2022 to 24 August 2022, the Company had
repurchased a further 26.3 million shares at a cost of $112.5
million. In addition, this programme was increased by $100 million
to $300 million as announced on 25 August 2022.
Statement of Financial Position
30 31
June Dec
2022 2021
$million $million
Unaudited Audited
Total non-current assets, excluding
deferred taxes 9,978 10,273
Deferred tax assets (note 7) 3,069 1,938
Total current assets 2,270 2,294
Total assets 15,317 14,505
Total equity (deficit)/surplus (807) 474
Total borrowings net of transaction
fees (note 13) (1,873) (2,886)
Total decommissioning provisions
(note 12) (5,092) (5,354)
Deferred tax liabilities (note
7) (184) (187)
Lease creditor (note 11) (875) (654)
Derivative liabilities (note 14) (6,885) (3,900)
Other liabilities (1,215) (1,050)
Total liabilities (16,124) (14,031)
Net debt (note 15) (992) (2,147)
====================================== =========== ==========
Assets
At 30 June 2022, total assets amounted to $15,317 million (Dec
2021: $14,505 million), of which current assets were $2,270 million
(Dec 2021: $2,294 million). The increase in total assets of $812
million is mainly as a result of the higher deferred tax asset of
$1,131 million (see note 7), higher right-of-use assets of $232
million (see note 11) and higher intangible assets of $37 million
(see note 9), partially offset by lower property, plant, and
equipment of $584 million (see note 10).
Capital investment is defined as additions to property, plant
and equipment, fixtures and fittings and intangible exploration and
evaluation assets, excluding changes to decommissioning assets.
6 months 6 months
ended ended
30 June 30 June
2022 2021
$million $million
Unaudited Unaudited
Additions to oil and gas assets (note
10) (222) (180)
Additions to fixtures and fittings,
office equipment & IT software
(note 9 and note 10) (22) (14)
Additions to exploration and evaluation
assets (note 9) (53) (62)
Total capital investment (297) (256)
Movements in working capital (41) (24)
Capitalised lease payments 13 8
Cash capital expenditure per the cash
flow statement (325) (272)
========================================= =========== ===========
During the period, the Group incurred capital expenditure of
$297 million (H1 2021: $256 million). This mainly consisted of
operated drilling on the J-Area at Jade-JM and Judy-RD, three
Catcher development wells and non-operated drilling programmes on
Clair Ridge platform.
Liabilities
At 30 June 2022, total liabilities amounted to $16,124 million
(Dec 2021: $14,031 million) including decommissioning provisions of
$5,092 million (Dec 2021: $5,354 million), derivative liabilities
of $6,885 million (Dec 2021: $3,900 million), lease creditors of
$875 million (Dec 2021: $654 million) and borrowings of $1,873
million (Dec 2021: $2,886 million).
Net debt
As at 30 June 2022, net debt of $992 million (Dec 2021: $2,147
million) consisted of a Reserves Based Lending Facility (RBL), a
retail bond and an Exploration Financing Facility less unamortised
deferred fees and cash balances. The decrease since year end is
mainly due to the repayments of the RBL facility of $1,038 million.
Debt is stated net of the unamortised portion of the issue costs
and bank fees of $115 million (Dec 2021: $136 million).
Equity and reserves
Total equity amounted to a deficit of $807 million (Dec 2021:
surplus, $474 million) with changes in 2022 reflecting the higher
derivative liabilities (note 14), following the continued increase
in commodity prices in the period to 30 June 2022. The fair value
losses on cash flow hedges are recognised through Other
Comprehensive loss in the Cash Flow Hedge Reserve and amounted to
$2,013 million (H1 2021: $898 million).
Cash flow (1)
6 months 6 months
ended ended
30 June 2022 30 June 2021
$million $million
Unaudited Unaudited
Cash flow from operating activities
after tax 1,862 646
Cash flow from investing activities
- capital expenditure (325) (272)
Cash flow from investing activities
- business combinations - 97
Cash flow from investing activities
- other 9 26
Operating cash flow after investing
activities 1,546 497
Cash flow from financing activities
- interest and lease payments (193) (195)
Free cash flow 1,353 302
Cash flow from financing activities
Purchase of own shares (42) -
Dividends paid (98) -
Cash and cash equivalents 845 424
===================================== ============== ==============
(1) Table excludes financing activities related to debt
principal movements.
Net cash from operating activities after tax amounted to $1,862
million (H1 2021: $646 million) after accounting for tax payments
of $163 million (H1 2021: $206 million) and positive working
capital movements of $259 million (H1 2021: $92 million). Cash flow
used in investing activities on capital expenditure was $325
million (H1 2021: $272 million). Cash outflow from financing
activities on interest and lease payments was $193 million ($195
million).
Cash flow from financing activities includes dividends paid of
$98 million (H1 2021: $ nil) and $42 million (H1 2021: $ nil)
related to the repurchase of Harbour's own shares.
Cash balances were $845 million (H1 2021: $424 million) at the
end of the period .
Principal Risks
The principal risks for the remaining six months of the year are
unchanged from those disclosed in the 2021 Annual Report and
Accounts, as discussed in the later Risk and Uncertainties section.
A full description of Harbour's principal risks can be found on
pages 48 to 55 of the 2021 Annual Report and Accounts.
Derivative financial instruments
We carry out hedging activity to manage commodity price risk, to
ensure we comply with the requirements of the RBL facility and to
ensure there is sufficient funding for future investments.
We have entered into a series of fixed-price sales agreements
and a financial hedging programme for both oil and gas, consisting
of swap and option instruments. Our future production volumes are
hedged under the physical and financial arrangements in place at 30
June 2022. These are set out in the following table. Hedges
realised to date are in respect of both crude oil and natural
gas.
Hedge position H2 2022 2023 2024 2025
Oil
Volume hedged (mmboe) 9.48 10.95 7.32 2.01
Average price hedged
($/bbl) 61.15 74.08 84.37 81.23
UK Gas
Volume hedged (mmboe) 12.45 23.08 10.53 1.78
Average priced hedged
(p/therm) 50.62 41.52 58.88 58.00
======================= ======== ====== ====== ======
At 30 June 2022, our financial hedging programme on commodity
derivative instruments showed a pre-tax negative fair value of
$6,807.1 million (Dec 2021: $3,867.7 million), with no
ineffectiveness charge to the income statement. Refer to note 14
for more information.
Post balance sheet events
On 11 July 2022, the EPL enabling legislation, the Energy (Oil
and Gas) Profits Levy Act 2022, was substantively enacted by the UK
Government and received Royal Assent on 14 July 2022. Refer to Note
7 for further details.
On 3 August 2022, Harbour announced that the Capital Reduction,
comprising the Share Premium reduction and the Merger Reserve
reduction, approved by shareholders at the General Meeting held on
11 May 2022, is now effective. This follows the confirmation of the
Capital Reduction by the Court of Session, Edinburgh on 2 August
2022, and the registration of the Court order with the Registrar of
Companies in Scotland on 3 August 2022.
The Capital Reduction creates additional distributable reserves
to the value of US$6,310.9 million of which $1,650.0 million will
be held as non-distributable reserves until 31 March 2028. This
provides the Company with further flexibility to deliver
shareholder returns over the coming years in the form of dividends
and/or share buybacks.
As part of a $200 million share buyback programme approved by
shareholders at the AGM, as at 30 June 2022 Harbour had repurchased
11.9 million of its own shares at a cost of $53.5 million (H1 2021:
$ nil). Between 1 July 2022 to 24 August 2022, the Company had
repurchased a further 26.3 million shares at a cost of $112.5
million . In addition, this programme was increased by $100 million
to $300 million as announced on 25 August 2022.
Going Concern
Detail of the Group's assessment of Going Concern for the period
can be found within note 2.
Notifiable interest of EIG
On 8 July 2022, Harbour announced receipt of a notification from
EIG regarding a distribution of EIG's notifiable shareholding in
Harbour to certain of its underlying investors. With the agreement
of Harbour, EIG has confirmed with the Panel on Takeovers and
Mergers that following the distribution, the interest of EIG's
Concert Party in Harbour has fallen from 37.04% (as at 31 March
2022) to 17.1% (with effect from completion of the distribution on
8 July 2022).
EIG has agreed with the Panel on Takeovers and Mergers that
following the distribution, the EIG Concert Party comprises EIG
Asset Management, LLC, EIG Separate Investments (Cayman), LP,
Potomac View Investments, L.P. (an investment fund managed by an
affiliate of EIG Asset Management, LLC) together with certain
principals, directors, officers, employees of, and persons
otherwise connected with, EIG.
Risks and Uncertainties
Business risks
Harbour Energy faces various risks that could result in events
or circumstances that might threaten the Company's business model,
future performance, solvency or liquidity and reputation. Not all
these risks are wholly within the Company's control and the Company
may be affected by risks which have not yet manifested or are not
reasonably foreseeable.
Effective risk management is critical to achieving our strategic
objectives and protecting our personnel, assets, the communities
where we operate and with whom we interact and our reputation.
For known risks facing the business, the Company attempts to
minimise the likelihood and mitigate the impact. According to the
nature of the risk, the Company may elect to take or tolerate risk,
treat risk with mitigating actions, transfer risk to third parties,
or terminate risk by ceasing particular activities or operations.
In particular, the Company has a zero tolerance to financial fraud
or ethics non-compliance and ensures that HSE risks are managed to
levels that are as low as reasonably practicable.
Principal risks at half-year 2022 and key changes since 2021
Annual Report
The directors have reviewed the principal risks facing the
Company and concluded the principal risks for the remaining six
months of the financial year are unchanged from those described in
the 2021 Annual Report and Accounts. To reach this conclusion, the
directors considered the changes in the external environment during
the recent period that could threaten the Company's business model,
future performance, solvency or liquidity and reputation. The
directors also considered management's view of the current risks
facing the Company.
These principal risks are summarised as:
-- Strategic execution : failure to effectively implement the strategy
-- Health, safety and environment : risk of a major health,
safety, environmental or physical security incident
-- Organisation and talent : failure to create and maintain a
cohesive organisation with sufficient capability and capacity
-- Energy transition and Net Zero : failure to adapt the
strategy and business model in the context of the energy transition
as oil and gas demand, as well as investor, societal and regulatory
expectations, evolve
-- Operational performance : failure to deliver competitive operational performance
-- Capital programme and delivery : failure to define and
deliver a capital programme that optimises value
-- Access to capital : failure to ensure sufficient access to
capital to implement the Company's strategy
-- Commodity price exposure : failure to manage the impact of
commodity price fluctuations on the business
-- Integration of acquired businesses : failure to properly
integrate acquired businesses and realise anticipated synergies in
a timely manner
-- Third party reliance : failure to adequately manage supply
chain, joint venture and other partners, and third-party
infrastructure owners
-- Information and cyber security : failure to maintain safe, secure and reliable operations
-- Legal and regulatory compliance : failure to maintain and
demonstrate effective legal and regulatory compliance
-- Host government political and fiscal risks : exposure to
adverse or uncertain political, regulatory or fiscal developments
in countries where the Company operates or maintains interests
In conducting their review, the directors identified two areas
where changes in the external environment during the period had
increased the likelihood of some of these risks manifesting. These
two areas are summarised as:
-- With respect to 'host government political and fiscal risks'
and 'access to capital' risk, in May 2022 the UK Government
announced its intention to introduce an Energy Profits Levy (EPL)
on oil and gas producers in the country. The decision followed a
public and political debate around this issue against the complex
backdrop of increased commodity prices mainly arising following the
Russian invasion of Ukraine and a cost of living crisis in the UK.
The impact of the EPL on the tax obligations of the Company is
described in note 7. The directors have concluded the enactment of
the EPL elevates the fiscal risk associated with investments in the
UK.
-- With respect to 'third-party reliance', 'operational
performance' and 'capital programme and delivery' risks, the
directors noted that the supply chain availability and inflationary
challenges indicated in the 2021 Annual Report and Accounts
continue to emerge. While costs realised so far in 2022 have seen
limited impact, these pressures are expected to continue and
impact, in particular, manpower costs and the costs and delivery
lead times for certain types of products and services required to
maintain and develop new oil and gas assets.
The detailed descriptions of the principal risks and how they
are being managed can be found on pages 48 to 55 in the 2021 Annual
Report and Accounts.
Insurance
We have significant and appropriate insurance in place to
minimise risk to our operational and investment programmes. This
includes business interruption insurance.
Responsibility statement
The directors confirm that, to the best of their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with UK adopted IAS 34 'Interim Financial
Reporting'
-- the half-yearly results statement includes a fair review of
the information required by DTR 4.2.7R (indication of important
events during the first six months and description of principal
risks and uncertainties for the remaining six months of the year),
and
-- the half-yearly results statement includes a fair review of
the information required by DTR 4.2.8R (disclosure of related
parties' transactions and changes therein).
By order of the Board,
Alexander Krane
Director
24 August 2022
Independent review report to Harbour Energy plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the consolidated statement of changes in equity, the condensed
consolidated statement of cash flows and the related notes 1 to 18.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with UK adopted International
Accounting Standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to going concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London, United Kingdom
24 August 2022
Financial Statements
Condensed consolidated income statement
For the six months ended 30 June 2022
2022 2021
Unaudited Unaudited
Note $ million $ million
Revenue 4 2,659.4 1,377.0
Other income 4 10.6 119.3
----------- -----------
Revenue and other income 2,670.0 1,496.3
Cost of operations 5 (1,364.5) (1,139.4)
Impairment of property, plant, and
equipment 10 (2.6) (9.9)
Exploration and evaluation expenses
and new ventures (20.4) (29.9)
Exploration costs written-off 9 (1.7) (30.9)
Gain on disposal 5 10.0 -
General and administrative costs (43.4) (58.8)
----------- -----------
Operating profit 5 1,247.4 227.4
Finance income 6 396.9 37.4
Finance expenses 6 (154.5) (144.6)
----------- -----------
Profit before taxation 1,489.8 120.2
Income tax expense 7 (505.7) (33.7)
----------- -----------
Profit for the period 984.1 86.5
=========== ===========
Earnings per share $ cents $ cents
------------------------------------- ----- ----------- -----------
Basic 8 106.4 10.6
Diluted 8 105.7 10.6
Notes 1 to 18 form an integral part of these condensed financial
statements
Condensed consolidated statement of comprehensive
income
For the six months ended 30 June 2022 2022 2021
Unaudited Unaudited
$ million $ million
Profit for the period 984.1 86.5
Other comprehensive loss
Items that may be reclassified to
the income statement:
Fair value losses on cash flow hedges (3,348.9) (1,468.2)
Tax credit on cash flow hedges 1,336.1 570.4
Exchange differences on translation
of foreign operations (107.6) 29.3
---------- ----------
Other comprehensive loss for the period,
net of tax (2,120.4) (868.5)
Total comprehensive loss for the period,
net of tax (1,136.3) (782.0)
========== ==========
Total comprehensive loss attributable
to:
Equity holders of the parent (1,136.3) (782.0)
========== ==========
Condensed consolidated balance sheet 30 June 2022 31 Dec 2021
Unaudited Audited
Note $ million $ million
Assets
Non-current assets
Goodwill 1,327.1 1,327.1
Other intangible assets 9 910.4 873.7
Property, plant and equipment 10 6,662.6 7,246.7
Right of use assets 11 783.3 551.5
Deferred tax assets 7 3,069.1 1,938.4
Other receivables 250.3 263.0
Other financial assets 14 44.3 10.1
------------- ------------
Total non-current assets 13,047.1 12,210.5
------------- ------------
Current assets
Inventories 226.9 211.4
Trade and other receivables 1,132.6 1,342.2
Other financial assets 14 66.1 41.8
Cash and cash equivalents 844.5 698.7
------------- ------------
Total current assets 2,270.1 2,294.1
------------- ------------
Total assets 15,317.2 14,504.6
============= ============
Equity and liabilities
Equity
Share capital 171.1 171.1
Share premium 1,504.6 1,504.6
Other reserves (3,397.2) (1,276.8)
Retained earnings 915.0 74.6
------------- ------------
Total equity (806.5) 473.5
============= ============
Non-current liabilities
Borrowings 13 1,814.6 2,823.7
Provisions 12 4,815.8 5,022.6
Deferred tax 7 183.8 187.1
Trade and other payables 24.9 32.3
Lease creditor 11 629.8 489.2
Other financial liabilities 14 2,667.0 1,373.6
------------- ------------
Total non-current liabilities 10,135.9 9,928.5
------------- ------------
Current liabilities
Trade and other payables 877.6 873.6
Borrowings 13 58.3 62.3
Lease creditor 11 244.9 165.1
Provisions 12 300.5 358.6
Current tax liabilities 288.5 116.8
Other financial liabilities 14 4,218.0 2,526.2
------------- ------------
Total current liabilities 5,987.8 4,102.6
------------- ------------
Total liabilities 16,123.7 14,031.1
------------- ------------
Total equity and liabilities 15,317.2 14,504.6
============= ============
Costs
Cash flow of
Capital hedge hedging Currency
Share Share Merger redemption reserve reserve translation Retained Total
capital premium reserve reserve (2) (2) reserve earnings equity
$ $ $ $ $ $ $
million million million million million million million $ million $ million
At 1 January
2022 (Audited) 171.1 1,504.6 677.4 8.1 (2,062.1) 1.5 98.3 74.6 473.5
Purchase of own
shares
(1) - - - - - - - (53.5) (53.5)
Provision for
share-based
payments - - - - - - - 16.7 16.7
Purchase of
ESOP Trust
Shares - - - - - - - (8.6) (8.6)
Profit for the
period - - - - - - - 984.1 984.1
Other
comprehensive
loss - - - - (1,999.0) (13.8) (107.6) - (2,120.4)
Dividend paid
(3) - - - - - - (98.3) (98.3)
-------- -------- -------- ----------- ---------- -------- ------------ ---------- ----------
At 30 June 2022
(Unaudited) 171.1 1,504.6 677.4 8.1 (4,061.1) (12.3) (9.3) 915.0 (806.5)
======== ======== ======== =========== ========== ======== ============ ========== ==========
At 1 January
2021 (Audited) 0.1 910.0 - - 80.2 9.8 104.0 (36.8) 1,067.3
Shares issued
in settlement
of D loan
notes - 134.7 - - - - - - 134.7
Reverse
takeover 171.0 (527.2) 635.9 8.1 - - - - 287.8
Settlement of
Premier's
debt (4) - 987.1 41.5 - - - - - 1,028.6
Profit for the
period - - - - - - - 86.5 86.5
Other
comprehensive
profit/(loss) - - (874.0) (23.8) 29.3 - (868.5)
-------- -------- -------- ----------- ---------- -------- ------------ ---------- ----------
At 30 June 2021
(Unaudited) 171.1 1,504.6 677.4 8.1 (793.8) (14.0) 133.3 49.7 1,736.4
======== ======== ======== =========== ========== ======== ============ ========== ==========
Consolidated statement of changes in equity
(1) A $200 million share buyback programme commenced on 16 June
2022 through to 31 December 2022. All Ordinary Shares purchased as
part of this programme will be cancelled.
(2) Disclosed net of deferred tax
(3) Refer to note 16 for more detail on the final dividend paid
in respect of the period ended 31 December 2021.
(4) Debt settlement relates to the issuance of shares in partial settlement of Premier's debt.
Condensed consolidated statement of cash flows
For the six months ended 30 June 2022
2022 Unaudited 2021 Unaudited
Note $ million $ million
Net cash flows from operating activities 15 1,861.6 646.0
--------------- ----------------
Investing activities
Expenditure on exploration and evaluation
assets (69.6) (64.5)
Expenditure on property, plant and equipment (234.5) (193.2)
Expenditure on non-oil and gas intangible
assets (20.8) (13.9)
Cash acquired on business combinations - 97.4
Receipts for sub-lease income 5.1 2.2
Finance income received 4.0 23.3
Net cash flows from investing activities (315.8) (148.7)
--------------- ----------------
Financing activities
Proceeds from new borrowings - senior debt - 1,342.5
Proceeds from new borrowings - Exploration
Finance Facility 11.5 26.5
Lease liability payments (118.2) (60.7)
Repayment of short-term debt arising on
business combination - (1,276.5)
Repayment of hedging liabilities arising
on business combination - (48.5)
Repayment of Reserves Based Lending facility (1,037.5) (230.0)
Repayment of financing arrangement (7.9) (2.5)
Redemption of loan notes - (135.7)
Dividends paid (98.3) -
Purchase of own shares (41.8) -
Purchase of ESOP Trust shares (8.6) -
Interest paid and bank charges (75.1) (134.0)
Net cash flows from financing activities (1,375.9) (518.9)
--------------- ----------------
Net increase/(decrease) in cash and cash
equivalents 169.9 (21.6)
Net foreign exchange difference (24.1) 0.2
Cash and cash equivalents at 1 January 698.7 445.4
--------------- ----------------
Cash and cash equivalents at 30 June 844.5 424.0
=============== ================
Notes to the half-year condensed consolidated financial
statements
1. General information
The condensed consolidated financial statements of Harbour
Energy plc ('Harbour') for the six months ended 30 June 2022
comprise the parent company, Harbour Energy plc and all its
subsidiaries, and were approved for issuance by the Board of
Directors on 24 August 2022. Harbour Energy plc is a limited
liability Company incorporated in Scotland and listed on the London
Stock Exchange. The address of the registered office is 4(th)
Floor, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN, United
Kingdom.
The Group's and Company's principal activities are the
acquisition, exploration, development and production of oil and gas
reserves on the UK and Norwegian Continental Shelves, Indonesia,
Vietnam and Mexico.
The auditor's report on the financial statements of Harbour for
the year ended 31 December 2021 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a
statement under sections 492(2) or 498(3) of the Companies Act
2006.
The financial information contained in this report is unaudited.
The condensed consolidated income statement, condensed consolidated
statement of comprehensive income, condensed consolidated statement
of changes in equity and the condensed consolidated cash flow
statement for the six months to 30 June 2022, and the condensed
consolidated balance sheet as at 30 June 2022 and related notes,
have been reviewed by the auditors. The auditor's report to the
Company is attached.
2. Accounting policies
2.1 Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2022 have been prepared in accordance with UK
adopted International Accounting Standard 34, Interim Financial
Reporting and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority. These half-year
consolidated condensed financial statements are to be read in
conjunction with Harbour's Annual Report and Accounts for the year
ended 31 December 2021, which contains additional accounting policy
disclosure.
The presentation currency of the Group financial information is
US Dollars and all values in the Group financial information are
presented in millions ($ million) except where otherwise
stated.
In October 2020, Harbour Energy Limited entered into an
agreement with Premier Oil plc (Premier) regarding an all-share
Merger between Premier and Harbour Energy Limited's subsidiary,
Chrysaor Holdings Limited (Chrysaor). Under the terms of the
Merger, Premier legally acquired Chrysaor through the issuance of
consideration shares whilst Chrysaor was the acquiror for
accounting purposes, primarily as a result of its ability to
appoint the Board of the enlarged group. The transaction completed
on 31 March 2021, whereupon Premier, being the legal acquirer and
accounting acquiree, changed its name from Premier Oil plc to
Harbour Energy plc.
Therefore, the comparative period only includes three months of
Premier contribution compared to a full six months for the period
ended 30 June 2022.
Going Concern
The condensed financial statements have been prepared on the
going concern basis. The Group monitors its capital position and
its liquidity risk regularly to ensure that it has access to
sufficient funds to meet forecast cash requirements. Cash forecasts
are regularly produced based on, inter alia, the Group's latest
life of field production and expenditure forecasts, management's
best estimate of future commodity prices (based on recent forward
curves, adjusted for the Group's hedging programme) and the Group's
borrowing facilities. Sensitivities are run to reflect different
scenarios including, but not limited to, changes in oil and gas
production rates, possible reductions in commodity prices and
delays or cost overruns on major development projects.
Management's going concern assessment considered the ability of
the Group to continue as a going concern for the period up to 31
December 2023 ("Going Concern period") which includes the 12-month
period from the date of approval of the 2022 half-year results. The
Group's base case going concern assessment assumes: an oil price of
$100/bbl and $80/bbl and average UK NBP gas price of 250p/therm and
150p/therm in H2 2022 and 2023, respectively, production in line
with approved asset plans and ongoing capital requirements of the
Group will be financed by existing financing.
The ongoing capital requirements are financed by the Group's
$4.1 billion Reserve Base Lending ('RBL') facility, which matures
in November 2027, with $0.75 billion accordion option, and $500
million retail bond. The RBL facility contains certain financial
covenants for leverage, relating to the ratio of consolidated total
net debt to consolidated EBITDAX on a historic and forward-looking
basis, and liquidity which are tested semi-annually, on 30 June and
31 December. There have been no breaches in the period. The amount
available under the facility is re-determined annually based on a
valuation of the Group's borrowing base assets when applying
certain forward-looking assumptions, as defined in the borrowing
agreements.
In line with the principal risks, sensitivity analyses have been
prepared to reflect the combined impact of reductions in crude and
UK natural gas prices of 20 per cent and in the Group's production
of 10 per cent throughout the going concern period. In these
combined downside scenarios applied to the base case forecast, the
Group is forecasted to have sufficient financial headroom
throughout the going concern period.
Further, reverse stress tests have been prepared reflecting
further reductions in commodity price and production parameters,
prior to any mitigation strategies, to determine at what levels
each would need to reach such that either lending covenants are
breached, or financial liquidity headroom runs out. The results of
this reverse stress test demonstrated the likelihood of the fall in
price and production parameters required to cause a risk of funds
shortfall or covenant breaches is remote.
Management forecasts show that the Group expects to maintain
liquidity and comply with financial covenants associated with its
borrowing facilities throughout the Going Concern period.
Taking the above into account the Board was satisfied that that
the Group has sufficient financial resources to continue in
operation for the period up to 31 December 2023 and have therefore
adopted the going concern basis in preparing the financial
statements.
2.2 Accounting Policies
The accounting policies adopted in the preparation of the 2022
half-year condensed consolidated financial statements are
consistent with those adopted and disclosed in Harbour's 2021
Annual Report and Accounts. A number of amendments to existing
standards and interpretations were effective from 1 January 2022
but had no impact on the half-year financial statements. The Group
has not early adopted any standard, interpretation or amendment
that has been issued but is not yet effective.
The condensed financial statements for the half-year do not
include all the information required for a full annual report and
do not constitute statutory financial statements within the meaning
of section 434 of the Companies Act 2006.
The condensed financial statements have been prepared on the
historical-cost basis, except for certain financial assets and
liabilities (including derivative financial instruments), which
have been measured at fair value.
2.3 Use of judgements and estimates
In preparing these half-year financial statements, management
has made judgements and estimates that affect the application of
accounting policies and the reported amounts of assets and
liabilities, income and expenses. Actual results may differ from
these estimates.
The significant judgements made by management in applying the
Group's accounting policies, and the key sources of estimation
uncertainty, were the same as those described on pages 119-130 of
Harbour's 2021 Annual Report and Accounts. Disclosure regarding the
judgements and estimates made in assessing the impact of climate
change and the energy transition have not changed for the half-year
financial statements; refer to pages 119-120 in the 2021 Annual
Report and Accounts for detail.
3. Segment information
The Group's activities consist of one class of business, being
the acquisition, exploration, development and production of oil and
gas reserves and related activities and are split geographically
and managed in two business units: namely North Sea and
International.
6 months 6 months
ended 30 June ended
Income statement 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Revenue
North Sea 2,481.1 1,308.4
International 178.3 68.6
--------------- ---------------
Total Group sales revenue 2,659.4 1,377.0
Other income
North Sea 10.4 119.2
International 0.2 0.1
Total Group revenue and other income 2,670.0 1,496.3
=============== ===============
Group operating profit
North Sea 1,140.9 203.5
International 106.5 23.9
--------------- ---------------
Group operating profit 1,247.4 227.4
Finance income 396.9 37.4
Finance expenses (154.5) (144.6)
--------------- ---------------
Profit before income tax 1,489.8 120.2
Income tax expense (505.7) (33.7)
--------------- ---------------
Profit for the period 984.1 86.5
=============== ===============
30 June 2022 31 Dec 2021
Unaudited Audited
Balance Sheet $ million $ million
Segment assets
North Sea 14,113.6 13,325.8
International 1,203.6 1,178.8
--------------- ---------------
Total assets 15,317.2 14,504.6
=============== ===============
Segment liabilities
North Sea (15,497.2) (13,379.6)
International (626.5) (651.5)
--------------- ---------------
Total liabilities (16,123.7) (14,031.1)
=============== ===============
Segment information (continued)
6 months 6 months
ended 30 June ended
2022 30 June 2021
Unaudited Unaudited
Other information $ million $ million
Capital additions
North Sea 260.9 247.2
International 36.0 8.5
--------------- ---------------
Total capital additions 296.9 255.7
=============== ===============
Depreciation, depletion and amortisation
North Sea 718.8 529.9
International 43.6 15.1
--------------- ---------------
Total depreciation, depletion and
amortisation 762.4 545.0
=============== ===============
Exploration and evaluation expenses
and new ventures
North Sea 19.6 29.2
International 0.8 0.7
--------------- ---------------
Total exploration and evaluation expenses
and new ventures 20.4 29.9
=============== ===============
Exploration costs written-off
North Sea 8.1 30.8
International (1) (6.4) 0.1
--------------- ---------------
Total exploration costs written-off
(2) 1.7 30.9
=============== ===============
(1) International includes a credit to the income statement
related to a change to the decommissioning estimate in the Falkland
Islands business unit.
(2) Exploration costs written-off of $1.7 million includes a
credit of $6.0 million related to a change to the decommissioning
estimate in the Falkland Islands business unit. (H1 2021: $30.9
million).
4. Revenue from contracts with customers and Other income
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Type of goods
Crude oil sales 1,541.9 896.8
Gas sales 970.2 394.8
Condensate sales 129.0 72.2
-------------- --------------
Total revenue from contracts with customers
( (1) 2,641.1 1,363.8
Tariff income 15.6 13.1
Other revenue 2.7 0.1
-------------- --------------
Total revenue from production activities 2,659.4 1,377.0
Other income (2) 10.6 119.3
-------------- --------------
Total revenue and other income 2,670.0 1,496.3
============== ==============
(1) Revenues from contracts with customers of $4,262.1 million
(H1 2021: $1,584.3 million) comprise crude oil sales of $1,975.6
million (H1 2021: $979.1 million) and gas sales of $2,139.2 million
(H1 2021: $519.8 million). This was prior to realised hedging
losses in the period of $433.7 million (H1 2021: $82.3 million) on
crude oil and $1,169.0 million (H1 2021: $125.0 million) on gas
sales.
(2) Other income mainly represents $11.4 million partner
recoveries related to lease obligations (H1 2021: $12.0 million)
and mark to market losses on EUA emissions hedges of $1.1 million
(H1 2021: gain of $60.6 million). Other income in H1 2021 also
includes a $40.0 million receipt from ConocoPhillips in relation to
an adjustment to consideration relating to Chrysaor's purchase of
the ConocoPhillips UK business in 2019.
5. Cost of operations
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Cost of operations
Production, insurance and transportation
costs 572.7 499.7
Gas purchases 7.8 11.2
Voluntary purchase of GHG emissions credits 7.2 -
Depreciation of oil and gas assets (note
10) 658.6 477.3
Depreciation of right of use oil and gas
assets (note 11) 100.9 57.7
Capitalisation of IFRS 16 lease depreciation
on oil and gas assets (note 11) (17.3) (12.4)
Amortisation of oil and gas intangible
assets (note 9) 0.6 0.8
Re-measurement of royalty valuation - (0.5)
Movement in over/underlift balances and
hydrocarbon inventories 34.0 105.6
-------------- --------------
Total cost of operations 1,364.5 1,139.4
============== ==============
Impairment loss due to increase in decommissioning
provision (note 12) 2.6 9.9
Exploration costs written-off (note 9)
(3) 1.7 30.9
Exploration and evaluation expenditure
and new ventures (1) 20.4 29.9
Gain on disposal (2) (10.0) -
General and administrative expenses
Depreciation of right-of-use non-oil and
gas assets (note 11) 6.1 4.7
Depreciation of non-oil and gas assets
(note 10) 2.6 2.6
Amortisation of non-oil and gas intangible
assets (note 9) 10.9 14.3
Other administrative costs 23.8 37.2
-------------- --------------
Total general and administrative expenses 43.4 58.8
============== ==============
(1) Exploration and evaluation expenditure and new ventures of
$20.4 million (H1 2021: $29.9 million) includes $10.2 million (H1
2021: $8.6 million) of early project costs incurred mainly in
respect of the Group's interest in Carbon Capture and Storage (CCS)
projects in the UK plus $10 million of ongoing pre-licence
costs.
(2) The gain on disposal relates to the release of a provision
associated with Premier's sale of its legacy Pakistan assets in
2019 after the expiry of the deadline in the period for tax claims
to be submitted.
(3) Exploration costs written-off of $1.7 million includes a
credit of $6.0 million related to a change to the decommissioning
estimate in the Falkland Islands business unit.
6. Finance income and finance expenses
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
Finance income $ million $ million
Bank interest 1.8 0.9
Other interest and finance gains (3) 2.5 0.5
IFRS 9 modification gain - 13.9
Lease finance income 0.8 0.5
Realised gains on foreign exchange forward
contracts 0.3 11.3
Gains on derivatives 31.4 10.3
Foreign exchange gains (1) 360.1 -
-------------- --------------
Total Finance income 396.9 37.4
============== ==============
Finance expenses
Interest payable on Reserves Based Lending
facility 34.6 37.1
Interest payable on junior facility - 11.1
Interest payable on retail bond 13.6 -
Interest payable on loan notes - 5.6
Other interest and finance expenses (3) 8.6 7.0
Lease interest (note 11) 10.0 7.8
Realised losses on interest rate swaps 0.7 1.0
Losses on derivatives (4) 17.5 -
Foreign exchange losses - 3.7
Bank and financing fees (2) 38.5 31.6
Unwinding of discount on decommissioning
and other provisions (note 12) 32.0 39.8
-------------- --------------
155.5 144.7
Finance costs capitalised during the period
(5) (1.0) (0.1)
-------------- --------------
Total Finance expense 154.5 144.6
============== ==============
(1) Significant unrealised foreign exchange gains which consist
mainly of unrealised gains arising from revaluation of open gas
hedges denominated in Pound Sterling.
(2) Bank and financing fees include an amount of $21.5 million
(H1 2021: $14.5 million) relating to the amortisation of
arrangement fees and related costs capitalised against the Group's
long-term borrowings (note 13).
(3) Net other interest includes an $4.9 million charge (H1 2021:
$5.9 million) which represents interest under a financing
arrangement.
(4) Losses on derivatives relate to changes in the fair value of
an embedded derivative within one of the Group's gas contracts (H1
2021: gain of $6.3 million).
Finance income and finance expenses (continued)
(5) The amount of finance costs capitalised was determined by
applying the weighted average rate of finance costs applicable to
the borrowings of the Group of 4.4 per cent to the expenditures on
the qualifying assets.
7. Income tax
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Current income tax expense:
UK corporation tax 316.5 74.8
Overseas tax 35.3 (25.8)
Adjustment in respect of prior years (3.8) (3.5)
Total current income tax expense 348.0 45.5
-------------- --------------
Deferred tax expense:
Origination and reversal of temporary differences 172.4 (9.6)
Overseas tax (2.3) (2.3)
Adjustment in respect of prior years (12.4) 0.1
-------------- --------------
Total deferred tax expense/(credit) 157.7 (11.8)
-------------- --------------
Tax expense in the income statement 505.7 33.7
============== ==============
The effective tax rate for the six months ended 30 June 2022 was
34 per cent, compared to 28 per cent for the same period in 2021.
The higher effective tax rate for the six months ended 30 June 2022
is caused by a higher proportion of profits being generated in the
UK compared to overseas, in part due to the Merger, offset by the
recognition of previously unrecognised deferred tax assets,
investment allowance and credits related to prior periods.
The tax expense has been computed by applying the estimated
annual average expected tax rate for the year, for each
jurisdiction based on enacted or substantively enacted rates at the
end of the interim period.
Change in tax rate
Legislation was introduced in UK Finance Act 2021 to increase
the main rate of UK corporation tax for non-ring fence profits from
19 percent to 25 percent from 1 April 2023. This change is not
expected to have a material impact on the Group as the anticipated
UK profits are primarily subject to the UK ring fence tax rate.
On 26 May 2022, the UK Government announced the introduction of
an Energy Profits Levy ('EPL') on the profits earned from the
production of oil and gas in the UK with effect from that date. The
EPL enabling legislation, the Energy (Oil and Gas) Profits Levy Act
2022, was substantively enacted on 11 July 2022. The EPL is charged
at the rate of 25 percent on taxable profits in addition to ring
fence corporation tax of 30 percent and the Supplementary Charge of
10 percent.
Income tax (continued)
As the legislation was not substantively enacted as at 30 June
2022, the tax charge in the half-year results does not include the
impact of EPL for the period which will instead be reflected in the
second half of 2022. If the EPL had been considered in the interim
period, an additional current tax liability of an estimated $48
million would be expected to arise from business performance in the
period 26 May 2022 to 30 June 2022. The EPL tax is a temporary
measure and as enacted will cease to apply on 31 December 2025.
Had the EPL been fully enacted before 30 June 2022, these
half-year results would have included the
recognition of an estimated additional one-off non-cash net
deferred tax asset of $1.0 billion in respect of the EPL through to
the end of 2025. The anticipated additional net deferred tax asset
arises mainly due to an increase in the deferred tax asset
associated with unrealised derivative balances of $1.6 billion,
offset by an increase in deferred tax liabilities associated with
the carrying value of oil and gas assets within fixed assets of
$0.6 billion. The deferred tax asset associated with the unrealised
derivative balances held at 30 June 2022 represents the estimated
reduction in EPL that could arise if the fair value loss on those
derivatives crystalised and was offset against taxable profits
subject to EPL in the periods to 31 December 2025.
Deferred tax
The principal components of deferred tax are set out in the
following tables:
6 months ended Year ended
30 June 2022 31 Dec 2021
Unaudited Audited
$ million $ million
Deferred tax assets 3,069.1 1,938.4
Deferred tax liabilities (183.8) (187.1)
-------------- ------------
2,885.3 1,751.3
============== ============
Income tax (continued)
The net movement in deferred tax assets and (liabilities) is
shown below:
At At
1 January 30 June
2022 2022
Deferred
tax (expense)/ Comprehensive Foreign
(Audited) credit income Exchange (Unaudited)
$ million $ million $ million $ million $ million
Accelerated capital
allowances (2,820.1) 141.9 - 74.4 (2,603.8)
Decommissioning 2,012.9 23.9 - (83.7) 1,953.1
Losses 1,314.5 (262.5) - (0.6) 1,051.4
Fair value of
derivatives 1,392.1 (71.0) 1,336.1 (32.7) 2,624.5
Other 38.8 7.7 - (2.6) 43.9
------------ ---------------- --------------- ---------- --------------
Total UK deferred
tax 1,938.2 (160.0) 1,336.1 (45.2) 3, 069.1
Overseas (186.9) 2.3 0.8 (183.8)
Total deferred
tax 1,751.3 (157.7) 1,336.1 (44.4) 2,885.3
============ ================ =============== ========== ==============
The Group's deferred tax assets as at 30 June 2022 are
recognised to the extent that taxable profits are expected to arise
against which the tax assets can be utilised. The Group assessed
the recoverability of its UK ring fenced losses and allowances
using corporate assumptions which are consistent with the Group's
impairment assessment. Based on those assumptions, the Group
expects to fully utilise its recognised UK tax losses and
allowances. The recovery of the Group's UK decommissioning deferred
tax asset is additionally supported by the ability to carry back
decommissioning tax losses and set these against ring fence taxable
profits of prior periods.
The Group has unrecognised UK tax losses and allowances as at 30
June 2022 of approximately $181.7 million (2021: $343.1 million) in
respect of ring fence losses, $99.6 million (2021: $104.4 million)
in respect of ring fence investment allowance and $755 million
(2021: $741.5 million) in respect of non-ring fence losses.
The Group also has unrecognised gross tax losses of
approximately $239.7 million (2021: $212.8 million) in respect of
its overseas operations. These losses include amounts of $144.3
million which will expire, primarily within 5 years and $12.4
million expiring within 10 years.
The overseas deferred tax relates mainly to temporary
differences associated with fixed asset balances.
No deferred tax has been provided on unremitted earnings of
overseas subsidiaries, based on UK tax legislation which provides
exemption for foreign dividends from the scope of UK corporation
tax, where relevant conditions are satisfied.
8. Earnings per share
The calculation of basic earnings per share is based on the
profit after tax and the weighted average number of Ordinary Shares
in issue during the period.
Basic and diluted earnings per share are calculated as
follows:
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Earnings for the period
Earnings for the purpose of basic earnings
per share 984.1 86.5
Effect of dilutive potential ordinary shares - -
Earnings for the purpose of diluted earnings
per share 984.1 86.5
============== ==============
Number of shares (millions)
Weighted average number of Ordinary shares
for the purposes of
basic earnings per share (1) 925.3 816.0
Dilutive potential Ordinary shares (2) 6.0 0.5
Weighted average number of Ordinary shares
for the purposes of
diluted earnings per share 931.3 816.5
============== ==============
Earnings per share ($ cents)
Basic 106.4 10.6
-------------- --------------
Diluted 105.7 10.6
-------------- --------------
(1) The weighted number of average shares in the comparative
period consists of the weighted number of shares prior to the
Merger of the legal acquiree multiplied by the exchange ratio
established in the Merger agreement and the weighted number of
Ordinary Shares of the legal acquirer from the date of the
Merger.
During the current period 11.9 million Ordinary Shares were
repurchased as part of the share buyback programme.
(2) Excludes certain share options outstanding at 30 June 2022
as their option price was greater than market price or currently do
not meet the performance criteria and, therefore, were not included
in the calculation of diluted earnings per share.
9. Intangible assets
Oil and Non-oil Capacity
gas and gas rights
assets assets (3) (3) Total
$ million $ million $ million $ million
Cost
At 1 January 2022 (Audited) 813.4 119.4 10.2 943.0
Additions during the period 52.8 17.9 - 70.7
Transfers to property, plant
and equipment (0.2) - - (0.2)
Reduction in decommissioning
asset (1) (6.0) - - (6.0)
Unsuccessful exploration written-off
(2) (1.7) - - (1.7)
Currency translation adjustment (8.5) (12.7) (1.0) (22.2)
At 30 June 2022 (Unaudited) 849.8 124.6 9.2 983.6
---------- ------------ ---------- ----------
Amortisation
At 1 January 2022 (Audited) - 60.2 9.1 69.3
Charge for the period - 10.9 0.6 11.5
Currency translation adjustment - (6.7) (0.9) (7.6)
At 30 June 2022 (Unaudited) - 64.4 8.8 73.2
---------- ------------ ---------- ----------
Net book value
At 30 June 2022 (Unaudited) 849.8 60.2 0.4 910.4
========== ============ ========== ==========
At 31 December 2021 (Audited) 813.4 59.2 1.1 873.7
========== ============ ========== ==========
(1) A decrease to decommissioning assets of $6.0 million was
made during the period as a result of an update to decommissioning
estimates (note 12).
(2) The exploration write-off of $1.7 million relates to costs
associated with licence relinquishments and uncommercial well
evaluations and is stated net of a $6.4 million credit to the
income statement primarily related to a change to the
decommissioning estimate in the Falkland Islands business unit.
(3) Non-oil and gas assets relate primarily to Group IT
software. The capacity rights represent National Transmission
System (NTS) entry capacity at Bacton and Teesside acquired as part
of the business combination completed in 2017. These rights expire
in December 2022 and are amortised on a contractual volume
basis.
10. Property, plant and equipment
Oil and Fixtures and
gas fittings &
assets office equipment Total
$ million $ million $ million
Cost
At 1 January 2022 (Audited) 12,022.0 30.8 12,052.8
Additions during the period 221.9 4.3 226.2
Increase in decommissioning
asset (1) 28.8 - 28.8
Transfers from intangible
assets 0.2 - 0.2
Currency translation adjustment (338.0) (3.0) (341.0)
At 30 June 2022 (Unaudited) 11,934.9 32.1 11,967.0
---------- ------------------ ----------
Depreciation
At 1 January 2022 (Audited) 4,784.9 21.2 4,806.1
Charge for the period 658.6 2.6 661.2
Impairment charge (2) 2.6 - 2.6
Currency translation adjustment (163.4) (2.1) (165.5)
At 30 June 2022 (Unaudited) 5,282.7 21.7 5,304.4
---------- ------------------ ----------
Net book value
At 30 June 2022 (Unaudited) 6,652.2 10.4 6,662.6
========== ================== ==========
At 31 December 2021 (Audited) 7,237.1 9.6 7,246.7
========== ================== ==========
(1) An increase to decommissioning assets of $28.8 million (H1
2021: $27.3 million) was made during the period as a result of an
update to the decommissioning estimates (note 12).
(2) The current period impairment charge of $2.6 million relates
to the net effect of changes in decommissioning provisions on
assets previously depreciated to nil net book value.
Impairment Assessments
Assumptions involved in impairment measurement include estimates
of commercial reserves and production volumes, future oil and gas
prices, discount rates and the level and timing of expenditures,
all of which are inherently uncertain.
For the purpose of its impairment assessments, the Group uses
the fair value less cost of disposal method (FVLCD) to calculate
the recoverable amount of the cash-generating units (CGU)
consistent with a level 3 fair value measurement (see note 14). In
determining the recoverable value, appropriate discounted-cash-flow
valuation models are used, incorporating market-based assumptions.
Management's commodity price curve assumptions used for the
purposes of management's impairment assessments are benchmarked
against a range of external forward price curves on a regular
basis. Individual field price differentials are then applied. The
first two years reflect the market forward price curves
transitioning to a long-term price from 2024, thereafter inflated
at 2 per cent per annum. The long-term commodity prices used were
$65 per barrel for crude and 60p per therm for gas, unchanged from
year end 2021.
11. Leases
6 months ended Year ended
Right-of-use assets 30 June 2022 31 Dec 2021
Unaudited Audited
$ million $ million
Land and buildings 64.2 78.0
Drilling rigs 40.0 54.9
FPSO 349.1 407.8
Offshore facilities 324.0 -
Equipment 6.0 10.8
--------------- -------------
Total right-of-use assets 783.3 551.5
=============== =============
6 months ended Year ended
Lease liabilities 30 June 2022 31 Dec 2021
Unaudited Audited
$ million $ million
Current 244.9 165.1
Non-current 629.8 489.2
--------------- -------------
Total lease liabilities 874.7 654.3
=============== =============
Additions of $337.5 million related to the Tolmount offshore
facilities were made to the right-of-use assets during the period
(2021: additions of $567.9 million resulting from business
combinations).
The significant portion of the Group's lease liabilities
represent lease arrangements for FPSO vessels on the Catcher and
Chim Sáo assets, and offshore facilities on the Tolmount asset.
The lease liabilities and associated right-of-use-assets have
been calculated by reference to in-substance fixed lease payments
in the underlying agreements incurred throughout the
non-cancellable period of the lease along with periods covered by
options to extend the lease where the Group is reasonably certain
that such options will be exercised. When assessing whether
extension options were likely to be exercised, assumptions are
consistent with those applied when testing for impairment.
Leases (continued)
The consolidated income statement includes the following amounts
relating to leases:
6 months ended 6 months ended
30 June 2022 30 June 2021
Depreciation charge of right-of-use assets Unaudited Unaudited
$ million $ million
Land and buildings - non-oil and gas assets 6.1 4.7
Land and buildings - oil and gas assets 0.6 0.5
Drilling rigs 24.1 19.9
FPSO 58.7 36.6
Offshore facilities 13.5 -
Equipment 4.0 0.7
-------------- --------------
107.0 62.4
Capitalisation of IFRS 16 lease depreciation
Drilling rigs (14.8) (12.0)
Equipment (2.5) (0.4)
Depreciation charge included within Consolidated
Income Statement 89.7 50.0
============== ==============
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Lease interest (included in Finance expenses
- note 6) 10.0 7.8
============== ==============
The total cash outflow for leases in H1 2022 was $118.2 million
(H1 2021: $60.7 million).
12. Provisions
Other
Decommissioning Provisions
Provision (1) (2) Total
$ million $ million $ million
At 31 December 2021 (Audited) 5,353.7 27.5 5,381.2
Additions 18.6 - 18.6
Changes in estimates - increase to
oil and gas tangible decommissioning
assets 7.6 - 7.6
Changes in estimates - charge/(credit)
to income statement 2.6 (0.4) 2.2
Changes in estimates - decrease to
oil and gas intangible assets (6.0) - (6.0)
Amounts used (93.7) (2.3) (96.0)
Unwinding of discount 32.0 - 32.0
Currency translation adjustment (223.3) - (223.3)
---------- ------------ ----------
At 30 June 2022 (Unaudited) 5,091.5 24.8 5,116.3
========== ============ ==========
Classified within :
Current liabilities 300.5
Non-current liabilities 4,815.8
--------
Total provisions 5,116.3
========
(1) The Group provides for the estimated future decommissioning
costs on its oil and gas assets at the balance sheet date. The
payment dates of expected decommissioning costs are uncertain and
are based on economic assumptions of the fields concerned. The
Group currently expects to incur decommissioning costs over the
next 40 years, the majority of which we anticipate will be incurred
between the next 10 to 20 years. Decommissioning provisions are
discounted at a risk-free rate of between 0.7 percent and 1.9
percent, and the unwinding of the discount is presented within
finance expenses (note 6).
A net increase in the decommissioning provision of $22.8 million
was made in the period as a result of new obligations of $18.6
million and changes in estimates of $10.2 million, relating to
property, plant, and equipment (note 10), and a decrease of $6.0
million resulting from changes in estimates relating to oil and gas
intangibles assets (note 9).
(2) Other provisions at 30 June 2022 relate to a termination
benefit provision in Indonesia, where the Group operates a Service,
Severance and Compensation pay scheme under a Collective Labour
Agreement with the local workforce. The provision for an onerous
contract in respect of the termination cost of the rig which had
been operating on the Schiehallion field, and had a balance of $2.3
million at 31 December 2021, has now been fully settled. The
onerous contract has no impact on the income statement in the six
months to 30 June 2022.
13. Borrowings and facilities
The Group's borrowings are held at amortised cost:
6 months ended Year ended
30 June 2022 31 Dec 2021
Unaudited Audited
$ million $ million
Reserves Based Lending facility 1,294.9 2,312.0
Retail bond 490.6 489.5
Exploration Finance Facility 50.5 44.6
Other loans 36.9 39.9
-------------- ------------
Total borrowings 1,872.9 2,886.0
============== ============
Classified within:
Non-current liabilities 1,814.6 2,823.7
Current liabilities 58.3 62.3
-------------- ------------
Total borrowings 1,872.9 2,886.0
============== ============
Interest of $6.2 million (H1 2021: $17.4 million) on the Reserve
Based Lending facility (RBL), retail bond and Exploration Finance
Facility (EFF) had accrued by the balance sheet date and is
classified within trade and other payables.
The key terms of the Reserves Based Lending facility are:
- matures 23 November 2027
- facility size of $4.1 billion (with $0.75 billion accordion option)
- debt availability currently at $2.75 billion
- debt availability to be redetermined on an annual basis
- interest at USD LIBOR plus a margin of 3.25 per cent, rising
to a margin of 3.50 per cent from November 2025
- margin adjustment linked to carbon emission reductions, and
- syndication group of 19 banks.
Certain fees are also payable, including fees at 40 per cent of
the applicable margin on available commitments and 20 per cent of
the applicable margin on unavailable commitments, and commission on
letters of credit issued at 50 per cent of the applicable
margin.
In October 2021, the Group issued a $500 million retail bond
under Rule 144A and has a tenor of five years to maturity. The
coupon was set at 5.50 per cent and interest is payable
semi-annually.
Since 2019, the Group has been operating within an Exploration
Finance Facility (EFF), currently for NOK 1 billion, in relation to
part-financing the exploration activities of Chrysaor Norge AS. At
the balance sheet date, the amount drawn down on the facility
excluding incremental arrangement fees and related costs was NOK
500 million/$51 million (Dec 2021: NOK 396 million/$45
million).
Borrowings and facilities (continued)
At 30 June 2022, $114.5 million of arrangement fees and related
costs remain capitalised (Dec 2021: $136.0 million), of which $44.7
million are due to be amortised within the next 12 months (Dec
2021: $43.6 million). During the period $21.5 million (2021: $14.5
million) of arrangement fees and related costs have been amortised
and are included within financing costs. H1 2021 also included a
$13.9 million modification gain following a maturity extension of
the RBL debt prior to the completion of the Merger in March
2021.
At the balance sheet date, the outstanding RBL balance excluding
incremental arrangement fees and related costs was $1,400.0 million
(2021: $2,437.5 million). As at 30 June 2022, $1,347.0 million
remained available for drawdown under the RBL facility.
14. Other financial assets and liabilities
All financial instruments initially recognised and subsequently
re-measured at fair value have been classified in accordance with
the hierarchy described in IFRS 13 'Fair Value Measurement'. The
hierarchy groups fair-value measurements into the following levels,
based on the degree to which the fair value is observable.
Level 1: fair-value measurements are derived from unadjusted
quoted prices for identical assets or liabilities.
Level 2: fair-value measurements include inputs, other than
quoted prices included within level 1, which are observable
directly or indirectly .
Level 3: fair-value measurements are derived from valuation
techniques that include significant inputs not based on observable
data.
The Group held the following financial instruments at fair value
at 30 June 2022. The fair values of all derivative financial
instruments are based on estimates from observable inputs and are
all level 2 in the IFRS 13 hierarchy.
Other financial assets and liabilities (continued)
Set out below, is an overview of financial assets and
liabilities, other than cash and short-term deposits, held by the
Group at 30 June 2022 and 31 December 2021:
6 months ended Year ended
30 June 2022 31 Dec 2021
Unaudited Audited
Assets Liabilities Assets Liabilities
Current $ million $ million $million $ million
Measured at fair value through
the income statement
Carbon swaps 38.7 (19.4) 36.6 (15.6)
Interest rate derivatives 12.4 - 3.3 -
Foreign exchange derivatives 2.7 - 0.9 (2.2)
Fair value of embedded derivative
within a gas contract - (26.7) - (11.5)
----------- ------------ ---------- ------------
53.8 (46.1) 40.8 (29.3)
Measured at fair value through
other comprehensive income
Commodity derivatives 12.3 (4,171.9) 1.0 (2,496.9)
----------- ------------ ---------- ------------
Total current 66.1 (4,218.0) 41.8 (2,526.2)
=========== ============ ========== ============
30 June 2022 31 Dec 2021
Unaudited Audited
Assets Liabilities Assets Liabilities
Non-current $ million $ million $million $ million
Measured at fair value through
the income statement
Interest rate derivatives 24.8 - 8.3 -
Measured at fair value through
other comprehensive income
Commodity derivatives 19.5 (2,667.0) 1.8 (1,373.6)
Total non-current 44.3 (2,667.0) 10.1 (1,373.6)
----------- ------------ ---------- ------------
Total current and non-current 110.4 (6,885.0) 51.9 (3,899.8)
=========== ============ ========== ============
15. Notes to the statement of cash flows
Net cash flows from operating activities consist of:
6 months ended 6 months ended
30 June 2022 30 June 2021
Unaudited Unaudited
$ million $ million
Profit before taxation 1,489.8 120.2
Adjustments to reconcile profit before
tax to net cash flows:
Depreciation, depletion and amortisation 762.4 545.0
Impairment of property, plant and equipment 2.6 9.9
Exploration write-off 1.7 30.9
Write-off of non-oil and gas assets - 4.7
Gain on disposal (10.0) -
Movement in realised cash-flow hedges
not yet settled (140.1) 49.7
Fair value movement in unrealised carbon
swaps 1.1 -
Pre-merger costs - 7.0
Decommissioning expenditure (91.6) (105.0)
Share based payments 5.9 -
Onerous contract payments (2.3) (5.1)
Finance cost, excluding foreign exchange 154.5 140.9
Finance income, excluding foreign exchange (36.8) (37.4)
Unrealised foreign exchange (gain)/loss (371.6) 0.1
(Increase) in royalty consideration receivable - (0.5)
Working-capital adjustments:
Increase in inventories (22.4) (35.8)
Decrease/(increase) in trade and other
receivables 221.9 (16.9)
Increase in trade and other payables 59.8 144.6
Tax payments (163.3) (206.3)
Net cash inflow from operating activities 1,861.6 646.0
============== ==============
Notes to the statement of cash flows (continued)
Reconciliation of net cash flow to movement in net
borrowings
6 months Year ended
ended 31 Dec
30 June 2022 2021
Unaudited Audited
$ million $ million
Proceeds from drawdown of borrowing facilities - (1,617.5)
Proceeds from issue of retail bond - (500.0)
Short-term debt arising on business combination - 2,219.3
Repayment of debt - equity allocation
to borrowings - (942.8)
Repayment of debt - cash allocation to
borrowings - (1,276.5)
Conversion of D loan notes to equity - 134.7
Proceeds from Exploration Financing Facility
(EFF) loan (11.5) (45.9)
Repayment of Reserves Based Lending facility 1,037.5 697.5
Repayment of junior debt - 400.0
Loan notes redemption - 135.7
IFRS 9 modification gain - 13.9
Repayment of Exploration Financing Facility
(EFF) loan - 14.7
Repayment of financing arrangement 7.9 9.3
Arrangement fees and related costs capitalised - 88.5
Financing arrangement interest payable (4.9) (11.6)
Amortisation of arrangement fees and related
costs capitalised (21.5) (38.9)
Currency translation adjustment on EFF
loan 5.6 0.6
Loan notes interest capitalised - (5.6)
------------- ----------
Movement in total borrowings 1,013.1 (724.6)
Movement in cash and cash equivalents 145.8 253.3
------------- ----------
Decrease/(increase) in net borrowings
in the year 1,158.9 (471.3)
Opening net borrowings (2,187.3) (1,716.0)
------------- ----------
Closing net borrowings (1,028.4) (2,187.3)
============= ==========
Analysis of net borrowings
6 months Year ended
ended 30 June 31 Dec
2022 2021
Unaudited Audited
$ million $ million
Cash and cash equivalents 844.5 698.7
Reserves Based Lending facility (1,294.9) (2,312.0)
Retail bond (490.6) (489.5)
Exploration Financing Facility (50.5) (44.6)
-------------- ----------
Net debt (991.5) (2,147.4)
Financing arrangement (36.9) (39.9)
Closing net borrowings (1,028.4) (2,187.3)
============== ==========
Notes to the statement of cash flows (continued)
Borrowings consist of unsecured loan notes, short-term debt and
long-term debt. The carrying values on the balance sheet are stated
net of the unamortised portion of the issue costs and bank fees of
$114.5 million (Dec 2021: $136.0 million).
16. Dividends
A final dividend of 11 cents per Ordinary Share in relation to
the year ended 31 December 2021 was paid on 18 May 2022 pursuant to
shareholder approval received on 11 May 2022.
6 months Year ended
ended 31 Dec 2021
30 June 2022
Unaudited Audited
$ million $ million
Dividends on Ordinary Shares declared and
paid:
Final dividend for 2021: 11 cents per share
(2020: no dividend) 98.3 -
============= ============
In line with the dividend guidance issued by the Company on 17
March 2022, an interim dividend of 11 cents per Ordinary Share has
been announced, payable on 19 October 2022 to shareholders on the
register as at 9 September 2022. A dividend re-investment plan
("DRIP") is available to shareholders who would prefer to invest
their dividend in the shares of the Company. To participate in the
DRIP, shareholders must submit their election notice to be received
by 28 September 2022 (the "Election Date").
17. Post balance sheet events
On 11 July 2022, the EPL enabling legislation, the Energy (Oil
and Gas) Profits Levy Act 2022, was substantively enacted by the UK
Government and received Royal Assent on 14 July 2022. Refer to Note
7 for detail.
On 3 August 2022, Harbour announced that the Capital Reduction,
comprising the Share Premium Reduction and the Merger Reserve
Reduction, that was approved by shareholders at the General Meeting
held on 11 May 2022, is now effective. This follows the
confirmation of the Capital Reduction by the Court of Session,
Edinburgh on 2 August 2022 and the registration of the Court Order
with the Registrar of Companies in Scotland on 3 August 2022.
The Capital Reduction creates additional distributable reserves
to the value of $6,310.9 million of which $1,650.0 million will be
held as non-distributable reserves until 31 March 2028 . This
provides the Company with further flexibility to deliver
shareholder returns over the coming years either in the form of
dividends and/or share buybacks.
As part of a $200 million share buyback programme approved by
shareholders at the AGM, as at 30 June 2022 Harbour had repurchased
11.9 million of its own shares at a cost of $53.5 million (H1 2021:
$ nil). Between 1 July 2022 to 24 August 2022, the Company had
repurchased a further 26.3 million shares at a cost of $112.5
million.
18. Related parties
In June 2022, the Company and EIG agreed to extend the
secondment agreement of one senior EIG employee for a further
period. The secondee will continue to provide the Company with
additional support and expertise on a temporary basis.
Glossary
-- AGM Annual General Meeting
-- bbl Barrel
-- boe Barrel(s) of oil equivalent
-- CCS Carbon capture and storage
-- CGU Cash-generating unit
-- Chrysaor Chrysaor Holdings Limited and subsidiaries
-- DD&A Depreciation, depletion, and amortisation
-- DRIP Dividend re-investment plan
-- EBITDAX Earnings before interest, tax, depreciation,
amortisation, and exploration
-- EFF Exploration Finance Facility
-- EPL Energy Profits Levy (UK)
-- FPSO Floating Production Storage Offtake Vessel
-- FVLCD Fair value less cost of disposal
-- GHG Greenhouse gas
-- GBP Pound Sterling
-- HSES Health, safety, environment, and security
-- IASs International Accounting Standards
-- IFRSs International Financial Reporting Standards
-- kboepd Thousand barrels of oil equivalent per day
-- kgCO(2) e Kilograms of carbon dioxide equivalent
-- M&A Mergers and acquisitions
-- The Merger All share merger between Premier Oil plc and
Chrysaor Holdings Limited, effective 31 March
2021 via a reverse takeover
-- mmboe Million barrels of oil equivalent
-- mscf Thousand standard cubic feet
-- NOK Norwegian Krone
-- Premier Premier Oil and subsidiaries
-- RBL Reserve Based Lending
-- TRIR Total Recordable Injury Rate
-- USD US Dollar
Non-GAAP measures
Harbour uses certain measures of performance that are not
specifically defined under IFRS or other Generally Accepted
Accounting Principles (GAAP). These non-IFRS measures, which are
presented within the Financial Review, are defined below:
-- Capital investment : Depicts how much the Group has spent on
purchasing fixed assets in order to further its business goals and
objectives. It is a useful indicator of the Group's organic
expenditure on oil and gas assets, and exploration and appraisal
assets, incurred during a period.
-- DD&A per barrel : Depreciation and amortisation of oil
and gas properties for the period divided by working interest
production. This is a useful indicator of ongoing rates of
depreciation and amortisation of the Group's producing assets.
-- EBITDAX : Earnings before tax, interest, depreciation and
amortisation, impairments, remeasurements, onerous contracts and
exploration expenditure. This is a useful indicator of underlying
business performance.
-- Free Cash Flow : Operating cash flow less cash flow from
investing activities less interest and lease payments.
-- GHG Intensity: Reported on a gross operated basis and excluding offsets.
-- Leverage ratio: Net Debt/ Last twelve months EBITDAX.
-- Liquidity: The sum of cash and cash equivalents on the
balance sheet and the undrawn amounts available to the Group on our
principal facilities. This is a key measure of the Group's
financial flexibility and ability to fund day-to-day
operations.
-- Net debt : Total Reserves Based Lending facility, retail bond
and Exploration Finance Facility (net of the carrying value of
unamortised fees) less cash and cash equivalents recognised on the
consolidated balance sheet. This is an indicator of the Group's
indebtedness and contribution to capital structure.
-- Operating cost per barrel : Direct operating costs (excluding
over/underlift) for the period, including tariff expense, insurance
costs and mark to market movements on emissions hedges, less tariff
income, divided by working interest production. This is a useful
indicator of ongoing operating costs from the Group's producing
assets .
-- Total Capital Expenditure: Capital investment 'additions' per
notes 9 and 10 plus decommissioning expenditure 'amounts used' per
note 12
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END
IR PPUBWRUPPPWC
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