HBR Harbour Energy Plc

Condensed consolidated statement of cash flows

For the six months ended 30 June 2024

Notes to the half-year condensed consolidated financial statements

1.   General information

Harbour Energy plc (Harbour or the company) is a limited liability company incorporated in Scotland and listed on the London Stock Exchange. The address of the registered office is 4th Floor, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN, United Kingdom.

The condensed consolidated financial statements of the company and all its subsidiaries (the Group) for the six months ended 30 June 2024 were authorised for issuance by the board of directors on 7 August 2024.

The Group'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 condensed consolidated financial information contained in this report is unaudited. The income statement, statement of comprehensive income, statement of changes in equity and the cash flow statement for the six months to 30 June 2024, and the balance sheet as at 30 June 2024 and related notes, have been reviewed by the auditors.

2.   Basis of preparation and changes to the Group's accounting policies

2.1  Basis of preparation

The half-year condensed consolidated financial statements (the Financial Statements) for the six months ended 30 June 2024 have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. These half-year condensed financial statements are to be read in conjunction with Harbour's Annual Report and Accounts for the year ended 31 December 2023, which contains additional accounting policy disclosures and information as required in a set of annual financial statements.

The Financial Statements 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 financial information for the year ended 31 December 2023 has been extracted from the consolidated financial statements of Harbour Energy plc for the year ended 31 December 2023 which were approved by the directors on 6 March 2024 and were delivered to the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

The 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.

The presentation currency of the Group financial information is US Dollars and all values in the Group financial information are presented in millions ($ million) and all values are to the nearest $1 million, except where otherwise stated.

2.2  Prior year adjustment

In August 2023, Harbour announced that it had entered into a Sale and Purchase Agreement to sell its business in Vietnam, which holds its 53.125 per cent interest in Chim Sáo and Dua producing fields to Big Energy Joint Stock Company for a consideration of $84 million. At 31 December 2023, the assets and liabilities of Vietnam were classified as assets held for sale (AHFS). The transaction, which had a long-stop date of 10 May 2024, could not be completed within the required timeframe, and was subsequently terminated on 13 May 2024, and as a result the Vietnam business is no longer classified as AHFS. The relevant amounts presented as AHFS in the 31 December 2023 have been reclassified. Each of the affected financial statement line items has been restated and the impact is summarised in the following table.

Balance sheet at 31 December 2023

From the point of classification as AHFS in August 2023, no depreciation was recorded, as permitted by IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". In addition, at 31 December 2023, a pre-tax impairment of $38 million was recognised as the fair value less cost to sell was below the carrying amount of the disposal group. As a result of the reclassification from AHFS, the impairment of $38 million has been reversed and additional depreciation covering the period August 2023 to December 2023 has been recorded, on property, plant and equipment of $14 million and on right-of-use assets of $5 million, with net deferred tax of $6 million associated with the impairment reversal and depreciation. As a result of the above adjustments, retained earnings increased by $13 million.

2.3  Going concern

The Directors consider the going concern assessment period to be up to 31 December 2025. The Group monitors and manages its capital position and its liquidity risk regularly throughout the year to ensure that it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly produced, and sensitivities considered based on, but not limited to; 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.

The ongoing capital requirements are financed by the Group's $1.75 billion reserve based lending (RBL) facility that has a borrowing base as at 1 July 2024 of $0.7 billion, and $0.5 billion bond which matures in October 2026. The amount drawn down under these facilities at 30 June 2024 was nil and $0.5 billion respectively, which together with cash of $0.5 billion, gave a total available liquidity of $1.2 billion. Further details can be found in note 13. The RBL facility has a financial covenant relating to the ratio of consolidated total net debt to consolidated EBITDAX on a historic and forward-looking basis, which is tested semi-annually. The amount available under the facility is redetermined annually based on a valuation of the Group's borrowing base assets when applying certain forward-looking assumptions, as defined in the borrowing agreements.

The Group's latest approved business plan underpins the base case going concern assessment and is based upon management's best estimate of forward commodity price curves, production in line with approved asset plans, unavoidable committed fees in respect of the Wintershall Dea deal and the ongoing capital requirements of the Group that will be financed by free cash flow, the existing RBL and bond financing arrangements.

In December 2023 Harbour announced the Wintershall Dea acquisition transaction, which is anticipated to complete early in the fourth quarter of 2024 and will be accretive to Harbour's free cash flow. Once complete, Harbour is expected to receive investment grade credit ratings and to benefit from a significantly lower cost of financing, including the porting of existing euro denominated Wintershall Dea bonds with a nominal value of $4.9 billion. The Group would also have access to a new $3.0 billion revolving credit facility and $1.5 billion bridge facility. As part of the going concern assessment, a base case, sensitivity and reverse stress tests have been run on the enlarged group forecasts, which are supported by Harbour's acquisition due diligence work, and show that the probability of a liquidity deficit or covenant breach is remote. The base case and downside sensitivity scenarios indicate that the Group can operate as a going concern with sufficient headroom and remain in compliance with its loan covenants throughout the assessment period.

In line with the principal risks that have been identified to impact the financial capability of the Group to operate as going concern, certain downside sensitivity scenarios have been prepared reflecting a reduction in:

·    Brent crude and UK natural gas prices by 20 per cent, and

·    the Group's total production by 10 per cent

throughout the assessment period.

In these downside scenarios, when applied individually and in aggregate to the base case, the Group is forecast to have sufficient liquidity headroom throughout the assessment period and to remain in compliance with its financial covenants.

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 the lending covenant is breached, or liquidity headroom runs out. The results of these reverse stress tests demonstrated the likelihood that a sustained significant fall in commodity prices or a significant fall in production over the assessment period that would be required to cause a risk of funds shortfall, or a covenant breach is significantly below the sensitivity test performed and hence remote.

Taking the above analysis into account, the Board was satisfied that, for the assessment period, the Group can maintain adequate liquidity and comply with its lending covenants up to 31 December 2025 and therefore has adopted the going concern basis for preparing the half-year condensed consolidated financial statements.

2.4  Accounting policies, new standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the Financial Statements are consistent with those adopted and disclosed in Harbour's 2023 Annual Report and Accounts, except for the adoption of new standards effective as of 1 January 2024 in the UK. A few amendments to existing standards and interpretations were effective from 1 January 2024 but had no impact on the Financial Statements. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

The amendments to existing standards from 1 January 2024 are as follows, these do not impact the half-year condensed financial statements but may have an impact on the annual financial statements.

Amendments to IFRS 16: Lease Liability in a Sale and Leaseback

In September 2022, the IASB issued amendments to IFRS 16 to specify the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognise any amount of the gain or loss that relates to the right of use it retains.

The amendments had no impact on the Group's half-year condensed consolidated financial statements.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current Liabilities with Covenants

In January 2020 and October 2022, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

§ What is meant by a right to defer settlement

§ That a right to defer must exist at the end of the reporting period

§ That classification is unaffected by the likelihood that an entity will exercise its deferral right

§ That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification

In addition, a requirement has been introduced whereby an entity must disclose when a liability arising from a loan agreement is classified as non-current and the entity's right to defer settlement is contingent on compliance with future covenants within twelve months.

The amendments had no impact on the Group's half-year condensed consolidated financial statements.

Amendments to IFRS 7 and IAS 7: Supplier Finance Arrangements

In May 2023, the IASB issued amendments to IAS 7 and IFRS 7 to add disclosure requirements, and 'signposts' within existing disclosure requirements, that requires entities to provide qualitative and quantitative information about supplier finance arrangements.

The amendments had no material impact on the Group's half-year condensed consolidated financial statements.

2.5  Use of judgements and estimates

In preparing these 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 page 137 of Harbour's 2023 Annual Report and Accounts.

3.   Segment information

The chief operating decision maker, who is responsible for allocating resources and assessing performance of the Group's business segments, has been identified as the Chief Executive Officer.

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 regions: namely North Sea and International. The North Sea segment includes the UK and Norwegian continental shelves, and the International segment includes Indonesia, Vietnam and Mexico.

Income Statement

Balance Sheet

Other information

4.   Revenue from contracts with customers and other income

1  During the period, Harbour resolved a long-term Urals linked pricing dispute with the buyer of the company's crude from two of its UK fields. This resulted in the recognition of an additional $56 million of revenue for the period of which $47 million related to crude sales in prior periods.

2  Revenues from contracts with customers of $1,942 million (H1 2023: $2,460 million) comprise crude oil sales of $1,113 million (H1 2023: $1,146 million) and gas sales of $748 million (H1 2023: $1,214 million). This was prior to realised hedging gains in the period of $1 million (H1 2023: losses of $31 million) on crude oil and realised hedging losses of $56 million (H1 2023: $455 million) on gas sales.

5.   Operating profit

1  Exploration costs written-off of $17 million (H1 2023: $13 million) includes $14 million related to the Halwa well in Indonesia (note 9).

2  Exploration and evaluation expenditure and new ventures of $22 million (H1 2023: $15 million) includes $17 million (H1 2023: $11 million) of early project costs incurred mainly in respect of the Group's interest in carbon capture and storage (CCS) and electrification projects in the UK plus $5 million of ongoing pre-licence costs.

3  Expenses related to both short-term and low value leases arrangements are considered to be immaterial for reporting purposes.

4  Other administrative costs in H1 2024 include consultancy and business development costs of $34 million mainly related to acquisition of the Wintershall Dea asset portfolio which is expected to complete in Q4 2024. H1 2023 includes a redundancy provision of $16 million.

6.   Finance income and finance expenses

1  Losses on derivatives in H1 2024 relate to changes in the fair value of an embedded derivative within one of the Group's gas contracts of $2 million (H1 2023: $9 million gain), and mark to market losses on unrealised foreign exchange derivatives of $4 million (H1 2023: $ nil).

2  Bank and financing fees include an amount $10 million (H1 2023: $23 million) relating to the amortisation of arrangement fees and related costs capitalised against the Group's long-term borrowings (note 13).

3  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 5.7 per cent to the expenditures on the qualifying assets (H1 2023: 6.3 per cent). Capitalised finance costs are included within property, plant and equipment additions (note 10). 

7.   Income tax

The major components of income tax expense for the periods ended 30 June 2024 and 2023 are:

The effective tax rate for the six months ended 30 June 2024 was 85 per cent, compared to 102 per cent for the same period in 2023. The lower effective tax rate for the six months ended 30 June 2024 is primarily caused by change in weighting of profits taxed and expenses deductible at rates below the 75 per cent UK oil tax headline rate.

The tax expense has been computed by considering 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 half-year period. 

Change in tax rates

The future effective tax rate is impacted by the mix of jurisdictions in which the Group operates. The UK statutory tax rate for oil and gas production operations is expected to remain a primary influence on the effective tax rate. The Energy Profits Levy at the 35 per cent rate is currently in place until 31 March 2028.

Since the balance sheet date there has been a change in UK Government which has announced its intention to make further changes to the EPL regime which are described in Note 18 Post Balance Sheet Events.

On 24 May 2024, Finance (No.2) Act 2024, enacted the Energy Security Investment Mechanism (ESIM). The ESIM operates to remove EPL if both oil and gas prices sit below $74.21 per bbl and 57 pence per therm (as adjusted for CPI from 1 April 2024) for a period of six months. The measure is not expected to have a material impact on the group.       

Deferred tax

The principal components of deferred tax are set out in the following tables:

The origination of and reversal of temporary differences are, as shown in the next table, related primarily to movements in the carrying amount and tax base value of expenditure and the timing of when these items are changed and are credited against accounting and taxable profit.

The Group's deferred tax assets as at 30 June 2024 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 EPL will currently be in place until 31 March 2028. Any temporary differences subject to the EPL expected to reverse in the periods up to 31 March 2028 have consequently been remeasured to the higher rate. Ring fence tax losses cannot be offset against profits subject to EPL nor are deductions given for expenditure incurred on decommissioning. Consequently, the deferred tax assets representing future decommissioning deductions and ring fence tax losses are not impacted by EPL with the effect of EPL primarily being on the deferred tax liability associated with accelerated capital allowances. The closing deferred tax liability for the period of $1,338 million (31 Dec 2023: $1,297 million) includes $936 million (31 Dec 2023: $1,014 million) of deferred tax liabilities arising from the impact of EPL.

The Group has unrecognised UK tax losses and allowances as at 30 June 2024 of approximately $166 million (31 Dec 2023: $181 million) in respect of ring fence losses, $151 million (31 Dec 2023: $138 million) in respect of ring fence investment allowance and $831 million (31 Dec 2023: $803 million) in respect of non-ring fence losses and allowances. The ring fence losses and allowances are currently unrecognised on the basis that they sit within legal entities where the ability to access those losses and allowances are limited. The non-ring fence losses are not recognised as it is not considered probable that there will be future non-ring fence taxable profits against which these losses could be used.

The Group also has unrecognised gross tax losses of approximately $161 million (31 Dec 2023: $168 million) in respect of its international operations. These losses include amounts of $25 million which will expire, primarily within 5 years and $20 million expiring within 10 years.

The overseas deferred tax relates mainly to temporary differences associated with fixed asset balances.

No deferred tax liabilities have been provided on unremitted earnings of overseas subsidiaries, because due to the application of withholding reliefs under international double taxation treaties and dividend exemptions under UK and Netherlands legislation no additional taxation is expected to arise on future distribution.

The legislation implementing the Organisation for Economic Co-operation and Development's ('OECD') proposals for a global minimum corporation tax rate ('Pillar 2') was substantively enacted into UK law on 20 June 2023. The rules have effect from 1 January 2024.

The Group has applied the mandatory exception to recognising and disclosing information about the deferred tax assets and liabilities related to Pillar 2 income taxes in accordance with the amendments to IAS 12 published by the IASB on 23 May 2023.

The Group does not expect the Pillar 2 rules to have a material impact on the Group. However, the Group continues to assess the detailed impact of the new rules.

Uncertain tax positions

During 2023 an uncertain tax position was identified in certain UK subsidiaries relating to the timing of the taxation of fair value movements and realised gains and losses on hedges entered into in order to manage commodity price risk. On the strength of independent advice, management continues to consider that there is no expectation of a net additional outflow of funds. As such no additional liability has been recognised in the consolidated financial statements as at 30 June 2024. However, a contingent liability exists as the UK Tax Authorities could take an alternative view on whether the fair value movements on the hedged instruments are disregarded for tax purposes. While not considered a likely outcome, if the UK Tax Authorities were to disagree and successfully challenge the position, a possible liability currently estimated not to exceed $120 million could arise because of the differences in tax rates across the periods in question.

8.   Earnings/(loss) per share

Basic EPS is calculated by dividing the profit after tax attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares in issue during the year.

Diluted EPS is calculated by dividing the profit after tax attributable to ordinary shareholders by the weighted average number of ordinary share in issue during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following table reflects the income and share data used in the basic and diluted EPS calculations:

9.   Other intangible assets

1  A reduction in decommissioning intangible assets of $1 million was made during the period as a result of an update to decommissioning estimates (note 12).

2  The exploration write-off of $17 million includes $14 million related to the Halwa well in Indonesia and also includes costs associated with licence relinquishments and uncommercial well evaluations.

3   Non-oil and gas assets relate to Group IT software and the Viking carbon capture and storage project in the UK.

10. Property, plant and equipment

1  A net increase to decommissioning assets of $49 million (H1 2023: $99 million) was made during the period as a result of both new obligations and an update to the decommissioning estimates (note 12).

The current period net impairment charge of $33 million includes a pre-tax impairment charge of $49 million on one CGU in the UK North Sea driven primarily by a reduction in the gas price outlook compared to the 2023 year-end view, and revised decommissioning cost profiles in respect the Group's non-producing assets with no remaining 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 2026, thereafter inflated at 2.5 per cent per annum. The long-term commodity prices used were $70 per barrel for crude and 70 pence per therm for gas.

11. Leases

Balance sheet

1  Additions of $168 million mainly relate to new lease arrangements for two new drilling rigs, and a term extension on an existing drilling rig lease.

2  The impairment charge of $20 million relates to one of the Group's office buildings.

The significant portion of the Group's lease liabilities represent lease arrangements for FPSO vessels on the Catcher and Chim Sáo assets, drilling rigs 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.

1  The 31 December 2023 lease liabilities have been restated following the reclassification from AHFS, see note 2.2.

Income statement

1  Of the $38 million (H1 2023: $13 million) capitalised IFRS 16 lease depreciation, $28 million (H1 2023: $9 million) has been capitalised within property, plant and equipment and $10 million (H1 2023: $4 million) within provisions (note 12).

The total cash outflow for leases in the first six-months of 2024 was $154 million (H1 2023: $122 million).

12. Provisions

Decommissioning provision

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. These estimated future decommissioning costs are inflated at the Group's long term view of inflation of 2.5 per cent per annum (H1 2023: 2.5 per cent per annum) and discounted at a risk-free rate of between 4.3 per cent and 5.2 per cent (H1 2023: 3.6 per cent and 4.6 per cent) reflecting a 6-month (H1 2023: 6-month) rolling average of market rates over the varying lives of the assets to calculate the present value of the decommissioning liabilities. The unwinding of the discount is presented within finance costs.

Other provisions

Other provisions at 30 June 2024 mainly 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.

13. Borrowings and facilities

The Group's borrowings are carried at amortised cost:

The key terms of the RBL facility are:

§ Term matures 31 December 2029

§ Facility size of $1.75 billion, with a $1.75 billion letter of credit sub-limit

§ Debt availability of $891 million effective 30 June 2024 which reduced to $701 million from 1 July 2024

§ Debt availability redetermined on an annual basis. This has been deferred to December 2024 following the recent Wintershall Dea deal announcement

§ Interest at compounded SOFR plus a margin of 3.2 per cent, rising to a margin of 3.4 per cent from November 2025 and 3.6 per cent from November 2027

§ A margin adjustment linked to carbon-emission reductions

§ Straight line amortisation of Letter of Credit sublimit from Jan 2027 to 6 months before maturity. No material cash collateralisation required until 2028

§ Liquidity and leverage covenant tests

§ A syndication group of 15 banks

Certain fees are also payable, including fees on available commitments at 40 per cent of the applicable margin and commission on letters of credit issued at 50 per cent of the applicable margin.

In October 2021, the Group issued a $500 million bond under Rule 144A and with a tenor of five years to maturity. The coupon was set at 5.50 per cent and interest is payable semi-annually.

During May 2024, the Group elected to cancel $1.0 billion of the RBL facility to reduce fees. At the balance sheet date, the outstanding RBL balance excluding incremental arrangement fees and related costs was $ nil (Dec 2023: $ nil). As at 30 June 2024, $891 million remained available for drawdown under the RBL facility (Dec 2023: $1,340 million).

The Group has facilities to issue up to $1,750 million of letters of credit, of which $859 million was in issue as at 30 June 2024 (Dec 2023: $1,186 million), mainly in respect of future abandonment liabilities.

The Group also has facilities to issue up to $397 million of surety bonds in respect of future abandonment liabilities, of which $397 million was in issue as at 30 June 2024 (Dec 2023: $ nil).

A further $57 million of arrangement fees and related costs associated with financing the acquisition of the Wintershall Dea asset portfolio were capitalised during the period.

During the period $10 million (H1 2023: $23 million) of arrangement fees and related costs have been amortised and were expensed within financing costs.

At 30 June 2024, $115 million of arrangement fees and related costs remain capitalised on the balance sheet (Dec 2023: $68 million) of which $14 million was classified within current assets, $95 million within non-current assets, and $6 million netted against the bond liability.

This total consisted of:

§ $52 million of arrangement fees relating to the existing RBL facility,

§ $6 million of bond arrangement fees, and

§ $57 million of arrangement fees relating to financing new facilities for the Wintershall Dea deal.

Bond interest payable of $6 million (Dec 2023: $6 million) had accrued by the balance sheet date and has been classified within accruals.

14. Other financial assets and liabilities

The Group held the following financial instruments at fair value at 30 June 2024. 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, except for the royalty valuation, which includes estimates based on unobservable inputs and are level 3 in the IFRS 13 hierarchy.

All financial instruments that are initially recognised and subsequently remeasured 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.

Fair values of other financial instruments

The following financial instruments are measured at amortised cost and are considered to have fair values different to their book values.

The fair value of the bond is within level 2 of the fair value hierarchy and has been estimated by discounting future cash flows by the relevant market yield curve at the balance sheet date. The fair values of other financial instruments not measured at fair value including cash and short-term deposits, trade receivables, trade payables and floating rate borrowings equate approximately to their carrying amounts.

15. Notes to the statement of cash flows

Net cash flows from operating activities consist of:

Reconciliation of net cash flow to movement in net borrowings

Analysis of net borrowings

1  $52 million of fees associated with the RBL, and $57 million of costs associated with financing the acquisition of the Wintershall Dea asset portfolio are recognised in debtors (31 Dec 2023: $61 million)

The carrying values on the balance sheet are stated net of the unamortised portion of issue costs and bank fees of $115 million of which $52 million relates to the RBL, $57 million relates to costs associated with financing the acquisition of the Wintershall Dea asset portfolio, both of which are recognised in assets and $6 million is netted against the bond (Dec 2023: $68 million of which $61 million related to the RBL and was recognised in assets, and $7 million related to the bond, which was netted off against the borrowings).

16. Related Parties

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no significant changes to related party transactions since 31 December 2023, refer to note 28 in the 2023 Annual Report and Accounts for more information.

17. Distributions made and proposed

A dividend of 13 cents per ordinary share to be paid in pound sterling at the spot rate prevailing on the record date was approved by shareholders on 9 May 2024 in relation to the year ended 31 December 2023.

On 7 March 2024, a final dividend of $100 million was declared in respect of the financial year ended 31 December 2023 and approved by shareholders on 9 May 2024 at the AGM and paid on 22 May 2024.

An interim dividend of $100 million was declared in respect of the financial year ending 31 December 2024, to be paid on 25 September 2024. A dividend re-investment plan (DRIP) is available to shareholders who would prefer to invest their dividend in the shares of the company.

18. Post balance sheet events

On 29 July 2024, the UK government announced changes to the Energy Profits Levy (EPL) to take effect from 1 November 2024. The announcement follows the recent change of government in the UK and supersedes the previous government's announcement on 6 March 2024 that EPL would be extended by a further 12 months from 31 March 2028 to 31 March 2029. The details of the measures are expected to be finalised in the Budget scheduled to take place on 30 October 2024 and legislated thereafter in a Finance Bill.

From the 1 November 2024 the rate of EPL will be increased by 3 per cent from 35 per cent to 38 per cent, the periods to which the EPL applies will be extended from 31 March 2028 to 31 March 2030, the main EPL investment allowance will be abolished and the amount of relief available for capital expenditure in calculating EPL profits will be reduced.

The government confirmed in the announcement that the Energy Security Investment Mechanism (ESIM) would remain unchanged and that there were no planned changes to the way tax relief for capital expenditure is applied in the permanent ring fence regime.

As the announced measures had not been enacted at the balance sheet date then there is no impact on the balance sheet as presented. As the full details of the announced measures are not yet known it is not currently possible to calculate the potential impact on the balance sheet.

Glossary

Non-IFRS 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 interest, tax, 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 (principal and interest).

§ 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 cash/debt: Total reserve based lending facility, bond and exploration financing 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.

§ Shareholder returns paid: Dividends plus share buybacks completed in the period are included in this metric which shows the overall value returned to stakeholders in the period.

§ Total capital expenditure: Capital investment 'additions' per notes 9 and 10 plus decommissioning expenditure 'amounts used' per note 12