HBR Harbour Energy Plc

Harbour Energy plc

Full-year results for the year to 31 December 2023

7 March 2024

Harbour Energy plc ("Harbour" or the "Company" or the "Group") today announces its results for the year ended 31 December 2023.

Harbour operational highlights

§ Production of 186 kboepd (2022: 208 kboepd), split 52% natural gas/48% liquids and within guidance

§ Operating costs of $16/boe (2022: $14/boe), in line with guidance

§ Total recordable injury rate reduced to 0.7 per million hours worked (2022: 0.8)

§ Total 2P reserves and 2C resources increased to 880 mmboe (2022: 865 mmboe) reflecting reserve additions at our operated UK hubs and international exploration success, partially offset by production 

§ Continued momentum on Harbour's UK CCS projects, Viking and Acorn, with both projects awarded Track 2 status; estimated independently verified net CO₂ storage capacity in excess of 200 million tonnes

§ Announced transformational acquisition of the Wintershall Dea asset portfolio (the "Acquisition")

Harbour financial highlights^[1]

§ Realised, post hedging oil and UK gas prices of $78/bbl and 54p/therm (2022: $78/bbl and 86p/therm)

§ Revenue of $3.7 billion (2022: $5.4 billion), reflecting lower natural gas prices and production

§ Profit before tax of $0.6 billion (2022: $2.5 billion); profit after tax of $32 million (2022: $8 million) reflecting an effective tax rate of 95% (2022: 100%)

§ Free cash flow (post-tax, pre-distributions) of $1.0 billion (2022: $2.1 billion)

§ Returned $249[2] million through share buybacks in addition to the $200 million annual dividend, resulting in $1 billion of shareholder distributions since becoming a public company in April 2021

§ Net debt reduced to $0.2 billion (2022: $0.8 billion) with $2.7 billion of net debt reduction since April 2021; leverage reduced to 0.1x (2022: 0.2x)

§ Proposed final dividend of $100 million, in line with $200 million annual dividend policy and equating to 13 cents per share (2022: 12 cents), reflecting dividend per share growth for the full year 2023 of c.9%

2024 and 2025 outlook for Harbour[3]

§ Production guidance of 150-165 kboepd reiterated; production to end February of c.172 kboepd

§ 2024 unit operating cost guidance unchanged at c.$18/boe; total capital expenditure guidance reiterated at $1.2 billion

§ Free cash flow is expected to be marginally positive^[4] in 2024, after estimated cash tax of $1.0 billion, assuming commodity prices of $85/bbl Brent and reduced UK gas prices of 70p/therm

§ For 2025, production levels and operating costs are expected to be similar to 2024 while total capital expenditure is anticipated to be materially lower; Harbour continues to expect to generate significant free cash flow in 2025, resulting in a net cash position by year end

§ Harbour has hedged c.50% and c.25% of its 2024 UK gas and liquids volumes at 67p/therm and $84/bbl and c.25% and c.15% of its 2025 UK gas and liquids volumes at 90p/therm and $77/bbl[5], respectively

Acquisition of Wintershall Dea Asset Portfolio on track to complete in Q4 2024

In December, Harbour announced the acquisition of substantially all of Wintershall Dea's upstream assets for $11.2 billion. The Acquisition will transform Harbour into one of the world's largest and most geographically diverse independent oil and gas companies, adding material positions in Norway, Germany, Argentina and Mexico.

Since the announcement, significant progress has been made on the various approvals and workstreams required for completion:

§ Irrevocable undertakings from shareholders to vote in favour of the Acquisition increased, and currently represents c.35% of Harbour's issued share capital as at 6 March 2024

§ Harbour is on track to publish the prospectus and shareholder circular and to hold the shareholder meeting to approve the Acquisition in Q2 2024

§ Successful bondholder vote to amend certain terms and conditions of Wintershall Dea's c.$4.9 billion investment grade bonds and subordinated notes; over 80% of bondholders participated in the vote and the amendments were approved with significant bondholder support[6]

§ Successful syndication of the proposed $3 billion RCF and $1.5 billion bridge facility with strong support from both existing relationship banks and new banks resulting in oversubscription for both facilities

§ Submission of filings in the relevant jurisdictions for substantially all the regulatory, anti-trust and foreign direct investment approvals required for completion have been made and are progressing as expected

Harbour continues to expect the Acquisition to complete in Q4 2024.

Linda Z Cook, Chief Executive Officer, commented:

"Harbour materially advanced its strategy during 2023. We improved our safety performance, generated material free cash flow, and progressed our international growth opportunities and CCS projects, while maintaining our capital discipline. This enabled continued shareholder returns over and above our base dividend while retaining the flexibility that allowed us to announce a transformational acquisition in December.

"We remain focused on the successful completion of the Wintershall Dea acquisition and the ongoing safe and efficient management of our existing portfolio. We are excited about our future as we look to continue to build a geographically diverse, large scale, independent oil and gas company focused on safe and responsible operations, value creation and shareholder returns."

Analyst and investor conference call and webcast

Harbour will host a live webcast today at 9.00am (UK time) which will be available via its website www.harbourenergy.com. A conference call is also available for those unable to join the webcast:

Dial in: +44 20 3936 2999; Access Code: 038726.

A replay will be available on Harbour's website shortly after the event.

Summary of 2023 performance

Operational performance in line with guidance

Production averaged 186 kboepd (2022: 208 kboepd), split 52 per cent natural gas and 48 per cent liquids and in line with guidance. In the UK, we delivered higher production from our operated J-Area hub, supported by new wells on-stream around the end of 2022, while our operated Greater Britannia Area (GBA) continued to outperform expectations. This was offset by the deferral of drilling at partner-operated hubs resulting in fewer wells on-stream later in the year. Production was also impacted by some extended shutdowns in the second half of the year, including at our operated AELE hub and the East Irish Sea assets.

Operating costs for the year were $1.1 billion (2022: $1.1 billion), reflecting active management of our cost structure, including a reduction of staff in our UK operations and the further development of strategic supply chain partnerships and consolidation of contracts.  On a unit of production basis, operating costs were higher at $16/boe (2022: $14/boe) due to lower production. 2023 total capital expenditure was c.$1.0 billion (2022: $0.9 billion) reflecting higher international exploration activity offset in part by the deferral of certain UK opportunities in response to the Energy Profits Levy (EPL).

Safe and responsible operations

In 2023, Harbour delivered an improved safety performance with our Total Recordable Injury Rate reduced to 0.7 (2022: 0.8) per million hours worked.  In addition, we achieved two firsts for Harbour: zero lost time injuries and no serious (Tier 1 or 2) process safety events. This improvement was supported by the company-wide Back to Basics safety campaign initiated in 2022 and now fully embedded throughout our business.

In 2023, our gross operated greenhouse gas emissions reduced to 1.3 million tonnes, representing a c.30 per cent reduction compared to 2018, while our GHG intensity increased to 23 kgCO₂e/boe (2022: 21 kgCO₂e/boe) due to lower production. In January 2024, we signed the United Nations Environment Programme Oil and Gas Methane Partnership 2.0 memorandum of understanding.

During 2023, we successfully plugged and abandoned seven wells bringing the total that Harbour has decommissioned in the UK since 2014 to 161. Harbour also executed numerous seabed clearance and remediation campaigns during the year with onshore dismantlement and processing of removed infrastructure resulting in a recycling rate in excess of 97 per cent.

Maximising the value of our UK producing assets

The majority of Harbour's capital programme is focused on infrastructure-led opportunities designed to optimise production and cash flow. These opportunities are typically low risk, high return, short cycle investments with low GHG intensity.

Within our operated portfolio, we delivered first gas from Tolmount East in November, increasing production rates from Tolmount. At J-Area we completed development drilling at Talbot, a three-well subsea tie-back to the Judy platform with first oil on track for around the end of 2024. We also approved plans to drill a well and retrofit three producing wells for gas lift, targeting improved recovery from the Judy Chalk. At our AELE hub, we approved an infill well at North West Seymour which, together with plant modifications, is expected to extend producing life of the Armada field beyond 2030.

At our operated Greater Britannia Area, Harbour progressed plans to return to drilling at the satellite fields, including an infill well at Callanish which spudded in February 2024, and an appraisal well at Brodgar. In addition, we successfully appraised the Leverett gas discovery in 2023 with the potential development via a subsea tie-back to the Britannia platform now being evaluated.

In our partner-operated portfolio, Beryl production was boosted by initial high rates from two new wells online in the second quarter. However, production on a full year basis was impacted by the operator's decision to pause further subsea and platform drilling in response to the EPL. Production from our West of Shetland assets was supported by four wells drilled across Clair Phase One and Clair Ridge, and a further three wells at Schiehallion. Further drilling at both Clair and Schiehallion is planned for 2024. In addition, the operator continues to optimise the Clair Phase 3 development, which is expected to target Clair South.

As at 31 December 2023, Harbour's proven and probable (2P) reserves on a working interest basis were 361 mmboe (2022: 410 mmboe). This reflects the impact of production (c.68 mmboe)  partially offset by over 20 mmboe of additions across our UK operated J-Area, AELE and GBA hubs following the approval of several new wells.

Attractive international growth projects with potential for material reserves replacement

During 2023 we continued to invest in our international growth opportunities in Mexico and Indonesia.  These have the potential to materially add to our reserves and production and diversify our company over time.

In Mexico, the unit development plan for Zama was approved by the regulator in June and the Zama unit partners have formed an integrated project team to manage the delivery of the development. Good progress was also made on the various commercial agreements. FEED is planned to begin in 2024. The Zama unit has the potential to add reserves equivalent to a year's worth of Harbour's current production. South west of Zama, in Block 30, we made a significant oil discovery with the Kan-1 well in April. The appraisal plan has been approved by the regulator with drilling scheduled for the second half of 2024. In parallel, early engineering studies are being undertaken on a potential Kan development.

In Indonesia, we made a significant gas discovery at Layaran-1 on the South Andaman licence (Harbour 20 per cent interest) in December following the Timpan-1 gas discovery on the Andaman II licence (Harbour 40 per cent operated interest) in 2022. Post year end, the rig moved to drill the Halwa and Gayo prospects on Andaman II where operations are nearing completion. The Halwa-1 well encountered low gas saturations while a small gas discovery has been made at Gayo. Once the Gayo testing programme is complete, the rig will return to South Andaman to drill the shallower Tangkulo prospect to the south of Layaran aiming to prove up additional volumes. In addition, Mubadala, operator of South Andaman, intends to add a fifth well to the campaign to appraise the Layaran discovery.

Harbour's 2C resource increased to 519 mmboe as at 31 December 2023 (2022: 455 mmboe), driven by the addition of the Layaran gas discovery and the Kan oil discovery. As a result, 2023 saw significant growth in our international (non-UK) resource base which now accounts for over 60 per cent of our 2C resources, underpinning future potential reserve replacement and diversification of our company.

Investing in CCS to enable the energy transition

2023 saw good momentum on our two UK CCS projects - the Harbour-led Viking CCS project (Harbour 60 per cent interest) and Acorn (Harbour 30 per cent non-operated interest) with both awarded Track 2 status as part of the UK Government's regulatory process. These projects have a critical role to play in the UK's transition to a lower carbon economy and provide a potential long-term stable income stream for Harbour. 

The Harbour-led Viking project aims to transport and store 10 million tonnes of CO₂ emissions per annum by 2030 and up to 15 million tonnes per annum by 2035, making it one of the largest planned CCS projects in the world.  The project allows for scalable transportation and storage of CO₂ emissions from the Humber, the UK's most industrial emissions intensive region, and also for shipped CO₂ emissions from emitters both in the UK and in Europe.

Material progress on Viking during 2023 included: the Development Consent Order for the 55 km onshore CO₂ transportation pipeline being submitted and accepted for examination; the award of two CCS licences adjacent to Harbour's existing Viking licences, potentially increasing the project's independently verified 300 million tonnes of gross storage capacity by more than 50 per cent; and the project securing its first potential CO₂ shipping customer.  In addition, bp joined the project as a partner in early 2023, with a 40 per cent interest.  Post year end, in January, the FEED contract was awarded, marking another important milestone for Viking as it progresses towards a final investment decision.

The Acorn CCS project plans to transport CO₂ from emitters across Scotland to storage reservoirs offshore, targeting at least five million tonnes of CO₂ per year by 2030. There is also the potential for shipped CO₂ volumes via the Peterhead port. In September 2023, the project was awarded two further CCS licences, covering the East Mey and Acorn East areas. FEED on the Transportation and Storage System is expected to commence in 2024 ahead of a potential investment decision.

Strong financial position and disciplined capital allocation

During 2023, we generated significant free cash flow of c.$1 billion, enabling Harbour to reduce its net debt to $0.2 billion from c.$0.8 billion at the end of 2022. We also successfully amended and extended on favourable terms our RBL facility which was undrawn as at year end. This strong financial position allowed our Board to return $249 million through share buybacks during the year, in addition to our $200 million annual dividend. 

The Board has declared a final dividend of $100 million in respect of the 2023 financial year to be paid in May 2024, equating to 13 cents per share, subject to shareholder approval. Given our share buyback programme, this represents full year on year dividend per share growth of 9 per cent.

Since becoming a public company in 2021, our sustained operational and financial delivery along with our disciplined approach to capital allocation has enabled us to reduce our net debt by $2.7 billion and return c.$1 billion to shareholders while retaining the flexibility to reach agreement on a transformational acquisition.

A transformational acquisition aligned with our strategy

On 21 December 2023, Harbour announced the acquisition of substantially all of Wintershall Dea's upstream oil and gas assets for $11.2 billion. The Acquisition will be funded through porting of existing investment grade bonds from Wintershall Dea, Harbour equity and cash.

The Acquisition is expected to increase our production to c.500 kboepd[7] and adds significant positions in Norway, Germany, Argentina and Mexico. Importantly, the Acquisition will lengthen our reserve life and is accretive across all key metrics on a per share basis, supporting enhanced and sustainable shareholder returns. In addition, the Acquisition advances our energy transition goals, significantly lowering our GHG emissions intensity and expanding our already strong CCS interests into new European markets. Further, the Acquisition is expected to transform our capital structure and deliver investment grade credit ratings upon completion.

The Acquisition is subject to Harbour shareholder approval and we plan to publish a prospectus and shareholder circular setting out the details of the shareholder meeting to approve the Acquisition in the second quarter of 2024. Harbour has received irrevocable undertakings from shareholders which, as at 6 March 2024, represented c.35 per cent of our issued share capital to vote in favour of the acquisition. 

The Acquisition is also subject to, amongst other things, regulatory, anti-trust and foreign direct investment approvals. Substantially all necessary filings required for such approvals have been submitted in the relevant jurisdictions, including in the UK and Germany, and are progressing as expected.  

Regarding the financing of the transaction, in February 2024, Harbour and Wintershall Dea's finance subsidiaries successfully completed a bondholder vote to amend certain terms and conditions of Wintershall Dea's c.$4.9 billion investment grade bonds and subordinated notes to reflect the anticipated group structure. Over 80 per cent of bondholders participated in the vote and the amendments were approved with significant bondholder support across all five bond tranches. The consent is subject to final technical implementation.

In March 2024, Harbour successfully completed the syndication of the $3 billion revolving credit facility (RCF) and $1.5 billion bridge facility with strong support from both existing relationship banks and new banks resulting in oversubscription for both facilities. This reflects strong lender support for Harbour's strategy going forward and is testament to the high-quality credit profile of the pro forma company.

Harbour continues to expect the Acquisition to complete in the fourth quarter of 2024.

Outlook

On a standalone basis and before any contribution from the Acquisition and assuming a Brent oil price of $85/bbl and a reduced UK gas price of 70p/therm[8], we expect to be marginally free cash flow positive for 2024. This is after a higher capital investment programme to support future production and c.$1.0 billion of cash tax payments, reflecting the full utilisation of our available UK corporate tax losses in the first half of 2024 and phasing of UK EPL payments.

Looking to 2025, we anticipate production remaining broadly stable, with increased volumes from new wells and projects substantially offsetting natural decline, and our total capital expenditure to be materially lower. As a result, we expect to generate significantly higher free cash flow in 2025 compared to 2024 and to build a net cash position by year end. 

As we look to the future, we have a strong balance sheet, our asset base is generating robust cash flow and we have good momentum on our organic growth opportunities and UK CCS projects. At the same time, we are on track to complete the acquisition of the Wintershall Dea asset portfolio in the fourth quarter of 2024 which will transform our scale and asset diversification as well as our capital structure.

Our ambition to grow through M&A remains unchanged and we are well positioned for future opportunities. However, we will maintain our disciplined approach to capital allocation, balancing any future growth opportunities alongside a commitment to an investment grade balance sheet and competitive shareholder returns. 

Financial Review

Summary of financial results

Analysis of these key metrics are discussed in detail across the following pages of the Financial Review.

¹ See Glossary for the definition of non-IFRS measures. Reconciliations between IFRS and non-IFRS measures are provided within this review.

Income Statement

¹ Non-IFRS measure - see Glossary for the definition.

Revenue and other income

Total revenue and other income decreased to $3,751 million (2022: $5,431 million). This was driven by lower commodity prices, especially UK natural gas prices, and reduced production.  

Revenue earned from hydrocarbon production activities decreased to $3,680 million (2022: $5,352 million) after realised hedging losses of $911 million (2022: $3,185 million). This decrease was mainly driven by lower post-hedging realised UK natural gas prices and reduced production volumes. 

Crude oil sales decreased to $2,086 million (2022: $2,792 million) after realised hedging losses of $93 million (2022: $753 million). This was driven by lower production volumes, with our realised post-hedging oil price stable at $78/bbl (2022: $78/bbl).

Gas revenue was $1,415 million (2022: $2,322 million), split between UK natural gas revenue of $1,284 million (2022: $2,142 million) including realised hedging losses of $818 million and international gas revenue of $131 million (2022: $180 million). The realised post-hedging price for our UK and Indonesia gas was 54 pence/therm (2022: 86 pence/therm) and $13/mscf (2022: $14/mscf), respectively.

Other income amounted to $36 million (2022: $41 million) which includes partner recovery on related lease obligations and a receipt related to the Viking CCS Development Agreement entered into with bp in March 2023.

Cost of operations

Cost of operations decreased to $2,357 million (2022: $2,845 million) driven primarily by a positive movement in hydrocarbon inventories and (over)/underlift.

¹ Non-IFRS measure - see Glossary for the definition.

Total operating costs were flat year on year at $1,115 million (2022: $1,058 million) driven by strong cost control in an inflationary environment. Operating costs were higher on a unit of production basis at $16.4/boe (2022: $13.9/boe) due to lower production volumes.

Depreciation, depletion and amortisation (DD&A) unit expense, which reflects the capitalised costs of producing assets divided by produced volumes, was $21.1/boe (2022: $20.4/boe).

EBITDAX¹

EBITDAX¹ was $2,675 million (2022: $4,011 million), with the reduction mainly driven by lower revenue.

¹ Non-IFRS measure - see Glossary for the definition.

The Group has recognised a net pre-tax impairment charge on property, plant and equipment of $214 million (2022: $170 million net reversal). Approximately half of this is in respect of revisions to decommissioning estimates on mainly non-producing assets with no remaining net book value. The balance relates to the announced sale of our Chim Sao asset in Vietnam and an impairment on two UK North Sea assets, one driven primarily by a significant reduction in the gas price outlook compared to the 2022 year-end view, and the other by a revised decommissioning cost profile. In addition, there is a goodwill impairment of $25 million in respect of the Vietnam assets.

During the year, the Group expensed $93 million (2022: $106 million) for exploration and appraisal activities. This includes exploration write-off expense of $57 million (2022: $64 million) mainly in relation to the Ix-1EXP well in Mexico, the JDE well in Norway and costs associated with licence relinquishments and uncommercial well evaluations and a further $29 million (2022: $28 million) in relation to our UK CCS projects.

Net financing costs

Finance income amounted to $104 million (2022: $279 million), including derivative gains of $68 million (2022: $48 million loss) related to changes in the fair value of an embedded derivative within one of the Group's gas contracts. The reduction in finance income compared to 2022 is mainly due to unrealised foreign exchange gains of $202 million in 2022 which predominately arose on the revaluation of open sterling denominated gas hedges as a result of the weakening of sterling against the US dollar in the period.

Finance expenses amounted to $420 million (2022: $358 million). This included interest expense incurred on debt facilities of $42 million (2022: $98 million), the reduction reflecting the impact of lower drawn down debt partially offset by higher interest rates. Other financing expenses include the unwinding of the discount on decommissioning provisions of $156 million (2022: $65 million) which increased due to higher cost estimates and bank and financing fees of $100 million (2022: $91 million) and $57 million of foreign exchange losses as a result of the strengthening of sterling in the year (2022: $202 million of foreign exchange gains).

Earnings and taxation

Profit after tax amounted to $32 million (2022: $8 million profit). This resulted in earnings per share of 4 cents  (2022: 1 cent ) after taking into account the weighted average number of ordinary shares in issue of 804 million (2022: 900 million) following the share buyback programme.

Harbour's tax expense decreased in 2023 to $565 million (2022: $2,454 million). The 2022 charge included a one-off non-cash charge of $1,469 million as a result of the revaluation of the deferred tax position on the balance sheet following the introduction of the Energy Profits Levy (EPL) in the UK. The tax expense is split between a current tax expense of $677 million (2022: $706 million), which includes an EPL current tax charge of $525 million (2022: $326 million) and a deferred tax credit of $112 million (2022: $1,748 million expense including $1,469 million one-off non-cash deferred tax charge).

The effective tax rate is 95 per cent (2022: 100 per cent) materially higher than the standard UK tax rate for the period of 75 per cent. This is in part due to costs which are not fully deductible at the UK statutory rates. If these items had not arisen then we would have expected the effective tax rate for the period to be c.85 per cent.

Shareholder distributions

A final dividend with respect to 2022 of 12 cents per ordinary share was proposed on 9 March 2023 and approved by shareholders at the AGM on 10 May 2023. The dividend was paid on 24 May 2023 to all shareholders on the register as at 14 April 2023, totalling $99 million[9]. An interim dividend was announced on 24 August 2023 at 12 cents per share and was paid on 18 October 2023 at a value of $91 million[10].

In addition to these dividend payments, Harbour completed on 15 February 2023 the remaining $43 million[11] of a $100 million share buyback approved by the Board in November 2022. The Board approved a further $200 million share buyback scheme on 9 March 2023, which concluded on 28 September 2023. The purpose of these share buyback programmes was to reduce the Company's share capital and all ordinary shares purchased as part of the programmes were cancelled. During 2023, we repurchased and cancelled 76.8 million of our own shares at a cost of $249 million3 (2022: $361 million), equating to 9 per cent of our issued share capital at 1 January 2023.

The Board is proposing a final dividend with respect to 2023 of 13 cents per ordinary share to be paid in GBP at the spot rate prevailing on the record date. This dividend is subject to shareholder approval at the AGM, to be held on 9 May 2024. If approved, the dividend will be paid on 22 May 2024 to shareholders on the register as of 12 April 2024. A dividend re-investment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the company. The last date to elect for the DRIP in respect of this dividend is 26 April 2024.

Statement of Financial Position

Assets

The decrease in total assets of $2,669 million is mainly as a result of the move from a net deferred tax asset position of $1,009 million to a net deferred tax liability of $1,253 million primarily driven by the realisation of the hedging position, reduction in property, plant and equipment (PP&E) of $973 million, lower right-of-use assets, which have reduced by $148 million, partially offset by an increase to intangible assets of $292 million. Total assets included assets held for sale in respect of the Vietnam disposal of $334 million.

Liabilities

The reduction in total liabilities of $3,188 million is mainly driven by a reduction in derivative liabilities of $3,166 million following maturity of contracts and lower commodity prices in the year, a reduction in borrowings of $729 million mainly related to the repayment of the reserves-based lending (RBL) facility and the move to a net deferred tax liability position mentioned above. The decommissioning provision decrease of $120 million was due to changes in cost estimates mainly driven by increased discount rates and spend in the year, partially offset by the unwinding of the discount. Total liabilities included liabilities directly associated with assets held for sale in respect of the Vietnam disposal of $242 million.

The net deferred tax position on the balance sheet is a liability of $1,253 million. This is primarily made up of a deferred tax liability in respect of the future profits which will flow from our PP&E of $2,901 million offset by a deferred tax asset in respect of future tax relief on decommissioning spend of $1,574 million. Whilst our future UK profits in the period to 31 March 2028 will be subject to 75 per cent taxation due to the EPL, UK decommissioning spend is not deductible for EPL and so relieved at 40 per cent.

Equity and reserves

Total equity increased mainly due to the gains in comprehensive income related to favourable fair market value movements on cash flow hedges of $3,168 million (2022: $269 million), gains on currency translation of $103 million (2022: losses of $198 million), offset by movements in tax on cash flow hedges of $2,376 million (2022: gains of $1,006 million), share buybacks of $249 million (2022: $361 million) and dividend payments of $190 million (2022: $191 million) made in the year. Retained earnings increased by the profit after tax.

Net debt

As at 31 December 2023, net debt of $213 million (2022: $704 million) consisted of cash balances of $280 million (2022: $500 million), net of the $500 million bond (2022: $500 million) adjusted for unamortised fees of $7 million (2022: $9 million). Following net repayments of the RBL facility of $775 million and settlement in full of the exploration finance facility (EFF) of $11 million, the RBL facility is $nil (2022: $775 million less unamortised fees of $73 million) and the EFF is $nil (2022: $11 million). The remaining $61 million unamortised fees for the RBL have been reclassified to debtors.

The RBL facility was amended and extended in November 2023 which resulted in the debt availability of $1.3 billion. Available liquidity, being undrawn RBL facility plus cash balances of $0.3 billion, was $1.6 billion at the end of the year.

As at 31 December 2023, the leverage ratio¹ was 0.1x (2022: 0.2x) which has reduced primarily as a result of repayments of the RBL facility during the year resulting in nil drawdown at year end.

¹ Non-IFRS measure - see Glossary for the definition.

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 31 December 2023. These are set out in the following table. Hedges realised to date are in respect of both crude oil and natural gas.

The current hedging programme is shown below:

At 31 December 2023, our financial hedging programme on commodity derivative instruments showed a pre-tax negative mark-to-market fair value of $18 million (2022: $3,257 million), with no ineffectiveness charge to the income statement.

Statement of cash flows¹

1 Table excludes financing activities related to debt principal movements.

2 Interest and lease payments only, excludes shareholder distributions.

3 Non-IFRS measure - see Glossary for the definition.

Net cash from operating activities after tax amounted to $2,144 million (2022: $3,130 million) after accounting for positive working capital movements of $199 million, including movements in realised but unsettled hedges of $207 million (2022: $104 million). Capital investment was $718 million (2022: $634 million) which included property, plant and equipment additions of $496 million (2022: $477 million) and exploration and evaluation additions of $202 million (2022: $127 million). Cash outflow from financing activities totalled $409 million (2022: $396 million) split between interest payments of $150 million (2022: $142 million) and lease payments of $259 million (2022: $254 million).

Shareholder distributions consist of dividends paid of $190 million (2022: $191 million) and $249 million (2022: $361 million) related to the repurchase of Harbour's own shares.

The Group made net tax payments of $438 million in the period (2022: $552 million) primarily in relation to the UK Energy Profits Levy. 

Cash and cash equivalent balances were $280 million (2022: $500 million) at the end of the year.

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.

¹ Non-IFRS measure - see Glossary for the definition.

During the year, the Group incurred total capital expenditure¹ of $969 million (2022: $908 million), split by capital investment $721 million (2022: $685 million) and decommissioning spend $248 million (2022: $223 million) respectively.

The capital investment in the UK mainly consisted of, for operated assets, development drilling in the J-Area, including at Talbot, the tie in of Tolmount East to Tolmount, the appraisal of the Leverett discovery which is close to the Britannia platform and long lead items for the Callanish and North Seymour infill wells at our GBA and AELE hubs respectively. For partner operated assets, capital investment consisted primarily of the tie in of two subsea wells at Beryl, and drilling at Buzzard, Clair and Schiehallion. In International, exploration wells were drilled at Layaran-1 in Indonesia, the JDE well in Norway and the Kan and Ix-1EXP wells in Mexico.

Principal risks

There are no significant changes to the headline principal risks from those disclosed in the 2023 half-year results.

Post balance sheet events

On 5 March 2024 Harbour signed a new $3.0 billion fully unsecured revolving credit facility (RCF) and $1.5 billion bridge facility which will be available at completion to fund the acquisition of the Wintershall Dea asset portfolio. The RCF has a $1.75 billion letter of credit sublimit, a five-year term from signing and will replace the existing RBL facility.

On 6 March 2024, the UK government announced that Energy Profit Levy (EPL) would be extended for a further 12 months to 31 March 2029 from the former end date of 31 March 2028. Harbour is currently assessing the potential impact of this announcement.

Going concern

The Directors consider the going concern assessment period to be up to 30 June 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 $2.75 billion reserves-based lending (RBL) facility that has a current borrowing base of $1.3 billion after the amendment and extension that was completed in November 2023, and $0.5 billion bond which matures in 2026. The amount drawn down under these facilities at 31 December 2023 was nil and $0.5 billion respectively, which together with cash of $0.3 billion, gave a total available liquidity of $1.6 billion. Further details can be found in note 14 on page 45. 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 acquisition 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 in Q4 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 approximately $4.9 billion and a weighted average coupon of c.1.8 per cent; 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, sensitivities 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 indicates that the Group is able to 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, a single downside sensitivity scenario has been prepared reflecting a reduction in:

§ Brent crude and UK natural gas prices of 20 per cent, and

§ the Group's unhedged production of 10 per cent

throughout the assessment period.

In this downside scenario when applied individually and in aggregate to the base case forecast, 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 and considering the findings of the work performed to support the statement on the long-term viability of the company and the Group, the Board was satisfied that, for the going concern assessment period, the Group is able to maintain adequate liquidity and comply with its lending covenants up to 30 June 2025 and has therefore adopted the going concern basis for preparing the financial statements.

By order of the Board,

Alexander Krane

Director

6 March 2024

Disclaimer 

This statement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst Harbour believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond Harbour's control or within Harbour's control where, for example, Harbour decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements. 

Financial Statements

Consolidated income statement

For the year ended 31 December 2023

Consolidated statement of comprehensive income

For the year ended 31 December 2023

Consolidated balance sheet

As at 31 December 2023

The notes 1 to 19 form an integral part of these financial statements.