Harbour Energy plc

"Harbour" or the "Company" or the "Group"

Half-year results for the six months to 30 June 2021

23 September 2021

 

Harbour Energy plc today announces its half-year results for the period ended 30 June 2021. Financial and operational performance is provided on a reported basis with Premier Oil's portfolio included from 31 March 2021.

 

Highlights

§ All share merger between Premier Oil plc ("Premier") and Chrysaor Holdings Ltd ("Chrysaor") completed; integration and realisation of synergies progressing as planned

 

§ Reported production of 151 kboepd (H1 2020: 187 kboepd), impacted by planned maintenance programmes deferred from 2020 into 2021 due to COVID-19 and unplanned outages, partially offset by three months contribution from the Premier portfolio

 

§ Operating costs per barrel¹ of $15.6/boe (H1 2020: $10.2/boe), reflecting lower production; total capex (including decommissioning spend) of $380 million (H1 2020: $364 million)

 

§ EBITDAX¹ of $843 million (H1 2020: $920 million); increased profit after tax of $87 million (H1 2020 loss after tax: $155 million)

 

§ Free cash flow¹ of $302 million (H1 2020: $475 million), after $206 million of tax payments (H1 2020 tax receipts: $7 million) largely relating to Chrysaor's 2020 UK activities

 

§ Net debt¹, excluding unamortised fees, of $2.6 billion and leverage (net debt/proforma EBITDAX¹) of 1.2x at end of June; significant available liquidity in excess of $1 billion

 

§ Steps taken to align the combined portfolio with Harbour's strategy, including the decision to explore the options to exit the Group's Sea Lion project in the Falkland Islands

 

Outlook

§ 2021 reported production guidance of 170-180 kboepd reiterated; higher expected production in H2 with maintenance programmes completed, additional wells on-stream and a full contribution from the Premier portfolio

 

§ Ramp up of drilling activity including two rigs in the J-Area and other units at Tolmount, AELE, Elgin Franklin and Beryl in the UK, and Tuna and Natuna Sea Block A in Indonesia

 

§ Inspection and repair campaign progressing at the Group's Tolmount gas development (UK); first production expected around year end

 

§ Forecast 2021 operating cost and total capital expenditure (including decommissioning spend) unchanged at $15-16/boe and $1.1 billion, respectively

 

§ An update on the Company's strategy and capital allocation plans, including its dividend policy, will be provided at a capital markets day on 9 December 2021

 

Linda Z Cook, Chief Executive Officer, commented:

"The first half saw us deliver positive free cash flow and execute a significant transaction, whilst retaining a robust balance sheet.  The extended maintenance programmes which impacted our production have completed, drilling activity has returned to pre-COVID-19 levels and the merger integration is progressing well, all underpinning strong future cash flow generation.  We remain committed to producing oil and gas safely and responsibly, including our aim to achieve Net Zero by 2035."

 

Enquiries

Harbour Energy plc                                                                           Tel: 020 7824 1116

Elizabeth Brooks, Head of Investor Relations

 

Brunswick                                                                                             Tel: 020 7404 5959             

Patrick Handley, Will Medvei

 

Harbour will host a virtual presentation and Q&A session for investors and analysts at 09:00 (BST) today, 23 September 2021, accessible via our website: www.harbourenergy.com/investors.

 

¹Non-GAAP measures are defined in the Glossary.

 

 

HARBOUR ENERGY OVERVIEW

At the end of March the merger between Premier and Chrysaor completed, marking the Group's third significant transaction since 2017. As a result, Harbour is the largest London-listed independent oil and gas company with a cash generative, diversified UK asset base and a global footprint.

 

Strategy

Harbour's strategy is to continue building a global, diversified oil and gas company while maintaining a strong balance sheet. The Company has safety as its top priority and recognises the importance of addressing the energy transition through execution of Harbour's commitment to Net Zero by 2035. Having grown production from zero to over 150 kboepd since 2017, the Company is now a mid-sized independent oil and gas producer. The intention is to continue reinvesting in our strong portfolio of UK assets while at the same time aiming to establish material production in at least one other region via acquisition of additional, high quality producing assets.

 

A responsible oil and gas producer

Safe and responsible operations are critical to ensuring Harbour's success and the delivery of its strategy. The Group continues to apply appropriate measures and safeguards to protect its people and operations from COVID-19. Harbour is also committed to achieving Net Zero greenhouse gas emissions by 2035 by minimising its own emissions and offsetting an increasing proportion of its residual emissions year-on-year. In parallel, the Group has continued to progress potential investment opportunities to support a lower carbon economy in the UK, including Carbon Capture and Storage (CCS).

 

Options for growth and diversification

Harbour has significant opportunities within its UK production base to add reserves and extend field life through infill drilling and well intervention programmes, plant modifications, satellite developments and near field exploration. The majority of Harbour's capex programme is targeted at such projects, which help sustain the Group's production and typically deliver high rates of return.

 

Outside the UK, the Group's organic growth projects include a 12.39 per cent interest in the Zama unit (Mexico) where Harbour is engaging with partners to advance the project towards an investment decision, and a 50 per cent operated interest in the Tuna discoveries in Indonesia where an appraisal campaign is underway.

 

Harbour's exploration strategy will be focused on infrastructure led, lower risk opportunities in areas where the Group has an established production footprint. Appraisal of the Talbot discovery in the UK is underway as are preparations to drill the Timpan prospect on the Andaman II licence in Indonesia next year.

 

The current environment presents opportunities for growth through further acquisitions of cash-generative producing asset packages which the Group evaluates on an ongoing basis. However, safe and successful integration of the Premier assets, including realising the financial and operational synergies of the merger, is the Group's immediate priority. Steps have also been taken to align the enlarged portfolio with Harbour's strategy, including the decision not to proceed with the Sea Lion development in the Falkland Islands and to exit the Group's exploration licence interests in the Ceará Basin in Brazil and the Burgos Basin in Mexico.

 

A strong financial outlook 

Harbour seeks to ensure reliable and predictable cash flows through the commodity price cycle and to protect the business from volatility via a disciplined hedging programme. This, together with a robust balance sheet, provides the Group with the ability to fund reinvestment in its portfolio and shareholder returns whilst retaining the optionality for meaningful, value-accretive transactions.

 

 

SUMMARY OF FIRST HALF PERFORMANCE

Group production averaged 151 kboepd (H1 2020: 187 kboepd) for the six-month period to the end of June. The reduction was due to significant planned maintenance deferred from 2020 into 2021 as a result of the COVID-19 pandemic and unplanned outages in addition to natural decline. The contribution from Premier's portfolio from the end of March partially compensated for the reduction which was exacerbated by a six-month COVID-19 related drilling break in 2020 across the Group's operated assets. Operating costs for the first half of the year were $15.6/boe (H1 2020: $10.2/boe), impacted by the lower production. 

 

Capital expenditure during the first half was $380 million, largely attributed to drilling activities on Tolmount, J-Area and the Group's non-operated assets in the UK. Drilling activity across Harbour's operated assets has now returned to pre-COVID-19 levels, leading to increased capital expenditure in the second half of the year. The higher drilling activity and completion of the maintenance programmes will support future production levels.

 

The Group generated $302 million of free cash flow during the first half, after tax payments of $206 million largely relating to Chrysaor's 2020 UK activities. Net debt, excluding unamortised fees, at the end of the period was $2.6 billion while leverage (net debt / proforma EBITDAX) was 1.2x, below the Group's target of 1.5x on average through the commodity price cycle.

 

Summary of reported production¹

Europe asset / hub	Equity interest (%)	6 months ended 30 June 2021 (kboepd)	6 months ended 30 June 2020 (kboepd)
Greater Britannia Area (GBA)	26-87.5	28	43
J-Area	67-67.5	27	33
Armada, Everest, Lomond & Erskine (AELE)	32-100	23	34
Catcher	50	12	-
East Irish Sea (EIS)	100	3	8
Beryl	34-49	13	18
Buzzard	21.7	12	20
Elgin Franklin	19.3	13	20
Clair	7.5	5	5
Other UK2		8	6
Europe		144	187
International		7	-
Total		151	187

¹ Production is provided on a reported basis and reflects three months contribution from the Premier portfolio from the end of March 2021, spread over the six month period. The Premier portfolio includes International (Natuna Sea Block A, Indonesia and Chim Sao, Vietnam), Catcher, a 5.2 per cent interest in Elgin Franklin, Solan and Tolmount.

² Other UK includes Solan, Schiehallion, Johnston, Ravenspurn North, Galleon, Nelson

 

 

OPERATIONAL REVIEW

Group production averaged 151 kboepd to the end of June, split 144 kboepd Europe / 7 kboepd international and 82 kboepd liquids / 69 kboepd gas. 

 

Europe - Operated

Greater Britannia Area averaged 28 kboepd net to Harbour for the first half of the year. The reduction was mainly due to planned maintenance activities being deferred from 2020 into the second quarter of 2021, which are now complete. Production was also impacted by water handling constraints on Brodgar and natural decline partially compensated for by additional volumes from the Callanish F5 well which came on-stream in February. The third party Finlaggan field is on track for first production through the Britannia platform before year end, improving the hub's unit operating margins.

 

The J-Area delivered 27 kboepd net to Harbour for the first six months of the year. This reflected natural decline and the shut-in of two production wells scheduled for intervention in the second half of the year.  J-Area production is supported by a drilling campaign with activity ramping up in the second half of the year. Post period end, Harbour recompleted the S15 well, reinstated production from the previously shut-in J-06 well and spudded the Jade South exploration well. A second rig arrived at J-Area in July to appraise the Talbot discovery ahead of drilling the near field Dunnottar exploration prospect which is expected to spud in the fourth quarter 2021. 

 

Production from Armada, Everest & Lomond together with the Erskine tieback (AELE) averaged 23 kboepd net to Harbour. This reflected an extended maintenance campaign during May and June. The maintenance activity is now complete and drilling of the LAD infill development well, targeting the East Everest Extension area, began in July.

 

The Catcher Area averaged 24 kboepd net to Harbour during the second quarter, contributing 12 kboepd to the Group's reported production for the period. Well delivery remains in excess of the FPSO nameplate capacity and the gas reinjection trials are having a positive impact on oil production rates. The Group continues to successfully mitigate the build-up of calcium naphthenate and its impact on production efficiency is now significantly reduced. Post period end, the Group approved a three-well programme to drill Catcher North, Laverda and Burgman Far East in 2022.

 

Harbour's East Irish Sea assets averaged 3 kboepd net to Harbour to the end of June. Production was materially impacted by reliability issues at the Calder platform and the onshore processing terminals during the first quarter and planned maintenance activities during the second quarter.

 

At the Tolmount gas field development (Harbour 50 per cent), the campaign to inspect and repair the issues identified in certain offshore electrical systems during final commissioning of the platform in July is now well underway.  Three of the four development wells have also been drilled.  The first two wells were completed within expectations while the third well, which is currently being tested, encountered a shallower gas water contact than anticipated. These results will be incorporated into an updated reservoir model once the fourth well is complete.  Project start-up is expected around year end with plateau rates of 20-25 kboepd.  Post period end, Harbour sanctioned the Tolmount East development which will comprise a single subsea well tieback to the HGS Tolmount infrastructure. Drilling of the Tolmount East well is scheduled for the second half of 2022.

 

During the period, Harbour drilled two operated exploration wells in Norway, targeting the Jerv and Ilder prospects on licence PL 973. The wells were unsuccessful and have been plugged and abandoned. Harbour is now evaluating the impact of Jerv and Ilder on the remaining licence potential.

 

Harbour continues to improve cost and operational performance of its Southern North Sea decommissioning programme.  The well plug and abandonment programme continued during the period and a heavy-lift campaign covering the removal of the LOGGS complex, comprising five separate platforms, was safely completed post period end.

 

Europe - Non-operated

The Beryl area produced 13 kboepd net to Harbour to the end of June, impacted by lower operating efficiency mainly as a result of a compressor failure (subsequently rectified). Development drilling is currently ongoing at Storr-2 which once completed will be tied into Beryl Alpha.

 

Buzzard production averaged 12 kboepd net to Harbour for the first six months of the year. This reflected natural decline from the existing well stock and an extended shutdown in the second quarter (deferred from 2020) which saw the successful lift and installation of the Buzzard Phase 2 module. Buzzard Phase 2, which is being developed as subsea tieback to the main Buzzard platform, is on track for first production around year end. 

 

Elgin Franklin produced 13 kboepd net to Harbour to the end of June. Production was impacted by the deferral of the 2020 maintenance campaign into 2021 and an unplanned three-week shut down in April due to maintenance on the GAEL export pipeline at the FPS Unity platform. This was partially offset by the contribution from Premier's 5.2 per cent interest in the field from the end of March.  Maintenance activities at Elgin Franklin completed on schedule but start-up was delayed to the end of July due to the export route not being available.  The EIG well, which spudded in December last year, is on track to be tied into production during the fourth quarter.

 

Production from the Clair field averaged 5 kboepd net to Harbour to the end of June. Production continues to be supported by an ongoing drilling programme at Clair Ridge. Post period end, two further production wells on Clair Ridge have been brought on-stream.

 

Europe - CCS projects

Harbour is participating in two early-stage potential Carbon Capture and Storage (CCS) projects; V Net Zero (England) and Acorn (Scotland). V Net Zero is intended to transport and permanently store up to 10.9 million tons of CO2 per year by 2030 in depleted gas fields in the southern North Sea.  Phillips 66 Humber Refinery and Vitol's VPI Immingham power plant along with other emitters from the Humber region have selected Harbour's V Net Zero project as their preferred CO2 transportation and storage provider. Both V Net Zero and Acorn submitted applications in July for 'Track 1 CCS cluster status' as part of the UK Government's net zero ambitions. 

 

International operations

International - Operated

The Natuna Sea Block A fields in Indonesia averaged 10 kboepd net to Harbour during the second quarter, contributing 5 kboepd to the Group's production for the six-month period. Singapore demand for Harbour's Indonesian gas was strong with offtake under the Group's two gas sales agreements above take or pay levels. A jack-up rig campaign comprising a workover and an infill well to help increase delivery from the field is underway and is expected to complete during the fourth quarter.

 

Elsewhere in Indonesia, the first of the carried two-well appraisal programme on the Tuna discoveries (Harbour 50 per cent) was drilled post period end in July. The Group is now drilling the second appraisal well with drilling operations due to be completed in the fourth quarter.  Preparations are also underway for the drilling of the Timpan-1 exploration well on the Group's operated Andaman II licence (Harbour 40 per cent) in the first half of 2022.

 

Harbour's Chim Sáo field in Vietnam produced 4 kboepd in the second quarter, contributing 2 kboepd to Harbour's production for the six-month period.  Production was impacted by a two week planned shutdown during May. Final approval for the 2022 two well drilling programme is expected to be received shortly from the Vietnam Government.

 

In the Falkland Islands, Harbour management has undertaken a thorough review of the Sea Lion project, in which the Group has a 60 per cent operated interest.  While the Sea Lion discovery has significant resource potential, development of the project is not deemed a strategic fit for Harbour.  Therefore the Group has decided to explore the options to exit the project and its other license interests in the Falkland Islands. 

 

Post period end, Harbour took the decision to exit its exploration licence interests in the Ceará Basin in Brazil and in the Burgos Basin in Mexico. This is in line with the Group's exploration strategy which is focused primarily on infrastructure led, lower risk opportunities in areas with an existing Harbour producing presence.

 

International - Non-operated

Harbour has a 12.39 per cent unitised interest in the Zama field offshore Mexico. The next steps are finalisation of the field development plan, the operating model and the unitisation agreement.  Harbour continues to engage with the Mexican authorities, Pemex and the other Zama unit partners in an effort to continue to advance the project towards an investment decision.

 

Elsewhere in Mexico, the Block 30 (Harbour 30 per cent) joint venture partnership plan to drill two commitment wells on the licence targeting the Wahoo and Pike prospects in 2022. 

 

 

 

 

 

 

FINANCIAL REVIEW

Premier legally acquired Chrysaor through the issuance of shares. The transaction completed on 31 March 2021, whereupon Premier changed its name from Premier Oil plc to Harbour Energy plc.

 

For accounting purposes, the transaction constituted a reverse acquisition of Premier by Chrysaor in accordance with IFRS3, Business Combinations. As a result, Premier is fully consolidated in the financial statements with effect from 31 March 2021, and all results prior to this date represent those of Chrysaor only. For further detail, see note 12 to the financial statements.

 

Summary of financial results

		6 months ended 30 June 2021 unaudited	6 months ended 30  June 2020 unaudited
Production - kboepd		151	187
Revenue and other income - $m		1,496	1,244
Operating costs per boe1 - $/boe		15.6	10.2
EBITDAX1 - $m		843	920
Pre-tax profit/(loss) - $m		120	(224)
Profit/(loss) after tax - $m		87	(155)
Earnings/(loss) per share - US cents/share		10.6	(21.9)
Capital expenditure - $m		256	317
Decommissioning spend - $m		124	47
Operating cashflow - $m		646	946
Free cash flow1 - $m		302	475
Net debt $m (net of unamortised fees)		2,457	1,400
Post hedging realised prices - liquids - $/boe		58	64
Post hedging realised prices - UK gas - p/therm		38	31

¹ See Glossary for the definition of non-GAAP measures.

 

Harbour reported average production for the first half of 2021 of 151 kboepd (H1 2020: 187 kboepd), including three months contribution from the legacy Premier business.

 

Harbour reported total revenue and other income of $1,496 million (H1 2020: $1,244 million). Revenue was higher than the prior period primarily as a result of an increase in realised gas prices, offset to some extent by lower production volumes and lower realised liquid prices.

 

Production costs for the period were $15.6/boe (H1 2020: $10.2/boe) with the increase driven primarily by the reduction in production.

 

EBITDAX amounted to $843 million (H1 2020: $920 million) due to higher operating costs and overlift charges offset by higher revenue. Profit after tax amounted to $87 million (H1 2020: loss $155 million).

 

Depreciation unit expense was $19.1/boe (H1 2020: $20.8/boe) with the reduction as a result of impairment charges in 2020.

 

Net financing expense, excluding foreign exchange, was $104 million (H1 2020: $146 million) with the reduction due to gains on derivatives of $22 million and a one-off modification gain recognised on the amendment of the Reserves Based Lending (RBL) facility of $14 million. Tax expense amounted to $34 million (H1 2020: credit $70 million) representing an effective rate of 28 percent (H1 2020: 31 percent).

 

Capital and decommissioning expenditure in the period amounted to $380 million (H1 2020: $364 million). Capital expenditure mainly consisted of spending on the J-Area Jasmine West Limb well, Tolmount development drilling, and non-operated drilling programmes at Beryl, Elgin Franklin and Clair Ridge. Decommissioning spend related primarily to the Southern North Sea Area, Balmoral and non-operated asset of Hewett. 

 

Free cash flow for the period amounted to $302 million (H1 2020: $475 million).

 

As at 30 June 2021 net debt of $2,457 million (Dec 2020: $1,400 million) consisted of RBL senior and Shell junior debt less unamortised fees and cash balances. The increase since year end is mainly due to the drawdown on the RBL facility of $1,325 million prior to completion of the Merger to fund the replacement of Premier's debt and reduced by free cash flow of $302 million.

 

Liquidity, being undrawn RBL facility plus cash balances, was in excess of $1 billion at the end of the period.

 

 

 

Income Statement

 

		6 months ended 30 June 2021 $million unaudited	6 months ended 30  June 2020 $million unaudited
Revenue and other income		1,496	1,244
Crude		897	723
Gas		395	413
NGL		72	70
Tariff income and other revenue		13	24
Other income		119	14
EBITDAX1		843	920
Pre-tax profit/(loss)		120	(224)
Profit/(loss) after tax		87	(155)
Earnings/(loss) per share - US cents/share		10.6	(21.9)

¹ See Glossary for the definition of non-GAAP measures.

 

Revenue earned from hydrocarbon production and tariff income amounted to $1,377 million (H1 2020: $1,230 million) after realised hedging losses of $207 million (H1 2020: $474 million hedging gains). Some of our hydrocarbon production is sold pursuant to fixed-price contracts, as described below under 'Derivative Financial Instruments'. The rest is sold at market values, subject to standard quality and basis adjustments.

 

Crude oil sales amounted to $897 million (H1 2020: $723 million), with a post-hedge realised price of $58/boe (H1 2020: $64/boe), and gas revenue of $395 million (H1 2020: $413 million), with a post-hedge realised price of 38p/therm (H1 2020: 31p/therm). Condensate sales and tariff amounted to $72 million (H1 2020: $70 million). 

 

Other revenue amounted to $119 million (H1 2020: $14 million) and includes mark-to-market gains on emissions derivatives of $61 million and 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.

 

	30 June 2021 $million unaudited	30 June 2020 $million unaudited
Operating costs
Field operating costs	500	370
Tariff income	(13)	(22)
Gains on emissions hedges1	(61)	-
Total	426	348
Field operating costs per barrel1 (US$ per barrel)	$15.6	$10.2
Depreciation, Depletion and Amortisation (DD&A) (before impairment)
Depreciation of oil and gas properties (Cost of operations only)	522	710
Amortisation of intangible assets	1	1
Total	523	711
DD&A (before impairment charges) per barrel	$19.1	$20.8

¹ Includes mark-to-market gains on emissions hedges reported in Other Revenue

 

The increase in operating costs per barrel is largely due to lower production volumes compared to the comparative period and was also impacted by the strengthening of UK Sterling against the US Dollar.

 

The decrease in the weighted average DD&A rate from the first half of 2020 is due to the impairment charge recorded in December 2020 against property, plant and equipment.

 

The Group has recognised a pre-tax impairment charge of $10 million (H1 2020: credit $90 million) as a result of increases to decommissioning estimates on the Group's non-producing assets.

 

EBITDAX

EBITDAX amounted to $843 million (H1 2020: $920 million) due to higher operating costs and overlift charges offset by higher revenue.

 

	30 June  2021 $million unaudited	30 June 2020 $million unaudited
Operating profit/(loss)	227	(181)
Exploration and evaluation and new ventures	30	4
Exploration costs written-off	31	39
Depreciation, depletion and amortisation	545	724
Impairment of property, plant and equipment	10	251
Impairment of goodwill	-	56
Provision for onerous contract	-	28
Remeasurements	-	(1)
EBITDAX1	843	920

¹ See Glossary for the definition of non-GAAP measures.

 

Exploration and evaluation expenditure and new ventures

During the period, the Group expensed $61 million (H1 2020: $43 million) for exploration and appraisal activities. This includes UK licence relinquishments and uncommercial drilling results related to the Norwegian PL973 Jerv & Ilder prospects of $31 million (H1 2020: $39 million). This also includes exploration and evaluation expenditure and new ventures amounting to $30 million (H1 2020: $4 million), mainly related to pre-development costs associated with UK Carbon Capture and Storage projects, Norwegian regional seismic and time-writing costs.

 

Net financing costs

Financing expenses totalled $145 million (H1 2020: $149 million), including $54 million of interest expenses incurred on debt facilities and legacy shareholder loan-notes (H1 2020: $72 million). Also included are bank and facility fees of $32 million (H1 2020: $22 million), the unwinding of discount on provisions, primarily associated with future decommissioning obligations, of $40 million (H1 2020: $49 million) and foreign exchange losses of $4 million.

 

Finance income amounted to $37 million (H1 2020: $105 million). The first half of 2021 included gains on derivatives of $22 million and a one-off modification gain recognised on the amendment of the RBL facility of $14 million. The first half of 2020 included foreign exchange gains of $102 million as a result of a significant strengthening of UK Sterling against the US Dollar that occurred in the six-month period to 30 June 2020.

 

Taxation

The tax expense for the period amounted to $34 million (H1 2020: credit $70 million), split between a current tax expense of $46 million (H1 2020: $211 million), and a deferred tax credit of $12 million (H1 2020: credit $281 million). The total tax expense for the period represents an effective tax rate of 28 percent (H1 2020: 31 percent).

 

Earnings and Earnings per share

The profit after tax was $87 million (H1 2020: loss $155 million), primarily due to higher revenue and other income in 2021, with no impairment on oil and gas assets or goodwill recorded in the current period (H1 2020: post-tax $306 million). Earnings per share was US cents 10.6/share (H1 2020: loss, US cents 21.9/share).

 

 

 

Statement of Financial Position

		6 months ended 30 June 2021 $million unaudited	Year ended 31 December  2020 $million audited
Total non-current assets, excluding deferred taxes		11,336	8,192
Deferred tax assets (note 7)		1,509	-
Total current assets		1,473	1,290
Total assets		14,318	9,482
Total equity		(1,736)	(1,067)
Total borrowings net of unamortised fees (note 14)		(3,003)	(2,182)
Total abandonment provisions (note 13)		(5,675)	(4,197)
Deferred tax liabilities (note 7)		(634)	(1,031)
Lease creditor		(734)	(141)
Other liabilities		(2,536)	(864)
Total liabilities		(12,582)	(8,415)
Net debt (net of unamortised fees) (note 16)		(2,457)	(1,400)

 

Assets

At 30 June 2021, total assets amounted to $14,318 million (Dec 2020: $9,483 million), of which current assets were $1,473 million (Dec 2020: $1,290 million).

 

The increase in total assets is principally due to the inclusion of Premier assets on completion of the Merger which added total assets of $5,164 million. This consisted mainly of goodwill which increased by $250 million, property, plant and equipment which increased by $2,384 million including right-of-use assets of $568 million and deferred tax assets recognised of $1,509 million. Further information is included in note 12.

 

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.

 

	30 June  2021 $million unaudited	30 June 2020 $million unaudited
Additions to oil and gas assets (note 10)	(180)	(237)
Additions to fixtures and fittings, office equipment & IT software (note 9)	(14)	(36)
Additions to exploration and evaluation assets (note 9)	(62)	(45)
Total capital investment	(256)	(317)
Movement in working capital	(24)	(46)
Capitalised lease payments	8	8
Cash capital expenditure per the cash flow statement	(272)	(354)

 

During the period, the Group incurred capital investment of $256 million (H1 2020: $317 million). This mainly consisted of spending on the J-Area Jasmine West Limb well, Tolmount development drilling, and non-operated drilling programmes at Beryl, Elgin Franklin and Clair Ridge.

 

 

Liabilities

At 30 June 2021, total liabilities amounted to $12,581 million (Dec 2020: $8,415 million) including decommissioning provisions of $5,675 million (Dec 2020: $4,197 million) and borrowings of $3,003 million (Dec 2020: $2,182 million).

 

The increase in total liabilities is principally due to the inclusion of Premier's total liabilities of $5,132 million and drawdown on the RBL facility in order to fund the replacement of Premier's debt on completion of the Merger. The total liabilities included from the Merger consisted mainly of additional debt of $2,219 million which was fully settled as part of completion, provisions for decommissioning of $1,553 million and right-of-use asset lease liabilities of $638 million. Further information is included in note 12.

 

As at 30 June 2021 net debt of $2,457 million (Dec 2020: $1,400 million) consisted of RBL senior and Shell junior debt less unamortised fees and cash balances. The increase since year end is mainly due to the drawdown on the RBL facility prior to completion of the Merger to fund the replacement of Premier's debt. Debt is stated net of the unamortised portion of the issue costs and bank fees of $135.4 million (2020: $64.3 million).

 

Equity and reserves

Total equity amounted to $1,736 million (Dec 2020: $1,067 million) with changes in 2021 reflecting the accounting for the merger as a reverse acquisition in accordance with IFRS3, Business Combinations with the capital structure (share capital and share premium) being a continuation of the legal acquirer (Premier Oil plc), whilst the remaining reserves reflect the accounting acquirer (Chrysaor Holdings Limited).

 

 

Cash flow⁽¹⁾

	30 June  2021 $million unaudited	30 June 2020 $million unaudited
Cash flow from operating activities after tax	646	946
Cash flow from investing activities - capital investment	(272)	(354)
Cash flow from investing activities - other	123	(9)
Operating cash flow after investing activities	497	583
Cash flow from financing activities - net interest and lease payments	(195)	(108)
Free cash flow	302	475
Cash and cash equivalents	424	369

(1)      The table above excludes cashflow movements relating to changes in debt principal amounts, including drawdowns, repayments and settlements

 

Net cash from operating activities after tax amounted to $646 million (H1 2020: $946 million) after accounting for tax payments of $206 million (H1 2020: receipts of $7 million) and positive working capital movements of $92 million (H1 2020: $157 million). Cash flow used in investing activities on capital expenditure was $272 million (H1 2020: $354 million). Cash outflow from financing activities including financing fees were $195 million (H1 2020: $108 million).

 

Cash balances were $424 million (H1 2020: $369 million) at the end of the period.

 

Post balance sheet events

In July, during final commissioning and testing of the Tolmount platform, issues were identified in certain offshore electrical systems. As a result, Tolmount first gas was delayed and is now anticipated around year end. With expected plateau rates of 20-25 kboepd net to Harbour, Tolmount was expected to contribute just over 10 kboepd to Harbour's 2021 production.

 

In August, following review of the portfolio of the Group's exploration licenses, Harbour took the decision to exit its exploration licence interests in the Ceara Basin in Brazil and also in the Burgos Basin in Mexico.

 

In September following a strategic review, Harbour decided to explore the options to exit its interests in the Falkland Islands including the Sea Lion project.

 

Risk management

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 2021. 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 2021	2022	2023	2024	2025
Oil
Volume hedged (mmboe)	9	19	7	-	-
Average price hedged ($/bbl)	57	61	61	-	-
Gas
Volume hedged (mmboe)	13	25	23	8	2
Average priced hedged (p/therm)	50	47	41	43	45

 

At 30 June 2021, our financial hedging programme on commodity derivative instruments showed a negative fair value of $1,387.6 million (H1 2020: positive fair value of $890.4 million), with no ineffectiveness charge to the income statement.

 

 

RISKS AND UNCERTAINTIES

Business risks

Harbour Energy faces various risks that could result in events or circumstances that might negatively impact the Company's business model, future performance, solvency or liquidity and reputation. Not all of these risks are wholly within the Company's control and the Company may be affected by risks which have not yet manifested or are 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 health, safety and environmental risks are managed to levels that are as low as reasonably practicable.

 

Principal risks at Half Year 2021 and key changes since 2020 Annual Report

Following the completion of the Merger on 31 March 2021, the directors have reviewed the principal risks facing the newly enlarged company, taking into account the potential impact and probability of the related events or circumstances, and the timescale over which they may occur.

 

The directors have identified the following principal risks facing the Company for the remaining 6 months of the year. As a result of the formation of the newly enlarged Company, a number of the principal risks are new or have changed compared to the risks described in p56-61 of the Premier 2020 Annual Report. An overview of the significant changes is included below where applicable.

 

·    Strategic execution - failure to define, communicate or implement an effective strategy. Strategic execution has been identified as a new standalone principal risk to reflect that Harbour, as a newly enlarged company, must define, communicate and implement an effective strategy which demonstrably creates shareholder value and enables growth. The risk includes ensuring appropriate capital allocation, the disciplined execution of capital investment and M&A opportunities, taking into account the Company's increased asset concentration in the UK, and the forthcoming transition of the shareholder base following the expiry of merger lock-up agreements.

 

·    Energy Transition & Net Zero - failure to deliver a credible plan to meet our Net Zero 2035 commitment. This risk has been retitled from 'Climate Change'. This change reflects how investor, regulatory and societal expectations related to the Energy Transition are taking shape and the risk that failure to deliver a credible plan to meet our stated Net Zero 2035 commitment and demonstrate early progress could limit available funding streams, deter investors and impact our societal 'licence to operate'.

 

·    Organisation - failure to embed a new organisation with an aligned culture and values. This risk has been retitled from 'Organisation Capability' and reflects the broader nature of the risk that the failure of the newly enlarged Company to embed a new organization with clear roles and responsibilities, adequate resources and an aligned culture could impede the Company's ability to deliver on its strategy. 

 

·    Integration of legacy businesses - failure to realise integration synergies in a timely manner. This risk has been retitled from 'Merger Completion & Integration'. This reflects a change in the nature of the risk following the successful completion of the Merger on 31 March 2021. The risk now relates to managing the pace, scope and cost of integration activities in order to realise integration synergies in a timely manner and establish a scalable operating model.

 

·    Information systems and cyber security - failure to establish a solid and integrated IT platform. This risk has been identified as a new standalone principal risk to reflect how a failure to establish an integrated IT infrastructure platform and to keep pace with technological developments in the industry could undermine the Company's ability to operate efficiently and to realise integration synergies. The risk also reflects an increasing cyber security risk due to a rising global threat, the visibility of Harbour as a newly enlarged entity and the number of personnel who continue to work remotely. 

 

·    Legal and regulatory compliance - failure to maintain and demonstrate effective compliance. This risk has been identified as a standalone principal risk to reflect that a failure to maintain and demonstrate effective Company-wide legal and regulatory compliance could damage our reputation and erode our values-based culture as well as result in financial consequences. The risk includes the obligations on the Company and its supply chain with respect to human rights and the communities where we do business.

 

·    Operational performance - failure to deliver competitive operational performance in an efficient, safe and environmentally responsible manner

 

·    Capital programme & delivery - failure to define and deliver a capital programme that creates value. The risk titled 'Production and development delivery and decommissioning execution' described in the Premier 2020 Annual Report has been separated into the two principal risks above. The separation of these risks reflects the newly increased scale of the operations and capital programme of the business and the distinct mitigations in place or planned. The nature and responses of these risks in combination remain comparable to the combined risk described in the Premier 2020 Annual Report. The risks also recognise the maturing nature of the Company's asset base and the implications for maintenance and decommissioning activity. In addition these risks also take into account the nature and responses of the risk titled 'Exploration success and reserves addition' described in the Premier 2020 Annual report which is no longer deemed a principal risk.

 

·    Health, safety & environment - risk of a major health, safety, environmental or physical security incident. The nature and response for this risk remains comparable to the risk titled 'Health, safety, environment and security' described in the Premier 2020 Annual Report and includes risks related to personal safety.

 

·    Access to Capital - failure to ensure sufficient access to capital to implement the company's strategy. The nature of this risk has changed compared to that described the Premier 2020 Annual Report. As a result of the successful completion of the Merger on 31 March 2021 and the newly well capitalised nature of Harbour, the risk is now that a failure to ensure sufficient access to capital could undermine the ability to execute the Company's strategy. The risk also takes into account the implications of future decommissioning of the Company's maturing asset base.

 

·    Commodity price and foreign exchange - failure to manage the impact of commodity and FX price fluctuations on our business. This risk has been retitled from 'Commodity price volatility' to also acknowledge the risk related to the foreign exchange exposure in the business. Otherwise the nature and response for this risk remains comparable to the risk described in the Premier 2020 Annual Report.

 

·     Host government political and fiscal risks - exposure to adverse or uncertain regulatory or fiscal developments in countries where the company operates or maintains interests. The nature and response for this risk remains comparable to the same risk described in the Premier Oil 2020 Annual Report.

 

·    JV partners and supply chain - failure to manage JV partners and supply chain. The nature and response for this risk remains comparable to the risk titled 'Joint venture partner alignment and supply chain delivery' described in the Premier Annual Report.

 

In addition, the Board continues to monitor the continued effects of COVID-19 on global oil and gas markets and to mitigate its effects on the Company's operations. However, in respect to the identification of principal risks, the primary risks associated with COVID-19 are considered to remain embedded within the principal risks identified above, including the potential impact on the principal risks related to health, safety and environment; commodity prices and foreign exchange; operational performance; capital programme & delivery and access to capital.

 

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

Chief Financial Officer

22 September 2021

 

 

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 2021 which comprises the interim condensed consolidated balance sheet, the interim condensed consolidated income statement, the interim condensed consolidated statement of comprehensive income, the interim condensed consolidated statement of changes in equity, the interim condensed consolidated statement of cashflows, and the related notes 1 to 17. 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 2021 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 and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. 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 will be prepared in accordance with UK adopted IFRSs. 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".

 

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.

 

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 is 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 and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. 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

22 September 2021
 

FINANCIAL STATEMENTS

Condensed consolidated income statement

 

For the six months ended 30 June		2021 Unaudited	2020 Unaudited
	Note	US$ million	US$ million
Revenue	4	1,377.0	1,230.0
Other income	4	119.3	13.6
Cost of operations	5	(1,139.4)	(1,045.4)
Impairment of property, plant and equipment	10	-	(340.4)
Impairment of goodwill		-	(55.7)
(Impairment)/impairment reversal due to (increase)/reduction in decommissioning provision		(9.9)	89.8
Exploration and evaluation expenses and new ventures		(29.9)	(4.3)
Exploration costs written-off	9	(30.9)	(38.9)
General and administrative expenses		(58.8)	(29.2)
Operating profit/(loss)	5	227.4	(180.5)
Finance income	6	37.4	105.0
Finance expenses	6	(144.6)	(148.8)
Profit/(loss) before taxation		120.2	(224.3)
Income tax (expense)/credit	7	(33.7)	69.8
Profit/(loss) for the half-year		86.5	(154.5)

 

Earnings/(loss) per share

		2021 Unaudited	2020 Unaudited
		US cents	US cents
Basic and diluted	8	10.6	(21.9)

Weighted average number of Ordinary Shares for the purpose of basic earnings per share was 816.0 million (H1 2020: 705.0 million).

 

 

Condensed consolidated statement of comprehensive income
		2021	2020
		Unaudited	Unaudited
	Note	$ million	$ million
Profit/(loss) for the half year		86.5	(154.5)
Items that may be classified to income statement in subsequent periods:
Fair value (losses)/gains on cash flow hedges	15	(1,468.2)	520.3
Tax credit/(expense) on cash flow hedges		570.4	(210.2)
Currency exchange differences		29.3	(135.2)
Total other comprehensive (loss)/profit for the half-year, net of tax		(868.5)	174.9
Total comprehensive (loss)/profit for the half-year		(782.0)	20.4
Total comprehensive (loss)/profit attributable to:
Equity holders of the parent		(782.0)	20.4

 

 

Condensed consolidated balance sheet		30 Jun 2021 Unaudited	31 Dec 2020 Audited
	Note	US$ million	US$ million
Assets
Non-current assets
Goodwill		1,237.2	990.0
Other intangible assets	9	1,080.0	454.1
Property, plant and equipment	10	8,039.0	6,522.4
Right of use assets	11	645.3	132.2
Deferred tax assets	7	1,509.4	-
Other receivables		307.1	3.6
Other financial assets	15	26.8	90.4
Total non-current assets		12,844.8	8,192.7
Current assets
Inventories		212.1	160.5
Trade and other receivables		787.6	461.3
Other financial assets	15	49.3	222.6
Cash and cash equivalents		424.0	445.4
Total current assets		1,473.0	1,289.8
Total assets		14,317.8	9,482.5
Equity and liabilities
Equity
Share capital		171.1	0.1
Share premium		1,504.6	910.0
Capital redemption reserve		8.1	-
Merger reserve		677.4	-
Cash flow hedge reserve		(793.8)	80.2
Costs of hedging reserve		(14.0)	9.8
Currency translation reserve		133.3	104.0
Retained earnings		49.7	(36.8)
Total equity		1,736.4	1,067.3
Non-current liabilities
Borrowings	14	2,973.6	2,160.3
Provisions	13	5,427.4	4,020.8
Deferred tax	7	634.2	1,031.4
Trade and other payables		45.5	29.8
Lease creditor	11	590.8	80.8
Other financial liabilities	15	453.8	52.5
Total non-current liabilities		10,125.3	7,375.6
Current liabilities
Trade and other payables		961.5	540.3
Lease creditor	11	143.1	60.1
Borrowings	14	29.8	21.5
Provisions	13	281.6	190.2
Current tax liabilities		102.5	153.3
Other financial liabilities	15	937.6	74.2
Total current liabilities		2,456.1	1,039.6
Total liabilities		12,581.4	8,415.2
Total equity and liabilities		14,317.8	9,482.5