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Insider UK
Insider UK
National
Peter A Walker

Harbour Energy blames job losses on windfall tax

Harbour Energy has blamed the UK's Energy Profits Levy (EPL) for plans to cut jobs at its Aberdeen base.

The oil and gas producer's trading update did not specify how many of its 1,700 employees would lose their jobs, but stated: "We are scaling back investment in other areas such as new exploration licensing.

"As such, we have initiated a review of our UK organisation to align with lower future activity levels."

The windfall tax, which applies to profits made from extracting UK oil and gas, will remain in place until March 2028 - and was recently increased from 25% to 35%.

Harbour's estimated revenue of $5.4bn was backed by earnings before tax of $4.1bn - almost double the $2.4bn made in 2021 - although post tax earnings were impacted by a significant one-off non-cash deferred tax charge associated with the EPL.

As a result of the increase in and extension of the EPL, the revaluation deferred tax charge will be materially higher than the previously estimated $600m charge disclosed in the 2022 half-year results.

Harbour made a pre-tax profit of $1.5bn in the first half last year, up from $120m over the same period of 2021.

Total capital expenditure last year was $1bn, in line with latest guidance and materially lower than the $1.3bn forecast at the outset of the year. This was due to the decisions not to proceed with several North Sea exploration and appraisal wells, as well as the delayed arrival of rigs at some locations.

Total cash tax payments of circa $600m - more than double that made in 2021 - were in part driven by the introduction of the EPL. An estimated 2022 EPL liability of more than $350m - of which around $200m was paid in 2022 - was paid, with the balance to be met during 2023.

Total shareholder distributions of $600m were announced during the period, comprising around $200m in annual dividends and $400m of share buybacks. The buybacks comprised a $300m programme which completed in September and a $100m programme which was 57% per cent complete at year-end.

Net debt reduced from $2.3bn to $800m, with cash and undrawn facilities of $2.5bn.

The company reported a 19% production increase versus 2021, driven by new wells coming online, including at Tolmount, alongside improved operating efficiency and a full year's contribution from its Premier assets.

Lower estimated operating costs of $13.7 per barrel - down from $15.2 in 2021 - reflect higher volumes, a weaker UK sterling to US dollar exchange rate and continued progress with integration efforts.

Outside of its North Sea assets, Harbour stated that in Indonesia it made a "significant gas discovery" at the Timpan prospect, with further drilling planned for 2023 and 2024. This comes in addition to development plans at the Tuna field being approved by the Indonesian Government

Similarly, in Mexico the Zama development plan is being finalised ahead of submission to the Mexican Government.

There was also "significant momentum" on two UK carbon capture and storage projects, including the Harbour-led Viking project which has the potential to meet one third of the UK Government's target to capture and store 30 mtpa of CO2 by 2030. New partnerships were formed with "major customers" and CO2 storage capacity was independently verified.

The outlook noted that total UK capital expenditure will be reduced compared to previous expectations, with certain opportunities no longer being pursued following the changes to the EPL announced in November, including the Total-operated EIH well at Elgin Franklin and participation in the 33rd North Sea licensing round.

A review has been initiated of the UK organisation in order to align with lower future activity and investment levels in the country.

Chief executive Linda Z Cook commented: "Against a backdrop of ongoing geopolitical, economic and fiscal instability, I am proud of the company's accomplishments during 2022.

"We remain committed to playing an important role in the continued supply of reliable and responsible domestic oil and gas in the UK.

"However, while oil and gas prices have reverted to more normal levels we still face a tax rate of 75% in the UK due to the recent tax changes, making investment in the country less competitive - as a result, the EPL necessitated a review of our future activity levels in the UK and reinforced our ambition to grow and diversify internationally."

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