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Harbour Energy sets aside $400m in respect of windfall tax

oil and gas rig

The Harbour Energy share price has seen mixed fortunes since the shares dropped from the highs seen back in April, after the government’s announcement of a windfall tax on UK profits for oil and gas companies.

While the likes of BP and Shell can easily absorb this sort of measure, the likes of domestic producers like Harbour are affected much more, and while they appear to be coping fairly well with the current climate, that might not always be the case.

In July the shares hit a one-year low and have slowly recovered, trending higher since those July lows, and have edged higher in early trade after today's trading update. Nonetheless it is clear that the tax liability for small UK producers is going to be much higher on a percentage, as well as on a headline level, and is borne out in today's numbers.

Harbour Energy daily chart

Source: CMC Markets

In H1 revenues came in at $2.67bn, with profit after tax rising to $984m, up from $87m a year ago, helped in some part by the weakness of the pound. At the time this put it well on course to hit a full-year revenue target of $5.18bn.

Today’s trading update for the year to date has seen revenues rise to $4.1bn, keeping it on course to hit its full year revenue target of $5.18bn, while its tax liability for the current year is expected to be $900m, of which $400m relates to the UK energy profits levy. Total capex has been reduced further to $1bn, a further reduction from the $1.2bn, it was reduced to at the end of H1. Forecast 2022 free cash flow increased to $2-2.22bn. 

Harbour CEO Linda Z Cook pointed to speculation around further changes to the UK tax regime which has created increased uncertainty around its future UK investment plans. This is what is so depressing about the whole tone of the political debate around windfall taxes. While politicians find it easy to bash the big oil companies for their big profits, it’s the smaller producers who contribute the biggest proportion towards the UK’s energy security who feel the effects of their decisions the most.

Harbour Energy is the UK’s biggest oil and gas producer and are key contributors to the total energy mix and given the current uncertainty who would blame them for holding back on future investment decisions because of that. This week we’ve seen BP set aside $800m in respect of the new levy, while today Harbour Energy have set aside half that sum at a time when their total revenue is a fraction of BP’s.

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