Harbor Energy joined the ranks of the London Stock Exchange last week. With a market capitalization of nearly £ 4bn ($ 5.50bn), the company, formed by the merger of Premier Oil and Chrysaor Holdings, is currently the largest independent oil and gas group on the UK stock exchange.
Here’s what you need to know about it.
Harbor Energy HBR,
was born during the turmoil in the oil industry. Last year, governments around the world imposed quarantines and travel restrictions to combat the coronavirus pandemic. Fuel demand suddenly dropped and oil prices plummeted. Brent BRN00 oil,
fell below $ 20 a barrel in April 2020. This dealt a serious blow to players like Premier Oil PMOIF.
The company, a mid-range hydrocarbon producer based in the UK and Southeast Asia, reported losses of $ 671.5 million in the first half of 2020 alone. Its shares closed at 26p on August 20, the day the results were published. dropped from 98p at the start of the year.
Two months later, as Premier struggled to refinance $ 2.9 billion in debt that was due to be paid off shortly, the private company Chrysaor rushed in and struck a deal to acquire the ailing company. As part of the buyback deal, Premier shareholders received 5.45% of the expanded group, and Chrysaor, which now owns the newly formed Harbor Energy, has pledged to pay off and write off Premier’s $ 2.7 billion debt.
On April 1, when it began trading in London, Harbor predicted oil and gas production in 2021 would average between 200,000 and 215,000 barrels of oil equivalent per day. Much of this will come from the UK’s North Sea fields, which Chrysaor already owned when he took over Premier.
For independent oil and gas companies listed on the London Stock Exchange, which, unlike large integrated companies such as BP BP,
and Royal Dutch Shell RDSA,
– focus only on exploration and production, this is the maximum. Quit FTSE 250 MCX,
components such as Energean ENOG,
Tulle oil TLW,
Diversified Gas and Oil Company DGOC,
and Cairn Energy CNE,
Energean projects daily production of 35,000-40,000 barrels of oil equivalent by 2021, while Tullow Oil expects to reach 60,000 to 66,000 barrels of oil. DGO did not provide forecasts for 2021, but produced 99,831 barrels of oil equivalent per day in 2020. And Cairne expects to reach 16,000-19,000 barrels per day in 2021, not counting the 33,000-38,000 barrels from the oil and gas fields from which it purchases. Egypt.
“Harbor is likely to be one of the best names for many investors looking to increase their stake in their sector,” UK broker Peel Hunt said in a recent post.
Recovery in oil prices will increase the attractiveness of Harbor
With oil prices recovering from last year’s lows, stocks like Harbor Energy are looking increasingly attractive to investors.
Peel Hunt on Tuesday raised its recommendation for Harbor to hold off on a cut after revising its oil price forecasts upwards to $ 60 a barrel. Brokerage analysts now expect Harbor to generate earnings before interest, taxes, depreciation, amortization and exploration of $ 2.25 billion in 2021 and $ 2.26 billion in 2022.
Analysts highlight Harbor’s ability to generate cash flow as one of its main strengths. The rebound in oil prices only reinforces this view.
Barclays analyst James Hosey estimates the Harbor could generate $ 1.1 billion in free cash flow in 2022. “Harbor Energy will provide UK investors with new E&P stocks with the scale, breadth and balance needed to be an attractive investment proposition in what remains structurally challenging. the energy subsector, ”he said in a recent memo.
In addition, Harbor products are inexpensive. The company’s break-even cash flow is between $ 30 and $ 35 per barrel of oil equivalent. The break-even point for Norwegian peers Lundin Energy AB and Aker BP ASA, by comparison, exceeds $ 40 due to their higher capital and tax costs, Jefferies analysts said in a recent report.
Dividends may be on the horizon
Berenberg analyst James Carmichael said the acquisition of Premier strengthened the business by boosting low-cost production and increasing cash generation. This should ensure that the company can achieve its goal of reducing net debt, go international and, most importantly, receive sustainable dividends.
Premier Oil announced in December that the combined group is expected to generate enough money to pay dividends for 2021. Given that oil prices are now $ 10 higher than during the Christmas period, this looks increasingly likely. Jefferies analysts are forecasting a 0.5p allocation this year. Berenberg also sees near-term dividend potential, but expects Harbor management to provide more clarity in the coming weeks.
Further growth opportunities
Harbor said capital expenditures will be $ 1 billion per year. This is essentially the cost of keeping production at around 200,000 barrels, Jeffery said.
But parent company Harbor has some experience in countercyclical oil and gas acquisitions, according to the American bank. “Harbor has a wide range of opportunities for international growth, including […] a management team with a track record of creating value through disciplined M&A deals, ”the company said earlier this month, making it clear that it is not ruling out the possibility of expanding its portfolio through acquisitions.
Email Jaime Llinares Taboada at [email protected]