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Could this rumoured merger send the Harbour Energy share price flying again?

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Oil pipes in an oil field
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The name Harbour Energy (LSE: HBR) is a relatively new one in the oil and gas exploration business. But the company behind it, previously known as Premier Oil, certainly isn’t. The name change following Premier’s merger with Chrysaor Holdings hasn’t done a lot for the new Harbour Energy share price, mind.

The shares have been dipping in 2021. But in the past month or so, renewed interest appears to have been pushing them upwards again. So what’s happening?

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I’ve owned shares in this company in the past, in its Premier Oil incarnation. Back then, I think I escaped lightly with a small loss when I sold. Despite what I saw (and still see) as decent assets and a promising exploration programme, the big problem is debt.

We have yet to see any results from Harbour. But Premier Oil did deliver a final set of full-year figures in March. And that statement predicted post-merger net debt for the new company of $2.9bn. That’s better than the previous figure of $3.2bn, but it’s still an eye-watering sum.

Merger on the cards?

I’ve always thought some sort of refinancing or restructuring was going to be needed. And we learned of one possible way forward this week. According to reports from several sources, including Bloomberg, there could be a new merger on the cards.

Neptune Energy, an explorer backed by private equity, is apparently thinking about a merger with Harbour. Neptune, part owned by Carlyle Group and CVC Capital Partners, is understood to be in talks with its advisors.

If the mooted deal should come off, it would result in a combined business worth around $10bn. At least, that’s according to “people familiar with the matter“, as the reports are describing them. It would make it one of Europe’s biggest independent oil and gas companies.

Harbour Energy share price reaction

But I’m going to make no assumptions at this stage. And the market reaction has been, at best, mixed.

On Tuesday, the day the news broke, the Harbour Energy share price rose by 7% at its intra-day high. But that quickly subsided. And as I write on Wednesday, the price has dropped back below where it started. I wonder if investors were expecting something official in response to the reports, as often happens? Well, we haven’t heard a peep from either Harbour or Neptune.

So, what would I do now? There’s an old investment saying that goes “buy the rumour, sell the news“. The idea is that rumours can give a share price an initial boost, which is then extended when the news is confirmed. But there’s far too much randomness in short-term price movements for me to even think of that. And the fall-back in the Harbour Energy share price suggests there’s very little rumour effect anyway.

Combined assets and debts

Should anything actually come of it, I’ll make my decision then. We might be looking at a combined company with attractive combined assets, and significantly diluted debt. But what share each set of investors might get in the merger is a big unknown. So whether it’s worth buying Harbour shares in advance is something I can’t even guess at. I shall wait and see.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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