It’s been a good year for many oil and gas companies in 2022. Harbour Energy (LSE: HBR) shares did fall back quite heavily from their April peak. But their strong recovery since July was given an extra lift on Thursday from interim results.
By mid-afternoon, the Harbour Energy share price had gained 13%. That was on the back of a 40% rise in production, to 211,000 barrels of oil equivalent per day (boepd).
Margins
Unit operating costs of $14.20 per barrel looks pretty good to me, and that’s a 5% reduction on the 2021 first-half figure.
I’ve been wary of investing in oil exploration companies since I bought some Tullow Oil shares a few years ago. I was very soon looking at a hefty paper loss on that one, but I held on and was lucky to cash out at around breakeven.
So I don’t tread lightly when I consider buying Harbour Energy shares. But I see a number of key characteristics that I like.
Cash and debt
Firstly, Harbour is nicely profitable. It recorded earnings before interest, tax, depreciation, amortisation, and exploration expense (EBITDAX) for the half of $2.0bn. Bottom-line profit after tax came in a $984m, though there were a couple of big one-offs there.
Debt has been a big killer of many an oil and gas hopeful. In the case of Harbour Energy, we’re looking at net debt of $1.1bn. That amounts to a leverage of only 0.3 times, which I don’t see as any real danger.
Harbour paid its very first dividend, of $98m, for 2021. And it just announced a 2022 interim dividend payment of $100m. The company also commenced a share buyback of $200m in June, and has now upped that to $300m.
Guidance
For the full year, the board now expects production of 200,000-210,000 boepd, with a unit operating expense “towards the lower end of $15-16/boe guidance.”
What does this all mean, and will I buy?
I’ve often looked for oil companies that fill the gap between the smallest and highest-risk explorers, and the major producers like BP and Shell. That’s where my Tullow investment came from. But it was hit by a combination of debt and falling oil prices.
And that’s where I start to be a little cautious over Harbour Energy. I don’t see a debt problem, so I think I can put that fear aside.
Oil price
But right now, oil prices are historically high at around $100 per barrel. Harbour has various portions of its potential output hedged at prices around $75-$85 levels as far out as 2025. So there’s some buffer there.
But what will happen next time oil prices fall? Now, I don’t expect a crash back to sub-$25 levels again any time soon. But then, I didn’t expect the last one. The only thing I am confident of is my total inability to predict oil prices.
So will I buy Harbour Energy shares? I might do. I really might. But I’m going to do some longer-term research first, and not risk making any rash decisions.
