Over the last 12 months, the FTSE 250 has delivered a fairly flat performance, but that’s been improved by a 3.5% dividend yield. Sadly, the same hasn’t been true for Harbour Energy (LSE:HBR), which has seen its share price slashed by almost 40% over the same period. And even in 2025, the downward trajectory‘s continued with a further 25% slide.
However, the one benefit of this sell-off is that the stock now offers one of the largest dividend yields in the FTSE 250. And if the share price stabilises, investors could be looking at a rare passive income opportunity. So why is the Harbour Energy share price falling, and is this secretly a buying opportunity?
Investigating the problem
There are a number of factors dragging down the investor sentiment surrounding Harbour Energy, including concerns about production levels. However, the biggest concern among investors is the state of British windfall taxes on North Sea Oil & Gas production.
In 2024, the group’s pre-tax profits came in at a solid $1.2bn. But after taxes, these earnings collapsed to a loss of $93m, putting the effective tax rate at a whopping 108%!
Harbour Energy’s not the only business seeing its bottom line evaporate under this government policy. And with the deadline for the windfall tax levy extended to 2030, companies have begun looking elsewhere for investments – Harbour’s no exception.
The firm’s recent $11.2bn acquisition of Wintershall Dea added numerous new oil & gas assets to its portfolio. But critically, these were largely located outside of the North Sea, including Argentina, Mexico, Egypt, Libya, and Algeria, among other places.
Apart from avoiding the crippling UK North Sea production taxes, this deal has also transformed the business into a highly diversified global energy player. And with production now expected to reach as high as 470,000 barrels of oil equivalents per day, the group’s outlook is starting to look more promising.
Improving sentiment
This acquisition does not completely eliminate the firm’s exposure to UK windfall taxes. But it does significantly reduce Harbour’s exposure to the North Sea from around 90% of production down to around a third. And subsequently, net income’s expected to return to the black in 2025.
Subsequently, the firm has confirmed it’s sticking with its dividend policy to return $455m a year to shareholders. In other words, its impressive dividend yield is seemingly here to stay. And with that in mind, it’s not surprising to see investor sentiment start to warm.
However, that doesn’t mean the stock’s out of the woods yet. As an oil & gas producer, the firm’s still highly sensitive to everchanging commodity prices. There are also integration challenges to consider. Executing an acquisition of this scale isn’t going to be easy. And if the company runs into trouble assimilating operations, the expected synergies and efficiencies may fail to materialise – not to mention the potential for large unexpected costs.
Put simply, while Harbour Energy’s seemingly making the right strategic moves, the quality of execution remains uncertain. With that in mind, despite the attractive dividend yield, it’s only on my watchlist for now.
