Harbour Energy plc

Good morning. Thanks to everyone for joining us. With a particular thank you to those of you who might be dialing in while you're away on holiday for the summer. With me today is our CFO, Alexander Crane. I'll start by taking you through our first half operational performance and also an update on the Vendor Saldea acquisition. Alexander will then cover our financial results and guidance for the full year, and then back to me to wrap up, and then we'll open the call for questions. So starting with the half-year highlights, importantly, we maintained our focus on operational delivery. Our production, annual maintenance program, and ongoing investments in the UK are all on track. Our international organic projects continue to progress, and our financial position remains strong thanks to active cost management and disciplined capital allocation. This allowed us to end the period with a positive net cash position, while also delivering an 8% increase in our dividend per share. And lastly, we've made excellent progress towards completing the Wintershaw Day acquisition, which is now expected to occur early in the fourth quarter. Moving to the next slide, safety is always our top priority and we continue to deliver relatively strong performance with our total recordable incident rate remaining well below that of the industry average. We did, however, have a Tier 2 process safety incident in the first half. Our first one since 2022 was a gas release in Indonesia. While there were no injuries or damage, it is a reminder of the importance of our annual planned maintenance programs. Ensuring we're maintaining our assets properly is a key driver of good, sustained safety performance, not to mention production reliability and efficiency. We're also making good progress in reducing our environmental impact with greenhouse gas emissions from our current portfolio expected to be 15% lower in 2024 versus two years ago and 35% lower versus our 2018 baseline. Now to production. We averaged 159,000 barrels per day in the first half with a good balance of oil and gas. This was underpinned by strong reservoir performance and high reliability across our operated hubs, especially at Britannia, which achieved 94% operating efficiency and is today our largest producing asset. As you can see from the chart, production in the second quarter reflects the start of planned maintenance shutdowns, which will continue into the third quarter. This together with the timing of new wells coming on stream means that we anticipate a U-shaped production profile during 2024. With seven months of production now behind us, we feel comfortable narrowing guidance for the full year to the upper end of the original range we had set to 155 to 165,000 barrels per day. This is supported by our maintenance progress, including the completion of shutdowns at J Area and Ailey last month, and good line of sight to our UK capital program, which should boost production in the fourth quarter. Looking ahead to 2025, production from our current portfolio is expected to be broadly flat year on year, with volumes from new wells substantially offsetting natural decline. All of this excludes the impacts of the acquisition. Depending on timing of completion, we're expected to have some contribution from the Wintersaldea portfolio, which averaged 327,000 barrels per day in the first half of the year, according to their trading update issued earlier today. Turning to the next slide, absolute operating costs were broadly flat year on year, reflecting strong cost control in the face of some ongoing inflationary pressures and a stronger British pound. The year on year increase in unit costs reflects the lower volumes, but is still top quartile for the UK, where more than 90% of our production is located today. Importantly, as the UK fiscal environment continues to evolve, we're comfortable knowing that we have flexibility in many of our large contracts. For example, of our three drilling rigs currently under long-term contract, two require only four months' notice of termination. At the same time, our active portfolio management continues with our announced exit of Vietnam and example. We terminated the sale to the previous buyer when the long stop date was reached, but have recently relaunched the process. And we've actually seen an increased level of interest in the asset and have a view to completion in 2025. Now moving to our UK capital investment program. Expenditures in the first half reflect the Talbot project and also the great job the team has done to accelerate some high return short cycle opportunities into 2024 while we have some degree of clarity around the fiscal terms. We returned to drilling at Britannia with the Kalanish F6 well successfully brought on stream in July, meeting our expectations volume-wise. And at our Ailey hub, we drilled the Northwest Seymour well, which is now on track for startup later this month. At Talbot, we continue to anticipate first oil around year end. Substantially, all of the subsea infrastructure has now been installed, and the required topside modifications to the duty platform were completed during the J area planned shutdown. These projects typically have break-evens below $40 per barrel and 40 pence per therm, and are targeting IRRs materially in excess of 50% at today's prices. They also have extremely quick paybacks, with Kalanish F6 and Northwest Seymour both expected to reach payback within one year of startup. Turning now to international growth projects. In Mexico, feed is commenced at Zama and once completed, we'll refresh the cost and schedule estimates ahead of a final investment decision. A positive decision would result in 75 million barrels of 2C resources moving to 2P reserves, replacing the equivalent of over a year's worth of harbor's current production. To the southwest of Zama, appraisal drilling at last year's Kahn Oil Discovery will start later this month, and in parallel, we're undertaking early engineering studies on potential development options in collaboration with our partner, coincidentally, Winter Saldea. Following that acquisition, our interests in Zama and Kahn will increase to 32% and 70% respectively, and we'll become the operator at Kahn. In Indonesia, at the tuna project, there's been some progress with our partners' process to find a buyer for their steak. If successful, this would enable us to commence feed on the approved plan of development. And we've had some further exploration success on our Andaman acreage, shown on the next page. The new news here is the significant gas discovery at Tengkulu on the South Andaman license operated by Mubadala. This marks our third major gas discovery in the region, following the Timpan discovery in 2022 and Lyran in late 2023, and underscores the play's multi-TCF potential. The Tanculu Well encountered an 80-meter gas column and tested at 47 million standard cubic feet per day. Rates were constrained by the testing facilities, reflecting the good reservoir quality, the best of the three discoveries so far. At the end of last year, we had booked 130 million barrels of 2C resource for Lyran and Tympan collectively. Volumes associated with the Tangkulu discovery will be added as part of our year-end 2024 annual process. We're now nearly complete with the drilling of an appraisal well at Lyran, which will mark the fifth and final well of this campaign. And over the coming months, we'll now work with partners to analyze all of the data gathered and begin to consider next steps, whether it's additional exploration, appraisal, and or investigation of early development options. The other good news is, of course, that there is no shortage of potential gas markets in the neighborhood of all of these discoveries. CCS remains a key part of the UK's net zero strategy, and our two projects, Viking and Acorn, were both awarded Track 2 status last year, which is currently the only route to secure an economic license to transport and store CO2 in the UK. Our flagship Viking project, one of the largest planned CCS projects in the world, is making good progress in feed, and the development consent order required for the onshore pipeline is now well advanced. We are, however, managing the pace of the projects to ensure we don't get too far ahead of the government process. This includes closely monitoring the Track 1 projects, which are expected to reach FID this year, which we hope will allow the government to turn their attention to Track 2. We continue to believe in the potential for Viking to generate long-term cash flow and reasonable returns with ESA project financing and offering export storage services to European customers. But it will require the government to deliver on its end. Now for an update on the Wintershaw Daya acquisition. We completed the steps to arrange the financing in the first quarter. These included the syndication of the $3 billion RCF and $1.5 billion bridge facility and a successful bondholder consent process enabling us to port the investment grade bonds from Wintershaw Daya. We published the prospectus and circular in June and our shareholders subsequently voted overwhelmingly in favor of the acquisition in July. And we've made great progress on the various regulatory antitrust and foreign direct investment approvals required for completion. Most recently, in the last few days, we received clearance under the UK's National Security Investment Act, which satisfies the UK foreign direct investment condition, and also consent from the UK NSTA, the oil and gas regulator. That leaves just a small number of approvals still required for completion, all of which are expected to be secured in the coming several weeks. In parallel, we're ensuring that we'll be ready to safely receive the acquired assets and employees into Harbor. This includes increasing the capacity of our corporate center and ensuring our systems and processes are ready to support the enlarged company, all of which is well advanced. In addition, we've put in place a transition services agreement under which Wintershaw Daya will provide certain services to Harbor for a defined period post completion. Given all of this progress, we now anticipate completing the acquisition early in the fourth quarter of this year. Some of you will have seen this next slide before. It's one that we're proud of, knowing that we started with nothing and produced our first barrel of oil just seven years ago. The Wintershall Daya transaction will take us another big step forward, transforming the scale, diversity, and longevity of our portfolio. It will strengthen our capital structure, and as a result of all of that, will support enhanced and sustainable shareholder returns. And as the slide shows, the acquisition will place us in a new peer group, including the large Norwegians and some large U.S. listed independents. As consolidation among the U.S. onshore companies is nearing its end, we're starting to see an increasing interest in international assets. As such, we believe Harbor, as a large-scale but more global producer, presents a unique investment opportunity. Right, that's it from me for now. Over to Alexander for the financials.

Thank you, Linda, and good morning to everyone calling in. So turning now to the financial results for the first half of the year, and we will start with realizations and hedging on page 17. We realized higher prices, especially for our crude sales during the period, reflecting stronger oil prices and an improved hedging results. On the gas side, while UK NBP prices were 35% lower compared to first half 2023, our realized UK gas price was slightly improved at 61 pence per therm, driven by materially improved hedging in the second quarter this year. We continue to run our own hedging strategy, and as do Ventes Aldea, operating as two independent companies until completion. As in the past, when we anticipate putting more debt on the balance sheet, we've executed additional hedging to de-risk future cash flows, mindful, of course, of Ventes Aldea's hedge book, which we will acquire at completion. Looking forward, on a standalone basis, our hedged crude volumes remain relatively stable at around 20,000 barrels per day, equating to between 25 and 30% of our liquids production, with an average hedged price of $84 per barrel for the second half of 2024, then reducing to $78 and $73 in 2025 and 2026, respectively. For UK gas, we have hedged approximately 40% of our second half volumes. That equates to almost 30,000 barrels of oil equivalent per day hedged at around 80 pence per therm. A similar volume is hedged in 2025 at 89 pence per therm. Hedged UK gas volumes are then lower in 2026 and 2027. However, hedged prices continue to be above 80 pence per tonne. Turning to the first half, income statement. Our operating margins continue to be robust at around $50 per barrel, although as in recent prior periods, our profitability has been impacted by high effective tax rates, reflecting our current UK concentration. Revenues total 1.9 billion, a 100 million reduction compared to the first half of 2023. This reflects lower production volumes, partially offset by better crude realizations, a $110 million movement in our net overlift versus underlift position in 2023, and an additional 50 million of revenue following resolutions of our U.S. price dispute. As Linda noted, our operating costs were broadly stable at around 500 million, reflecting good cost control with higher unit OPEX driven by lower volumes. We generated profit after tax of $57 million, compared to our loss in the first half of 2023. While profit before tax was similar to first half of 2023 at 0.4 billion, we saw a lower effective tax rate at 85% compared to the 100% plus rate in the first half of 2023. Although one improvement period on period, the effective tax rate is still materially higher than the statutory rate of 75%, largely due to the impact of items not fully deductible at UK oil tax rates. Three other points to note on this slide before turning to the balance sheet. First, impairments of 53 million. This is largely driven by our East Irish Sea asset, which was impaired due to lower near-term gas price assumptions and revised decommissioning estimates. Now second, as you can see, G&A expense was higher on the prior period with the inclusion of acquisition-related fees. And finally, the British pound-US dollar FX rate, while stronger when compared to the first half of 2023, was broadly stable during the period, resulting in minimal impact on the income statement compared to the $85 million FX losses we saw in the first half of last year. The next slide shows our balance sheet, which remains largely unchanged since the year end 2023. That said, there are a couple of items to note. First, you will note that the balance sheet as at December 31st, 2023 has been restated as a result of the declassification of our Vietnam business from asset health to sale category. We have provided the detail of this restatement in note two to the financial statements. This follows our decision in June to relaunch the sales process for our Vietnam business. The next thing to note is around our funding. Our RBL remains undrawn, and with our cash balances more than offsetting our bond, we close the period with net cash of $45 million, net of amortized fees, compared to a restated net balance of $207 million at the end of 2023. Also, ordinarily at this time of year, we would talk about our annual redetermination under the RBL. However, with the Vintes Aldera acquisition, we will be moving from a secured RBL as our main source of funding to a fully unsecured capital structure, comprising an RCF and bonds, providing us with cheaper and more flexible financing going forward. We have therefore deferred our annual redetermination and cancelled one billion of the RBL facility to reduce costs as we progress completion of the acquisition. And finally, the balance sheet does not reflect the proposed changes to the EPL here in the UK by the Conservative government in March, nor indeed by the new Labour government, as these were not enacted as at the balance sheet date. Labour plans to increase the EPL to 38%, extend it to March 2030 and remove the 29% investment allowance effective November 1st this year. They are also consulting with industry over reduced EPL capex relief. Now, we continue to engage heavily at all levels with Treasury and the government on this, and we expect the government to announce full details at the next budget scheduled for end October 2024. Turning now to cash flow on page 20. During the period, we generated significant cash flow from operations, which has allowed for continued investment in shareholder distributions while enabling us to close the period in a small net cash position. The left-hand waterfall diagram shows we started the year with net debt of 0.2 billion, then during the period we generated 1.3 billion of gross operating cash flow. We spent approximately 0.5 billion on capital investment and decommissioning on a cash basis, predominantly here in the UK, and encourage 100 million of acquisition-related fees and financing costs. Of these, we capitalized approximately 57 million of financing costs, and this will be amortized over the tenor of the debt. Our existing financing and lease costs amounted to 0.1 billion, while our tax payments for the period totaled 0.2 billion. As a result, we generated 0.4 billion of free cash flow before shareholder distributions of 100 million in line with our current annual 200 million dividend policy. Since becoming a public company back in 2021, we have returned more than a billion dollars to our shareholders through dividends and share buybacks, while at the same time, our dividend per share has steadily increased from 11 cents to 13 cents per share. Further, post completion of the acquisition, we have committed to increasing our dividend to $455 million, which increases our dividend per ordinary share. This signals our confidence in the acquisition to deliver a step change in the scale and sustainability of our free cash flow. I'll finish now with the guidance for this year and the outlook for 2025. And just as a reminder, the guidance and outlook set out on this slide relates to harbor on a standalone basis before any impact of the Vindesaldea acquisition. Now, as Linda said, with almost seven months of the year behind us and with our maintenance programs and capital projects on track, we feel confident to narrow production guidance towards the upper end of the range to 155 to 165,000 barrels of oil equivalents per day. Full year guidance for unit OPEX and total CAPEX remains unchanged as approximately $18 per BOE and 1.2 billion respectively. Of this $1.2 billion, around 85% is in the UK, with a balance international, predominantly Indonesia, where we are completing the multilevel exploration and appraisal campaign. Higher tax payments this year, estimated at between 0.9 billion and 1 billion, reflect the anticipated full utilization of our available UK corporate tax losses over 2024, as well as the resulting change in the phasing of our EPL payments. Specifically, the residual 2023 EPL liability to be paid now in 2024 amounts to approximately $400 million, the majority of which relates to EPL not payable by installments. At $85 per barrel and 70 pence per therm, we continue to anticipate being marginally free cash flow positive for the year, with current expectation of between $100 and $200 million, reflecting improved production outlook offset by a deferred Vietnam sale proceeds. our 2025 outlook remains unchanged from what we have said previously. That is, excluding the impact of proposed acquisitions and disposals, we anticipate our production to be broadly flat year on year, while our total capital expenditure is forecast to be materially lower, resulting in significantly higher free cash flow in 2025. As mentioned, all of this excludes the effect of the Ventes Aldea acquisition, which, with completion now in early Q4, could contribute significantly to our second half 2024 numbers. We will provide updated guidance at completion to reflect this, but in short, we continue to expect the Ventes Aldera portfolio to double, almost triple, our production rates and expand our reserve life, resulting in a very material step up in the scale and sustainability of our free cash flow. Now I'll hand it back to Linda for some closing remarks. Thank you.

Thanks, Alexander. So just a few more words from me before we open for questions. This last slide, it makes clear the progress we've made since founding Harbor just a few years ago. We've built our business mainly through disciplined M&A, with the Winter Saldanha acquisition marking our fourth and most transformational deal to date. Each of these acquisitions has a different value creation story. The Shell transaction focused on reinvesting in midlife assets. The Conoco deal focused on getting to scale and driving synergy. Then the reverse merger into Premier Oil was about financial synergies, a starting point towards international diversification and securing a public listing. Across these transactions, we have a solid track record of successful integration while maintaining strong safety and operational performance and creating value for our shareholders. And we're now close to completing another transaction. And in doing so, we'll have created a new large independent oil and gas company with the scale, asset quality, and financial strength needed to be relevant in today's market. Looking forward to the rest of the year, our priorities for 2024 remain unchanged. The continued safe and responsible operations of our existing portfolio and the successful completion and subsequent integration of the Wintersaw Day acquisition. And now we're happy to take your questions.