Harbour Energy plc

Hello and welcome to Harbour Energy's 2024 four-year results presentation and capital markets update. My name is Elizabeth Brooks and I am Head of Investor Relations for Harbour Energy. In September of last year, as many of you know, we completed the acquisition of a large portfolio of assets from Vintage Aldea. This was our fourth acquisition in seven years and our most transformational, marking a step change in our scale, global presence and financial strengths. Our objectives today are to showcase the quality and potential of our portfolio, highlight the diversity and sustainability of our business, and outline our priorities for the future. First, Alexander Crane, our Chief Financial Officer, will take you through our 2024 results. Then we'll have our capital markets update hosted by our chief executive, Linda Cook, along with other members of our senior leadership team. And there will be plenty of time for Q&A at the end. But for now, I'll hand you over to Alexander for our 2024 results. Alexander.

Thank you and good morning to everyone joining us today. 2024 was a truly transformational year for Harbour Energy with the completion of the Vintas Aldea acquisition. We will hear the significant benefits and optionality this has brought us in our capital market update later this morning. But I wanted to start with this slide to demonstrate the step change we've seen and will see in full over 2025 as a result of that acquisition. At a point in history when there is a lot of uncertainty, a lot of unrest, and a lot of volatility in financial markets, we are more convinced than ever that the strategy we've set out and kept unchanged for years is the right one for an independent oil and gas company. We have scale, and we are lowering costs and GHG emissions intensity. We also have diversification, not only geographic diversity, but also diversity in our revenue streams, since we sell a mix of crude, European gas and international gas. We also target low leverage, looking to reduce our debts after each major acquisition and we hedge actively a significant part of our oil and gas sales. And collectively, this means that we are generating material and resilient cash flow that puts us in a strong financial position with potential for material additional shareholder distributions. Moving to our 2024 highlights. At the same time as completing this transformational acquisition, we also continue to deliver operationally and financially. We materially increased and diversified our production to 258,000 barrels of oil equivalent per day. We more than tripled our reserves and resources, and we made considerable progress with our strategic investment opportunities, of which we'll hear more later. We increased our revenue in EBITDAX to approximately 6 billion and 4 billion, up about 65 and 50% respectively, and as a result of the acquisition, achieved investment grade credit ratings. And this is just the start. Our 2024 results reflect just four months contribution from the acquired portfolio, with the full benefits of the acquisition coming through in 2025. This slide shows the full potential of the portfolio coming through in the fourth quarter of 2024, with production levels averaging around 500,000 barrels of oil equivalent per day. Furthermore, we've maintained these levels in the first two months of 2025. In addition to the acquisition, we also benefited from new models and projects on stream in the latter part of last year, including in the UK, Norway and Argentina. Costs were stable at $16.5 per BOE over the course of 2024, with the addition of the lower cost acquired portfolio offsetting higher unit operate costs in the UK. Going forward, our operating costs will be materially lower, as you will hear more about shortly. In 2024, total capital expenditure increased to 1.8 billion, compared to 1 billion last year. Of the 800 million increase, 80% is related to the four-month contribution from the Vinte Saldea portfolio. In addition, we accelerated drilling around our operator hubs in the UK, taking advantage of some certainty in the UK fiscal regime ahead of the changes last November. We delivered good results from the capital program, which was mainly focused on infrastructure-led opportunities and converting reserves into production and cash flow. Notably here, production started up from the Phoenix projects in our conventional offshore CMH-1 license in Argentina, while here in the UK we delivered first oil from our Talbot project. In addition, we acquired an interest in an exciting FLNG project in Argentina, which has the potential to accelerate the development of our huge Guacamuerta resource. We had exploration success in the UK and in Norway, but also further afield in Mexico and Indonesia. This included confirming a 100 million barrel plus oil field at Cannes and completing a multi-well campaign in Indonesia, which de-risked a multi-TCF gas play across our Andaman acreage. These successes added to our significantly increased 2C resource base, which now stands at 1.9 billion barrels of oil equivalent, providing significant reserve replacement opportunities and supporting material, long-dated production and cash flow beyond 2030. Now, I mentioned earlier that we have diversity in our revenue streams, supporting our resilient cash flow. realised pricing for our oil and European gas volumes improved in 2024, benefiting from higher Brent and European gas prices, but also an improved hedge book, especially on the European gas side compared to 2023. Starting with Brent, our post-hedging realized price for crude oil sales, excluding NGLs, averaged $82 per barrel, compared to the average market price of $81 and to a realized price of $78 in 2023. For our European gas, we realized $11 per MCF, in line with the average market price and up some 60% from $7 per MCF in 2023. Other gas prices, which relate to our Argentina, North Africa, and Southeast Asia gas volumes, they averaged $4 per MCF, driven by local Argentinian and Egyptian contractual pricing, and compared to $13 per MCF in 2023, which was solely Southeast Asia, where the price we realized for our gas is correlated to crude prices. Gas in Argentina and Egypt is primarily sold into the domestic market and is stable compared to the international benchmarks. Now, let us turn to the income statement. And as a result of completing the Ventesaldea transaction in early September, the 2024 financial statements are somewhat complex, with four months of operations included from the acquired portfolio, along with a purchase price allocation exercise that significantly impacts our balance sheets. As we've seen, EBITDAX was 50% higher at 4 billion, with the Ventus Aldea portfolio contributing approximately 2 billion of that, highlighting the high-quality assets that we acquired. There were also a number of period-specific non-cash charges. These largely related to our UK business and reflected the impact of the continued fiscal and regulatory uncertainty and challenges here in the UK. Impairment charges totaled 372 million, of which around half related revisions to decommissioning estimates on non-producing UK assets. The remainder primarily relates to impairments on three UK fields due to changes in life of field outlook. In terms of exploration write-offs and expenses, the two biggest components related to a UK asset write-off driven by the operator's decision to exit the UK in response to the EPL and some rationalization of Harbour's legacy Norway portfolio. In addition, this is where we account for our pre-feed CCS projects. The increase in net G&A reflects the enlarged group, including expansion of our corporate centre, and it includes one-off acquisition-related costs of 119 million. We had 0.5 billion of net financing costs this year. This covers 0.2 billion annual unwinding of the discount on balance sheet decommissioning liabilities. 0.1 billion of fair value losses on FX derivatives and another 0.1 billion of interest on the debt facilities and bonds. The total tax charge of 1.3 billion represents an effective tax rate of 108% compared to the 78% statutory rate, resulting in a loss after tax of 93 million and a loss per share of 10 cents. So, once again, we are reporting an effective tax rate of around 100% driven by the effects of the UK energy profits levy. So, turning to the balance sheet next. Total assets increased significantly to 30.3 billion as a result of the acquisition. We now have 5.1 billion of goodwill on the balance sheet here, of which 3.8 billion relates to the most recent acquisition. This primarily reflects the fact that assets and liabilities acquired get recognized on the balance sheet at discounted fair value, whereas deferred taxes are recognized on an undiscounted basis. The deferred tax position predominantly relates to Norway, where we face a 78% tax rate and have long life assets, meaning the discounting impact is significant. Now, this goodwill is not subject to annual amortization like our other assets. Instead, it will remain on the balance sheet until the deferred tax unwinds, at which point it will come off through impairment charges. Total liabilities and equity of 30.3 billion included equity of 6.3 billion versus 1.6 billion in 2023, driven again by the issuance of 3.5 billion of equity to part fund the acquisition and the recognition of the ported 1.6 billion of hybrid notes in equity. The commissioning provisions increased to 7.1 billion, driven by the acquired portfolio. Importantly, this is a pre-tax number, discounted at risk-free rates. Given decommissioning provisions largely relate to liabilities in the UK and Norway, where there's a 40% and 78% tax relief on decommissioning spend respectively, on a post-tax basis, this number is materially lower. Deferred tax liabilities amounted to 6.2 billion compared to 1.3 billion last year, principally due to additional deferred tax liabilities of 5.5 billion taken on from the acquisition. Now, let's turn to cash flow next. The acquisition of the Ventes Aldera portfolio is expected to deliver a step up in the scale and sustainability of our cash flow. This is underpinned by our improved reserve life and expanded resource base. For 2024, Harvard delivered free cash flow of 0.1 billion before shareholder distributions in one of acquisition-related costs. Cash flow was impacted by a number of period-specific items. This included material negative working capital movements driven by the adjustments of our working capital cycle to the increased size of our business. significant planned shutdowns in Norway in the period post completion and payment of previously deferred UK taxes on 2023 earnings. Now drilling down a bit into the key drivers for the working capital movement. At the end of 2023, we had a net working capital asset on the balance sheet reflecting the value of the approximate 200 KBOE per day production pre-year-end, for which the cash was not collected until post-year-end. rolled forward to year-end 2024, and we had a much larger net working capital asset on the balance sheet. This reflected the 500 KBOE per day production produced pre-year-end, but for which the cash was not collected until post-year-end. We paid 1.5 billion in tax, largely made up of 0.9 billion in the UK and 0.6 billion in Norway. The UK tax included 0.7 billion of energy profits levy, of which 0.4 billion again was a balancing payment related to 2023 earnings. Net debt increased from 0.2 billion at the end of 2023 to 4.7 billion at the end of 2024. This increase came as a result of a combination of porting of Vindisaldea bonds and new issuances in September last year. Net debt is presented in the financial statements at 4.4 billion after an amortized fees. As a reminder, the subordinated notes or hybrid bonds are accounted for as equity and are therefore not part of our net debt number. The final slide in my full year result presentation sets out how we delivered in 2024 and reiterates our guidance for 2025. Looking to 2025, we will benefit from a full year's contribution from the Ventes Aldea assets. This includes another material step up in our production to between 450 to 475 KBOE per day. And as I mentioned earlier, we have started the year well with production averaging 500 KBOE per day to the end of February. We also expect a 15% reduction in unit operating costs and a material step-up in scale and longevity of our free cash flow generation, as we benefit from our more diverse and low-cost portfolio. In summary, 2024 was another year of solid delivery for us, operationally, financially, and of course strategically, with the completion of the Vindes Altea transaction. The acquisition has transformed Harbour into one of the largest and most diversified global oil and gas companies. I'd like to conclude this part with a short video, following which we will move to our capital markets update, where we will provide more insights into our expanded portfolio with plenty of opportunities after for questions. Thank you.

Since 2014, Harbour Energy has built one of the world's largest and most geographically diverse independent oil and gas companies. We've driven our growth through a strong focus, aiming high and delivering value for all our stakeholders. From fuelling transport, powering industry and for heating our homes, our products provide the energy the world needs safely, efficiently and responsibly. We're passionate about what we do and we'll keep driving progress. We rise to the challenge and use our deep industry expertise to make technological advances. We care for our communities and are committed to managing the environmental impact of our operations. We're also involved in several European CO2 transportation and storage projects, which could help reduce carbon emissions. and we will continue strengthening and enhancing our portfolio. From the Americas to North Africa and Europe to Southeast Asia, we work together to help fuel the world.