Harbour Energy Plc is not your typical oil and gas enterprise. It has had a rather circuitous route to arrive at its present standing, having been formed through a reverse takeover merger transaction that concluded on 31st March 2021. It now claims to be the largest UK-listed independent oil and gas company. Its primary focus is in the UK and North Sea oil fields, but its operations are spread throughout other countries, including Norway, Mexico, Vietnam, and Indonesia.
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The firm began as Harbour Energy, a construct conceived by Noble Group and EIG Global Energy Partners in 2014 to acquire speculative assets in the energy sector for further development and cash generation. Its initial venture was to assist Chrysaor Holdings Limited in its 2017 purchase of holdings in the UK North Sea from Shell for $3bn. Two years later, it acquired another similar property from ConocoPhillips for $2.7bn. Premier Oil is another player in this recombination strategy. Across the globe, it was founded in 1934 and was initially the Caribbean Oil Company.
Its early vision was to search for oil & gas deposits in Trinidad, but after 2000, it was able to expand its operations into the UK region while also making a presence in Vietnam and Indonesia.
In June 2020, Harbour assisted Chrysaor in its acquisition of Premier Oil, and then in 2021, these entities were combined to form Harbour Energy Plc (HBR), currently headquartered in London.
Energy stocks like HBR are very similar in risk demographics for mining companies. There is a high risk but also a potential for high reward. Is Harbour Energy a good stock to buy? Analysts claim it is undervalued, but it may be that the stock requires patience.
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Who Is Harbour Energy Plc?
As noted, Harbour Energy claims it is “the largest London-listed independent oil and gas company with a leading position in the UK,” while it is the result of combining a number of energy puzzle pieces together over the past seven years.
Throughout this period, Linda Cooke has served as the entity’s Chief Executive Officer – a good indication of stability and consistency over a period of several corporate reorganisations. She departed from Royal Dutch Shell after an illustrious 29-year career, where she served as Chief Executive Officer for varied Shell entities and sat on its Board of Directors and Executive Committee.
Investors are always suspicious of these types of corporate recombination since a great deal of management time is required to merge disparate cultures into a cohesive operating unit.
When the new entity debuted on the main part of the London Stock Exchange in April, there was already heightened awareness of the company’s intent and raised expectations that the new entity would be profitable. Increasing oil prices in the spot market also fuelled these expectations, but prices soon fell, a type of sell-on-the-news response when press hype looms large. From a peak of 675p, shares plummeted, settling at 450p when the new regime began.
The company was profitable in 2022 as oil prices surged, but it said the majority of its profits were “all but wiped out” by the UK windfall tax. As a result, HBR’s CEO said the company would scale back North Sea spending and diversify its operations overseas.
The allure of investing in mid to large-cap oil & gas companies is that these firms can generate excess cash flows and pay good dividends when the price of oil is on the rise. Significant capital gains can also add to the overall profit, but these firms are facing constant pressure to improve – whether it be the quality and extent of their reserves, the containment of operating costs, or, in today’s world, the reduction of their environmental impact on the planet
Harbour Energy, which has operations in the North Sea, could be one of the primary benefactors from the UK government’s decision to open up more North Sea oil and gas licenses. Whether that will change the company’s mind to scale back from the region is another question.
Operating risks for oil companies tend to be high. An unfortunate oil spill or drilling platform shutdown can cause delays and send costs soaring, while on the revenue side, the volatility of oil prices can play havoc with the best of planning disciplines.
How does Harbour Energy stack up to these standards? The general feeling in the analyst community is that Harbour is a quality company, perhaps, due to the resumes of its senior staff and their ability to perform at some other more prestigious firms in the industry. Being the largest independent oil & gas company in the UK has panache and is a source of national pride, but can the company deliver on its promise?
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Where Will Harbour Energy’s Stock Price Be at the End of 2023?
A general rule of thumb is that an oil company profits when oil prices exceed $50 a barrel, and oil prices are currently well above that mark and have been since 2021. Although, we already know the windfall tax impacted HBR’s 2022 earnings.
However, since the all-share merger of Chrysaor Holdings Ltd (Chrysaor) and Premier Oil plc (Premier) formed Harbour Energy, the stock has been subdued.
Even so, there is some good news following the UK government’s decision to open up more North Sea oil and gas licenses, which may see the stock get a boost from investors.
Of course, anything could happen between now and a year out in this industry, but the possibilities for HBR seem positive.
Overall, out of five analysts covering the stock, three are bullish, assigning it a Buy rating, while the other two have a Hold rating, according to TipRanks. In a note earlier this year, Jefferies analysts said they see multiple upside catalysts for the stock in 2023. The average price target among the five analysts is currently 321p, representing more than 20% upside potential.
Does the current analyst support mean that the market has undervalued this stock? It is possible as even the experts can be drawn in by the hype. However, there are many potential tailwinds for the company.
On a separate note, one area to watch is a potential merger, with Reuters stating in June that the company is in talks to merge with Gulf of Mexico peer Talos Energy. A potential deal could involve the combined company listing in New York, Reuters said.
Harbour Energy Long-Term Forecast
Where will Harbour Energy’s share price be over the next five years?
Typically, one can look back five years and get a pretty good indication of how a company might perform over a similar period in the future, but in the case of Harbour, the acquisition of Premier Oil in 2020 and the subsequent recombination of the assets under a single platform make extrapolations difficult.
At the time Premier Oil was acquired in 2020, it was struggling. Oil prices were $20 a barrel. It was a prime takeover target, but it also had significant debt on its balance sheet. When Chrysaor took on the debt and handed over 5.45% of the ownership of the new company, the market gapped down, viewing the deal as unfavourable in the long run. When analysts discount future cash flows, however, the result states that Harbour shares are below true value.
Harbour Energy may have many things working in its favour, but its team still needs to demonstrate that it can grow the business.
Is Harbour Energy a Good Buy?
Is Harbour Energy a buy or a sell? All things considered, despite the positives, there are concerns. This stock was previously overhyped and has paid the price.
Harbour Energy, however, does appear to be undervalued. Analysts like this stock and are not selling it. Projections one year out are also favourable.
Should you buy this stock now? Harbour Energy’s prospects may look good, but do consider the risks involved and your appetite for them before putting your money down.
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