Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
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 portfolio is global by nature with potential development options that span the planet.
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 of 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 with a market cap of £3.1bn. Annual revenues of the combined unit in 2020 were $2.4 billion. There were operating profits of $763m, but after asset write-downs, there was a reported loss of $687m for the annual period ended December.
At the time of writing, share prices for HBR closed at 343.90p. This price point is a support level that has been visited on several occasions over the previous 10 months, as the above chart reveals. With a complex recombination, as has been the case for Harbour, it will take time for investors and analysts to digest operating data and feel comfortable with the proposed direction of this new entity. While the assets were combined in 2020, the obvious ‘Head and Shoulders’ formation in the chart is an indication of uncertainty.
If this formation were to play out as expected, stock prices could fall back to 200p before recovering, but the market has established the existing floor of 344p until it has a good reason to do otherwise.
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? Oil prices have soared in 2021 at a 45-degree angle, yet HBR stumbled on the way to the trading floor. Analysts claim it is undervalued, but this stock will require patience.
As noted, Harbour Energy was the ultimate 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.
From April forward, the stock has struggled. Profits are yet to be a reality. Drilling delays have also been a problem, but the strategy has created the largest independent oil & gas company in the UK, so all is not on the bad side of the ledger. Oil price volatility has not helped, nor has the failure of OPEC production discussions. The impacts from these market uncertainties have also affected other firms like Tullow Oil and BP, whose stocks have also slid some 12% in this roiling market. Royal Dutch Shell managed to stem the tide with a modest 4% decline.
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.
Operating risks also tend to be high. An unfortunate oil spill or drilling platform shutdown can cause delays and send costs soaring. On the revenue side, the volatility of oil prices can play havoc with the best of planning disciplines. Regulatory scrutiny can also plague a firm’s ability to perform, but these firms are large. They have depth of staff in their favour, and they are used to adapting to the environmental needs, both for compliance and sustainability.
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. The company’s prospects, however, have been overhyped in the press and by management. Yes, 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?
Once HBR began to trade on the London Stock Exchange on 1st April of this year, the ‘hype’ premium had dissipated. As per the chart below, Harbour’s price has never risen above its 100-Day moving average, the red line on the chart
The stock has been stuck between the resistance of that moving average and the support floor, which, coincidentally, is the closing price, at the time of writing, of 343.90p. In June, management reported delays and the shutdown of one drilling platform, and subsequent to that announcement, the shares have hugged the lower Bollinger Band until recently bobbing back up to support at 344p.
What is the Harbour Energy stock prediction for the next 90 days out? In a recent poll of 11 analysts that cover this stock, surprisingly, not a single one has issued a ‘sell’, and only one has issued an ‘under-perform’. Considering the hype that has accompanied this stock, this polling result indicates that analysts are willing to give this stock a ‘pass’ at this time. The remaining 10 have committed to three ‘buys’, two ‘over-performs’, and five ‘holds’.
Does this support mean that the market has undervalued this stock? Possibly so, but even the experts can be drawn in by the hype and complexity that this consortium represents. What about share price projections? A total of 10 analysts have opined on the company’s prospects one year out, and, if you do the maths and extrapolate backwards, the guesstimate in three months comes out at 400p, roughly where the 100-day moving average will reside at that point. Can you take this number to the bank? Patience and caution are both advised.
News of electrical problems at one site and a delay in restarting another have led to reduced revenue guidance by the management team at Harbour, the reasons for the stock’s abysmal performance since mid-June. These problems will be rectified in due course, a fact that the market will eventually realise.
This firm has also stated that its average operating cost for a barrel of oil or its gas equivalent is in the $15 to $16 range, below industry averages of roughly $20 and up, depending on the quality of the oil. A general rule of thumb is that an oil company profits when oil prices exceed $50 a barrel. With crude oil prices surging to $72 in the last half of 2021, Harbour could have plenty of room to make up for delays.
The projections for Harbour Energy’s share price in August of 2022 from 10 analysts span a range from 430p on the low side to 740p on the high side. The median is 540p, which is a 57% increase over today’s price. Another piece of good news is that Phil Kirk, the President & CEO of Europe and a Director, just purchased 100,000 shares at 328p. Analysts and investors always like to hear that management knows when to buy low, a harbinger of good news to come.
Of course, anything could happen between now and a year out in this industry, but the risk seems worthwhile, at least to one brokerage in the UK. The firm of Peel Hunt has suggested that: “Harbour will likely become one of the ‘go to’ names for many investors looking to increase their sector weight” (source: MarketWatch). This broker made this comment a few months back, but it stands by its ‘hold’ recommendation. Once again, patience and caution is advised.
Where will Harbour Energy’s share price be in 2025? 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, if even possible.
At the time that 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 $2.7bn in 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 50% below true value.
If you take that projection and extrapolate a trend based on the last two years’ worth of data, then the realms of 1,500 to 2,000p do not look that unreasonable. The recent insider buy of 100,000 shares is also a confidence builder. But analysts at Yahoo Finance also note that this was the only insider buy over the past year and that insiders only own 1% of the company, which is good but does not stand out in the scheme of things. Harbour Energy may have many things working in its favour, but its team still needs to demonstrate that it can make a profit and grow the business.
Is Harbour Energy Plc a buy or a sell? All things considered, industry and performance risks are major concerns. This stock has been overhyped and has paid the price. It is currently operating at a loss, due primarily to write-offs of goodwill and the impairment of assets – accounting lingo for having paid too much for assets that are not delivering the necessary cash flow to the bottom line.
Harbour Energy, however, does appear to be undervalued. Analysts like this stock and are not selling it, and at least one member of senior management put down £328,000 of his own money to bet on the firm’s future progress. Projections one year out are also favourable.
Should you buy this stock now? Harbour Energy’s prospects may look good, but do consider every one of the risks involved and your appetite for them before putting your money down.
If you are ready to add some Harbour Energy stocks to your portfolio you'll need a broker that is regulated, has low fees and a user-friendly platform. Finding one can be a daunting task, which is why we've selected some of our favourites that tick all of these boxes to help you get started.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .