Harbour Energy Plans Share Buyback after Cashflow Triples, Windfall Tax Weighs

©douglas davidson/EyeEm - AdobeStock
©douglas davidson/EyeEm - AdobeStock

Harbour Energy, Britain's largest oil and gas producer, said on Thursday it will conduct a $200 million share buyback, after higher oil prices helped free cashflow triple to $2.1 billion but windfall taxes weighed on its profit. 

After Britain increased taxes on oil and gas producers to 75% last year, Harbour decided to cut staff in Britain and sought to diversify internationally.

Full-year profit after tax slumped to $8 million from $101 million the previous year, hit by a $1.5 billion non-cash deferred tax charge associated with the Energy Profit Levy (EPL) windfall tax which is set to apply until 2028. 

"It's just a little bit ironic that we have the UK's largest oil and gas producer in a year of record production and high oil and gas prices delivering zero profit," Chief Executive Linda Cook said on a conference call. 

The $1.5 billion hit to its balance sheet reflects the EPL reducing the value of tax benefits for Harbour from losses in the past, not the amount of tax it expects to pay through 2028, which will likely be substantially more. 

Many oil and gas producers such as Harbour, have to hedge large chunks of their output to comply with lenders' demands, which means their exposure to market price changes is limited. Cook said the windfall tax should take into account realized prices, rather than market prices, and have a clearer mechanism for tax rates to come down when prices fall. Britain's finance minister will present a new budget on March 15. 

The company's share buyback is in addition to Harbour's existing $200 million a year dividend policy. The company reiterated its forecast for production of between 185,000 and 200,000 barrels of oil equivalent per day this year, slightly below last year, and $1.1 billion of capital expenditure. 

(Reuters - Reporting by Shadia Nasralla in London; Additional reporting by Muhammed Husain in Bengaluru; Editing by David Goodman, Shounak Dasgupta, and Bill Berkrot)

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