Harbour Energy’s bumper profits wiped out by £1.3bn hit from windfall tax
Harbour Energy’s bumper profits this year have been nearly wiped out by the windfall tax, with the oil and gas trader taking a huge £1.3bn hit in earnings from the new levy.
The UK’s largest oil and gas producer made £2.1bn profits before taxes for the full-year ending December 2022 – up a massive 700 per cent from £250m 12 months prior.
However, this plummeted to just £6.7m once levies were taken into account.
The company has benefitted from soaring oil and gas prices following Russia’s invasion of Ukraine, but has also borne the brunt of a toughened fiscal regime in the North Sea.
Alongside the new beefed-up Energy Profits Levy, Harbour already pays a 40 per cent special corporation tax rate – meaning it faces a combined 75 per cent hit to earnings from the taxman.
Commenting on the effects of the levy, chief executive Linda Z Cook revealed this had motivated Harbour’s recent job cuts and pivot to overseas projects.
She said: “The UK EPL, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security. For Harbour, the UK’s largest oil and gas producer, it has all but wiped out our profit for the year. This has driven us to reduce our UK investment and staffing levels.
“Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.”
As it stands, around 85 per cent of Harbour’s capital expenditure is in the UK, but it is reviewing spending plans to align with lower activity levels in the second half of 2023.
The company is also pushing to bolster projects in Mexico and Indonesia, and pulled out of the licensing round for new oil and gas projects in the UK last year.
It will not be featuring in the auction for more sites and developments overseen by the North Sea Transition Authority.
2022 was Harbour’s first full year as a publicly listed company.
Among its achievements were advancements in its net zero strategy, with Harbour planning to halve emissions by the end of the decade, and 300mt of storage being independently verified for Viking CCS project – which will store vast amounts of CO2 under the seabed following a final investment decision.
Despite the tax hit, Harbour reported a strong cash flow of £1.77bn after total capital expenditure of £759.3m.
Overall, Harbour approved £506m of shareholder distributions last year, and has proposed £84.3m in ints proposed final dividend.
It has also unveiled a new £168.7m share buyback programme, which brings total announced shareholder returns to £840m since December 2021
Cook said: “Thanks to our robust balance sheet, we enter 2023 well-placed to deliver on our strategy of building a global diverse oil and gas company. We will continue to return any excess capital to shareholders while investing in our existing portfolio and maintaining capacity for meaningful but disciplined M&A.”