How will soaring oil prices affect the Harbour Energy share price?

A move away from Russian energy in response to its invasion of the Ukraine could be good news for the Harbour Energy share price and its North Sea operations.

Shares in oil producer Harbour Energy [HBR.L] have been rising following Russia’s invasion of Ukraine, which has sent oil prices soaring in its wake.

The Harbour Energy share price has climbed 9% since the conflict began on 24 February to sit at 396.4p at the close on 16 March.

The Brent Crude oil price has risen from $91 per barrel at the start of February to as high as $127 on 8 March. It now sits at $102.

There are concerns over the impact of the crisis on supply from Russia, one of the world’s biggest oil producers. The US, UK and Europe have stressed the importance of switching oil and gas supplies away from the country, a stance likely to continue after the conflict ends. This included a commitment from the UK government to end imports of Russian oil over the course of this year.

This would benefit Harbour as the UK and other nations seek alternative sources of supply. It would also be quite a volte-face in policy given the general move away from fossil fuels in recent years to renewable energy to combat global warming. However, immediate needs might take precedent.

Harbour Energy optimises for trying times

Harbour has made little comment since the beginning of the invasion about how it is likely to benefit. But, given its moves in recent years both in the UK and abroad, it is likely to be in a strong position.

Harbour Energy was founded by private equity firm EIG Global Energy Partners in 2014. It has made a series of acquisitions since then, including Chrysaor Holdings in 2017 and ConocoPhillips [COP] UK North Sea, which it bought for $2.7bn in 2019. In 2021, through a reverse takeover, Chrysaor merged with Premier Oil to create Harbour Energy.

It may be in the running to further bolster its North Sea business with Shell [SHEL], according to a Reuters report, looking to sell its stake in a cluster of gas fields in the Clipper Hub and Leman Alpha complex for around $1bn. Gas and oil will be needed if Russian supplies are turned off by Europe in another move to put pressure on the Putin regime.

Harbour is also expanding globally, with operational assets in Norway, Vietnam, Indonesia and Brazil. In a Capital Markets Day presentation last December, the company said it would aim to “establish material production in another region over time”.

Linda Z Cook, chief executive of Harbour Energy, said on the day: “We’re producing 200,000 barrels oil equivalent per day with good visibility to sustain production around this level near term. Together with our robust balance sheet, this enables us to introduce a $200m annual dividend and fund reinvestment in our portfolio while retaining significant optionality over our future capital allocation.” 

Government supports North Sea plans

Harbour was recently invited to a meeting with Prime Minister Boris Johnson alongside other UK operators such as Equinor [EQNR], Neptune Energy and Shell. At the meeting Johnson discussed increasing investment in the North Sea oil and gas industry and boosting supply of domestic gas. This included how the UK can remove barriers facing investors and developers and help projects come on-line faster.

Ministers are, according to a Times report, hoping to announce new exploration licences and are also looking for regulators to approve “field development plans” for up to six North Sea oil and gas projects.

More colour is likely to come when the UK government unveils its plans for greater energy security later this month, with renewable energy, nuclear and domestic gas all a crucial part of achieving its aims.

Whatever the outcome, Russia’s war in Ukraine has created a new picture for North Sea oil firms. From calls before the crisis for a windfall tax on operators and an accelerated move away from fossil fuels to renewables, they are powerful players in the new energy normal.

“We’re producing 200,000 barrels oil equivalent per day with good visibility to sustain production around this level near term.” - Harbour Energy CEO Linda Z Cook

Analysts are bullish on Harbour Energy

Analysts are feeling bullish about the future of the Harbour Energy share price. According to MarketScreener analysts have a consensus Buy rating on the stock. Jefferies has a price target of 480p with analyst Mark Wilson stating that the current “stuck stock price” is set to climb if commodity prices stay at their current level throughout 2022. He is also expecting the first gas from the group’s Tolmount field to come in during the first quarter of the year giving Harbour’s price a boost.

According to the City, as reported by the Motley Fool, after losing $1.3bn in 2020, its net income is set to jump to $865m in 2022 when releases its annual results on 17 March.

“Harbour Energy is one of the best options on the London market. Over the past couple of years, the enterprise has been focusing on bringing down costs and strengthening its balance sheet. These efforts are now starting to pay off,” writes Rupert Hargreaves in the Motley Fool. “The company has made a significant dent in its cost base. This should enable it to achieve better profits with the oil price at current levels. It will also provide some insulation if the price of oil suddenly falls off a cliff.”