Harbour Energy (LSE:HBR) — Investor Presentation

0:01 Good morning, ladies and gentlemen, and welcome to the HARBOUR ENERGY PLC investor presentation. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we have decided to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to Elizabeth Brooks, Head of Investor Relations. Elizabeth, good morning. Great. Thanks, Jake, and and good morning, and good morning to everyone who has joined the call. So we just turn to our first slide. So for those of you new to HARBOUR, we were founded in 2014 with a vision to build a leading global independent oil and gas company.

0:55 Since then, we've grown rapidly, largely through acquisition and successful integration, as well as disciplined investment. The early acquisitions were focused on building scale, initially in The UK, and then it was about adding diversity, we achieved with the transformational Vinciardere acquisition in 2024, which established material positions in Norway, Argentina, and Mexico. And it was also with that transaction that we secured our investment grade credit ratings. Our more recent transactions, so the LOG acquisition which marked our strategic entry into The US Gulf Of America, and The UK Wardlef acquisition which delivers material financial synergies, have been more about strengthening the portfolio's resilience and longevity. And as a result, today we're producing around 500,000 barrels a day, predominantly from five core countries: Norway, The UK, The US, Mexico, and Argentina.

1:51 And that production is increasingly weighted towards lower cost, lower tax jurisdictions with growth potential. We're also diversified by product, so around 40% of our production is liquids, exposed to Brent WTI. Around 40% is European gas which today is trading at levels equivalent to around a $140 a barrel, and then 20% of our production is non European gas mainly in Argentina which we sell into the domestic market under long term contracts. So if we turn to the next slide, and before we dive into the presentation, I think it would be remiss of me not to talk about the macro, which remains extremely volatile. So so far in 2026 we've seen dated Brent as low as $60 a barrel, and reach a high of as much as a $144 a barrel in early April.

2:42 Yesterday dated Brent printed at a $120 a barrel and that compares the price that we saw on the screen of more like a $100 a barrel. So as you can see the DFL which is the difference between the front month financial futures and physical dated Brent has increased has increased again in recent weeks. Similarly we've seen similar kind of volatility in the European gas markets We've seen a low of around $10 a scuff at the start of the year, and a high of as much as $28 a scuff in the last week or so. And although sort of European gas today has come off those highs, it's still around $24 a scuff, so at around that $140 $145 a barrel equivalent I just mentioned. So how do we manage this volatility?

3:28 We take a systematic approach to hedging. In particular we look to hedge around 50% of our economic exposure to Brent WTI, and also 50% of our exposure to European gas prices in year one. We then look to hedge around 30% of our economic exposure in year two, and we look to do that using a mixture of swaps and collar structures. We do have the flexibility to increase our hedging if we see the opportunity to lock in attractive hedges, and in March you saw us do that where we locked in additional hedging for the second half of this year, and actually also in recent weeks with the curve on the European gas side moving up, we've taken the opportunity to lock in further zero cost collars for European gas in calendar twenty twenty seven. So in some of the recent trades we were able to secure a floor of $18 a scuff and a cap of $30 a scuff, so pretty attractive.

4:22 So if we turn to the next slide, and with that context where are where are we today? So in the first half of the year we achieved record production of more than 500,000 barrels a day, and that was thanks to excellent operational execution, accelerated project delivery in Norway, and a strong contribution from our new US business. As a result, we were able to upgrade our production guidance for the second time this year. We've also made really good progress advancing our priority development opportunities, including our high return projects in Norway and The US, alongside our longer term growth prospects in Mexico and Argentina. And we further strengthened and simplified our portfolio through the strategic acquisitions of LOG in The US and Wardleaf in The UK and the divestment of our non core assets in Indonesia.

5:10 And if we step back for a moment, we expected 2026 to be something of a transition year as we completed three transactions, integrated the LOG and Woldorf portfolios, and shifted production and investment into higher margin basins. However, higher oil and gas prices and excellent execution have really brought forward the benefits of this transformation, including delivering a significant step up in our free cash flow. So notably in August, at our half year results, we were able to increase our full year free cash flow outlook from $600,000,000 at the outset of the year to $1,800,000,000 and that assumes $80 Brent and $16 European gas for the second half of the year. Now if we were to assume $90 a barrel and $20 for European gas for the remainder of the year, which still looks very conservative compared to the forward curve today, then our free cash flow is expected to increase to around $2,300,000,000 and this strong free cash flow has enabled us to pay down debt faster which remains a key priority for us and also accelerate the delivery of additional shareholder returns.

6:19 So we move on to the next slide. In times of volatility, how we operate is also where we can have the greatest influence on outcomes, and we remain very focused on operating safely and reliably, delivering margin expansion through cost and capital efficiency, and converting our resources into reserves and into production profitably and competitively. And as just mentioned, our portfolio today is focused on five core countries, which together account for 90% of our business whichever way you cut it reserves, resources, production, cash flow, etc. And the next few slides, which I'll now take you through, sets out the role of each of these countries that they play within the HARBOUR portfolio. So if we turn to the next slide and starting starting with Norway.

7:06 Norway is our largest producing business and Europe's largest supplier of gas. Norway is the cornerstone of our long term cash flow and we have a strong pipeline of high value short cycle infrastructure led developments which enable us to sustain production at around current levels through to the end of the decade. Execution also remains really strong in Norway. We achieved first gas from our operator Dvalen North project ahead of schedule and under budget, and that was followed by startup of the Eidin North and Alvin North projects in August, both tiebacks to Skarv. And as a result of this accelerated project delivery in Norway, we now expect five developments online in 2026, up from three previously. We've also made really good progress maturing our next set of projects.

7:55 Notably we've approved the Goya subsea development project and we have five more projects in Norway targeted for FID this year, which together will deliver around a 100% reserves replacement in Norway. In addition we continue to replenish the portfolio through exploration and we were awarded nine new licenses in the recent licensing round. And all of this of course is against a backdrop of really strong European gas prices as Europe struggles to rebuild storage ahead of winter and the ongoing supply disruptions in The Middle East. So if we move across the median line to The UK, here strong delivery by the team and portfolio actions have enhanced resilience and free cash flow outlook of The UK business despite the continued challenging fiscal backdrop.

8:44 Our high degree of operational control has enabled us to drive performance, maintain our position as a low cost operator in the basin and support free cash flow margins. And then the Wardlef acquisition which completed in July further strengthened our UK business delivering meaningful financial synergies. However while The UK remains a core country and is generating really good cash flow today it must compete capital with high return opportunities elsewhere in our global portfolio. So as a result, we do expect a managed decline in UK production over time, as investment shifts towards lower cost, lower tax basins with greater growth potential such as The US. Turning now to Argentina.

9:31 Argentina today is producing over 70,000 barrels a day underpinned by stable low cost gas production from our conventional CMA1 license offshore Tierra Del Fuego in the South. We also hold more than 700,000,000 barrels of 2C resource in Argentina, mainly in the Vaca Muerta shale play to the North where we have a significant interest in two of the largest licenses there San Roque which is in the oil window and Aguada Pichana Este or Ape which is in the gas window. At San Roque we're progressing our application for the unconventional license ahead of a planned 16 well black oil development program drilling development program starting in 2027.

10:20 At Ape we bought online nine new gas wells in the first half and with ongoing drilling and completion efficiencies continuing to drive lower well costs. However production at Ape remains constrained by the domestic market, which is why we're participating in Southern Energy, which is a 6,000,000 tonne per annum LNG export project, which remains on track to start up at the end of twenty twenty seven and will provide our Vaca Muerta gas with access to global LNG markets. Turning now to The US Gulf Of America, our newest business unit. Here we have a fully operated oil weighted portfolio centered around three deep water hubs Hudat, Barkskin and Lyon Castile.

11:07 Production in the first half was 33,000 barrels a day and is on track to increase to 65 to 70,000 barrels a day by 2028. Looking ahead, activity is accelerating with further drilling across our key hubs and we've recently taken delivery of a second rig which will support continued growth beyond 2028. Combined with attractive fiscal terms, these are really high margin barrels that we are adding and will underpin material free cash flow through to the end of the decade. We also see significant infrastructure led exploration upside and have acquired ocean bottom node seismic data leveraging LOG's strong exploration track record to unlock further prospectivity around our key hubs. And we've been successful in the recent US Gulf bid rounds adding further running room in this prolific oil and gas basin.

12:01 Finally, Mexico. So Mexico represents one of our most material long term growth opportunities with our operated Zama and Can projects capable of adding reserves equivalent to almost two years worth of our production. During the first half we continued to optimize both developments to improve returns and reduce risk. At Zama, which is Mexico's largest undeveloped oil discovery, we recently signed an MAU to secure the Lakimha FPSO, and we're on track to issue the invitations for the other major FEED packages soon. We've also strengthened partner alignment across Zama and Can to Grupo Carso's increased participation in both of the projects. And in summary, we remain on track for both projects to be FID ready by the end of twenty twenty seven.

12:50 So this next slide sets out our CapEx and production outlook and highlights how our portfolio is shifting, becoming more operated and more focused on lower cost, lower tax basins with significant running room. From 2027 we expect to spend between $2,000,000,000 to $2,300,000,000 per annum which will allow us to sustain production at between four and seventy five thousand to 500,000 barrels a day to 2,030. Now importantly, while production overall remains stable, the underlying quality of that production continues to improve, with declining higher cost, higher tax UK volumes increasingly being replaced with higher margin growth in The US and new volumes from Norway and Argentina and over time from Mexico.

13:40 On this slide we have a reminder of our three capital allocation priorities, which we continue to deliver against. First, we remain committed to maintaining our investment grade balance sheet. Post major transactions, we've consistently prioritized debt reduction, and supported by higher oil and gas prices and strong operational performance means we've made good progress here. Second, we look to maintain a robust and diverse portfolio. By investing between 2 and $2,300,000,000 a year from 2027, we believe we can sustain high margin cash transfer production at scale into the next decade. And finally, we look to deliver competitive shareholder returns through the cycle. In March of this year, we strengthened our capital allocation framework by directly linking shareholder distributions to free cash flow.

14:29 So based on our 2026 free cash flow outlook of $1,800,000,000 which as a reminder assumes $80 oil and $16 European gas for the second half of the year, we expect to deliver at least $800,000,000 of shareholder returns, and that comprises the $300,000,000 base dividend and then $500,000,000 of additional shareholder returns over and above that base. We've already announced $400,000,000 of share buybacks including a 190,000,000 direct to buy back from BASF as part of a wider sell down by them which reduced their stake to 16%. Of course, if we were to assume $90 Brent and $20 European gas for the remainder of the year, then our free cash flow increases to that $2,300,000,000 and that would support at least a billion dollars of shareholder distributions.

15:21 So after the $300,000,000 dividend and the $400,000,000 of already announced share buybacks, that would leave a further 300,000,000 to be distributed to shareholders, with the remaining $1,300,000,000 of free cash flow to be directed towards the balance sheet. So in summary, why HARBOUR ENERGY? We have a large, diverse portfolio with material exposure to Brent and European gas prices. We have a proven track record supported by active portfolio management and a world class team. And we have an investment grade balance sheet and a focus on delivering competitive shareholder returns. And in summary, the transformation that we've delivered over the last three years means we can sustain production at scale, grow free cash flow margins, and continue to deliver competitive shareholder returns well into the next decade.

16:11 And so I think with that, that concludes the presentation and we'll open it up to Q and A. Perfect Elizabeth, that's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. Elizabeth, we have received a number of questions, so perhaps if we dive straight into it. The first question that we have here is on The UK and asks, do you expect to continue to invest in The UK despite the challenging fiscal backdrop? And really, what message should we take from the recent acquisition you made there? Yes. Great. Thanks thanks for the question. I think the first thing to say is that The UK remains a core country for HARBOUR and is generating significant free cash flow today.

16:57 That that said, it is impossible to ignore the fiscal and regulatory backdrop which remains challenging. But against that backdrop, the UK team has done a really an exceptional job of improving the reliability of our assets, lowering operating costs, and continuing to invest selectively in high return short cycle opportunities which help to mitigate the effects of the high tax rate that we face in The UK. With regards to recent Wardroof acquisition, which we completed in July, that doesn't reflect a change in our view of The UK fiscal regime or investment climate. Rather, it was an attractive opportunity which increases operational control, adds reserves and production, but also importantly unlocks significant financial synergies further improving the resilience and free cash flow outlook of The UK business.

17:50 So we so we do continue to see value in The UK, but we do have a global portfolio, and along with the recent addition of the LOG assets with the high return investment opportunities that that brings, means that it's increasingly hard for opportunities in The UK to compete for capital. So we do expect over time investment and production to shift from the higher cost, higher tax mature UK basin to higher margin basins such as The US Gulf, which have greater growth potential. Perfect. Thank you. We have had a number of questions on dividends. Perhaps if we take this one as I think it speaks to the other ones. You provide good guidance on the level of shareholder returns, 45% of free cash flow. As a long term investor, my interest is in a regular dividend.

18:38 Can you provide firm guidance on dividends? Yes, of course, and thanks for the question. As I mentioned in the presentation, in March we updated our distributions policy directly linking shareholder distributions to free cash flow and further strengthening our capital allocation framework. So per the policy, we target returning between 4575% of our annual free cash flow to shareholders, including through a minimum annual dividend of $16.10 per share, which is equivalent to around $300,000,000 a year. And then beyond that base dividend, the board has flexibility over the form that the additional distributions take, whether that's through on market share buybacks, directed buybacks, special dividends, or indeed an increase in the base dividend.

19:28 Year to date we've announced $400,000,000 of share buybacks in addition to the base dividend. We do believe that buybacks are a useful tool while we have a significant investor looking to exit, and at current share price levels represents a highly value accretive investment opportunity for us. So in fact, you know, the $400,000,000 of share buybacks announced to date should also enable us to repurchase around 70% of our issued share capital at current prices, and that in itself has the potential to drive meaningful growth in earnings per share and also dividend per share for our remaining shareholders. And so we do do believe that this approach provides shareholders with a sustainable and competitive based dividend through the commodity price cycle, while also allowing shareholders to be able to participate in periods of stronger free cash flow like that which we're seeing today, and as well from the benefits of our portfolio as it sort of shifts over time.

20:33 Perfect. Thank you. We have someone asking, what impact do you think the BASF Holding has had on your shares? Where is it now, and do you expect it to continue to reduce? And then to what extent did you participate in BASF's recent sell down, and what does that mean for the current buyback program? Yes. Thanks. Thanks for the question. I do think BASF has been a technical overhang on our shares. I mean since entering our share register in 2024 as a result of the Vinciardea acquisition, BASF has been consistent in their message. That is that they see their position in HARBOUR as a financial investment and one they'll look to exit over time mindful of value.

21:20 This is likely given, I think, investors pause for thought before entering our stock, preferring to wait for greater clarity around BSF's exit path. In addition to the block sales, we've seen BSF reduce its stake to a managed sell down program, which is further weighing on our shares and hindering a re rating. But but all of that said, you know, we've made really good progress with BASF's holding materially reducing from around 47% at the start of the year to around 16% today. I'd also say that each sell down has been executed in an orderly manner with really strong demand, and we've seen a number of high quality institutional investors entering the register as well, which is which is great. And I think it's sort of importantly the reduction in BASF stake has increased our free float, which is supportive of further index ownership and also further broadens our potential investor base.

22:17 And the feedback that we've consistently received from investors is that is that reducing the overhang is positive for the equity story, it does improve liquidity, and it does make our shares more investable. And then with regards to your question around their recent sell down, yeah, you're you're right. We did participate by buying directly from BASF around 53,000,000 shares, which we subsequently canceled. And we paid around $190,000,000 for that. And that really again helped to accelerate the reduction in the overhang. And the size of the total book was around $500,000,000, so that's what saw BASF's stake reduced from around 24% to the 16% that they're at today. And then in terms of sort of what that means for the on market buyback, so of the $190,000,000 directed buyback from BASF, approximately $40,000,000 was redirected from the ongoing $250,000,000 on market share buyback that we announced in August, with $150,000,000 coming from free cash flow.

23:23 So year to date, we've announced $300,000,000 of dividends and $400,000,000 of share buybacks, which, as I just mentioned, at our current share price, would result in us repurchasing over 7% of our issued share capital. Perfect. Thank you. Where do you ultimately see the portfolio? Is there more to come in terms of m and a? And if so, where would your focus be? Yeah. I mean, the portfolio has been transformed over the last few years, and today we're at a scale that is sustainable and attractive to investors, supported by a deep inventory of organic investment opportunities which compete for capital. I think we also feel really good about our geographic diversity across those five core countries, and our significant but balanced exposure to both data Brent, WTI, and European gas prices.

24:18 So I would say that our immediate focus is on integrating the LOG and Wardroof acquisitions, continuing to deleverage, and executing on our organic growth opportunities, including converting our substantial 2C resource base into reserves and into production and cash flow. That said, M and A obviously remains an important tool in our toolkit, and it's an area where we've got a really strong track record. But going forward, we'd expect any future acquisitions to be more targeted at refining the quality of the portfolio and making it better rather than sort of transformational acquisitions. I think therefore the emphasis would likely be on bolt on opportunities which strengthen our position in our core countries by, for example, improving our margins or increasing our operational control or adding some duration to our portfolio by extending our reserve life.

25:15 I think it's also important to think about the flip side to M and A, which is divestments, and we do continue to actively manage the portfolio. And here, our approach remains the same, which is if an asset can't compete for capital, we don't see a route to scale in the country, then they become a divestment opportunity. And arguably, given where data Brent is today, north of a $100 a barrel, and European gas over $20 a scuff, now is probably a better time to be a seller than a buyer. But then again, the volatility that we're seeing does make it hard. It makes it hard to transact because the bid offer spread is so wide. But, yes, I mean, we'll continue to actively manage the portfolio, making sure that our sort of resource reserves, resources, capital are focused on our best opportunities.

26:08 Thank you. And just sticking with the same theme, where in the world does HARBOUR see the main expansion coming? Yeah. Thanks. As I said in the presentation, we believe we can sustain production at between 475 to 500,000 barrels a day through to the end of the decade. And again, so as as we said, while overall production remains broadly flat, the quality of that production is improving with managed decline in The UK being replaced by growth in The US and also new volumes in Norway and Argentina, and over time when the material developments in Mexico come on stream. So I guess of the growth opportunities geographically are the in The US, Norway, Argentina, and Mexico.

26:55 Another way of looking at HARBOUR's growth opportunities is by resource type, and here again we have good diversity. So we benefit from almost 2,000,000,000 barrels of 2C resources, and that includes high return short cycle opportunities in Norway and The US, scalable development opportunities in both the gas window and the oil window in Argentina's Vaca Muerta, and large offshore greenfield oil projects in in Mexico. So rather than relying on any single asset or project or any single country, we're fortunate enough to have a number of high quality growth opportunities across our core countries, which do compete for capital and which are able to support production at scale as well as material free cash flow and shareholder returns well into the future.

27:49 Thank you. And perhaps one final question here. The share price has risen recently, but still looks cheap on free cash flow. What do you think you need to do to rerate the share price? Yeah. This is this is always a tough question. I mean, I think from our perspective, HARBOUR today is a very different company to one that existed a few years ago. We've built a larger, more diversified, and more resilient business with material positions across The US, Norway, The UK, Argentina, and Mexico, and we have a stronger free cash flow outlook and a really good deep inventory of high quality growth opportunities. I think in addition the portfolio is increasingly weighted towards lower cost, lower tax jurisdictions, whilst we're also maintaining our exposure to both oil and European gas prices, which I think gives us something of a differentiated proposition to others within the sector.

28:46 At the same time, we're generating significant free cash flow, we're reducing debt, and we're returning meaningful amounts of capital to shareholders through both dividends and share buybacks, with with the latter helping to evolve the share register. So from from our perspective, think the key thing is continued execution, continue to deliver against our strategy, and our focus remains on safely delivering our operations, progressing our growth projects, strengthening the balance sheet, and returning cash to shareholders. And I think if we continue to do those things well, then over time we would expect the value that we've created through the portfolio transformation to be increasingly reflected in our share price. That's great. That's great. Thank you. And, well, look, that's all the questions for this morning.

29:39 So thank you very much indeed for addressing those. And, of course, if there are any further questions that do come through, we'll make this available to you after the presentation just for you to review and add any additional responses where appropriate. But, Elizabeth, perhaps before really now, just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. I think I'll probably just recap on the closing remarks of the presentation and and why HARBOUR ENERGY. I mean, we do have a a large scale diverse portfolio with material exposure to Brent and European gas prices. As I said, we've got a really great track record of both in acquisitions and delivering what we said we're going to deliver, supported by active portfolio management and a really strong management team.

30:27 And we've also benefited from investment grade balance sheet, and again a track record of delivering competitive shareholder returns. So again, you the strong delivery over the last three years and the portfolio that we have today means that we can sustain production at scale, grow free cash flow margins, and continue to deliver competitive shareholder returns well into the next decade. That's great. Elizabeth, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback? On behalf of the management team of HARBOUR ENERGY PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.