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ENERGY SECTOR: Harbour Energy Notes From The Roadshow

ENERGY SECTOR
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Baa2/BBB-/BBB-               

  • Aker BP (Baa2/BBB/BBB) is the most appropriate comp given underlying similarities i.e. they are both lower-rated, North Sea-focussed and independent O&G producers of a similar scale. Vår Energi is another similar name albeit at under half the scale and with only a single, less-liquid EUR bond.
  • Relative pricing looks like a weigh up between Harbour’s better diversification and stronger near-term cash flow vs. Aker BP’s stronger reserves and best-in-class op margins feeding through to the one notch higher ratings at S&P and Fitch.

     
  • Harbour was Created in 2014; large acquisitions every couple of years since 2017 (Shell North Sea assets in 2017 for USD 3bn, ConocoPhillips North Sea assets in 2019 for USD 2.7bn, Premier Oil plc in 2021 for USD 2.8bn, Wintershall assets in 2024 for USD 11.2bn).
  • Pro-forma production (~490kboepd in H1 vs. ~450k for Aker BP) is focused on the North Sea (Norway and UK skelves account for just over one-third each) with smaller presences elsewhere whereas Aker BP works exclusively on the Norwegian shelf. Harbour works a roughly 40/60 Liquids/Gas split compared to roughly 85/15 at Aker BP.
  • Harbour has a lower 2P (i.e. Proven + Probable) pro-forma reserve life of 8 years, compared to 11 at Aker BP, mainly on the back of prolonged production on their older UK assets. Including more speculative 2C (Contingent Category 2) reserves gives a life of 18 years compared to Aker BP which looked closer to 15 years as of FY23 (our calculation).
  • Pro-forma OpEx of USD 13/boe is down from USD 18/boe before the Wintershall deal and isn’t unusually high in and of itself though is still notably higher than Aker BP’s best-in-class USD 7/boe FY guidance.
  • Pro-forma CapEx of USD c.14/boe compares to the USD c.32/boe implied by Aker BP guidance as the latter moves into a significant investment phase. Consensus implies elevated CapEx until at least FY26 which drags on Aker BP FCF and is a negative at each of the CRA’s with S&P/Fitch eyeing flat/negative cash flow over the coming years while Harbour is seen as cash generative from the onset.
  • Both have strong balance sheets with Harbour’s reported pro-forma EBITDAX leverage at 0.7x and Aker BP’s at 0.3x.
  • Harbour has a balanced bond profile; USD 0.9-1.3bn maturing in 2025, 2026, 2028, 2029 (to be added to by these new bonds in 2029 and 2032) against pro-forma LTM FCF of USD 1.5bn (USD 3bn average from FY21-FY23 but just FY 1.4bn in FY23 due to Norwegian taxes on FY22 revenues). USD 3bn RCF signed and pro-forma cash and CE of USD 1.1bn (as per Fitch).

 

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Baa2/BBB-/BBB-               

  • Aker BP (Baa2/BBB/BBB) is the most appropriate comp given underlying similarities i.e. they are both lower-rated, North Sea-focussed and independent O&G producers of a similar scale. Vår Energi is another similar name albeit at under half the scale and with only a single, less-liquid EUR bond.
  • Relative pricing looks like a weigh up between Harbour’s better diversification and stronger near-term cash flow vs. Aker BP’s stronger reserves and best-in-class op margins feeding through to the one notch higher ratings at S&P and Fitch.

     
  • Harbour was Created in 2014; large acquisitions every couple of years since 2017 (Shell North Sea assets in 2017 for USD 3bn, ConocoPhillips North Sea assets in 2019 for USD 2.7bn, Premier Oil plc in 2021 for USD 2.8bn, Wintershall assets in 2024 for USD 11.2bn).
  • Pro-forma production (~490kboepd in H1 vs. ~450k for Aker BP) is focused on the North Sea (Norway and UK skelves account for just over one-third each) with smaller presences elsewhere whereas Aker BP works exclusively on the Norwegian shelf. Harbour works a roughly 40/60 Liquids/Gas split compared to roughly 85/15 at Aker BP.
  • Harbour has a lower 2P (i.e. Proven + Probable) pro-forma reserve life of 8 years, compared to 11 at Aker BP, mainly on the back of prolonged production on their older UK assets. Including more speculative 2C (Contingent Category 2) reserves gives a life of 18 years compared to Aker BP which looked closer to 15 years as of FY23 (our calculation).
  • Pro-forma OpEx of USD 13/boe is down from USD 18/boe before the Wintershall deal and isn’t unusually high in and of itself though is still notably higher than Aker BP’s best-in-class USD 7/boe FY guidance.
  • Pro-forma CapEx of USD c.14/boe compares to the USD c.32/boe implied by Aker BP guidance as the latter moves into a significant investment phase. Consensus implies elevated CapEx until at least FY26 which drags on Aker BP FCF and is a negative at each of the CRA’s with S&P/Fitch eyeing flat/negative cash flow over the coming years while Harbour is seen as cash generative from the onset.
  • Both have strong balance sheets with Harbour’s reported pro-forma EBITDAX leverage at 0.7x and Aker BP’s at 0.3x.
  • Harbour has a balanced bond profile; USD 0.9-1.3bn maturing in 2025, 2026, 2028, 2029 (to be added to by these new bonds in 2029 and 2032) against pro-forma LTM FCF of USD 1.5bn (USD 3bn average from FY21-FY23 but just FY 1.4bn in FY23 due to Norwegian taxes on FY22 revenues). USD 3bn RCF signed and pro-forma cash and CE of USD 1.1bn (as per Fitch).