Fitch Ratings has revised
The Recovery Rating is 'RR4'.
The Outlook revision reflects Harbour's reduced oil and gas reserves in 2022, resulting in a weak 2P reserve life of six years, and our expectation that without acquisitions and material reserves additions Harbour's production may decline in the next four years.
The rating, however, is supported by Harbour's very low leverage as it has significantly reduced its gross debt in 2022-1H23, which should allow for acquisitions, and by a pipeline of new projects and prospects of organic reserves additions. Despite decreasing production and recently increased
Key Rating Drivers
Low Reserve Life: Harbour's reserve life is lower than peers', which puts its rating under pressure. Its 2P reserve life (based on projected 2023 production and end-2022 reserves) amounted to six years, lower than
Organic Opportunities: Harbour has significant 2C resources (455MMboe), some of which may be translated into 2P in the next four years. In particular, some reserves could be added through development of Zama (
Low Leverage: Harbour's low reserves are partly counterbalanced by its very low debt levels. It sharply reduced its gross debt in 2022-1H23, which we expect to result in low EBITDA net leverage (0.1x in 2023) and for the next four years, assuming no acquisitions and moderate dividend payments. We do not rule out acquisitions, which were Harbour's main source of reserve additions in the past.
Declining Production in
EPL Tax Burden Manageable: The
Material Decommissioning Obligations: Harbour's decommissioning liabilities at end-2022 were high at around
Addressing Energy Transition Risks: We assume that at least in the next three to five years the impact of energy transition on oil and gas companies will be limited. However, over the long term, industry participants, and in particular pure upstream players, may be subject to more vigorous regulations, and their margins could be affected by carbon taxes and other regulatory measures. Harbour's target is to become carbon neutral on the Scope 1&2 basis by 2035 through minimising emissions and investments in carbon offsets.
Derivation Summary
Harbour's level of production (1H23: 196kboe/d) is slightly higher than that of Neptune (140kboe/d) and Energean (145kboe/d), and significantly lower than that of
Key Assumptions
Brent oil price:
Title transfer facility (TTF) gas price:
Production volumes declining by around 10% p.a. in 2023-2027
Capex (including decommissioning and exploration) averaging approximately
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
The rating is on Negative Outlook, therefore, we do not expect positive rating action at least in the short term. However, stabilised production profile with an improved reserve life (organically or through acquisitions) while maintaining a conservative financial profile would lead to Outlook stabilisation.
Material improvement in the business profile while maintaining a conservative financial profile (e.g. EBITDA net leverage below 1.2x) would be positive for the rating
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Inability to stabilise reserves position (eg 2P reserve life remaining at or falling below six years, falling absolute level of reserves) and production levels
EBITDA net leverage consistently above 1.7x
Consistently negative FCF after dividends
Liquidity and Debt Structure
RBL Cut, Strong Immediate Liquidity: In
Senior Unsecured Bond: Harbour's
Issuer Profile
Harbour is a medium-scale independent oil and gas producer with assets mainly in the
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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