After Harbour Energy shares just jumped 10%, I might buy

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It’s been a good year for many oil and gas companies in 2022. Harbour Energy (LSE: HBR) shares did fall back quite heavily from their April peak. But their strong recovery since July was given an extra lift on Thursday from interim results.

By mid-afternoon, the Harbour Energy share price had gained 13%. That was on the back of a 40% rise in production, to 211,000 barrels of oil equivalent per day (boepd).

Margins

Unit operating costs of $14.20 per barrel looks pretty good to me, and that’s a 5% reduction on the 2021 first-half figure.

I’ve been wary of investing in oil exploration companies since I bought some Tullow Oil shares a few years ago. I was very soon looking at a hefty paper loss on that one, but I held on and was lucky to cash out at around breakeven.

So I don’t tread lightly when I consider buying Harbour Energy shares. But I see a number of key characteristics that I like.

Cash and debt

Firstly, Harbour is nicely profitable. It recorded earnings before interest, tax, depreciation, amortisation, and exploration expense (EBITDAX) for the half of $2.0bn. Bottom-line profit after tax came in a $984m, though there were a couple of big one-offs there.

Debt has been a big killer of many an oil and gas hopeful. In the case of Harbour Energy, we’re looking at net debt of $1.1bn. That amounts to a leverage of only 0.3 times, which I don’t see as any real danger.

Harbour paid its very first dividend, of $98m, for 2021. And it just announced a 2022 interim dividend payment of $100m. The company also commenced a share buyback of $200m in June, and has now upped that to $300m.

Guidance

For the full year, the board now expects production of 200,000-210,000 boepd, with a unit operating expense “towards the lower end of $15-16/boe guidance.”

What does this all mean, and will I buy?

I’ve often looked for oil companies that fill the gap between the smallest and highest-risk explorers, and the major producers like BP and Shell. That’s where my Tullow investment came from. But it was hit by a combination of debt and falling oil prices.

And that’s where I start to be a little cautious over Harbour Energy. I don’t see a debt problem, so I think I can put that fear aside.

Oil price

But right now, oil prices are historically high at around $100 per barrel. Harbour has various portions of its potential output hedged at prices around $75-$85 levels as far out as 2025. So there’s some buffer there.

But what will happen next time oil prices fall? Now, I don’t expect a crash back to sub-$25 levels again any time soon. But then, I didn’t expect the last one. The only thing I am confident of is my total inability to predict oil prices.

So will I buy Harbour Energy shares? I might do. I really might. But I’m going to do some longer-term research first, and not risk making any rash decisions.

The post After Harbour Energy shares just jumped 10%, I might buy appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.