Could the Harbour Energy share price soon rise?

Key points

  • Revenue has increased slightly between the 2016 and 2020 calendar years
  • The company is benefiting from a surging oil price
  • There was free cash flow of $302m for the first six months of 2021 

UK-based oil and gas company Harbour Energy (LSE: HBR) operates in a number of countries around the world. These include Norway, Brazil, Vietnam and the UK. Formed out of the merger between Chrysaor and Premier Oil in April 2021, the firm is a FTSE 250 constituent. With a surging oil price and solid free cash flow, I want to know if I should be adding the business to my long-term portfolio. What’s more, do conditions indicate that the Harbour Energy share price will soon rise? Let’s take a closer look.   

Results and the Harbour Energy share price

While I eagerly await results for the 2021 calendar year, a glance at previous interim and annual reports adds some colour to this company. Between the 2016 and 2020 calendar years, revenue increased, albeit only slightly, from $937m to $949m.

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Although this growth was small, it is not unusual for smaller oil and gas companies to have inconsistent results, given the nature of their work. Indeed, the firm recorded a $605m loss before tax for the 2020 calendar year compared with a $102m profit the year before. Much of this can be explained by the exploratory element of the oil and gas industry, when there is no guarantee that drilling for oil will actually yield anything.

In addition, the interim results for the six months to 30 June 2021 showed free cash flow at $302m. As a potential investor this gives me confidence, because the company has the resources to embark on further exploration. It may also choose to tackle its not insignificant debt pile of $2.6bn. With final results due on 17 March 2022, I will be watching very closely.

What role does the oil price play?

Investment in any commodity stock inevitably means some exposure to the movements of the underlying raw material. In this case it is mainly oil. Recently, the Harbour Energy share price has benefited from surging oil prices. Both WTI and Brent Crude oil are above $90 per barrel.

This has been caused by tightening supply, because of a cold winter in the US and the Organisation of Petroleum Exporting Countries (OPEC+) refusing to increase supply. It is worth noting, however, that another pandemic variant could once again push the oil price to much lower levels.

Harbour Energy produces oil with an operating cost of just $15.6o per barrel. With a post-hedged realised price of $58 per barrel, we can easily see that the firm is currently benefiting from rising oil prices. Given geopolitical conditions, I expect this to continue. 

Given that it is benefiting from oil prices, I do think the Harbour Energy share price could rise to some degree. In addition, its free cash flow can be put to good use in a number of ways. I will be buying shares in the company today. 

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Andrew Woods 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.

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