Harbour Energy plc
Annual Report & Accounts 2021
A global independent oil and gas company
A constituent of the FTSE 250, we are the
largest London-listed independent oil and gas
company. We have a diversified UK asset
base within an attractive global footprint.
175kboepd
Oil and gas production
Performance highlights
Net Zero 2035 activities include:
emissions reduction actions, progress on
UK offshore electrification & CCS projects
and acquisition of offsets
All data is provided on a reported basis with Premier Oil plc’s portfolio contributing from
completion of the Merger (31 March 2021) unless otherwise stated.
Production increased to over 200 kboepd in Q4:
following safe execution of extended
maintenance programmes
Completion of the merger with Premier Oil:
integration and realisation of synergies
progressing as planned
FIND OUT MORE ONLINE
harbourenergy.com
$678m
Free cash flow generation
0.9x
Leverage ratio at year-end
2035
Net Zero emissions goal by 2035
>25%
Of 2021 emissions offset
948mmboe
2P reserves + 2C resources
$1.6bn
Liquidity
(cash and undrawn facilities)
$200m
Annual dividend announced
2
Strategic report
2 Our investment proposition
4 At a glance
6 Chief Executive Officer’s statement
8 Performance overview
10 Market overview
12 How we create value
14 Key performance indicators
16 Engaging with our stakeholders
20 Our culture and values
22 Operational review
28 ESG review
36 Our Leadership Team
38 Financial review
44 Risk management
48 Principal risks
56
Governance
56 Chairman’s introduction
58 Board of Directors
62 Corporate governance report
66 Audit and Risk Committee report
70 Nomination Committee report
72 HSES Committee report
74 Directors’ remuneration report
100 Directors’ report
102 Statement of Directors’
responsibilities
103
Financial statements
103 Independent auditors’ report
114 Consolidated income statement
115 Consolidated statement
of comprehensive income
115 Earnings per share
116 Consolidated balance sheet
117 Consolidated statement
of changes in equity
118 Consolidated statement
of cash flows
119 Notes to the consolidated
financial statements
166 Company balance sheet
167 Company statement
of changes in equity
168 Notes to the Company
financial statements
170
Additional information
170 UK Government payment reporting
173 Group 2P reserves and 2C resources
174 Worldwide licence interests
176 Glossary
178 Shareholder information
2021 was a transformational year for
Harbour Energy with the completion
of the merger with Premier Oil, our third
significant transaction since 2017. As a
result, we became a public company with
a global footprint and the largest London-
listed independent oil and gas company.
With our scale, our commitment to producing
safely and responsibly, our robust balance
sheet and track record of executing successful
M&A, I believe we are well placed to deliver
value creation, growth and shareholder returns.
I am proud of all we accomplished in our
first year as a listed company and excited
for our future.
LINDA Z. COOK
Chief Executive Officer
1
Harbour Energy plc
Annual Report & Accounts 2021
Our investment proposition
Pure play, upstream,
global oil and gas company
At a time when major oil companies are de-emphasising
their upstream businesses, we provide pure play exposure
to oil and gas production at scale
¼ Largest oil and gas producer in the UK
¼ Member of the FTSE 250
¼ Global, full cycle capability
Why invest in
Harbour Energy?
AT A GLANCE
P4
Diverse, cash generative
portfolio of scale
We have a resilient portfolio focused on conventional producing assets
with embedded low risk, high return investment opportunities to sustain
production near term while generating positive cash flow
¼ Balance of oil and gas
¼ Diverse UK position with exposure to multiple key production hubs
¼ High margin asset base with significant degree of operational control
OPERATIONAL REVIEW
P22
Positioning for the energy transition
We are a responsible oil and gas producer and, through a combination
of activities, aim to be Net Zero by 2035
¼ Investment in activities to reduce emissions including by improving plant efficiency
and assessing the opportunity for electrification of offshore facilities
¼ Purchasing high quality certified offsets to mitigate the impact of residual,
hard-to-abate emissions
¼ Exploring the potential for CCS projects in the UK to support
a lower carbon economy
MARKET OVERVIEW
P11
2
Harbour Energy plc
Annual Report & Accounts 2021
FINANCIAL REVIEW
P40
Conservative financial
risk management policy
We have a conservative approach to managing our balance sheet, ensuring
we’re financially strong through the commodity price cycle and providing
us with significant optionality over our capital allocation
¼ Strong and predictable cash flows via a disciplined hedging programme
¼ Conservative leverage profile and significant liquidity
¼ Prudent capital allocation
FINANCIAL REVIEW
P38
Commitment to shareholder returns
We aim to deliver both growth and yield to our shareholders,
including via a $200 million annual dividend policy
¼ Track record of value creation
¼ Clearly defined and sustainable dividend policy, affordable from cash flow
¼ Distribution policy reviewed annually
Track record of creating
value through M&A
We have a strong track record of executing large scale
M&A, integration and adding value to the assets acquired
¼ A proven, capable and well-capitalised buyer
¼ A focus on high quality, conventional, cash generative,
producing assets
¼ Active risk management to protect the balance sheet
and shareholder distributions
PERFORMANCE OVERVIEW
P8
Strategic report Governance Financial statements Additional information
3
Harbour Energy plc
Annual Report & Accounts 2021
175
kboepd
1
2
3
4
Liquids
1 Oil
2 NGLs
49%
6%
Gas
3 North Sea
4 International
41%
4%
1
2
3
4
5
6
7
8
9
10
Operated
1 GBA
2 J-Area
3 AELE
4 Catcher
5 South East Asia
33 kboepd
26 kboepd
24 kboepd
18 kboepd
12 kboepd
Non-operated
6 Elgin Franklin
7 Buzzard
8 West of Shetland
9 Beryl
10 Other North Sea
18 kboepd
13 kboepd
13 kboepd
12 kboepd
6 kboepd
175
kboepd
BRAZIL
FALKLAND ISLANDS
MEXICO
At a glance
2021 Group production
Group production increased to over
200 kboepd in the fourth quarter, with
improved uptime following completion
of the maintenance programmes, new
wells on-stream and a full contribution
from the Premier portfolio.
Pure play, upstream,
global oil and gas company
Today, we have a leading position in the UK
as well as interests in Indonesia, Vietnam,
Mexico and Norway.
Our intention is to establish a material production
base in at least one region outside the UK.
1,771
Employees worldwide
5
Countries in which
we are active
124
Licence interests covering
exploration, development
and production activities
1
48
Producing fields
OPERATIONAL REVIEW
P22
1 Excluding Brazil and Falkland Islands.
4
Harbour Energy plc
Annual Report & Accounts 2021
UK
NORWAY
VIETNAM
INDONESIA
Production / Development / Exploration and appraisal Development / Exploration and appraisal Decision taken to exit
We invest in our high quality, cash generative UK portfolio
to maximise value and aim to diversify and deliver growth
through acquisition while maintaining a robust balance sheet.
Material stakes
in long life assets
Selective investment
in growth projects
Deep operator competence,
including in decommissioning
Disciplined
approach to M&A
High value, infrastructure
led investment portfolio
Leverage existing
global footprint
Maintain
highly cash
generative
UK portfolio
International
growth
HOW WE CREATE VALUE
P12
Our business model
North Sea
>90%
of our production
South East Asia
<10%
of our production
Strategic report Governance Financial statements Additional information
5
Harbour Energy plc
Annual Report & Accounts 2021
Chief Executive Officer’s statement
6
Harbour Energy plc
Annual Report & Accounts 2021
We continue to invest in high return projects
across our UK asset base to sustain
production while generating substantial free
cash flow. We aim to grow and diversify
through further acquisitions of high quality
producing assets, establishing a material
production base in at least one region
outside the UK. We are uniquely positioned to
take advantage of the shifting strategies of
the major oil companies but we will as always
be disciplined and focused on value creation.
We will maintain a robust balance sheet
and strong liquidity through the commodity
price cycle, supported by our hedging
programme, prudent capital allocation
and conservative risk management. The
importance of this has perhaps never been
more evident than it is today with the triple
impacts of a global pandemic, an uneven
path towards a lower carbon economy and,
more recently, the conflict in Ukraine. Our
approach ensures we remain financially
strong and it enabled us to announce a
$200 million annual dividend policy.
We believe a commitment to shareholder
distributions is an important part of our
equity story and we look forward to making
our first distribution in May 2022.
I would like to thank our employees,
contractors and suppliers for their
continued dedication, hard work and
support in what was an eventful year for
Harbour Energy. I would also like to note the
significant contributions to our Company by
Phil Kirk who stepped down as Executive
Director of Harbour at the end of February
2022. I wish him all the best for the future.
With our scale, our commitment to producing
safely and responsibly, our robust balance
sheet and track record of executing successful
M&A, I believe we are well placed to deliver
value creation, growth and shareholder returns.
I am proud of all we accomplished in our first
year as a publicly listed company and very
excited for our future.
LINDA Z. COOK
Chief Executive Officer
We founded Harbour Energy in 2014,
aiming to build a global and diversified
independent oil and gas company. We
are delivering on that today as we produce
over 200 kboepd safely, responsibly,
and efficiently from a portfolio of cash
generative, conventional assets. We are
therefore well placed to play a key role in
helping to meet the world’s growing energy
needs through the energy transition.
2021 was a transformational year for us
with the completion of the merger with
Premier Oil, our third significant transaction
since 2017. As a result, we became a public
company with a global footprint and the
largest London-listed independent oil and
gas company by production and market
capitalisation. We accomplished a great
amount during the year, a testament to the
tremendous effort and commitment of our
people. We assembled a world class board,
merged two organisations, maintained safe
and responsible operations, set out our
strategy and capital allocation plans, and
issued our first bond – all of this whilst
adapting to new ways of working as we
learned to live with COVID-19.
The safety of our people is our number
one priority, and we are committed to
never compromising our health, safety,
and environmental standards. We have a
well-defined Environmental, Social and
Governance framework which specifically sets
out our goal to achieve Net Zero greenhouse
gas emissions by 2035. We will achieve this
through a range of activities including reducing
our own emissions, offsetting an increasing
proportion of our residual emissions, being
active in projects to capture and store CO
2
,
and supporting wider governmental initiatives
to decarbonise the industry.
I believe we are
well placed to
deliver value
creation, growth
and shareholder
returns.
LINDA Z. COOK
Chief Executive Officer
Strategic report Governance Financial statements Additional information
7
Harbour Energy plc
Annual Report & Accounts 2021
Performance overview
A strong production base
2021 production averaged 175 kboepd
(2020: 173 kboepd). This reflected the
addition of Premier’s portfolio from the
end of March partially offset by significant
planned maintenance campaigns, including
those deferred from 2020 due to the global
pandemic. Production was also impacted
by some unplanned outages in the first half,
the delay to the start-up of the Tolmount
project and natural decline. Production
increased to 214 kboepd in the fourth quarter,
supported by strong operational performance.
Operating costs were $976 million and
$15.2/boe on a unit of production basis,
in line with expectations. Total capital
expenditure including decommissioning
was $935 million, lower than forecast due
to savings across the asset base. Capital
expenditure was weighted towards the second
half of the year with the return of drilling activity
across our operated assets to pre-COVID levels.
The strong production achieved at the end of
2021 has continued into 2022. Our production
is forecast to be higher in 2022, between 195
and 210 kboepd, at the midpoint an increase
of c.15 per cent versus 2021. The increase is
underpinned by a full year of production from
the Premier portfolio and the new Tolmount gas
field. 2022 production is also expected to
benefit from lower planned maintenance levels
and contributions from new wells including
at the J-Area and Catcher Area in the UK,
and Chim Sáo in Vietnam.
The evolution of Harbour Energy
2014 2019 2021
17
kboepd
2017 2022
TO END
FEBRUARY
>200
kboepd
137
kboepd
175
kboepd
A focus on safety and ESG
In Harbour, safety is our number one
priority. While we recorded no serious
injuries or significant spills in the year,
we are not satisfied with the performance.
Our Total Recordable and Lost Time Injury
Rates were 1.27 and 0.68 respectively,
per million hours worked. We established
process safety as our key focus area
and made it the topic for our inaugural
Global HSES Day.
Following completion of the Merger,
we standardised how we measure and
report our greenhouse gas emissions
and established an emissions baseline.
Our Net Zero goal has been embedded
into our investment decision-making and
we have incorporated emissions reduction
incentives into our compensation and
main debt facility. We also purchased
our first carbon offsets, investing in
independently certified forest conservation
and landfill gas capture projects in Brazil.
In 2021, our GHG emissions and intensity
(Scope 1 and 2), measured on a gross
operated basis, were 1.6 mtCO
2
e and
23 kgCO
2
e/boe, reflecting the addition
of Premier’s portfolio from March and
increased drilling activity. Net of the offsets
acquired and retired with respect to 2021,
our gross operated emissions reduced
by over 25 per cent to 1.2 mtCO
2
e and
17 kgCO
2
e/boe.
2021 saw good progress on our two
early-stage UK CCS projects, V Net Zero
and Acorn. For V Net Zero, this included the
award to Harbour of a CCS licence to reuse
the depleted offshore Viking fields for CO
2
storage and the selection of the project
by some of Humber’s largest emitters as
their preferred CO
2
transportation and
storage provider. V Net Zero and Acorn have
the potential to capture and store multiple
times our annual emissions using our
infrastructure and offshore depleted fields.
Capital deployment
We have significant opportunities within our
asset base to support production at current
levels in the near term while generating
material free cash flow, and the majority
of our capex is allocated to lower risk,
high return investments.
We have continued to see outperformance
from infill wells drilled at the Greater
Britannia Area as well as improved results
from the ongoing drilling campaign at Clair.
At J-Area, we recompleted the S-15 well,
reinstated production from the previously
shut in J-06 well and drilled the Jade South
well. This successfully targeted a previously
untested part of the Jade field and was
brought into production in January 2022.
Elsewhere at the J-Area, we completed
the Dunnottar exploration well in December
which did not appear to have found
commercial levels of hydrocarbons.
Track record of creating value through M&A
Harbour founded
by private equity
Acquisition of
UK North Sea
assets from Shell
Acquisition of
ConocoPhillips UK
North Sea business
Merger with
Premier Oil completed
Largest UK listed
independent oil and
gas company
8
Harbour Energy plc
Annual Report & Accounts 2021
A history of successful integration and value creation
2021 also saw successful drilling at
Elgin Franklin, Everest and Beryl in the UK
and Natuna Sea Block A in Indonesia.
Looking to 2022, almost all of our drilling
and development projects within our
approved budget of $800 million break
even at lower than $35/bbl and 35p/therm.
This expenditure supports an active rig
programme across our producing portfolio,
including 23 infill and development wells
and several well intervention campaigns.
There is also ongoing production and plant
optimisation activity planned for 2022,
including a number of compression projects
and gas reinjection programmes, helping
to underpin future production and offset
natural decline.
Harbour has several organic growth projects,
which together could add materially to our
future production. These include the Talbot
field, which is expected to be developed as a
multi-well tie-back to J-Area infrastructure in
the UK, and the Tuna field in Indonesia. Both
Talbot and Tuna were successfully appraised
during 2021 and are now being progressed
towards a final investment decision. Harbour
also has a 12.39 per cent interest in the Zama
Unit (Mexico) where the Block 7 partners and
Pemex are working together to finalise a field
development plan ahead of a final investment
decision targeted for as early as 2023.
In 2021 we announced our decision to exit
the Falklands Islands and our exploration
acreage in Brazil. We believe there are
lower risk and lower emissions intensive
options to replace our reserves and grow
than via frontier exploration or multi-billion
dollar greenfield developments.
Strong reserves replacement through
disciplined M&A
A key achievement in 2021 was the
completion of the Merger which enhanced
our UK North Sea asset base and provided
us with a global footprint. Integration is well
advanced, and we have started to realise
the synergies and efficiencies resulting
from the Merger, especially within our UK
North Sea operations.
In 2021 we increased our proven and
probable (2P) reserves on a working
interest basis to 488 mmboe at year-end
(2020: 451 mmboe), reflecting a 2P
reserves replacement for the year of 157
per cent, more than offsetting 2021
production. This increase was driven by the
addition of the Premier portfolio partially
offset by a downward revision at the
Tolmount field based on the outcome of the
development drilling programme. Our 2C
resources were 460 mmboe at year-end
2021 and include the addition of the Zama
and Tuna fields from the Premier portfolio.
A solid financial position
During 2021, we retained a robust balance
sheet, strong liquidity and diversified our
capital structure. As a result of the Merger,
we were admitted to trading on the London
Stock Exchange and in August became a
constituent of the FTSE 250 index. In October,
we completed our debut $500 million bond
issuance, using the proceeds to repay the
Shell Junior debt facility, providing us with
additional flexibility over the future marketing
of our hydrocarbons.
During 2021, we generated $678 million
of free cash flow. As a result, net debt
excluding unamortised fees stood at $2.3
billion at year-end, down from $2.9 billion
at the time of completion of the Merger.
Group leverage at year-end was 0.9x,
in line with our target of less than 1.5x on
average through the commodity price cycle.
Our strong financial position together
with predictability of our future cash flow
enabled us to introduce an initial $200
million per annum dividend, with the first
$100 million distribution paid in respect
of the 2021 financial year in May 2022,
subject to shareholder approval. Going
forward, this will be paid in two equal
instalments of $100 million each.
Outlook
As we enter 2022, our balance sheet is
strong. The importance of this has perhaps
never been more evident than it is today
with the triple impacts of a global pandemic,
an uneven path towards a lower carbon
economy and, more recently, the conflict in
Ukraine. Against this backdrop, and with
volatile commodity prices, we are generating
material and resilient free cash flow,
underpinned by our high quality, diverse UK
asset base. At $100/bbl and 200p/therm
average prices for 2022, we expect to
generate between $1.5 and $1.7 billion
of free cash flow (after tax and the $200
million dividend payment) with the potential
to be debt free in 2023. As a result, we
have significant optionality over our future
capital allocation, including for meaningful
value accretive transactions and additional
shareholder returns.
Indicates relative magnitude of impact.
We have successfully executed three multi-billion
dollar transactions in the past five years.
Improving production performance
Reinvestment to add reserves
Diversifying the portfolio
Managing operating costs
Extending field life
Improving decommissioning performance
Realising synergies
Strategic report Governance Financial statements Additional information
9
Harbour Energy plc
Annual Report & Accounts 2021
Market overview
Reopening of the global economy
2021 was the year in which we learned to live with COVID-19,
aided by the roll out of the vaccine and supportive government policies.
Against this backdrop, we saw COVID-19
restrictions lifted and economies recover,
resulting in increasing global energy demand.
Inflation emerged as a dominant theme as the
year progressed, driven by surging commodity
prices and continued supply chain disruptions,
which in turn fuelled speculation around
the outlook for interest rates. In the UK, the
market went from an expectation of negative
rates at the start of 2021 to ending the year
with the Bank of England raising the base
rate for the first time in three years.
63%
Increase in average Brent price
versus 2020
360%
Increase in average UK gas price
versus 2020
Brent prices UK gas prices M&A activity
Summary
2021 saw a resurgence in oil demand
as economies reopened. Global supply
struggled to respond with OPEC+ maintaining
its quotas and US producers demonstrating
capital discipline. This drove oil prices
higher over the course of 2021 with Brent
averaging $71/bbl, up 63 per cent on 2020.
Post year-end we have seen increased
volatility in commodity markets with Brent
surpassing $100/bbl for the first time since
2014 as a result of the conflict in Ukraine.
Response and opportunity
Harbour aims to produce reliable and
predictable cash flows through the
cycle, supported by a steady investment
programme and disciplined hedging,
underpinning revenue while retaining
some upside exposure.
Higher commodity prices enabled us to
deleverage quicker than expected during
2021, with net debt, excluding unamortised
fees, reduced from $2.9billion at
completion of the Merger to $2.3 billion at
year-end. With approximately 50 per cent
of our 2022 oil production hedged, we have
significant leverage to the oil price while
continuing to be protected to the downside.
Summary
Against a backdrop of continued
volatility, UK gas prices increased during
2021 to average 122p/therm, up 360
per cent with a record high of 450p/
therm reached in the fourth quarter.
This was driven by a number of factors
including a sharp recovery in demand,
depleted storage levels, lower pipeline
imports and global competition for
LNG cargoes.
Response and opportunity
2021 saw drilling activity on our
operated assets return to pre-COVID-19
levels, with the majority of the wells
targeting natural gas. As a result, our
portfolio is becoming more gas-weighted
while, at the same time, we have
increasing exposure to spot prices with
c.59 per cent, 41 per cent and 20 per
cent of our forecast gas production
hedged in 2022, 2023 and 2024,
respectively. In addition, we agreed with
our lending banks to remove the year 3
minimum hedging requirement providing
us with more flexibility over our hedging
programme going forward.
Summary
Upstream deal activity increased in 2021
with $181 billion of M&A transactions
announced. Major oil companies continue
to reshape their portfolios with significant
divestments targeted by 2025. Meanwhile,
independent oil and gas companies have
continued to make acquisitions with a
focus on economies of scale.
Response and opportunity
In 2021, we completed the Merger to
create the UK’s largest independent
oil and gas company.
With our scale, robust balance sheet and
track record of executing value accretive
M&A, we are uniquely positioned to take
advantage of the current environment to
grow and further diversify our portfolio. The
rising commodity prices however may make
transacting harder. As always, we will remain
very disciplined and focused on value.
The start of 2022 brought further
volatility fuelled by an uneven economic
recovery from the pandemic and, related
to that, an increase in demand for energy
following years of lower global investment
in oil and gas. On top of this, the tragedy
unfolding in Ukraine brings additional
uncertainty, a need for increased
alternative energy supplies to Europe,
and further disruption to supply chains.
While Harbour has no assets or
investments in Russia or Ukraine, and
while we have not yet seen material
signs of broad inflationary pressure, we
are monitoring the situation carefully.
Note: Data in this section has been sourced from
Rystad and NASDAQ.
2021 also served to highlight the challenges
the world faces as it strives to transition
towards a low carbon future. It is clear it
will take time, technological advances and
substantial capital to scale up and deploy the
infrastructure required to materially reduce
reliance on hydrocarbons. Government policy
also needs to play a key part. A poorly
planned transition can lead to energy supply
disruption and economic challenges.
In the meantime, oil and gas companies
continue to play an important role in helping to
meet global energy demand and supporting an
orderly, affordable and just energy transition.
10
Harbour Energy plc
Annual Report & Accounts 2021
V Net Zero
The V Net Zero project is a CO
2
transportation and storage project led
by Harbour.
The Humber is the UK’s most energy
intense industrial area, emitting c. 20
million tonnes of CO
2
per annum. In 2021,
V Net Zero was selected as the preferred
CO
2
Transportation & Storage provider by
Humber Zero (Phillips 66’s Humber Oil
Refinery and VPI Immingham’s power
plant), EP UK Investment’s gas-fired power
plant and Prax’s Lindsey Oil Refinery.
V Net Zero aims to transport and store
more than 10 million tonnes of CO
2
per
annum by 2030. If sanctioned, the project
could progress towards first capture and
storage from 2027.
Acorn
As the Scottish Cluster, Acorn was awarded
Track 1 reserve status as part of the UK
Government’s Net Zero ambitions. Harbour is
a partner in the Acorn Project, which is being
led by Storegga with Shell as lead developer.
Acorn aims to capture industrial CO
2
emissions and, by using existing oil and gas
pipelines, transport it offshore to be
permanently stored in depleted reservoirs.
Phase 1 will capture CO
2
emissions from
St Fergus gas terminals and potentially
from heavy industry in the Central Belt
of Scotland. The Acorn partners are also
considering using the Peterhead port
facilities to import CO
2
for storage. Initial
studies were also undertaken in 2021
on a proposed hydrogen plant which would
generate low carbon hydrogen from natural
gas landed at St Fergus.
ESG REVIEW
P28
Harbour is exploring the potential for CCS projects and partial electrification of the UK Central North Sea to support
our goal to reduce CO
2
emissions.
Positioning for the energy transition
Reduce
¼ Operational optimisation
and improvements
¼ Minimise venting
and flaring
¼ Low carbon design
of new developments
Offset
¼ Offset an increasing
portion of the residual,
hard-to-abate emissions
year on year
¼ Purchase independently
certified offsets
¼ Policy reviewed annually
Incentivise
¼ Emissions reduction
incentives embedded
in compensation
programmes
¼ Financing cost
incentives linked to
emissions performance
¼ Embed Net Zero impact
in investment decisions
Measure
¼ Accurate and consistent
emissions measurement,
reporting and forecasting
¼ Alignment with global
accounting standards
¼ Independent verification
of progress towards 2035
Invest
¼ Screen M&A
opportunities for
emissions intensity
¼ Participate in two
potential UK CCS projects
(V Net Zero and Acorn)
¼ Assess the opportunity
for partial electrification in
the UK Central North Sea
Electrification
Harbour has been evaluating electrification
options for our operated assets in the UK
North Sea as a potential way to reduce our
Scope 1 offshore CO
2
emissions.
In addition we have been leading
industry efforts to evaluate large scale
electrification options across multiple
facilities to help achieve UK oil and
gas sector targets to reduce emissions.
Detailed technical, regulatory and
commercial analysis has been
undertaken in close collaboration with
industry stakeholders, regulators and
supply chain. It is anticipated that the
work to determine the viability of these
projects will conclude in 2022.
Our Net Zero goal includes our share of Scope 1 and 2 CO
2
e emissions from both operated and non-operated assets.
Strategic report Governance Financial statements Additional information
11
Harbour Energy plc
Annual Report & Accounts 2021
How we create value
A clear approach focused on
value creation, cash flow and distributions
Our strategy
To create value by continuing to build a global,
diversified oil and gas company focused on
value creation, cash flow and distributions.
Our purpose
To play a significant role in meeting the world’s
energy needs through the safe, efficient and
responsible production of hydrocarbons while
creating value for our stakeholders.
Our values
At the heart of everything we do are our
four core values:
Material stakes
in long life assets
Selective investment
in growth projects
Deep operator competence
including in decommissioning
Disciplined
approach to M&A
High value, infrastructure
led investment portfolio
Leverage existing
global footprint
Maintain
highly cash
generative
UK portfolio
International
growth
Harbour’s strategy is underpinned by our business
model. We aim to maximise the value from our high
quality UK asset base by investing in lower risk, high
return projects to maintain production levels while
generating substantial free cash flow.
At the same time, we seek to grow and diversify through
acquisition of conventional, cash generative producing
assets, leveraging our full cycle capabilities, global footprint
and strong financial position to establish a material
production base in at least one region outside the UK.
Our business model
Integrity
Innovation
ResponsibilityCollaboration
12
Harbour Energy plc
Annual Report & Accounts 2021
OUR CULTURE AND VALUES
P20
KEY PERFORMANCE INDICATORS
P14
Ensure safe, reliable
and environmentally
responsible operations
Focus areas
¼ Protect the safety and wellbeing of our people
¼ Safeguard the communities in which
we operate and the environment
¼ Progress towards Net Zero
¼ Measure, verify and report the data
to support our goals
¼ Include relevant metrics in our
compensation programmes
Responsible portfolio growth
¼ Continuous improvement in our safety
and environmental performance
¼ Strong governance framework and
a high quality Board of Directors
Our target outputsOur strategic pillars
Maintain a high quality
portfolio of reserves
and resources
Focus areas
¼ Robust margins in times of low
commodity prices
¼ Access to a range of profitable
investment opportunities
¼ Ensure we have longer-term investment
options including organic and inorganic
opportunities
¼ Rigorous prioritisation and capital
allocation process
Leverage our full cycle
capability to diversify
and grow further
Focus areas
¼ Leverage our global footprint, full cycle
capabilities and M&A expertise to diversify
and expand our investment opportunity set
¼ Utilise our deep organisational competence
and operating skills to drive standards,
efficiencies and control over capital
expenditure levels
Ensure financial strength
through the commodity
price cycle
Focus areas
¼ Maintain a strong balance sheet with the
potential for an Investment Grade credit rating
¼ Disciplined annual budget and long-term
planning processes
¼ Conservative financial risk management policy,
including a disciplined hedging programme
¼ Ensure a sustainable dividend
Net Zero
Goal by 2035
Prudent capital allocation
¼ A diverse mix of oil and gas
¼ Wide range of highly profitable
investment opportunities
>90%
Of 2022 drilling and development
projects break even below $35/bbl
and 35p/therm
Medium-term reserve replacement
¼ High margin, diverse and
geographically balanced portfolio
¼ Establish a material production
base outside the UK
157%
2P reserve replacement in 2021
Continued financial flexibility
¼ Positive free cash flow
¼ Conservative leverage profile
and significant liquidity
$200m
Annual dividend policy announced
Strategic report Governance Financial statements Additional information
13
Harbour Energy plc
Annual Report & Accounts 2021
202120202019
175
173
137
202120202019
833
562
678
202120202019
0.93
1.17
1.27
Key performance indicators
Measuring our performance
Operational
Harbour maintained safe and
responsible operations while
integrating two organisations and
adapting to new ways of working
as we learn to live with COVID-19.
Average working interest production
Objective
We aim to maintain production from our high
quality UK asset base and, at the same time, grow
and diversify our production through acquisition.
2021 progress
¼ As a result of the Merger, Harbour became
the largest producer of oil and gas in the UK
and established a global footprint
¼ Production impacted by unplanned outages
and delay to Tolmount project start up
¼ Significant planned maintenance campaigns
completed safely with production rates
increasing to in excess of 200 kboepd in
the fourth quarter
175kboepd
Financial
We generated positive free cash
flow during 2021, maintained
a strong balance sheet with
significant access to liquidity and
diversified our capital structure.
This enabled us to introduce a
$200 million annual dividend policy.
Free cash flow
$678m
Safety and the Environment
1
We are committed to behaving
responsibly and conducting our
business with integrity. The safety of
our people is our number one priority
and we never compromise our health,
safety and environmental standards.
Total Recordable Injury Rate (TRIR) Per million hours worked
Objective
Harbour is committed to managing its operations
in a safe and reliable manner to prevent major
accidents and provide a high level of protection
to employees and contractors.
2021 progress
¼ There were 15 recordable injuries resulting
in a TRIR of 1.27 across the Group
¼ Europe Well Services team completed work
on 36 wells across eight assets without a
single first aid case or other recordable injury
¼ The Judy and Britannia platforms (UK)
surpassed seven years without a lost
time injury; while the Gajah Baru platform
(Indonesia) surpassed 10 years
1.27
Objective
Harbour aims to deliver predictable and reliable
cash flow through the commodity price cycle to
maintain financial strength, enable investment
to ensure a robust and diverse portfolio, and
to underpin the delivery of shareholder returns
including through a sustainable dividend.
2021 progress
¼ Increased free cash flow, driven by higher
commodity prices
¼ Started to realise synergies resulting from
the Merger, especially within the UK
¼ Highly ranked, broad set of relatively low
risk, high return projects to maintain
production and cash flow near term
Link to strategic pillars
Link to strategic pillars
Link to strategic pillars
1 We report our Safety and the Environment KPIs – TRIR, Process
safety and GHG intensity – on a gross, operated basis.
14
Harbour Energy plc
Annual Report & Accounts 2021
202120202019
2P: 488
2P: 451
2P: 542
2C: 460
2C: 378
2C: 255
202120202019
15.2
11.2
11.5
202120202019
100
YE 2021YE 2020YE 2019
0.9x
0.8x
1.1x
202120202019
1
1
2
202120202019
22
22
17 23
Including
offsets
Excluding
offsets
Reserves and resources
1
Objective
We aim to add reserves as well as convert
reserves and resources into production via
targeted investment in our existing asset
base. We seek to replace reserves in the
medium term through value accretive M&A.
2021 progress
¼ Achieved 157 per cent 2P reserves
replacement, underpinned by the Merger
¼ Downward revision of Tolmount
reserves estimates
¼ Increase in 2C resources underpinned
by the addition of the Zama (Mexico)
and Tuna (Indonesia) fields
Operating costs
Objective
We strive for competitive operating costs
without compromising on health, safety and
the environment, enabling positive margins
in times of low commodity prices.
2021 progress
¼ $15.2/boe field opex and $1.3/boe
FPSO lease costs, reflecting natural
decline and lower operating efficiency
due to significant planned maintenance
campaigns and some unplanned outages
¼ Operating costs on an absolute basis
increased to $1.0 billion, driven by the
addition of Premier’s portfolio from the
end of March and a stronger Pound
Sterling/US Dollar exchange rate
948mmboe $15.2/boe
Shareholder returns Dividend
Objective
Harbour aims to deliver both growth and yield
to its shareholders. Shareholder returns, along
with ensuring balance sheet strength and
a robust and diverse portfolio, is one of our
three capital allocation priorities.
2021 progress
¼ Increased earnings per share supported
by higher commodity prices
¼ Annual $200 million dividend policy
announced and will be reviewed annually
in the context of the Group’s capital
allocation priorities
¼ For 2021, a final dividend of $100 million
to be paid in May 2022 post AGM and
shareholder approval
Leverage ratio
Objective
We aim to keep leverage below 1.5x on average
through the commodity price cycle supported
by prudent capital allocation and a disciplined
hedging programme. We seek to repay debt when
prices are high ensuring capital discipline, financial
resilience and capacity to take advantage of M&A
opportunities that align to our strategic drivers.
2021 progress
¼ Significant deleveraging since completion
of the Merger with net debt, excluding
unamortised fees, reduced from
$2.9 billion to $2.3 billion at year-end
¼ Disciplined hedging programme underpins
revenue and debt availability with additional
flexibility following lender removal of year
3 minimum hedging requirement
¼ Completed a $500 million debut bond
issuance with a coupon of 5.5 per cent
$200m/year 0.9x
Process safety
2
Tier 1 and 2
Objective
Harbour aims to maintain the highest
standards of operational integrity to prevent
any release of hazardous material from
primary containment.
2021 progress
¼ No Tier 1 Process Safety Events
¼ Two Tier 2 Process Safety Events
relating to a gas release on the West
Lobe platform (Indonesia) and overflow
of a diesel tank at Solan (UK) during
bunkering operations
¼ Inaugural Global HSES Day held with
particular focus on delivering process
safety excellence
GHG intensity Scope 1 and 2
Objective
Harbour is committed to proactively taking
steps to address its environmental impact.
This includes reducing our own emissions
and offsetting an increasing proportion
of our residual, hard-to-abate emissions
year on year in order to achieve our goal
of Net Zero by 2035.
2021 progress
¼ Higher GHG intensity reflects addition
of Premier’s portfolio from March and
increased drilling activity
¼ Purchased independently certified carbon
offsets of which 400k were retired
against our 2021 emissions reducing our
GHG intensity to 17kgCO
2
e/boe
2 events (Tier 2) 17kgCO
2
e/boe
Ensure safe, reliable and
environmentally responsible
operations
Our strategic pillars
Maintain a high quality
portfolio of reserves
and resources
Leverage our full cycle
capability to diversify
and grow further
Ensure financial strength
through the commodity
price cycle
1 2019 is as per Harbour’s CPR. 2020 and 2021 are management estimates; 2021 excludes
volumes associated with the Falkland Islands consistent with Harbour’s decision to exit.
2 Reported as per the IOGP’s Process Safety – Recommended Practice on Key Performance Indicators, report 456, 2018.
Strategic report Governance Financial statements Additional information
15
Harbour Energy plc
Annual Report & Accounts 2021
Engaging with our stakeholders
Our stakeholders are the individuals,
organisations and authorities who are in
some way connected with our activities at
Harbour – whether it is in our role as an
oil and gas producer, an employer or as a
business that helps boost local and national
economies through jobs and revenue.
The duty of our Board is to promote the success
of Harbour for our shareholders whilst having due
regard for the interests of other stakeholder groups.
In discharging this duty, the Directors must
consider the likely consequences of their decisions
in the long term whilst maintaining our corporate
reputation and adhering to the highest standards
of business conduct. Our Board of Directors carries
out its decision-making with this key duty in mind.
Central to this is ensuring it is equipped with the
necessary information regarding the views of
our stakeholders on key issues and how those
stakeholders will be impacted over the long term
by a particular course of action.
In this regard, the Board sets the parameters
by which we develop, maintain and enhance
relationships with our stakeholders. However, this
engagement cannot be undertaken by the Board
alone, so our Leadership Team aims to adopt a
proactive approach to engagement and foster
positive relationships with all groups who are
impacted by our operations. The Board considers
these stakeholder views when making key decisions
about our operations. For example, the information
is used in investment papers, strategy documents
and budget proposals, to ensure that decisions are
made with due consideration of all stakeholders.
By partnering with our
stakeholders, understanding
their challenges and managing
risks, we can find solutions
for our shared success.
Section 172(1) statement
The disclosure on the following
pages (16 to 19) describes how the
Directors have had regard to the
matters set out in section 172(1) (a)
to (f) and forms the Directors’
statement required under section
414CZA of the Companies Act 2006.
Information regarding our assessment
of environmental and community
issues associated with our operations,
including how we maximise our
positive impacts and minimise the
negative impacts, can be found in
the ESG review on page 28.
#WeAreHarbourEnergy
GOVERNANCE
P56
Open, honest engagement
with our stakeholders
OUR CULTURE AND VALUES
P20
Our values reinforce a
positive and supportive
company culture centred
on employee engagement,
learning and development,
performance management
and reward.
GILL RIGGS
Chief Human Resources Officer
66
Company-wide events held
72%
Of those responding to a
Pulse Survey thought our
global and regional Town
Halls were the most effective
form of communication
2021 engagement highlights
16
Harbour Energy plc
Annual Report & Accounts 2021
Why is it important to engage?
Harbour seeks to develop an investor base of
long-term, institutional shareholders who are
supportive of our strategy.
By ensuring our strategy and objectives
are well understood by our shareholders,
we maintain continued access to long-term
capital providers.
We engage with our stakeholders, listen to their concerns and take action where appropriate,
as is consistent with our core values. Having an open and proactive dialogue with our stakeholders
ensures we can access the resources we need throughout the life cycle of our assets. Their input
and feedback serve as a basis for the decisions we make.
Our aim is to establish good relationships with our key stakeholder groups. These include shareholders, lenders, workforce,
joint venture partners, suppliers and customers where we operate, non-governmental organisations, contractors, suppliers
and trade unions.
Shareholders
How do we engage?
We engage regularly with our
shareholders and potential investors
through meetings, presentations,
conferences and investor events. Over
350 meetings were held in 2021,
including with investors representing
over 80 per cent of the Group’s
issued share capital. The CEO and
Chief Financial Officer along with
Investor Relations are primarily
responsible for this engagement.
What issues are important to them?
¼ Financial and operational
performance
¼ Capital allocation
¼ ESG performance
¼ Remuneration structure
Strategic actions and decisions
In 2021, we set out our strategy
and capital allocation plans. We
also communicated our investment
proposition, highlighting the strength
of our asset base and cash flow
potential. This has attracted new
institutional shareholders and
allowed non-natural holders of
our public equity such as the
legacy Premier creditors to exit.
Outcomes
The Group entered the FTSE 250
in August and remains the largest
London-listed independent oil
and gas company. Our free float
increased during 2021 as the
six-month lock-ups rolled off, resulting
in some index funds buying and
several new long-term institutions
entering our register.
Lenders
Why is it important to engage?
The upstream oil and gas industry is a
capital-intensive business. By maintaining
supportive relationships with our lending
group, we can ensure access to long-term
debt financing that enables us to invest
in high quality projects that generate
sustainable long-term cash flows.
How do we engage?
We undertake regular dialogue with the
syndicate banks, both bi-laterally and
via an annual bankers’ presentation.
Members of the Leadership Team
present performance updates at
these sessions, followed by questions
and answers. Post issuance of our
bond, we have also engaged with
debt investors through meetings
and conferences.
What issues are important to them?
¼ Sustainable financial and
operational performance
¼ Capital allocation
¼ Covenant compliance
¼ Financial risk management
Strategic actions and decisions
The completion of the Merger
resulted in Premier’s debt being
settled in full, financed by the
up-sizing of our existing RBL and
the issuance of Harbour’s shares.
We took the decision to seek a
corporate rating to enable us to
diversify our capital structure
and access new debt investors.
Outcomes
In June, we successfully completed
a redetermination of our RBL.
In addition, Harbour received BB
ratings from S&P and Fitch. In
October, we completed our debut
$500 million bond issuance, using
the proceeds to repay the Shell
Junior debt facility.
Strategic report Governance Financial statements Additional information
17
Harbour Energy plc
Annual Report & Accounts 2021
Engaging with our stakeholders continued
Why is it important to engage?
Sharing of risk is a fundamental component of
our industry. By maintaining good relationships
with our joint venture partners, we can ensure
that maximum value can be extracted from our
operations in a safe and sustainable manner.
Joint venture partners
How do we engage?
The Operating Committee Meetings
(OCMs) are the forum for joint
venture decision-making with
partners. These are set up under the
Joint Operating Agreement (JOA) or
equivalent. The OCM is supplemented
by the main Technical Committee
Meeting (TCM) and other technical and
non-technical sub-committees, all of
which have an advisory role to the OCM.
A regular programme of OCMs
and TCMs, plus other meetings as
appropriate, ensures there is an open
dialogue with our partners across the
full range of asset activities, allowing
for collaboration to be fostered and
for ideas to be exchanged.
Where we are the operator, we seek
to ensure that all partners are aligned
around common objectives for a
particular asset to ensure we can
maintain safe and reliable operations.
What issues are important to them?
¼ Safety and operational performance
¼ Work programmes and budgets
¼ ESG performance
¼ Asset stewardship and
life-of-field strategy
Strategic actions and decisions
Decisions are taken by a vote of the
participants against voting pass-marks
and requirements set out in the JOA. It is
the responsibility of the OCM to agree
the asset strategy, ensuring alignment
to partner and regulatory requirements.
Workforce
Why is it important to engage?
Our current and future success is underpinned
by our ability to engage, motivate and retain
our workforce. Creating an environment
where we listen to employees and where they
in turn know their contribution is valued and
appreciated will help us achieve our objectives.
How do we engage?
The global pandemic meant it was
impossible for us to have face-to-face
sessions for onboarding and Town
Halls. We were also faced with the
challenge of connecting with a global
workforce during a period when we
were still integrating databases and
systems. The solution was a virtual,
web-based ‘on demand’ platform
that provided multiple opportunities
for the global team to connect with
management and each other. In April
1,494 employees attended Harbour’s
first Company-wide Town Hall event.
What issues are important?
¼ Group strategy
¼ Development and progression
¼ Corporate culture
¼ Reward
Strategic actions and decisions
Using the ‘on demand’ platform, we scheduled
global and regional Town Halls and Village
Halls to keep employees up-to-date on the
integration process and our worldwide
activities. We held onboarding sessions and
networking live events. We also posted monthly
CEO messages, Q&As, videos and documents
online. At the end of December, the system
had recorded 23,354 visits to the site overall.
It virtually hosted 66 events (Town Halls, Q&A
sessions, onboarding events and Village Halls)
and 84 videos were uploaded to it. A new
Global Staff Forum was also formed, made
up of representatives from across Harbour,
providing an opportunity for engagement with
the CEO and other members of the Board
of Directors at least three times per year.
In addition, in January 2022 members of our
Board held a virtual visit with key operations
and other staff from our Aberdeen offices,
giving them the opportunity to engage directly.
Outcomes
We have a workforce that understands our
strategy and is fully engaged and committed
to playing their part in achieving our objectives.
Through the Global Staff Forum, employees
have had the opportunity to engage directly
with the CEO and other representatives of the
Board on topics of interest to them including
strategy, culture, personal development, and
new ways of working. Our communications
Pulse Survey highlighted the importance of
the Company-wide Town Halls and provided
valuable feedback regarding our intranet site
and other engagement tools.
Outcomes
Harbour enjoys strong and productive
relationships with its joint venture partners.
This helps us to maximise the value from
our assets safely and responsibly.
18
Harbour Energy plc
Annual Report & Accounts 2021
Why is it important to engage?
Building strong relationships with our
contractors and suppliers is essential
to the safe and efficient delivery of our
projects and operations. Through supplier
engagement and the development of
collaborative working relationships, we
aim to manage risk, improve our business
processes, reduce emissions and increase
both productivity and operational efficiency.
Suppliers
How do we engage?
Supplier relationship management
is critical to our contracting strategy
and ensuring delivery. At a working
level we regularly engage our
contractors through scheduled
reviews and supplier audits to track
HSES and performance, identify
opportunities for improvement and
align objectives. In response to
COVID-19 we ensured more regular
contact with key suppliers to
maintain strong relationships,
better anticipate potential issues
and implement any necessary
risk mitigation measures.
What issues are important to them?
¼ Pre-award transparency
and opportunity
¼ Reciprocal commitment
and integrity
¼ Prompt and fair payment terms
Outcomes
Harbour plans to implement a single
integrated Enterprise Management System.
This will help streamline engagement with
our suppliers, consolidate contracts with key
partners and realise efficiency improvements.
Why is it important to engage?
Our oil and gas are sold via a mixture
of long-term offtake arrangements, spot
market sales and term sales agreements.
In the UK gas is delivered via pipeline to
several terminals, and in Indonesia, long-term
gas sales arrangements are in place to supply
gas into Singapore. We aim to achieve
competitive prices for our oil and gas, whilst
ensuring our operations continue to run
smoothly through regular and open dialogue
with customers.
Customers
How do we engage?
Harbour has an in-house Marketing
and Trading team which, in addition
to being the primary point of contact
for long-term offtake arrangements,
is responsible for our global crude
oil, natural gas liquids (NGL) and
North Sea gas sales, as well as price
risk management. The Marketing
and Trading team manage the entire
sales process from the negotiation of
lifting and shipping arrangements
through to pricing negotiation and
offtake logistics.
What issues are important to them?
¼ Robust and safe lifting operations
¼ Crude oil and gas quality
¼ Reliability of supply and timing
of delivery
¼ Financial capability
Strategic actions and decisions
We took the decision to repay the $400
million Shell Junior debt facility to provide
us with additional flexibility over the future
marketing of our hydrocarbons.
Outcomes
Harbour sold to more than 20 global
customers in 2021. Strong buyer demand
was experienced for the majority of
our production streams and scheduling
performance was robust.
All our oil and gas sales volumes were
safely lifted/delivered to the point of sale.
Over 70 per cent of our oil and over 80
per cent of our gas in the North Sea were
sold to our primary offtake partner Shell.
Our Indonesian production was maximised
to meet strong Singapore gas demand.
Strong gas prices were realised and crude
oil sold at an average premium to the
Dated Brent benchmark.
Strategic actions and decisions
Harbour’s Supplier Forum event provides
our senior business leaders with the
opportunity to communicate future
strategy, share investment plans and
respond to questions from suppliers.
Strategic report Governance Financial statements Additional information
19
Harbour Energy plc
Annual Report & Accounts 2021
Our culture and values
These values represent what we
stand for, what is important to us
and where we will not compromise.
Each of our core values is brought
to life by a set of behaviours which
help guide us as we strive to develop
our people, embed our culture and
live our values day to day.
Integrity
Always doing the right thing
in a professional, respectful
and honest way.
Desired behaviours:
¼ Be direct, honest and encourage
constructive challenge
¼ Respect diversity and be inclusive
in everything you do
¼ Create a safe environment in
which everyone feels comfortable
speaking up
Responsibility
For safety and the environment,
for complying with our policies and
procedures, for delivering against
individual and team goals.
Desired behaviours:
¼ Demonstrate that you care for each
other’s safety every day
¼ Actively consider the environmental
impact of every decision you take
¼ Take personal responsibility for
delivery and results
Collaboration
Working together to achieve our
goals and successfully execute
our business plans.
Desired behaviours:
¼ Work as a team to resolve challenges
and achieve goals
¼ Build and maintain strong, trust-based
relationships with colleagues and
stakeholders
¼ Be open to new ideas and develop
and apply creative solutions
Innovation
Encouraging a more creative
approach to business.
Desired behaviours:
¼ Foster a learning environment that
focuses on continuous improvement
¼ Be open to new ideas and develop
and apply creative solutions
¼ Look to remove complexity and
simplify everything we do
Integrity
Innovation
ResponsibilityCollaboration
Our four core values
sit at the heart of
everything we do
20
Harbour Energy plc
Annual Report & Accounts 2021
Creating a diverse and inclusive environment
We aim to recruit, retain and promote staff based on competence
and regardless of age, disability, gender, marriage and civil
partnership, maternity, race, religion and belief and sexual
orientation. We conduct analysis across our business to ensure
men and women are being paid equally for the same or similar
work. We review compensation decisions in relation to bonus,
recognition and salary regularly to ensure equality across
gender groups.
Encouraging open and honest discussion
We encourage open and ongoing communication between
employees and their managers. When managers and
employees can frankly discuss career development, they
create a foundation for trust and higher engagement. We
always strive to be clear, open and honest with each other,
enabling true collaboration.
Recognising excellence
We believe that by working with highly skilled, innovative and
dedicated colleagues who adhere to our core values we will safely
and reliably deliver on our strategic goals. Living our values in
everything we do is crucial to strengthening our culture and
achieving our vision. To shine a light on outstanding health and
safety behaviours across our global operations in 2021, we
launched Harbour’s CEO Safety Award. An employee recognition
system which links to our values and behaviours is also being
developed for launch in 2022.
Our culture and values reinforce a positive and supportive
working environment centred on employee engagement, learning
and development, performance management and reward.
Here are some examples of how we live our values every day:
Strategic report Governance Financial statements Additional information
21
Harbour Energy plc
Annual Report & Accounts 2021
Operational review
More than 90 per cent of Harbour’s
production is from the North Sea,
with the balance from the Group’s
International assets.
Group production averaged 175 kboepd for
2021, split 163 kboepd North Sea / 12 kboepd
International, and 96 kboepd liquids / 79 kboepd
gas. Average unit operating cost was $15/boe.
Total capital expenditure was $935 million
(including $226 million in decommissioning).
Our North Sea portfolio comprises a mixture of producing
assets, development and pre-development projects, as
well as near-field exploration opportunities. We continue
to invest in the future of the North Sea, maximising the
value of our portfolio and helping to meet local demand
for oil and natural gas.
Our International producing assets consist of Harbour’s
operated fields in Indonesia and Vietnam.
West of Shetland
Clair – 7.5% non-operated
Schiehallion – 10% non-operated
Solan – 100% operated
Group production
Asset / hub
2021
(kboepd)
2020
(kboepd)
Greater Britannia Area 33 39
J-Area 26 31
AELE 24 32
Catcher Area 18 –
Elgin Franklin
1
18 19
Buzzard 13 18
Beryl Area 12 17
West of Shetland
2
13 11
Other North Sea
3
6 6
North Sea 163 173
International 12 –
Total 175 173
1 In 2020 Harbour had a 14.1 per cent interest in Elgin Franklin; this increased to 19.3 per cent following the
Chrysaor Premier Merger.
2 West of Shetland comprises Clair and Schiehallion in 2020, and Clair, Schiehallion and Solan in 2021.
3 Other North Sea includes East Irish Sea and Galleon in 2020, and East Irish Sea, Galleon, Ravenspurn North
and Johnston in 2021.
175kboepd
Total 2021 production
163kboepd
North Sea 2021 production
12kboepd
International 2021 production
Diverse, cash generative
portfolio of scale
22
Harbour Energy plc
Annual Report & Accounts 2021
Armada – 100% operated
Everest – 100% operated
Lomond – 100% operated
Erskine – 32% non-operated
Operated Non-operated
50%
operated
Elgin Franklin
19.3%
non-operated
Tolmount Area
Catcher Area
50%
operated
AELE
Jade – 67.5% operated
Jasmine – 67% operated
J-Block – 67% operated
J-Area
Britannia – 58.7% operated
Brodgar – 93.8% operated
Callanish – 83.5% operated
Enochdhu – 50% operated
Alder – 26.3% non-operated
Finlaggan – third party tie-back
Greater
Britannia Area
Beryl – 39.4% non-operated
Buckland – 37.5% non-operated
Callater – 45% non-operated
Ness – 39.4% non-operated
Nevis – 39-49% non-operated
Skene – 34% non-operated
Storr – 41% non-operated
Beryl Area
Buzzard
21.7%
non-operated
Strategic report Governance Financial statements Additional information
23
Harbour Energy plc
Annual Report & Accounts 2021
Operational review continued
North Sea: operated
The Greater Britannia Area (GBA) was the
Group’s largest producer in 2021, averaging
33 kboepd net to Harbour. The planned six
week maintenance campaign was completed
in August. Production during the fourth quarter
averaged 40 kboepd, underpinned by high
uptime and new production from the Callanish
F5 well. The third party Finlaggan field started
up in the fourth quarter with its associated
tariff leading to improved hub margins. Further
production and plant optimisation is planned
for 2022. This includes the Brodgar field
re-route to the long-term booster compressor
facility and the re-wheel of the compression
train which aims to mitigate production
decline. Following its move to single train
operations, GBA is now one of the Group’s
lowest greenhouse gas emitters on an
intensity basis.
Production from Armada, Everest & Lomond
together with the Erskine tie-back (AELE) averaged
24 kboepd net to Harbour. Production was impacted
by an extended shutdown maintenance campaign.
However, with strong operating efficiency later in the
year, rates returned to just under 30 kboepd in the
fourth quarter. The LAD development well, targeting
the East Everest Extension area, was drilled during
the second half of the year. First gas is targeted for
the first half of 2022, helping to mitigate natural
decline from the AELE hub.
AELE
24kboepd
2021 production
Greater Britannia
Area
33kboepd
2021 production
J-Area production averaged 26 kboepd
net to Harbour for the year, supported
by high uptime and an active well
intervention and drilling programme.
A second rig arrived at J-Area in July
which enabled development, infill,
near-field exploration and appraisal
drilling activity. This included Jade
South, a near-field exploration well
which achieved first gas in early 2022.
We also successfully appraised the
Talbot field in 2021, with a final
investment decision on the multi-well
subsea tie-back project targeted for
2022. In December we completed
the Dunnottar exploration well; while
the joint venture partners are still
assessing the results, it does not
appear to have found commercial
levels of hydrocarbons.
J-Area
26kboepd
2021 production
24
Harbour Energy plc
Annual Report & Accounts 2021
The Catcher Area averaged 24 kboepd net to
Harbour for nine months from 31 March, contributing
18 kboepd to the Group’s production for the full year.
Production was supported by the water and gas
injection programme which has resulted in higher
oil volumes and lower water cuts than anticipated.
A three well programme is planned for 2022 to bring
on-stream the Catcher North and Laverda satellite
tie-backs as well as additional production from the
Burgman field. A 4D seismic survey across the area
was completed in April which will enable us to
optimise reservoir management and identify future
infill targets beyond the 2022 programme.
Catcher
Area
18kboepd
2021 production
At the Tolmount gas field, issues were
identified in certain offshore electrical
systems during final commissioning and
testing of the platform which resulted
in first gas being delayed beyond July
2021. The inspection of all of the
electrical systems and the repairs
required for first gas were completed
post period end in early 2022, as were
the Safety Instrument Functionality
and Cause and Effect testing.
Start-up operations commenced post
period end in March with the handover
from the engineering and construction
contractor to ODE, the duty holder,
initiated, ahead of back-gassing the
pipeline and first production.
At the end of 2021, we downgraded
our estimates of the Tolmount field
reserves, reflecting the outcome
of the four well drilling campaign.
In particular, the third well encountered
a shallower than expected water
contact. Tolmount is expected to
produce c. 20 kboepd once at plateau
rates with all four wells on-stream.
Tolmount East, which will comprise
a single subsea well tied back to the
Tolmount platform, was sanctioned in
July 2021, and once on-stream will
supplement production from the main
Tolmount field. Drilling is scheduled to
commence in the second half of 2022
with first gas targeted for 2023.
Tolmount
Area
20kboepd
Expected plateau rates
Other activity
Harbour drilled two exploration wells
in Norway in 2021, targeting the Jerv
and Ilder prospects on licence PL 973.
The wells were unsuccessful and have
been plugged and abandoned. Post
year-end, in the first quarter of 2022,
we were awarded five licences in the
APA 2021 licensing round.
Harbour’s Southern North Sea
decommissioning programme has
continued to deliver a strong safety,
operational and cost performance,
leveraging our significant in-house
expertise. The well plug and
abandonment programme continued
during the year and the removal
of five platforms in the LOGGS
complex was successfully completed.
In the Central North Sea, Harbour
plugged and abandoned the final well
on the MacCulloch field, marking the
successful completion of the 13 well
abandonment programme. Elsewhere
in the Central North Sea, the Balmoral
floating production vessel was
demobilised and moved off station.
Strategic report Governance Financial statements Additional information
25
Harbour Energy plc
Annual Report & Accounts 2021
Operational review continued
North Sea: non-operated
Elgin Franklin produced 18 kboepd net to
Harbour, reflecting a third party unplanned
outage in April and a delayed start up
following the extended planned summer
shutdown which had been deferred from
2020. This was partially offset by the
contribution from Premier’s 5.2 per cent
interest in the field from the end of March.
Production averaged 26 kboepd during the
fourth quarter, supported by significantly
improved uptime. In addition, the EIG well
was tied into production in the fourth
quarter of 2021.
Production from the West of Shetland hub
comprising our interests in Clair, Schiehallion
and Solan averaged 13 kboepd. Production
from the very long life Clair field continues
to be supported by an ongoing drilling
programme at Clair Ridge, with five wells
drilled during the course of the year.
Preparations also continued to return
to drilling at Clair Phase 1 at the end
of 2022. In addition, the partners
continue to optimise the Clair Phase 3
development, including Clair South.
The Beryl Area produced 12 kboepd net to
Harbour for 2021. Production was impacted
by low operating efficiency due to an extended
planned maintenance campaign and gas
compression issues. Drilling operations and
the subsea tie-in on the Storr-2 development
well was achieved in late December. An active
rig programme is planned for Beryl in 2022,
with return to the Mobile Offshore Drilling Unit
(MODU) infill drilling programme and the
restart of platform drilling in the second half
of the year. The operator continues to target
mid-2020s for start-up from the Tertiary fields.
Elgin
Franklin
18kboepd
2021 production
Beryl
Area
12kboepd
2021 production
West of
Shetland
13kboepd
2021 production
Buzzard production averaged 13 kboepd
net to Harbour, reflecting natural decline and
an extended shutdown from May to July
to install Buzzard Phase 2 facilities and
align with the Forties Pipeline System (FPS)
outage. Buzzard Phase 2, which was
developed as a subsea tie-back to the main
Buzzard platform, came on-stream at the
end of the year and will boost production by
c.3 kboepd net to Harbour. Preparations are
underway for the 2023 infill well campaign
targeting the Northern Terrace which will help
mitigate natural decline from the field. Buzzard
Brownfield Electrification screening work was
undertaken in the second half of the year.
Buzzard
13kboepd
2021 production
North Sea: working
towards Net Zero
Harbour is participating in two early-stage
potential Carbon Capture and Storage
(CCS) projects: V Net Zero (England) and
Acorn (Scotland). These projects have the
potential to capture and store multiple
times our annual emissions.
2021 saw good progress on our V Net Zero
project which utilises our existing
infrastructure and offshore depleted fields.
The project is being designed to transport
up to 10.9 million tonnes of CO
2
per year
from the Humber region, the UK’s most
industrialised area, and permanently store
it offshore in depleted gas fields in the
Southern North Sea. During 2021, Humber
Zero (Phillips 66’s Humber Refinery and
Vitol’s VPI Immingham power plant), EPUKI’s
South Humber Bank Power Plant and Prax’s
Lindsey Oil refinery selected the project as
their preferred CO
2
transportation and
storage provider. In addition, in October
Harbour was awarded the Carbon Capture
and Storage licence to reuse the depleted
Viking and Victor gas fields to store CO
2
as
part of the project. Post year-end, in early
2022 we awarded energy engineering
specialist Kent the pre-front end engineering
design contract for the V Net Zero pipeline
systems. We, our partners and our emitters
continue to work with regulators and the UK
Government to progress V Net Zero towards
a potential final investment decision.
The Acorn CCS and Hydrogen project is
well placed to help decarbonise Scotland,
especially the central industrial belt.
Acorn was awarded Reserve Track 1 status
as part of the UK Government’s Net Zero
ambitions. Harbour is a partner in the Acorn
project which is being led by Storegga with
Shell as lead developer.
We are also assessing the potential
for electrification of offshore facilities
in the Central North Sea.
Harbour is leading an industry study to
determine the technical and commercial
viability for electrification of offshore
platforms, including replacing diesel
powered generators with electricity
transmitted from shore or possibly from
offshore wind turbines. Doing so would
have a material impact on our GHG
emissions from offshore oil and gas
production. The analysis is expected
to conclude during 2022.
26
Harbour Energy plc
Annual Report & Accounts 2021
International: operated and non-operated
Operated
The Natuna Sea Block A fields in Indonesia
averaged 10 kboepd for the nine months
from 31 March 2021, contributing 8 kboepd
to the Group’s 2021 full year production.
This reflected very high uptime and strong
Singapore natural gas demand with offtake
under our gas sales agreements above
take-or-pay levels. In the fourth quarter,
a jack-up rig campaign comprising a workover
and an infill well was completed, helping to
increase delivery from the field. Further rig
activity is planned for 2022, including an infill
well at Pelikan to help support production.
Pricing of Indonesia gas remained strong
during the year, averaging $12/mmscf.
Elsewhere in Indonesia, we successfully
appraised the Tuna discoveries. This involved
two appraisal wells and an extensive data
acquisition programme, including three drill
string flow tests with rates achieved ahead of
expectations. Technical and commercial work
on the project has been initiated, with the
development concept comprising dry gas
sales to Vietnam and liquids offloaded to
market via an FPSO scheme. Post year-end,
we secured Indonesian Government approval
for a one year extension to the exploration
period of the Tuna PSC to allow the
submission of a Plan of Development to
the Indonesian Government in 2023.
Preparations are also underway for the
drilling of the Timpan-1 exploration well on
the Group’s operated Andaman II licence
off northern Sumatra, Indonesia. Together
with our partners, BP and Mubadala
Petroleum, we have contracted the West
Capella drillship with the well expected
to spud in the second quarter of 2022.
Harbour’s Chim Sáo field in Vietnam
produced 5 kboepd during the nine months
from 31 March, contributing 4 kboepd to
Harbour’s 2021 production. An approved
two well infill programme to help offset
natural decline from the field is on schedule
to commence mid-2022.
In the Falkland Islands, Harbour undertook a
thorough review of the Sea Lion project, in
which the Group has a 60 per cent operated
interest. Development of the project was not
deemed a strategic fit for Harbour and the
Group decided to exit the Falkland Islands.
In December, Harbour agreed to assign all of
its interests in the Falkland Islands to Navitas
Petroleum. The transaction is expected to
complete in the first half of 2022 subject to
the Falkland Islands Government approval.
Harbour also took the decision in 2021 to
exit its exploration licence interests in the
Ceara Basin in Brazil and the Burgos Basin
in Mexico. This is in line with the Group’s
exploration strategy which is focused
primarily on infrastructure led, lower risk
opportunities in areas with an existing
Harbour producing presence.
Non-operated
Harbour has a 12.39 per cent unitised
interest in the Zama field offshore Mexico.
During 2021, Harbour worked with partners
and Pemex to define the basis of a unit
development plan (UDP) which is envisaged
to comprise two offshore platforms with
oil and gas export to the nearby Dos Bocas
terminal. The UDP is intended to minimise
offshore installations and also lowers GHG
intensity by powering the offshore platforms
largely from shore. Front End Engineering and
Design (FEED) on the proposed development
scheme is expected to be initiated during
2022 ahead of a final investment decision
possibly in 2023.
Elsewhere in Mexico, the Block 30 (Harbour
30 per cent) joint venture partnership plans
to drill two commitment wells on the licence
targeting the Wahoo and Pike prospects
in 2022.
Natuna
Sea Block A
8kboepd
2021 production
Chim Sáo
4kboepd
2021 production
Strategic report Governance Financial statements Additional information
27
Harbour Energy plc
Annual Report & Accounts 2021
ESG review
Our purpose
To play a significant role in meeting the
world’s energy needs through the safe,
efficient and responsible production of
hydrocarbons while creating value for
our stakeholders.
Our aim
To deliver value in a responsible manner
for all stakeholders in accordance with
key global standards, underpinned by
strong corporate governance.
A strong focus on delivering
our ESG commitments
FIND OUT MORE ONLINE
In our ESG Report at:
harbourenergy.com/sustainability
28
Harbour Energy plc
Annual Report & Accounts 2021
As our business continues to grow, we are committed to the highest standards
of corporate governance, to keeping safety as our top priority and protecting the
environment and local communities.
Environment
Committed to minimising
the environmental impact
of our operations and playing
a role in the transition to a
lower carbon economy.
Our targets
¼ Conducting our business with care for the environment
¼ Net Zero for our equity share of Scope 1 and 2 emissions by 2035
¼ Reduce emissions from our operations
¼ Zero routine flaring
¼ Explore the potential for Carbon Capture & Storage (CCS) and
offshore electrification
¼ Incentives in executive remuneration for emissions reduction
¼ Investment in carbon offsets
2021 progress
Delivered emissions 6 per cent under
target through improvements in plant
efficiency and flaring, and offset more
than 25 per cent of emissions
17kgCO
2
e/boe
GHG intensity (including offsets)
READ MORE
P32
Social
Generating shared value
through socially responsible
operations will earn and keep
the trust of our stakeholders.
Our targets
¼ Ensure diversity, equity and inclusion are reflected in the Group’s
policies and procedures
¼ Develop a working environment that fosters a sense of belonging
and acceptance
¼ Commit to local employment
¼ Invest in local communities to provide sustainable benefits
READ MORE
P34
2021 progress
Launch of our Diversity, Equity &
Inclusion Policy, which includes
commitments to the principal of
equal opportunity in employment
$3.67bn
In economic value generated
Safety
The health and safety
of our people is our
top priority. We never
compromise on health
or safety standards.
Our targets
¼ Maintain strong Health, Safety, Environmental and Security
(HSES) leadership
¼ Continuous improvement in our safety performance
¼ Embed process safety excellence across the organisation
¼ Assure compliance with policies and procedures including
in support of major accident prevention
¼ Maintain a trained and prepared incident response capability
across our global organisation
READ MORE
P30
2021 progress
Harbour Energy’s Life-Saving Rules
and Process Safety Fundamentals
were developed and rolled out at
our inaugural Global HSES Day
1.27
Total Recordable Injury Rate
(TRIR) per million hours
Governance
Our governance goes beyond
regulatory compliance and
puts the interests of all our
stakeholders at the heart of
the Board’s decision-making.
Our targets
¼ Establish and maintain a diverse Board of Directors
¼ Ensure a sound framework of internal controls and risk management
¼ Maximise long-term value for our shareholders
¼ Transparent and active engagement with all stakeholder groups
¼ Zero tolerance to unethical behaviour
READ MORE
P35
2021 progress
Established a new Board
and announced plans for
dividend payments
>350
Investor meetings held
Strategic report Governance Financial statements Additional information
29
Harbour Energy plc
Annual Report & Accounts 2021
202120202019
1
1
2
202120202019
0.93
1.17
1.27
ESG review continued
Our approach
At Harbour, safety is our top priority, and
we aim to operate responsibly and securely
across all our activities.
We continually work to reduce risks and
ensure the safety of everyone who is
affected by our operations. We aim to
improve occupational health and safety
practices, and performance across the
entire organisation through implementing
standards and policies, training, raising
awareness and sharing information.
We strive to achieve process safety
excellence and work continually to reduce
the likelihood and potential severity of
process safety events. This involves applying
best practices in the design, use and
maintenance of our equipment, planning
every stage of our operations with safety
risks and the hierarchy of control in mind.
2021 performance
We launched several programmes to improve
safety practices and promote greater safety
awareness across our organisation. We
held our first Global HSES Day, we adopted
a common set of Life-Saving Rules across
the organisation and implemented a
comprehensive HSES audit programme.
We began standardising process safety
procedures and practices, using best
practices from across the Group. This work
supports our aim of achieving process safety
excellence across all of our operations.
Process safety was a primary area of focus at
our Global HSES Day, where we announced
the adoption of the IOGP Process Safety
Fundamentals. We also developed an
internal training programme called Major
Hazards Awareness, which includes both
site-based and virtual reality modules.
FIND OUT MORE ONLINE
On the IOGP website at:
www.iogp.org/oil-and-gas-safety/
process-safety/fundamentals
Safety
Ensuring our people are kept safe and well, and raising
awareness of potential dangers related to our operations
and locations are of paramount importance to us.
Total Recordable Injury Rate (TRIR)
1
Per million hours worked
1.27
1 Reported on a gross, operated basis.
2 Reported as per the IOGP’s Process Safety
– Recommended Practice on Key Performance
Indicators, report 456, 2018.
KEY PERFORMANCE INDICATORS
P14
2 events (Tier 2)
Process safety
1,2
Tier 1 and 2
30
Harbour Energy plc
Annual Report & Accounts 2021
Our Total Recordable Injury Rate and Lost
Time Injury Rate were both above target for
the year. This was attributable to a number
of incidents, predominantly the result of
poor situational awareness, in the first
half of 2021.
We experienced zero Tier 1 and two Tier 2
loss of process containment safety events.
Looking forward
We will continue to focus on safety leadership,
process safety and major accident prevention.
Key actions for 2022 include rolling out the
Process Safety Fundamentals across the
organisation and embedding them into our
operating practices.
Additional details on our 2021 safety
performance can be found in our ESG Report.
FIND OUT MORE ONLINE
In our ESG Report at:
harbourenergy.com/sustainability
CEO Safety Award
Open for individuals or teams, staff and
contractors working for Harbour, this
award programme aims to recognise
outstanding health and safety behaviour
across our global operations. Anyone in
the Group can make nominations across
a broad scope including, for example,
extended injury-free performance on an
asset, personal interventions to stop
work or raise safety concerns, the
introduction of new ways of working or
a change in facilities to reduce health
and safety risks.
A total of 45 nominations were submitted.
While all were worthy of recognition, the
three finalists were: the Greater Britannia
Area (GBA) preventative maintenance team,
the barge campaign team in Indonesia and
our North Sea decommissioning team.
The winner of the inaugural CEO Safety Award
was the GBA preventative maintenance
team who significantly exceeded the annual
target for preventative maintenance and
in so doing helped to ensure the safety of
themselves and their colleagues.
Major hazard awareness using virtual reality
Virtual reality (VR) tools have been
successfully adopted by Harbour to
help reinforce Major Accident Hazard
(MAH) awareness training onboard
our UK offshore platforms.
In addition to recommencing site-based
MAH awareness training delivered
at Spadeadam in Cumbria, UK, we
have adopted use of VR technology
to supplement this experience.
The programme uses the latest VR
gaming technology to create an immersive
3D environment.
The VR sets have been deployed on rotation
across our North Sea operated assets and
also our onshore locations. This approach
allows us to continue to raise awareness
of MAH potential across our organisation
and we are looking into how to take the
technology across our global operations.
HSES COMMITTEE REPORT
P72
Strategic report Governance Financial statements Additional information
31
Harbour Energy plc
Annual Report & Accounts 2021
North Sea
1.0 International 0.6
ESG review continued
Task Force on Climate-related
Financial Disclosures (TCFD)
In compliance with Listing Rule 9.8.6(8),
our climate-related financial disclosures,
which are partially consistent with the TCFD
Recommendations and Recommended
Disclosures published in June 2017, are
summarised herein. Where our disclosures are
not consistent with TCFD Recommendations
and Recommended Disclosures, the reasons
for this and steps we are taking are set out
in our ESG Report.
TCFD recommendations are embedded
in our business practices and discussed
throughout this report. Our ESG Report is
aligned to the Global Reporting Initiative (GRI),
the Sustainability Accounting Standards Board
(SASB) and TCFD. It provides additional details
on our 2021 environmental performance and,
for ease of reference, includes a full TCFD index.
Environment
Committed to addressing the environmental impact
of our operations and playing a role in the transition
to a lower carbon economy.
17kgCO
2
e/boe
GHG intensity (including offsets)
22.4MGJ
Energy used (2020: 13.8)
Zero
Environmental fines
1.6
(2020: 1.0)
TCFD overview
Recommendation Recommended disclosures and disclosure level Reference Summary of progress
Governance
Disclose the organisation’s
governance around
climate-related risks
and opportunities
a) Describe the Board’s oversight of
climate-related risks and opportunities
Annual Report
Governance: P56
Audit and Risk Committee
report: P66
HSES Committee report: P72
ESG Report
Governance: P33
Environment: P17
¼ A new Board of Directors along with four sub-committees
were established in 2021, and have endorsed our Net Zero
2035 goal
¼ The Board, and its HSES and Audit and Risk sub-committees,
regularly review and evaluate risks, opportunities and impacts
related to climate change and our path to Net Zero 2035
¼ Management executes our strategy, monitors our
climate-related performance, and reports to the Board on our
progress against targets
b) Describe management’s role in assessing
and managing climate-related risks and
opportunities
Strategy
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy and financial
planning where such
information is material
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium and long term
Annual Report
How we create value: P12
Risk management: P44
ESG Report
Environment: P17
¼ We face a broad range of climate-related risks. These include
transitional risks such as shifts in demand for fossil fuels,
reputational, legal and technological risks, as well as physical
risks such as extreme weather events and long-term sea-level
rises. These are all monitored and evaluated when developing
and reviewing our overall strategic direction and targets
¼ The energy transition also presents opportunities to Harbour
Energy. We are actively investing in both hydrogen and
Carbon Capture and Storage (CCS)
¼ We use different financial scenarios that embed various
aspects, including carbon costs and commodity prices,
into our strategic planning. We are developing models to
integrate climate scenarios into our existing scenario analysis
b) Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy, and financial planning
c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario
Risk management
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks
a) Describe the organisation’s processes for
identifying and assessing climate-related risks
Annual Report
Risk management: P44
Principal risks: P48
ESG Report
Environment: P17
¼ All areas of the business are subject to regular risk
identification, assessment and review. These reviews
include both transitional and physical climate-related risks
¼ In 2021 we introduced a new principal risk relating
to climate change, energy transition and Net Zero
¼ Climate-related risks are considered and managed within
Harbour’s risk management framework
b) Describe the organisation’s processes
for managing climate-related risks
c) Describe how processes for identifying,
assessing, and managing climate-related
risks are integrated into the organisation’s
overall risk management
Metrics and targets
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material
a) Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process
ESG Report
Environment: P17
Data sheet
¼ We use and disclose a wide range of climate-related metrics
in order to manage the business and our risks
¼ We have provided details of Scope 1 and 2 emissions for our
own operations, and for the equity share of our investments
¼ We have started to gather emissions data from our upstream
supply chain to help us understand, quantify and, in future,
disclose a broader range of Scope 3 emissions
¼ Harbour sets annual emission reduction targets that support
our goals of zero routine flaring by 2030 and Net Zero by 2035
¼ Disclosure of our climate-related targets, that enable us to
track progress toward our zero routine flaring and Net Zero
goals, is under consideration
b) Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks
c) Describe the targets used by the organisation
to manage climate-related risks and
opportunities and performance against targets
Scope 1 & 2 emissions MtCO
2
e
Disclosure level: Full Partial Omitted
32
Harbour Energy plc
Annual Report & Accounts 2021
Our approach
We are continually taking steps and making
investments to reduce our emissions and
environmental impacts, and are committed
to playing a role in the responsible transition
to a lower carbon economy.
Regarding GHG emissions, we are targeting
Net Zero by 2035. As an independent
oil and gas company, we focus on Scope 1
and 2 emissions across our portfolio,
including those from both our operated and
non-operated assets. Our approach towards
this goal is, first and foremost, to reduce
our own emissions through operational
efficiencies and modifications. We also
explore opportunities for step-changes in
our emissions profile through projects like
offshore electrification and CCS, we embed
a cost of carbon in all decision-making,
we increasingly offset our hard-to-abate
emissions, and we aim to measure and
report in line with best practice.
We set annual targets for GHG emissions
– which are included in incentive pay
outcomes – and related to the acquisition
of offsets. We also have an incentive in
our main debt facility, providing us with an
opportunity for lower financing costs should
certain emissions reduction targets be
met in the future. In addition, we are a
signatory of the World Bank Zero Routine
Flaring (2030) protocol.
In other areas of environmental performance
such as water usage, spill prevention and
waste, we have policies and procedures
in place to ensure we design, operate and
maintain our facilities in line with best practice
in order to minimise our environmental
footprint. We ensure a strong spill response
capability and a systematic approach
to emergency preparedness and crisis
management. We measure and track our
performance using a broad set of metrics.
Our progress is monitored regularly by our
Leadership Team as well as the Board’s
HSES Committee.
2021 performance
In 2021, our total Scope 1 and 2 GHG
emissions from our operated assets increased
to 1.6 million tonnes of CO
2
e as a result of the
Merger and the higher level of drilling across
the portfolio following lower activity during 2020
as a result of the pandemic. Our operations in
the UK were responsible for over 60 per cent
of the emissions with the remainder coming
from Norway and our International assets.
was 17.8 parts per million by weight. We
recorded 28 hydrocarbon spills during the
year, releasing a total of 0.9 tonnes to the
environment. We also recorded 19 chemical
spills, releasing a total of 27 tonnes, 80 per
cent of which was attributable to a single
event involving the unplanned release of
20.7 tonnes of water-based cooling medium.
Waste volumes – mainly resulting from our
drilling, production and decommissioning
activities – fell during the year to 25k tonnes.
Looking forward
Harbour aims to grow and diversify its
business by investing in our existing assets
and through further M&A. As a result, we
expect our absolute emissions over the
near to mid term will likely grow along with
the business. However, we aim for our
emissions intensity to improve and to reach
Net Zero by 2035, through a combination
of activities including:
¼ Increasing plant efficiency and further
reductions in flaring and venting
¼ Implementing sanctioned and new
emissions reduction projects
¼ Including the cost of carbon in all
investments and screening M&A
candidates for GHG intensity
¼ Continuing to progress our CCS projects
to determine their technical and
commercial viability
¼ The acquisition of high quality carbon offsets
We will also continue to monitor progress
against all environmental aspects at both
our Leadership Team and the Board’s
HSES Committee.
With respect to priorities to further develop
our TCFD practices, during 2022 we will
advance our efforts in the following areas:
¼ The collection, measurement,
understanding and reporting of our
value chain (Scope 3) emissions
¼ Incorporating climate-related scenarios
alongside our financial scenarios in our
strategic planning
¼ Disclosure of forward-looking targets
of key climate-related metrics
The primary sources of our emissions are
associated with the combustion of fuels.
The majority (94 per cent) of our emissions
are from CO
2
, with smaller amounts
associated with CH
4
and N
2
O.
Our emissions in 2021 were 6 per cent
lower than our target. The improvement was
a result of plant efficiency gains and also
lower production related to the delayed
start-up of the Tolmount project in the UK.
We identify emissions reduction opportunities
through our Environmental Hopper process
and screen them based on emissions impact,
feasibility and cost. In 2021 we implemented
projects that result in annual emissions
reductions of 56k tonnes CO
2
e.
During the year we continued to assess
the viability of offshore electrification of
our Central North Sea assets in the UK.
While capital-intensive and commercially
challenging, implementation would have a
material impact on our emissions and could
be viable with government support. We are
assessing the project against a wide range
of future costs for CO
2
, as we do in all
investment decision-making. We aim to
conclude the analysis during 2022.
We also progressed our efforts to mature
two CCS projects in the UK: V Net Zero and
Acorn. Both projects have the potential to
capture and store material amounts of CO
2
,
with our operated V Net Zero project utilising
existing Harbour pipeline infrastructure and
targeting storage in offshore fields for which
we secured the required licences during
2021. The two projects are aligned with the
UK Government’s Net Zero ambition and are
active in the process to potentially secure
government financial support.
We recently secured our first carbon offsets,
totalling 1.2 million tonnes, certified to
international standards. The offsets are
mostly associated with forestry conservation
and landfill gas capture. Of the offsets
acquired, 0.4 million tonnes have been
applied against our 2021 emissions,
offsetting more than 25 per cent of our
annual emissions and reducing our GHG
intensity from 23 kgCO
2
e/boe to 17 kgCO
2
e/
boe. We plan to use the remaining offsets
in future years.
In other areas of environmental performance,
we discharged 2.1 million tonnes of treated
produced water from our own operations.
The average amount of oil in produced water
PRINCIPAL RISKS
P48
FIND OUT MORE ONLINE
In our ESG Report at:
harbourenergy.com/sustainability
Strategic report Governance Financial statements Additional information
33
Harbour Energy plc
Annual Report & Accounts 2021
Male
76% Female 24%
ESG review continued
Our approach
Building, shaping and developing our
culture, our people and new organisational
structure are key to our success. Following
completion of the Merger, we are focusing
on creating an equal, inclusive, diverse
and collaborative environment. Engaging,
developing, retaining and rewarding our
employees is a priority for us, and our
commitment to building a diverse and
inclusive environment is foundational
to our core values.
2021 performance
Community, value generation and distribution
In 2021 we distributed $2.09 billion in
the form of operating costs, payments to
suppliers and contractors, royalties, wages,
tax payments and community investments.
Diversity, equity and inclusion
At Harbour, we work hard to create a
culture where everyone can thrive and
succeed. Our commitment to building
a diverse, equitable and inclusive
environment is foundational to our values
and is underpinned by our People and
Diversity, Equity and Inclusion Policies.
Vietnam: Sports, Social and Charity Committee
Our team in Vietnam co-ordinates and
oversees a range of diverse activities in
the local community. Their aims are to:
¼ Provide engagement, support and
activities related to our ESG goals
¼ Promote physical and mental
health for staff (sports activities/
challenges, #workfromhome
platform etc)
¼ Work hard, play harder – organise
events which help to strengthen
team spirit
Some of the projects we supported
in 2021 include:
¼ Heartbeat Vietnam, which has given
7,804 children to date a second chance
at life
¼ Christine Noble Children’s Foundation’s
educational and healthcare centre for
disadvantaged and disabled children
¼ Chevening Vietnam’s career mentoring
programme for university students
¼ GAIA Nature Conservation, empowering
and pioneering the implementation
of solutions to conserve nature and
protect the environment
$3.67bn
Economic value generated
by Harbour Energy
1
$2.09bn
Economic value distributed
by Harbour Energy
FIND OUT MORE ONLINE
In our ESG Report at:
harbourenergy.com/sustainability
Social
Proud of our role in generating shared value
and our governance structure.
36%
Of our Board members are women
1 Including jobs and employment.
35%
Of our Leadership Team and
their direct reports are women
44k
Staff training and
development hours
Gender balance All employees
34
Harbour Energy plc
Annual Report & Accounts 2021
Our approach
Harbour is committed to conducting its
activities to the highest ethical standards
and in compliance with all applicable laws
and regulations. This is consistent with our
core values, is critical in maintaining the
trust of our stakeholders and underpins
both our current and future success.
We have a comprehensive risk governance
framework that extends from the Board of
Directors, through executive and senior
management, to the working levels within
each of our businesses.
2021 performance
We formed a new Board of Directors for Harbour
and established four Board Committees:
¼ The Health, Safety, Environment and
Security (HSES) Committee
¼ The Audit and Risk Committee
¼ The Remuneration Committee
¼ The Nomination Committee
The Committees and the Board approved
nine new Group-level policies including
HSES, Risk Management and Tax.
We took steps to further develop our ethics
and compliance programmes through:
¼ Preparing for the launch of a new Global
Code of Conduct and core values
¼ Engagement with key contractors on
modern slavery and worker-welfare risks
We give full and fair consideration to all
applications for employment by disabled
persons, having regard for their particular
aptitudes and abilities. We strive to
provide continued employment and
arrange appropriate training for members
of our workforce who become disabled
whilst employed by us. We provide
training, career development and
promotion of disabled employees.
Employee engagement and practices
Engagement with our workforce is key
to our future success and is a valuable
means of identifying employee concerns.
In 2021, our employee engagement efforts
centred on the integration of the merged
companies to create Harbour. Throughout
the Merger process, we engaged with
employees on organisational change.
We built on the existing staff forum
structures from our legacy companies to
ensure employee input into the design
of the organisation and the subsequent
integration process, and we created a
new Global Staff Forum to enable direct
engagement between representatives
of our own global employee base, our
CEO and other members of the Board.
Looking forward
Harbour will continue to aim to create
maximum value for our stakeholders. We are
proud that much of the value we create is
distributed throughout our host countries
and local communities, and directly supports
long-term socio-economic development. We
are working to build a diverse and inclusive
working environment where everyone is
accepted and there are equal opportunities
and fair pay for all employees.
¼ Participation in working groups, task forces
and consultations on public policy and
legislation in countries in which we operate
¼ Partnered with key members of our
supply chain on climate change, worker
protection and human rights
In 2021 there were:
¼ No significant fines or non-monetary
sanctions for legal or regulatory breaches
¼ No legal actions relating to business ethics,
corruption or anti-competitive behaviour
¼ No reported violations of our Human
Rights Statement, nor any incidents
of human rights abuses
¼ No alleged incidents of discrimination
reported across our operations
¼ No security-related incidents with
human rights implications
¼ No operations that presented risks to
workers’ rights
¼ No significant negative human rights
or labour rights impacts identified in
our supply chain
Looking forward
Harbour will continue to aim to meet best
practices in the area of corporate governance.
We will launch our new Code of Conduct
and will roll it out across the organisation
in 2022. In addition, we will continue to
mature our efforts to ensure compliance
related to all of our policies and standards.
Governance
Our Board is collectively responsible for the governance
of Harbour Energy on behalf of shareholders.
CORPORATE GOVERNANCE REPORT
P62
FIND OUT MORE ONLINE
harbourenergy.com/policies
Strategic report Governance Financial statements Additional information
35
Harbour Energy plc
Annual Report & Accounts 2021
Our Leadership Team
Alexander Krane Chief Financial Officer
Alexander has over 20 years of experience in
various accounting, controlling and executive
roles in the energy industry.
Prior to joining Harbour in 2021, Alexander was
Investment Director at Aker ASA where he was
responsible for all oil and gas investments.
Before becoming Investment Director at Aker ASA
in 2019, Alexander was CFO of Aker BP/Det
Norske Oljeselskap, where he was responsible
for all financial functions, strategy and M&A.
The objectives of the Leadership Team include
implementing Harbour’s strategy and delivering
business performance safely and responsibly,
enabling the Group to play a significant role in
meeting the world’s energy needs.
Leading the way
through our expertise
Linda Z. Cook Chief Executive Officer
Prior to being named CEO, Linda was Chairman of
the Board of Chrysaor Holdings Ltd, and a member
of the Investment and Executive Committees of
EIG, positions she held since 2014.
She retired from Royal Dutch Shell plc in 2010,
at which time she was a member of the Board
of Directors and the Executive Committee.
During her 29 years with Shell, she held positions
including CEO of Shell Gas and Power (London);
CEO of Shell Canada Limited (Calgary); Executive
Vice President Strategy and Finance for Global
Exploration and Production (The Hague);
and various US exploration and production
management, operational and engineering roles.
Stuart Wheaton EVP International
Stuart has over 30 years of industry experience
focused on field development planning, project
delivery, operations and upstream leadership.
His career started in Exxon as a reservoir
engineer in the North Sea.
Later roles at Exxon, and then at Lasmo,
Cairn Energy and Tullow Oil, have provided
wide-ranging experience in both onshore
and offshore environments.
Glenn Brown EVP Subsurface and Portfolio
Glenn has over 30 years’ industry experience.
Prior to joining Harbour he was EVP Subsurface
and Portfolio at Chrysaor where he was
responsible for the subsurface function and
value creation through resource maturation.
Other past roles include Operations Coordination
Manager at the UK regulator, the Oil and Gas
Authority (now called North Sea Transition
Authority), with a focus on promoting resource
development, wells and projects performance
in the UK Continental Shelf.
Before joining the OGA (NSTA), Glenn was Vice
President and Head of Subsurface for Maersk
Oil in Copenhagen.
BOARD OF DIRECTORS
P58
BOARD OF DIRECTORS
P58
Bob Fennell EVP North Sea
Bob has over 35 years of industry experience,
including 16 years running operations at a
senior level.
During his career he has worked in the majority
of oil and gas basins around the world, including
in Norway, Yemen and Canada, working for BP,
Elf, Transocean and Nexen.
He is Co-Chair of Step Change in Safety and
a member of Offshore Energies UK Board.
36
Harbour Energy plc
Annual Report & Accounts 2021
Stuart Cooper EVP Strategy, Commercial and Business Development
Stuart has worked in upstream oil and gas for
over 25 years, focusing on business development,
commercial activities and mergers and
acquisitions. This has taken him all over the world
from Scotland to Venezuela, Europe, the Middle
East, North Africa and Canada, with companies
including Total, Petro-Canada/Suncor, TAQA
and DONG/INEOS. Stuart started his career
as a corporate lawyer.
Andrew Osborne Special Projects
Prior to joining Harbour, Andrew was Chief Financial
Officer at Chrysaor.
Prior to Chrysaor he had over 20 years’ capital
markets experience in investment banking, latterly
as a Managing Director responsible for Merrill
Lynch’s Natural Resources Equity Capital Markets
and Broking business.
He has worked on a significant number of
oil and gas transactions for both public and
private companies.
Gill Riggs Chief Human Resources Officer
Prior to joining Harbour, Gill was the Vice
President Human Resources, Global Upstream
for Chevron based in the US. During her 20-year
career with Chevron, Gill held increasing roles
of responsibility in human resources including
Regional HR Manager, Middle East and East
Africa (UAE), Regional HR Manager, Africa &
Middle East (South Africa), General Manager HR,
Gas & Midstream (US), General Manager HR,
Technology & Services (US) and General
Manager HR, Upstream Asia Pacific (Singapore).
Howard Landes General Counsel / Legal
Prior to joining Harbour, Howard was General
Counsel at Chrysaor.
His experience includes more than 10 years
at BG Group where he led a team of lawyers
responsible for the group’s corporate and M&A
matters globally.
Howard trained and qualified at the international
law firm, Clifford Chance.
Steve Cox EVP HSES and Global Services
Prior to joining Harbour, Steve was EVP Non
Operated Ventures at Chrysaor where he was
responsible for the Group’s non-operated assets.
Having worked in the industry for over 25 years,
including at BG and Shell, Steve has gained
extensive experience in safety, project and asset
management, operational and functional
performance and partner engagement.
Alex Budden EVP Corporate Affairs
Alex joined Harbour in February 2022 after
10 years at Lundin Energy, Africa Oil and Africa
Energy. He was also a Director of the Lundin
Foundation. Before his career in the oil and gas
sector, he served for 21 years as a Diplomat
with the British Government.
Alex specialises in strategic and corporate
communications, reputation management,
stakeholder engagement and government
and security relations.
Strategic report Governance Financial statements Additional information
37
Harbour Energy plc
Annual Report & Accounts 2021
Financial review
As an oil and gas company, we believe in
a conservative approach to managing the
balance sheet, ensuring we have access to
liquidity through the cycle. This is supported
by a regular and disciplined hedging
programme and prudent capital allocation.
Capital allocation priorities
We are generating strong, predictable operating cash flows which, together with our
robust balance sheet, provide us with optionality over how we allocate our capital.
When it comes to capital allocation we try to balance three equally important priorities:
$678m
Free cash flow generation
0.9x
Leverage ratio at year-end
$200m
Annual dividend announced
$500m
Debut bond issuance completed
¼ Target leverage of less
than 1.5x across the
commodity price cycle
¼ Ensure significant
liquidity
¼ Disciplined hedging
programme
1
Safeguard
balance
sheet
2
Ensure a robust
and diverse
portfolio
3
Shareholder
returns
¼ Focused investment
to underpin cash
generation
¼ Establish at least one
material production
base outside the UK
¼ Target reserves life
of c.8—12 years
¼ Pay a dividend of
$200 million per
annum from free cash
flow through the cycle
¼ Aim to deliver both
growth and yield to
shareholders
Conservative financial
risk management policy
38
Harbour Energy plc
Annual Report & Accounts 2021
We have executed
a transformational
transaction and
generated material
free cash flow while
retaining a robust
balance sheet, a
diversified capital
structure and
significant liquidity.
ALEXANDER KRANE
Chief Financial Officer
Strategic report Governance Financial statements Additional information
39
Harbour Energy plc
Annual Report & Accounts 2021
2021 2022 2023+
Commitment to
shareholder returns
Financial review continued
Premier legally acquired Chrysaor
through the issuance of shares.
The transaction completed on
31March 2021, whereupon Premier
changed its name from Premier
Oil plc to Harbour Energy plc.
For accounting purposes, the
transaction constituted a reverse
acquisition of Premier by Chrysaor
in accordance with IFRS 3 Business
Combinations. As a result, Premier
is fully consolidated in the financial
statements with effect from 31March
2021, and all results prior to this date
represent those of Chrysaor only.
For further detail, see note 14 to
the financial statements.
$879m
Increase in after tax profitability
$1,614m
Material operating cash flow
We aim to deliver both growth
and yield to our shareholders.
We believe a commitment to
shareholder distributions is an
important part of our equity
story and will help to broaden
our investor base.
We believe an initial distribution should be
affordable from free cash flow, sustainable
through the cycle and, at the same time,
meaningful and clearly defined.
For Harbour, we believe that an initial set
amount of $200 million per annum meets
these targets and strikes a good balance.
We will review our dividend policy annually,
in the context of our capital allocation
priorities, and as we execute our strategy.
As a result, we may revise the dividend
level and/or supplement it through a
special dividend or share buybacks.
Proposed dividend timetable
For 2021, a final dividend
of $100 million to be paid
in May 2022 post AGM and
shareholder approval
First interim dividend of
$100 million to be paid in
November 2022 following
Half Year Results; the final
dividend will be paid in 2023
Going forward, payments
will be made on the basis of
half interim and half final
Summary of financial results
Year ended
31 December
2021
Year ended
31 December
2020
Production – kboepd 175 173
Revenue and other
income – $ million 3,618 2,438
Operating costs per boe
– $/boe 15.2 11.2
EBITDAX – $ million
1
2,431 1,784
Pre-tax profit/(loss)
– $ million 315 (978)
Profit/(loss) after tax
– $ million 101 (778)
Earnings/(loss) per share
– $/share 0.1 (1.1)
Capital expenditure
– $ million 709 556
Decommissioning spend
– $ million 226 142
Operating cash flow
– $ million 1,614 1,373
Free cash flow
1
– $ million 678 562
Net debt
1
$ million
(net of unamortised fees) 2,147 1,414
Post-hedging realised prices:
Crude oil – $/boe 59 63
UK natural gas – p/therm 54 33
Singapore HSFO – $/mscf 11.7 N/A
1 See the Glossary on page 176 for the definition of
non-GAAP measures. Reconciliations between GAAP
and non-GAAP measures are provided within this
Financial review.
Harbour reported average production for 2021
of 175 kboepd (2020: 173 kboepd), which
includes nine months’ contribution from the
Premier business, with production split
between 55 per cent liquids (2020: 48 per
cent) and 45 per cent gas (2020: 52 per cent).
Harbour reported total revenue and other
income of $3,618 million (2020: $2,438
million). Revenue was higher than the prior
period primarily as a result of higher realised
gas prices on a post-hedge basis and an
increase in production volumes for both
liquids and gas, with a greater proportion
of liquids in 2021, in part due to the Merger.
Realised post-hedge crude prices were
broadly unchanged.
Production costs for the period were $15.2/
boe (2020: $11.2/boe). The increase
was primarily driven by additional planned
maintenance during extended summer
shutdowns deferred from 2020 as a result
of COVID-19. Unit production costs were
also impacted by unplanned outages, well
availability and natural decline, however, this
was broadly offset by production from new
wells. Additionally, production costs were
also impacted by the strengthening of Pound
Sterling against the US Dollar during the period.
EBITDAX amounted to $2,431 million (2020:
$1,784 million). The increase from 2020 was
due to higher revenue partially offset by higher
operating costs from the enlarged group.
Pre-tax profit was $315 million (2020:
loss $978 million). Post-tax profits were
$101 million (2020: loss $778 million).
40
Harbour Energy plc
Annual Report & Accounts 2021
hedging gains). Some of our hydrocarbon
production is sold pursuant to fixed-price
contracts, as described on page 43 under
‘Derivative financial instruments’. The rest
is sold at market values, subject to standard
quality and basis adjustments.
Crude oil sales amounted to $2,023 million
(2020: $1,430 million), with a post-hedge
realised price of $59/boe (2020: $63/boe).
Gas revenue was $1,264 million (2020: $805
million) split between UK natural gas of $1,143
million (2020: $805 million) and International
of $121 million (2020: $nil). The post-hedge
realised price of UK natural gas was 54p/
therm (2020: 33p/therm) and Singapore HSFO
$11.7/mscf (2020: $nil). Condensate sales,
tariff income and other revenue amounted
to $192 million (2020: $179 million).
Other income amounted to $139 million (2020:
$24 million) and includes mark-to-market gains
on UK emissions derivatives of $51 million and
a receipt of $40 million from ConocoPhillips in
relation to an adjustment to consideration for
Chrysaor’s purchase of the ConocoPhillips UK
business in 2019.
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Operating costs
Field operating costs
1
1,003 731
Tariff income (27) (24)
Total 976 707
Field operating costs per
barrel ($ per barrel) 15.2 11.2
Depreciation, depletion and amortisation
(DD&A) (before impairment)
Depreciation of oil and
gas assets (cost of
operations only) 1,327 1,191
Depreciation of non-oil
and gas assets 42 29
Amortisation of
intangible assets 2 2
Total 1,371 1,222
DD&A before impairment
charges
$ per barrel 21.4 19.3
1 Includes mark to market gains on EUA emissions hedges
of $51 million included in Other revenue, excludes
non-cash depreciation on non-oil and gas assets.
Production costs
Production costs for the period were $15.2/
boe (2020: $11.2/boe). The increase
was primarily driven by additional planned
maintenance during extended summer
shutdowns deferred from 2020 as a result
of COVID-19. Unit production costs were
also impacted by unplanned outages, well
availability and natural decline, however, this
was broadly offset by production from new
wells. Additionally, production costs were
also impacted by the strengthening of Pound
Sterling against the US Dollar during the period.
The increase in the weighted average DD&A
rate from 2020 is due to higher DD&A charges
on right-of-use leased assets acquired as part
of the Merger.
EBITDAX
EBITDAX amounted to $2,431 million (2020:
$1,784 million) due to higher revenues
partially offset by higher operating costs as
a result of the higher commodity prices and
higher production.
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Operating profit/(loss) 640 (687)
Exploration and
evaluation and
new ventures 50 13
Exploration costs
written-off 255 161
Depreciation, depletion
and amortisation 1,371 1,222
Impairment of property,
plant and equipment 117 644
Impairment of goodwill – 411
Provision for
onerous contract (2) 19
Remeasurements – 1
EBITDAX 2,431 1,784
Exploration and evaluation expenditure
and new ventures
During the period the Group expensed
$255 million (2020: $161 million) for
exploration and appraisal activities. This
includes costs associated with the exit from
exploration acreage in Brazil and the Sea Lion
project in the Falkland Islands of $134 million
(2020: $nil). This also includes costs
associated with relinquishments of UK licences
and uncommercial drilling results on the UK
Dunnottar well and Norwegian PL973 Jerv and
Ilder prospects of $121 million (2020: $161
million). In addition exploration and evaluation
expenditure and new ventures amount to $50
million (2020: $13 million), mainly related to
pre-development costs associated with UK
Carbon Capture and Storage projects and
corporate expenditure in Norway related to
regional seismic and time-writing costs.
Impairment and DD&A charges
Impairment charges for property, plant
and equipment pre-tax were $117 million
(2020: $644 million) driven primarily by
the cessation of production from the Millom
field in the East Irish Sea assets, and from
a single producing field in the UK North
Sea as a result of underlying reservoir
performance. There was no impairment of
goodwill (2020: $411 million). Depreciation
Earnings per share were $0.1 per share
compared to a loss of $1.1 per share for
2020. The increase in profit and earnings per
share are driven by higher revenue and lower
impairments offset by higher cost of sales
and exploration and evaluation expenses.
Capital and decommissioning expenditure in
the period amounted to $935 million (2020:
$698 million). Capital expenditure of $709
million (2020: $556 million) mainly consisted
of spending on operated assets in the J-Area
(Jasmine West Limb development, Talbot
appraisal, the Jade South and Dunnottar
exploration wells), Tolmount development
drilling and Everest LAD development well.
Non-operated capital expenditure included
drilling programmes at Beryl, Elgin Franklin
and Clair Ridge. Decommissioning spend of
$226 million (2020: $142 million) related
primarily to the Southern North Sea, Balmoral
and the non-operated asset Hewett.
Free cash flow for the period amounted
to $678 million (2020: $562 million).
As at 31 December 2021, net debt of
$2,147 million (2020: $1,414 million)
consisted of RBL senior debt, and a High
Yield Bond, less deferred amortised fees
and cash balances. The junior debt facility
of $400 million was repaid during the year.
The increase since the 2020 year-end is
mainly due to the drawdown on the RBL
facility prior to completion of the Merger
to fund the replacement of Premier’s debt.
Liquidity, being the amount undrawn
under the RBL facility plus cash balances,
was $1.6 billion at the end of the year.
Income statement
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Revenue and other
income 3,618 2,438
– Crude 2,023 1,430
– Gas 1,264 805
– NGL 164 138
– Tariff income and
other revenue 28 41
– Other income 139 24
Pre-tax profit/(loss) 315 (978)
EBITDAX 2,431 1,784
Profit/(loss) after tax 101 (778)
Earnings/(loss) per share
– $/share 0.1 (1.1)
Revenue
Revenue earned from hydrocarbon production
and tariff income amounted to $3,618 million
(2020: $2,438 million) after realised hedging
losses of $1,517 million (2020: $789 million
Strategic report Governance Financial statements Additional information
41
Harbour Energy plc
Annual Report & Accounts 2021
Financial review continued
Statement of financial position
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Total non-current assets,
excluding deferred taxes 10,273 8,193
Deferred taxes (note 8) 1,938 –
Total current assets 2,294 1,290
Total assets 14,505 9,483
Total equity (474) (1,068)
Total borrowings net of
transaction fees (note 21) (2,886) (2,182)
Total abandonment
provisions (note 20) (5,354) (4,197)
Deferred taxes (note 8) (187) (1,031)
Lease creditor (654) (141)
Other liabilities (4,950) (864)
Total liabilities (14,031) (8,415)
Net debt (note 27) (2,147) (1,414)
Assets
At 31 December 2021, total assets
amounted to $14,505 million (2020: $9,483
million), of which current assets were $2,294
million (2020: $1,290 million) and deferred
tax assets $1,938 million (2020: $nil).
The increase in total assets is mainly due
to the inclusion of Premier assets on
completion of the Merger which added total
assets of $5,204 million including property,
plant and equipment of $2,386 million,
exploration and evaluation assets of $597
million and deferred tax assets recognised
of $1,549 million. The Merger also added
goodwill of $339 million. Further information
related to the Merger is included in note 14
to the consolidated financial statements.
Capital investment is defined as additions
to property, plant and equipment, fixtures
and fittings and intangible exploration and
evaluation assets, excluding changes to
decommissioning assets.
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Additions to oil and gas
assets (note 12) (464) (415)
Additions to fixtures and
fittings, office equipment
& IT software (notes 11
and 12) (35) (51)
Additions to exploration
and evaluation assets
(note 11) (210) (90)
Total capital investment (709) (556)
Movements in
working capital 42 (58)
Capitalised lease
payments 23 16
Cash capital expenditure
per the cash flow
statement (644) (598)
During the period, the Group incurred
capital investment of $709 million (2020:
$556 million). Capital expenditure mainly
consisted of spending on operated assets in
the J-Area (Jasmine West Limb development,
Talbot appraisal and Jade South and
Dunnottar exploration wells), Tolmount
development drilling and Everest LAD
development well. Non-operated capital
expenditure included drilling programmes
at Beryl, Elgin Franklin and Clair Ridge.
Liabilities
At 31 December 2021, total liabilities
amounted to $14,031 million (2020:
$8,415 million) including decommissioning
provisions of $5,354 million (2020: $4,197
million) and borrowings of $2,886 million
(2020: $2,182 million).
The increase in total liabilities is mainly due
to the inclusion of Premier’s liabilities of
$5,263 million on completion of the Merger,
drawdown on the RBL facility in order to fund
the replacement of Premier’s debt prior to
completion of the Merger and increased
hedging liabilities as a result of increased
commodity prices. The total liabilities included
from the Merger consisted mainly of
additional debt of $2,219 million which was
fully settled as part of completion, provisions
for decommissioning of $1,683 million and
right-of-use asset lease liabilities of $638
million. Further information is included in note
14 to the consolidated financial statements.
As at 31 December 2021, net debt of
$2,147 million (2020: $1,414 million)
consisted of RBL senior debt and an
unsecured bond, less deferred unamortised
fees and cash balances. The increase
since year-end 2020 is mainly due to the
drawdown on the RBL facility prior to
completion of the Merger to fund the
replacement of Premier’s debt. Debt is
stated net of the unamortised portion
of the issue costs and bank fees of
$136 million (2020: $73 million).
Equity and reserves
Total equity amounted to $474 million
(2020: $1,068 million) with changes
in 2021 reflecting the accounting for
the Merger as a reverse acquisition in
accordance with IFRS 3, Business
Combinations with the capital structure
(share capital and share premium) being a
continuation of the legal acquirer (Premier
Oil plc), whilst the remaining reserves reflect
the accounting acquirer (Chrysaor Holdings
Limited). The reduction in equity reflects the
negative fair value on the Group’s commodity
hedging programme at 31 December 2021
which is mainly accounted for through other
comprehensive income, within equity.
unit expense was $21/boe (2020: $19/
boe) with the increase due to higher
DD&A charges on right-of-use leased
assets acquired as part of the Merger.
Net financing costs
Financing expenses totalled $375 million
(2020: $302 million), including $113 million
of interest expenses incurred on debt facilities
and legacy Chrysaor shareholder loan notes
(2020: $124 million). Also included are bank
and facility fees of $63 million (2020: $36
million), foreign exchange losses of $65 million
(2020: $40 million), lease interest of $22
million (2020: $7 million) and the unwinding
of the discount on provisions, primarily
associated with future decommissioning
obligations, of $78 million (2020: $88 million).
Finance income amounted to $49 million
(2020: $11 million), including gains on
derivatives of $15 million (2020: $nil), gains
of $10 million on foreign exchange forward
contracts (2020: $4 million) and a one-off
modification gain recognised on the
amendment of the RBL facility of $14 million.
Taxation
The tax expense for the year amounted to
$213 million (2020: credit $199 million), split
between a current tax expense of $192 million
(2020: $336 million), and a deferred tax
expense of $21 million (2020: credit $535
million) and representing an effective rate of
68 per cent (2020: 20 per cent). The increase
in the effective tax rate is predominantly driven
by higher non-deductible expenses in respect
of the Group’s exit from the Falklands
and Brazil which are non-recurring plus
unrecognised tax losses in relation to
corporate acquisition debt expenses.
Earnings and earnings per share
Profit after tax was $101 million (2020:
loss $778 million). The improved result for
2021 is primarily due to higher revenue
and other income in 2021, and lower
impairment charges on oil and gas assets
and goodwill. Earnings per share was
$0.1/share (2020: loss, $1.1/share).
Dividends
The Board is proposing a dividend of 11
cents per Ordinary Share to be paid in GBP
at the spot rate prevailing on the record
date. This dividend is subject to shareholder
approval at the AGM, to be held on 11 May
2022. If approved, the dividend will be paid
on 18 May 2022 to shareholders on the
register as of 8 April 2022. A dividend
re-investment plan (DRIP) is available to
shareholders who would prefer to invest
their dividend in the shares of the Company.
The last date to elect for the DRIP in respect
of this dividend is 26 April 2022.
42
Harbour Energy plc
Annual Report & Accounts 2021
Hedge position 2022 2023 2024 2025
Oil
Volume hedged
(mmboe) 18.80 7.30 – –
Average price hedged
($/bbl) 61.15 61.05 – –
UK Gas
Volume hedged
(mmboe) 25.37 23.00 8.33 1.55
Average priced
hedged (p/therm) 50.75 40.86 43.05 44.55
At 31 December 2021, our financial
hedging programme on commodity derivative
instruments showed a pre-tax negative fair value
of $3,868 million (2020: positive fair value of
$142 million) included in other financial assets
and liabilities, with no ineffectiveness charge
to the income statement.
Post balance sheet events
As announced on 2 February 2022, Phil Kirk
stepped down from his role as Executive
Director with effect from 28 February 2022.
The Group has assessed and will continue
to assess the implications of the events in
Ukraine. Currently there is considered to be
no material impact to the Group’s financial
performance or position.
The Company confirmed that the Directors
intend to submit a proposal to shareholders
at the Company’s forthcoming Annual
General Meeting for a general authority
to purchase the Company’s own Ordinary
Shares. The Directors believe that the Board
should be afforded the flexibility to be able
to buy back the Company’s shares when it
is in the best interests of shareholders to do
so and will result in an increase in earnings
per share. The resolution will specify the
maximum number of shares that can be
acquired (approximately 15 per cent of the
issued Ordinary Share capital) and the
minimum and maximum prices at which they
may be bought. Any shares purchased under
the authority granted by the resolution will
either be cancelled or may be held as
treasury shares. In accordance with the
Listing Rules, a further announcement
would be made by the Company in the
event that the Directors intend to commence
a programme to repurchase shares.
Going concern
The Group monitors its capital position
and its liquidity risk regularly throughout the
year to ensure it has access to sufficient
funds to meet forecast cash requirements.
Cash forecasts are regularly produced based
on, inter alia, the Group’s latest life of field
production and expenditure forecasts,
management’s best estimate of future
commodity prices (based on recent forward
curves, adjusted for the Group’s hedging
programme) and the Group’s borrowing
facilities. During the year, the Group
extended the maturity of its RBL facility
from December 2025 to November 2027.
The Group’s base case going concern
assessment assumes: an oil price of $75/
bbl and $70/bbl and average NBP gas price
of 150p/therm and 100p/therm in 2022
and 2023, respectively; production in line
with approved asset plans and the ongoing
capital requirements of the Group will be
financed by existing RBL and High Yield
Bond financing arrangements.
In line with the principal risks, sensitivity
analyses have been prepared to reflect the
combined impact of reductions in crude
and UK natural gas prices of 20 per cent
and in the Group’s production of 10 per
cent throughout the going concern period,
which is the period up to June 2023.
In these combined downside scenarios
applied to the base case forecast, the
Group is forecasted to have sufficient
financial headroom and no covenant breach
throughout the going concern period.
Further, reverse stress tests have been
prepared reflecting further reductions in
commodity price and production parameters,
prior to any mitigation strategies, to
determine at what levels each would need
to reach such that either lending covenants
are breached or financial liquidity headroom
runs out. The results of this reverse stress
test demonstrated the likelihood of the
fall in price and production parameters
required to cause a risk of funds shortfall
or covenant breaches is remote.
Taking the above into account the Board
was satisfied that for the going concern
period, the Group was able to maintain
adequate liquidity and no covenant
breaches occurred and therefore has
adopted a going concern basis for
preparing the financial statements.
Further associated details can be found
within the Viability Statement.
ALEXANDER KRANE
Chief Financial Officer
Cash flow
1
Year ended
31 December
2021
$ million
Year ended
31 December
2020
$ million
Cash flow from operating
activities after tax 1,614 1,373
Cash flow from investing
activities – capital
investment (644) (598)
Cash flow from investing
activities – acquired on
business combination 97 –
Cash flow from investing
activities – other (24) (5)
Operating cash flow after
investing activities 1,043 770
Cash flow from financing
activities – net interest
and lease payments (365) (208)
Free cash flow 678 562
Cash and cash
equivalents 699 445
1 Table excludes financing activities related to debt
principal movements.
Net cash from operating activities after tax
amounted to $1,614 million (2020: $1,373
million) after accounting for tax payments of
$280 million (2020: $190 million) and working
capital movements of $607 million (2020:
$46 million). Cash flow used in investing
activities on capital expenditure was $644
million (2020: $598 million). Cash outflow
from financing activities (excluding movements
in debt principal) – interest and lease
payments was $365 million (2020: $208
million). Cash balances were $699 million
(2020: $445 million) at the end of the period.
Principal risks
There are no significant changes to
the headline principal risks from those
disclosed in the 2021 Interim results.
A full description of Harbour’s principal
risks can be found on pages 48 to 55.
Derivative financial instruments
We carry out hedging activity to manage
commodity price risk, to ensure we comply
with the requirements of the RBL facility
and to ensure there is sufficient funding
for future investments.
We have entered into a series of fixed-price
sales agreements and a financial hedging
programme for both oil and gas, consisting
of swap and option instruments. Our future
production volumes are hedged under the
physical and financial arrangements in
place at 31 December 2021. These are
set out in the following table. Hedges
realised to date are in respect of both
crude oil and natural gas.
Strategic report Governance Financial statements Additional information
43
Harbour Energy plc
Annual Report & Accounts 2021
Risk management
We believe the effective
management of risk is critical
to successfully executing
our strategy.
Risk management framework
The Company believes the effective
management of risk is critical to successfully
executing the strategy we defined in 2021,
including protecting our personnel, assets,
the communities where we operate and
with whom we interact, and our reputation.
The risk management framework in Harbour
is designed to determine the nature and
extent of risk that the Company is willing to
take to achieve its strategic objectives and
to provide an appropriate level of assurance
that any risks taken are appropriately
managed and that the system of internal
control is effective.
The framework comprises:
¼ A risk management process to enable
the business to identify, assess,
mitigate, monitor and communicate
the risks facing the business
(see ‘Risk management process’).
¼ An internal control system to enable
the business to manage risk (see
‘Internal control’).
¼ An assurance model to check that the
controls in place are appropriate and
effective (see ‘Reasonable assurance’).
The framework is designed to manage
and communicate, rather than eliminate, the
risk of failure to achieve business objectives
and can provide only reasonable, and not
absolute, assurance that the risks facing the
business are being appropriately managed.
Risk governance
The Board is responsible for determining
the nature and extent of the principal risks
the Company is willing to take to achieve its
long-term strategic objectives. The Board has
delegated monitoring of the management of
certain principal risks to Board Committees.
For example, the HSES Committee monitors
the management of HSES related risks. The
Board is also responsible for monitoring
the Company’s risk management framework
and for reviewing its effectiveness.
The Leadership Team instils the tone for the
risk management culture in the business
and is responsible for monitoring and
managing the most significant risks facing
the business, with individual members
responsible for ensuring risks that fall within
their business area are being appropriately
managed. The most significant management
risks are recorded in the Leadership Team
risk register.
The Company has a
comprehensive approach
to risk management, which
we believe leads to better
quality decision-making
and increases the likelihood
of achieving our strategic
objectives.
ALAN FERGUSON
Chair of the Audit and Risk Committee
ALAN FERGUSON
Chair of the Audit and Risk Committee
44
Harbour Energy plc
Annual Report & Accounts 2021
Risk management process
The Company follows a methodical process to identify, assess, mitigate, monitor and communicate the risks which may prevent
it from achieving its strategic objectives.
Top-down
Oversight and monitoring by the Board
PRINCIPAL RISKS
P48
GOVERNANCE
P56
Bottom-up
Ongoing identification, assessment and mitigation of risk across the business
Individual business managers own and
manage risk on a day to day basis, undertaking
business activities in compliance with the
governing company standards and procedures
which are developed and owned by
business functions.
Internal Audit and Risk Management
undertakes a risk-based audit programme
on behalf of the Board to assure the
effectiveness of risk mitigation activities.
The Group Risk Manager is responsible
for developing and maintaining the risk
management framework.
Risk management process
The Company faces various risks that
could result in events or circumstances
that might negatively impact the Company’s
business model, future performance,
liquidity and reputation. Not all of these
risks are wholly within the Company’s
control and the Company may be affected
by risks which have not yet manifested
or are not reasonably foreseeable.
For known risks facing the business, the
Company attempts to reduce the likelihood
and mitigate the impact of the risk to within
the level of risk appetite set by the Board.
According to the nature of the risk, the
Company may elect to accept or tolerate risk,
treat risk with mitigating actions, transfer risk
to third parties, or terminate risk by ceasing
certain activities. In particular, the Company
has a zero tolerance stance to fraud, bribery,
corruption and facilitation of tax evasion, and
ensures that health, safety, environmental
and security risks are managed to levels that
are as low as reasonably practicable.
This risk management process is illustrated
in the panel below.
Communicate and consult
Risks and mitigation measures
are communicated through regular
business reviews, including Leadership
Team review of the risk register.
Monitor and review
Risks and risk mitigation
measures are monitored through
regular business reviews, audits
and other sources of assurance.
These reviews are used to
identify changes in the level
of the identified risks, to
identify emerging risks, and to
assess the effectiveness
of control measures.
Risk mitigation
Depending on the nature of the risk, the
Company may elect to accept or tolerate
risk, treat risk with mitigating actions,
transfer risk to third parties, or terminate
risk by ceasing certain activities.
Risk assessment
Risks are identified and analysed
throughout the business as part
of ongoing business reviews.
Risks are evaluated based on the
likelihood of the risk manifesting
and the impact of the risk
if it was to manifest.
Context
The strategic objectives
and risk appetite set by
the Board contribute to the
overall context.
Strategic report
Governance Financial statements Additional information
45
Harbour Energy plc
Annual Report & Accounts 2021
Risk management continued
Principal and emerging risks
During the year, the Board carried out an
assessment of the principal risks facing
the new Company and reviewed its appetite
to accept or tolerate each principal risk. In
deciding which risks are principal risks, the
Board considered the newly defined strategy
of the Company together with events or
circumstances that might threaten the
Company’s strategy and business model,
future performance, liquidity and reputation.
A description of the principal risks, together
with an overview of how each risk is being
managed, is provided on pages 48 to 55.
The Board also reviewed the emerging risks
facing the business and the procedures in
place to identify them. These procedures
take into account the most significant
management risks and independent
perspectives on the external environment.
Internal control
The internal controls of the Company comprise
the Company policies together with standards
and procedures designed to govern each
business activity. During 2021, the Company
commenced the integration of the legacy
company controls with the intention to
implement a single company business
management system during 2022.
Reasonable assurance
The adequacy of the internal controls are
a function of their design and operating
effectiveness.
During the year, the Company adopted a
‘Three Line’ assurance model across the
newly enlarged business to provide senior
management and the Board with reasonable
assurance that the most significant risks
facing the business are being appropriately
managed and that the applicable controls
are effective.
The First Line is provided by business
line managers who are responsible for
designing and operating business controls.
Second Line assurance teams are in place
to monitor control effectiveness for certain
key risk areas, such as HSES, by conducting
a programme of audits agreed with senior
management. Significant findings from
these audits are reportable to management
and the Board. The Third Line is provided
by Internal Audit which undertakes a
programme of audits agreed by the Audit
and Risk Committee. Significant Internal
Audit findings are reported to the Audit
and Risk Committee which then monitors
the implementation of agreed actions.
To facilitate Board monitoring, the Company
has developed an assurance map that
sets out the sources of assurance in place
against each principal risk. In addition,
the Board and its Committees have
commenced a programme of management
led ‘deep dive’ presentations to support
understanding and alignment on specific
risk matters and to examine the levels of
assurance provided.
Monitoring and effectiveness of
the risk management framework
The Board is responsible for monitoring
the Company’s risk management framework
and for reviewing its effectiveness.
The review of the effectiveness of the
Company’s risk management and internal
control systems for 2021 has been carried
out by the Audit and Risk Committee on
behalf of the Board. The review considered
the design of the risk management
framework in place across Harbour, the
most significant risks to achieving the
Company’s strategic objectives, how each
risk is being managed, Internal Audit
findings to date and the status of their
remediation. In conducting their review
the Committee received perspectives
and assurances from members of the
Leadership Team. The Board concluded
the risk management and internal control
systems are effective.
ALAN FERGUSON
Chair of the Audit and Risk Committee
46
Harbour Energy plc
Annual Report & Accounts 2021
Viability Statement
In accordance with the provisions of
the UK Corporate Governance Code,
the Board has assessed the prospects
and the viability of the Group over
a longer period than the 12 months
required by the ‘going concern’
provision. This assessment included
considering the principal risks faced
by the Group, relevant financial
forecasts and sensitivities, and the
availability of adequate funding.
Assessment period
The Board conducted this review for a
period of three years to 31 March 2025
(the Forecast Period), which was
selected for the following reasons:
¼ at least annually, the Board
considers the Group’s corporate
operating cycles, business plan
projections (the Projections)
and debt facility structures over
a three-year period;
¼ within the three-year period, liquid
commodity price forecasts are able
to be used in the forecast. Given the
lack of forward liquidity in oil and gas
markets after this initial three-year
period, we are reliant on our own
internal estimates of oil and gas
prices without reference to liquid
forward curves; and
¼ the Group is not currently committed
to any major capital expenditures
beyond the three-year period.
Review of financial forecasts
The Projections are based on:
Base case
¼ Production and expenditure forecasts
on an asset by asset basis, together
with a variety of portfolio management
opportunities which management could
undertake if required;
¼ assumed crude oil prices of $75/bbl in
2022, $70/bbl in 2023, and $65/bbl
(in real terms) thereafter and UK NBP gas
prices of 150p/therm in 2022, 100p/
therm in 2023 and 60p/therm (in real
terms) thereafter, adjusted for the Group’s
hedging programme; and
¼ the financial covenant tests associated
with the Group’s borrowing facilities.
Sensitivities have been run to reflect
different scenarios including, but
not limited to, changes in oil and gas
production rates and possible reductions
in commodity prices.
Sensitivity analyses
¼ In line with the principal risks, sensitivity
analyses have been prepared to reflect
the combined impact of reductions in
crude and UK natural gas prices of 20
per cent and in the Group’s production
of 10 per cent throughout the Viability
Statement period. In these combined
downside scenarios applied to the base
case forecast, the Group is forecasted
to have sufficient financial headroom
throughout the Viability Statement period.
Reverse stress tests
¼ Further, reverse stress tests have been
prepared reflecting further reductions
in commodity price and production
parameters, prior to any mitigation
strategies, to determine at what levels
each would need to reach such that
either lending covenants are breached
or financial liquidity headroom runs out.
The results of this reverse stress test
demonstrated the likelihood of the fall in
price and production parameters required
to cause a risk of covenant breaches
as remote.
Review of principal risks
The Group’s principal risks, as set out
in detail on pages 48 to 55, have been
considered over the period.
Under the Projections, the Group is
expected to have sufficient liquidity over
the Forecast Period and to be able to
operate within the requirements of the
financial covenants.
The Group has run downside scenarios,
where oil and gas prices are reduced
by 20 per cent throughout the Forecast
Period, and where total production
volumes are forecast to reduce by 10 per
cent. In the individual and combined
downside scenarios, the Group is forecast
to have sufficient liquidity and covenant
compliance headroom.
The potential impact of each of the Group’s
other principal risks on the viability of the
Group during the Forecast Period, should
that risk arise in its unmitigated form, has
been assessed. The Board has considered
the risk mitigation strategy as set out for
each of those risks and believes the
mitigation strategies are sufficient to reduce
the likelihood and impact of each risk such
that it would be unlikely to jeopardise the
Group’s viability during the Forecast Period.
Conclusion
The Directors’ assessment has been
made with reference to the Group’s
current position and prospects, the
Group’s strategy and availability of
funding, the Board’s risk appetite and
the Group’s principal risks and how
these are managed, as detailed in the
Strategic Report. The Directors have also
considered the availability of actions
within their control in the event of
plausible negative scenarios occurring.
Therefore the Directors confirm that they
have a reasonable expectation that the
Group will continue to operate and meet
its liabilities, as they fall due, throughout
the Forecast Period.
Strategic report Governance Financial statements Additional information
47
Harbour Energy plc
Annual Report & Accounts 2021
Principal risks
The principal risks
which may prevent the Company
achieving its strategic objectives
Strategic execution: failure to effectively implement the strategy
Risk description
The Company has defined a corporate strategy to create
value by continuing to build a global, diversified oil and
gas company focused on value creation, cash flow and
distributions. This is underpinned by four strategic pillars:
ensuring safe, reliable and environmentally responsible
operations; maintaining a high quality portfolio of reserves
and resources; leveraging our full cycle capability to diversify
and grow further; and ensuring financial strength through
the commodity price cycle.
There is a risk the Company may fail to effectively implement
this strategy. The Company may be unable to maintain
sufficient leadership and organisation capacity to effectively
manage and grow the business. Leadership may fail to
effectively communicate or create alignment internally,
leading to sub-optimal decision-making. The Company may
fail to identify or execute attractive M&A opportunities,
or may over-estimate the value of assets acquired. The
Company may be slow to respond to changes in the external
environment that may merit a change to any of the four
pillars of the strategy.
If implementation is ineffective, investors, creditors and
lending banks may lose confidence in the leadership of the
Company. Ultimately, the Company may fail to demonstrably
create value for shareholders and other stakeholders.
How the risk is managed
¼ Corporate strategy clearly defined, approved by the Board and communicated
to the market
¼ Strategic execution progress reviewed regularly with the Board
¼ Senior executive team has a proven track record of delivering strategic growth,
including executing and integrating large scale M&A, with regular Board
assessment of performance
¼ New organisation designed and implemented to deliver the defined strategy
¼ Capital deployment, growth and financial metrics agreed with the Board and
feature prominently in incentive compensation
¼ Corporate model and M&A analyses evaluated across a range of scenarios
¼ Detailed due diligence of acquisition opportunities undertaken prior to agreeing
transaction terms
¼ Regular two-way communication between employees and senior leadership
to help build understanding and engagement
Link to strategic pillars
48
Harbour Energy plc
Annual Report & Accounts 2021
RISK MANAGEMENT
P44
GOVERNANCE
P56
Health, safety and environment: risk of a major health, safety, environmental or physical security incident
Risk description
The Company may face a major accident resulting in personal
injuries, physical property damage and/or environmental
impact. There is also a risk of a significant personal safety
or physical security incident arising from natural disaster,
pandemic, social unrest or other external cause.
In addition to the potential to cause personal injury or harm to
the environment, the production and financial performance of
the business may be significantly degraded. The business may
be subject to punitive fines and suffer damage to its reputation.
A serious incident could also undermine the Company’s ability
to execute its strategy.
How the risk is managed
¼ Strong safety leadership culture established with an emphasis on process safety
and, in particular, including a strong tone from the top with leadership support to
do the right thing
¼ Newly merged organisation designed and resourced to support health, safety,
environmental and physical security performance. Safety critical roles defined
by management and protected from re-organisational risk in order to maintain
a focus on safety
¼ Safety and environmental performance metrics agreed with Board and feature
prominently in business performance tracking and incentive compensation
¼ Company Major Accident Prevention Policy (CMAPP) and HSES Policy in place that
direct all Company activities, including contract work, supported by a defined
management system and an HSES strategy and plan with relevant training; Safety
Cases in place for all assets
¼ Active risk assessment process and management of change in place for
operated assets
¼ Experienced Board HSES Committee established to provide oversight and
challenge; direct engagement by Non-Executive Directors with operations managers
¼ HSES auditing and reporting in place with a focus on Major Accident Hazards
(MAH) and with regular reporting to the Board HSES Committee
¼ Performance monitoring in place including prompt and thorough investigation of
incidents, sharing of learnings across the organisation and adoption of learning
from third party incidents
¼ Crisis management and emergency response processes practised regularly
¼ COVID-19 pandemic response embedded including application of government advice
¼ Senior management commitment to HSES values demonstrated through visits
to operated facilities (subject to COVID-19 pandemic restrictions), participation in
global and regional safety events, an annual Global HSES Day to promote a safety
focus and emphasise its importance and an annual CEO Safety Award programme
to recognise outstanding performance
Link to strategic pillars
Ensure safe, reliable and
environmentally responsible
operations
Our strategic pillars
Maintain a high quality
portfolio of reserves
and resources
Leverage our full cycle
capability to diversify
and grow further
Ensure financial strength
through the commodity
price cycle
Strategic report
Governance Financial statements Additional information
49
Harbour Energy plc
Annual Report & Accounts 2021
Principal risks continued
Operational performance: failure to deliver competitive operational performance
Risk description
The Company may fail to achieve its strategic objective to
maintain reliable and responsible operations. As oil and
gas fields mature and facilities age, maintaining operational
performance becomes increasingly challenging. Geology,
reservoir and well performance are inherently uncertain
and so the quality and volume of produced oil and gas may
differ from forecast. As installed facilities and equipment
age, significant expenditure and outages may be required
to maintain operability and operations integrity. Adverse
political, social, security, weather, regulatory or other
external conditions could impact operational performance,
especially in the UK where the majority of the Company’s
operations are located. This may include continued travel
restrictions and quarantines due to the COVID-19 pandemic.
In addition, downstream infrastructure to transport produced
oil and gas to market may be interrupted.
Consequently, the Company may fail to meet production
expectations, maintain competitive operating costs and
meet contractual obligations, any of which may undermine
its financial strength and strategy.
How the risk is managed
¼ New organisation designed and resourced to manage existing operational activity
¼ Production, operating cost. HSES and other operational performance metrics
agreed with the Board and feature prominently in business performance tracking
and incentive compensation
¼ Procedures in place to govern production operations, including production forecasting
and reporting, preventative maintenance, and field and well performance monitoring
¼ Material reinvestment in the assets maintained, including for maintenance
and development drilling, to support operational reliability and throughput
¼ Inventory of future near-field drilling opportunities maintained to support production levels
¼ Proactive oversight maintained of non-operated joint ventures
¼ Use of new technology regularly explored to increase recovery and lower costs
¼ Potential to contract with third parties for utilisation of our existing infrastructure
to enable further cost efficiency
¼ Unit operating costs and other metrics benchmarked to identify opportunities
for performance improvement
¼ Regular business performance reviews and reporting take place to monitor performance
¼ Clear Delegation of Authority in place globally to support effective cost management
Link to strategic pillars
Energy transition and Net Zero: failure to adapt the strategy and business model in the context of the
energy transition as oil and gas demand as well as investor, societal and regulatory expectations evolve
Risk description
The Company recognises the transition towards a lower
carbon economy will require many businesses to review
and reshape their business model.
The pace of the energy transition will impact both supply and
demand of oil and gas and this may increase the volatility of
future oil and gas prices. The demand for oil and gas may reduce
over time depending on the pace of deployment of alternative
energy technologies and shifts in consumer preference
for lower greenhouse gas emissions products. On the
supply side, the oil and gas sector may be subject to new
climate-change regulations or supply chain challenges that
increase costs and impact how we operate. For example higher
emitting assets may need to be decommissioned sooner than
currently expected. Reduced investment in the oil and gas sector
may reduce supply more quickly than demand, resulting in
periods of higher commodity prices. In the longer term, changes
in weather patterns and ocean currents and more frequent
extreme weather events may disrupt projects and operations.
Investor, societal and regulatory expectations regarding the
energy transition may evolve. The Company may lose some
sources of funding if it is unable to meet the expectations of
investors, creditors and lending banks regarding their energy
transition requirements. The Company may be subject to
negative NGO or shareholder activism which could affect its
reputation and societal ‘licence to operate’. The Company may
also face more demanding regulatory requirements. In the event
the Company is unable to operate an appropriate business
model and meet investor and societal expectations through the
energy transition, including successfully progressing towards
meeting its Net Zero 2035 goal, the strategy will be undermined,
and the long-term viability of the business may be in doubt.
How the risk is managed
¼ Clear ESG strategy in place and owned by CEO and Board with a goal to achieve
Net Zero by 2035
¼ Corporate strategy and business model reviewed with Board at least annually to ensure
it remains appropriate in light of energy transition scenarios and associated risks
¼ Net Zero strategy and execution progress reviewed regularly with the Board and
the Board’s HSES Committee including related to emissions reduction, acquisition
of offsets, and involvement in CCS projects
¼ Emissions reduction targets agreed with Board and feature prominently in incentive
compensation and incorporated into the main Reserve Based Lending debt facility
¼ Environmental considerations embedded in decision-making and plans to ensure
delivery against Net Zero goal, including emissions reduction activities
¼ Environmental considerations, including cost of carbon, incorporated into investment
decision-making processes, including for potential acquisitions
¼ Impact of energy transition considered in the key judgements and estimates within the
financial statements and subject to ongoing monitoring
¼ Processes established for meeting ESG reporting and other regulatory
reporting requirements, including independent verification
Link to strategic pillars
50
Harbour Energy plc
Annual Report & Accounts 2021
Organisation and talent: failure to create and maintain a cohesive organisation with sufficient
capability and capacity following major acquisitions
Risk description
Following the completion of a material acquisition, the Company
may fail to embed a cohesive organisation in the form of
a consistent culture, aligned values and clear roles and
responsibilities. The Company may also fail to maintain sufficient
capability and capacity across all levels of the organisation.
A failure to embed a cohesive new organisation may result in
a lack of engagement, inertia or conflict among employees.
This may be heightened by the demands, uncertainty
and change imposed on the new organisation by the work
required to integrate the legacy businesses. Key employees
may leave, important capabilities may be lost, and the
Company may be unable to attract suitable new talent,
making it difficult to maintain sufficient capability and
capacity across all levels. The Company may lack sufficient
leadership bench strength to manage the business and
execute the strategy. Ultimately, a failure to manage this
risk may heighten safety risk, constrain performance and
impede strategic execution.
How the risk is managed
¼ New organisation and compensation programme implemented with aligned terms
and conditions, a competitive reward package and designed to ensure sufficient
capability and capacity to deliver the defined strategy
¼ Regular communication between employees and senior leadership to help build
understanding and engagement and supported by staff surveys to encourage feedback
¼ Direct access by the Non-Executive Directors to senior management through
presentations to the Board and other meetings
¼ Local and Global Staff Forums maintained including employee interactions with
senior management and the Board
¼ Staff counselling and grievance arrangements in place
¼ Experienced Head of Diversity, Equity and Inclusion appointed to drive an
inclusive environment
¼ Experienced Integration Management Office established to oversee integration
efforts related to organisation, as well as systems, policies and processes
¼ Further activities planned for 2022 include:
– Rollout of a culture and values programme with clear linkage to strategic objectives
– Implementation of a global staff performance management process aligned
to culture and values and with clear links to reward
– Design and rollout of a new talent development programme
– Implementation of common systems and processes across the Company
to enable a common ‘way of working’ and improve efficiency
– Consolidation of offices in the UK to enable co-locating of work teams
Link to strategic pillars
Capital programme and delivery: failure to define and deliver a capital programme that optimises value
Risk description
The Company undertakes capital projects and drilling
operations to explore for new resources, develop new
discoveries, and increase production from or extend
the life of existing producing assets.
Capital projects involve advanced engineering, extensive
procurement activities and complex construction work,
carried out under various contract packages at various
locations. The Company may face delays, supply chain
issues, cost overruns or unsatisfactory HSES performance
in executing capital projects. The Company may also
experience disruptive fiscal, regulatory, political, economic,
social, security and weather conditions, including continued
travel restrictions and quarantines due to the COVID-19
pandemic. In addition, geology and reservoir engineering
and well performance are inherently uncertain and so the
quality and volume of oil and gas produced from new
developments, and consequently the reserves added and
value created from the capital deployed, may differ from that
expected. The Company may fail to add oil and gas reserves
in a timely, profitable and safe manner leading to a decline
in reserves, production and revenue.
The Company is obliged to decommission assets at the
end of their useful life. The Company may fail to reliably
estimate the cost of future decommissioning spend
and may face incremental costs in connection with
decommissioning obligations.
How the risk is managed
¼ New organisation designed and resourced to manage the capital programme
with experienced decommissioning team in place to execute the Company’s
decommissioning programme
¼ Capital deployment and growth metrics agreed with Board and feature prominently
in business performance tracking and incentive compensation
¼ Processes in place to support the maturation of resources into developed reserves
and ensure efficient deployment of capital
¼ Rigorous technical and economic evaluation process in place with defined stage-gate
reviews and decisions
¼ Independent assurance team established to assure governance of capital investment
activities, including decommissioning
¼ Investment guidelines agreed with Board that standardise planning assumptions and
investment hurdles to ensure consistent evaluation of capital investment opportunities
¼ Drilling and capital costs benchmarked to understand relative performance with
systematic lookbacks undertaken to assess and improve performance
¼ Regular business performance reviews and reporting to monitor delivery
¼ Annual lookback of capital programme undertaken to assess performance versus
budget and versus estimates of costs and volumes at the time of project approval;
learnings identified and shared
¼ Independent review of the Company’s reserves and resources undertaken
Link to strategic pillars
Strategic report Governance Financial statements Additional information
51
Harbour Energy plc
Annual Report & Accounts 2021
Principal risks continuedPrincipal risks continued
Commodity price exposure: failure to manage the impact of commodity price fluctuations on the business
Risk description
Oil and gas prices have fluctuated significantly in recent
years, most recently due to the impact of the COVID-19
pandemic on demand, general economic uncertainty and
the consequences of recent Russian action in Ukraine.
The price of oil and gas is impacted by changes in global
and regional supply and demand, and expectations
regarding future supply and demand. Supply factors that
influence pricing include the pace of new oil and gas
developments, operational issues, natural disasters,
adverse weather events, political and security instability,
conflicts, and actions by major oil-exporting countries.
Demand factors that influence pricing include economic
conditions, climate change regulations and the pace of
transition to a low carbon economy. Consequently, it is
not possible to accurately predict future oil and gas
prices and prices may continue to remain volatile.
In order to safeguard its balance sheet, the Company
has set a strategic intent to protect the business from
excessive volatility, ensure liquidity through the commodity
price cycle as well as to take advantage of market
movements (see risk description under ‘Access to capital’
above). A sustained decline in oil and gas prices could
undermine this strategy by reducing cash flow available
to fund growth and distributions and impairing access
to capital. In addition, excessive volatility in prices could
impede business planning and financial decision-making.
How the risk is managed
¼ Disciplined commodity price hedging programme in place aligned to risk appetite and
designed to underpin the financial framework, limit downside risk, comply with Reserve
Based Lending requirements and protect the value of acquired assets
¼ Carbon hedging is conducted to actively manage the Group exposure to carbon
pricing in the UK market, whilst ensuring regulatory requirements are met
¼ Strong control framework in place that covers full hedging life cycle and includes
monitoring activities to ensure the hedging programme is applied consistent with
risk appetite
Link to strategic pillars
Access to capital: failure to ensure sufficient access to capital to implement the Company’s strategy
1
Risk description
The Company seeks to ensure financial strength through the
commodity price cycle. In the event the Company is unable
to maintain sufficient access to capital, the Company may
be unable to sufficiently re-invest in its existing assets or
fund growth through capital investments and M&A as
targeted in the strategy. The Company may be unable to
service security or letter of credit obligations, including
those related to decommissioning obligations. Ultimately,
a failure to ensure sufficient access to capital would
directly undermine the implementation of the strategy.
How the risk is managed
¼ Robust financial framework and prudent capital allocation policy agreed with the
Board and rigorously implemented
¼ Diversified capital structure in place with low financing cost, including Reserve
Based Lending (RBL) facility and an unsecured bond issue during 2021. Annual
RBL redetermination programme undertaken to ensure available liquidity is known
for the forthcoming period
¼ Ongoing engagement with lead-syndicate banks in the RBL facility maintained to
ensure relationship remains strong
¼ Disciplined hedging programmes in place to help manage exposure to commodity prices
(see also ‘Commodity price exposure’ risk below), interest rates and foreign exchange
¼ Corporate model in place to facilitate oversight of the Company’s financial position
across a range of commodity price scenarios
¼ Annual capital budgets set taking into account near term commodity prices and cash
flow expectations with spending levels stress-tested against adverse scenarios
¼ Insurance programmes in place to minimise the risk to the business
(see also ‘Third party reliance’ risk opposite)
Link to strategic pillars
1 Refer also to the Viability Statement for commentary on the prospects and the viability of the Group over the viability period including availability of adequate funding.
52
Harbour Energy plc
Annual Report & Accounts 2021
Integration of acquired businesses: failure to properly integrate acquired businesses and realise
anticipated synergies in a timely manner
Risk description
Following the completion of an acquisition, the Company
may fail to manage the pace, scope and cost of integrating
the acquired business. Integration synergies may not be
realised in a timely manner, eroding investor confidence.
The demands, uncertainty and change imposed on the new
organisation by the integration work required may lead to
confusion, disengagement or resignations among employees.
The Company may be unable to establish a scalable
operating model to support the efficient integration of
further M&A that is targeted in the strategy.
How the risk is managed
¼ Senior executive team has a proven track record of integrating large scale M&A
¼ Experienced Integration Management Office established with clear governance
model, regular Board updates, and resourced with employees who are familiar with
the acquired businesses and have a proven track record of effective integration
¼ Detailed integration plan developed with business and expert advisers, leveraging
experience gained from prior acquisitions
¼ Enterprise Management System being implemented to ensure the Company
systems landscape is scalable to a growing business. Multidisciplinary project
team in place with project risks challenged via third party assurance model
¼ Regular internal communications in place to maintain employee awareness and
engagement through to the completion of the integration process
Link to strategic pillars
Third party reliance: failure to adequately manage supply chain, joint venture and other partners,
and third party infrastructure owners
Risk description
The Company is reliant on a range of third parties to achieve
its strategic objective to ensure safe, reliable and responsible
operations, and to maintain a high quality portfolio of reserves
and resources. These third parties include suppliers of products
and services, joint venture (JV) partners, outsourced operators
who operate some of the Company’s assets on its behalf,
downstream infrastructure owners and trading counterparties.
The recent industry downturn and the ongoing effects of
the COVID-19 pandemic have led to financial distress and
consolidation across the sector and disrupted capacity and
capability. In addition, some third parties may be impacted
by sanctions arising as a result of recent Russian action in
Ukraine. Consequently the Company may be unable to readily
procure cost-effective products and services to operate existing
assets or undertake new capital projects. Financial distress
among existing suppliers or JV partners may increase the
likelihood of exposure to unsafe practices or non-compliance
on matters such as Anti-Bribery and Corruption or Human
Rights. JV partners may be unwilling or unable to meet funding
commitments or invest new capital. Poor performance or
damaged reputation of an outsourced operator or JV partner
may tarnish the Company’s reputation. In the event of
insolvency in a JV partner, the Company may be required
to cover their long-term asset commitments. In addition,
misalignment in objectives within a JV may lead to sub-optimal
decision-making and the ability of the Company to influence
this may be limited.
The Company is also reliant on third party infrastructure to
transport produced oil and gas to market, a significant portion
of which has been in operation for a number of years. A loss of
availability or access to downstream infrastructure could directly
impact production and revenue. In addition, new developments
are dependent on the Company agreeing acceptable
commercial terms with prospective downstream partners.
How the risk is managed
¼ New partners and suppliers carefully assessed through due diligence and approval
processes, supported by additional security arrangements as required
¼ Existing partners and suppliers regularly engaged to monitor performance and risk
exposure through proactive oversight and governance, enforcement of commercial
agreements and with a culture of collaborative working to create value
¼ Formal budgeting and tendering processes in place to govern material spend with
partners and suppliers
¼ Production monetisation routes in place for existing assets governed by contractual
agreements. Commercial assurance and contract risk forms part of decision gate
process for new developments
¼ Insurance programmes in place include contingent Business Interruption insurance
for loss of revenue following loss or damage to third party facilities identified as
production bottlenecks
Link to strategic pillars
Strategic report Governance Financial statements Additional information
53
Harbour Energy plc
Annual Report & Accounts 2021
Principal risks continuedPrincipal risks continued
Legal and regulatory compliance: failure to maintain and demonstrate effective legal and
regulatory compliance
Risk description
The Company, its employees and contractors are subject
to various laws and regulations governing conduct. These
laws and regulations cover a range of activities such as
fraud, bribery, corruption and facilitation of tax evasion.
A failure to maintain and demonstrate effective legal and
regulatory compliance could lead to compliance breaches
which could damage the Company’s reputation, erode its
values-based culture and result in financial consequences.
This could in turn lead to increased scrutiny from
regulators and undermine the Company’s strategy by
impeding its ability to motivate employees, conduct
business with partners and suppliers, and maintain
access to capital.
How the risk is managed
¼ Zero tolerance stance set for fraud, bribery, corruption and facilitation of tax evasion
in any form that could be unlawful or otherwise undermine the legitimate business
environment and damage the reputation of the Company
¼ Business principles, values and Company policies outlining Company expectations
communicated to all employees with relevant training. These include Board approved
policies covering Code of Conduct, Sustainability, Modern Slavery and Tax
¼ Governance structure established that complies with the UK Listing Rules (including
UK Corporate Governance Code), including the appointment of a Senior Independent
Director and a Relationship Agreement with EIG, the largest shareholder
¼ Enforcement of the Company’s Code of Conduct and the adequacy and security of the
whistleblowing procedure monitored by the Audit and Risk Committee
¼ Compliance monitoring and disciplinary arrangements maintained, including whistleblowing
¼ During 2022, the Company will move to a single, global compliance programme which
will improve efficiency and simplify approach
Link to strategic pillars
Information and cyber security: failure to maintain safe, secure and reliable operations
Risk description
The Company may fail to implement sufficient information
security measures to ensure the confidentiality, integrity,
availability and regulatory compliance of Company
information. In particular, the risk of a cyber-attack
continues to increase due to a rising global threat, recent
Russian action in Ukraine, the visibility of Harbour as a
newly enlarged entity and the number of personnel
working remotely. The Company may fail to implement
adequate cyber security precautions in order to efficiently
prevent, identify or respond to such an attack.
A failure to manage this risk could result in heightened
safety or environmental risk exposure or interruption to
business operations which would undermine delivery of
the strategy. In addition, loss of commercially sensitive
information, regulatory fines and ransom demands
could damage the Company’s reputation.
How the risk is managed
¼ Experienced and fully resourced information and cyber security organisation
established with clear accountability across all locations
¼ Prioritised and budgeted work plan in place to transition legacy IT infrastructure
in a controlled manner as part of establishing a new Company IT infrastructure platform
¼ Defensive and preventative controls designed and implemented to an industry
standard that include independent testing and assurance mechanics to check
resilience and are subject to an annual Internal Audit. Business-led recovery measures
in place to maintain business continuity and limit any material impact of a cyber
security attack
¼ Continuous strengthening of controls related to information and cyber security
in line with the evolving threat landscape and regulatory requirements
Link to strategic pillars
54
Harbour Energy plc
Annual Report & Accounts 2021
Host government political and fiscal risks: exposure to adverse or uncertain political, regulatory or
fiscal developments in countries where the Company operates or maintains interests
Risk description
The Company operates or maintains interests in multiple
countries including some where political, economic or
social transition is taking place or there are sovereignty
disputes. The political and security situation and the
regulatory and fiscal framework in any of these countries
may change and adverse changes could have an impact
on the operations, profitability and future investment
opportunities of the business.
Consequences may include increases in the regulatory
burden, increases in tax or loss of relief, retroactive tax
claims, price controls, limits on production or cost
recovery, import and export restrictions, other changes
in fiscal terms, cancellation of contract rights, and
expropriation of property. Such consequences would
undermine the Company’s financial position and, in
some cases, could put at risk our ability to successfully
implement the strategy.
How the risk is managed
¼ Constructive engagement maintained with relevant government and regulatory
stakeholders in the countries and regions where the Company does business
¼ Contribution to industry representation maintained on key industry issues
¼ Portfolio of interests maintained to diversify country risk exposure, including through
an aim to establish a material production base outside the UK
¼ Active monitoring of the local political, fiscal, social and security situations in place
in regions where the Company does business or is proposing to enter
Link to strategic pillars
The Strategic Report, which has been prepared in accordance with the requirements
of the Companies Act 2006, has been approved and signed on behalf of the Board.
LINDA Z. COOK
Chief Executive Officer
16 March 2022
Strategic report Governance Financial statements Additional information
55
Harbour Energy plc
Annual Report & Accounts 2021
Chairman’s introduction
Strategy Governance Performance
Board activities
We aim to continue building a global,
diverse, independent oil and gas company.
We will achieve this by maximising value
from our existing portfolio, growing through
selective investments and disciplined
M&A, all whilst maintaining a robust
balance sheet and operating in a safe
and responsible manner.
Highlights
¼ Strategic scope set for Harbour Energy
¼ Capital allocation priorities agreed
¼ 2035 Net Zero strategy approved
Your Board is committed to the highest
standards of corporate governance.
The processes and procedures which
underpin the way we operate are designed
to ensure the right decisions are taken
at the right time and by the right people.
We have assembled a world-class Board
with decades of industry, UK and global
business experience as well as robust
independent judgement and challenge.
Highlights
¼ New Board appointed and inducted
following the Merger
¼ Board Committees formed with
experienced membership
¼ Group procedures, policies and internal
control frameworks endorsed
¼ Principal risks identified and approved
Harbour is a unique investment
opportunity within the energy
sector. With a diverse, cash
generative producing portfolio
coupled with a number
of exciting development
opportunities and the financial
strength for further M&A,
your Board is excited about
the future of our Company.
R. BLAIR THOMAS
Chairman
HOW WE CREATE VALUE
P12
CORPORATE GOVERNANCE REPORT
P62
KEY PERFORMANCE INDICATORS
P14
2021 was another year characterised
by volatile commodity prices in the
energy sector. Despite some operational
challenges, our cash generation has been
strong and the base portfolio provides a
reliable foundation on which we can grow
the business over the longer term.
Highlights
¼ Production of 175 kboepd
¼ Free cash flow of $678 million
¼ Unit operating cost of $15.2/boe
¼ Leverage of 0.9x at year-end
¼ Introduction of $200 million annual
dividend policy
56
Harbour Energy plc
Annual Report & Accounts 2021
Harbour is a unique investment opportunity
within the energy sector. With a diverse,
cash generative producing portfolio coupled
with a number of exciting development
opportunities and the financial strength for
further M&A, your Board is excited about
the future of our Company.
First and foremost however, our focus
as Directors is on ensuring that Harbour
operates responsibly in a way that never
compromises our high standards in relation
to HSES. In this regard, I would like to
thank all of our employees, partners and
contractors for their continued efforts
in promoting a positive safety culture,
particularly during the global pandemic.
Turning to our environmental responsibility,
at the point of the Merger in 2021, your
Board approved Harbour’s goal to achieve
Net Zero emissions by 2035. During 2021,
Linda and her Leadership Team provided
additional detail on the Company’s strategy
to achieving this ambitious goal and we
have been pleased with the reaction of
our shareholders and stakeholders to our
strategy in this area. It is clear that all
companies, particularly those within the
energy sector, need to play their part in the
energy transition and I am confident that
Harbour is well positioned in this regard.
Corporate governance
Your Board aspires to the highest standards of
corporate governance and has implemented
a strong framework to support this. You can
read more about our work in this area on the
following pages.
The Company’s relationship with its
major shareholder, EIG – where I am
Chief Executive Officer – has been a key
area of focus for the Board in establishing
our governance framework. To allow the
Company to operate independently and
in accordance with the high standards of
governance applicable to a UK Premium
Listed Company, we have a Relationship
Agreement in place with EIG, which you
can read more about on page 65. In
addition to this, we have assembled
a world-class Board of Non-Executive
Directors – including an experienced
Senior Independent Director in Simon Henry
– who provide robust and independent
challenge within the boardroom. All of the
Non-Executive Directors meet regularly
without management present. In addition,
the independent Non-Executive Directors
hold meetings regularly, chaired by Simon.
I would like to thank all of the Directors
for their services during this busy year,
including Phil Kirk, who stepped down as
an Executive Director on 28 February 2022.
Phil was instrumental in the growth of
Harbour Energy and I wish him all the
best going forward.
Board activities in 2021
The Merger of Premier Oil and Chrysaor
to form Harbour Energy was set against
an incredibly challenging macro-economic
backdrop, characterised by volatile commodity
prices in our sector. It is testament to all those
involved that such a complex transaction
was completed during a once-in-a-century
pandemic whilst working remotely.
Our efforts in the first half of 2021 were
focused on bringing the two businesses
together whilst maintaining safe and reliable
operations and, despite some challenges
with production, I am pleased with how
this integration process has progressed.
Your Leadership Team is continuing to
concentrate its efforts on embedding good
processes and systems across the Group
and I am confident that this work will stand
the Company in good stead as it continues to
grow, both organically and through M&A. In
the second half of the year, we turned our
attention to developing and implementing
our strategic objectives and capital
allocation priorities, both of which were set
out in detail by Linda and her team during
the Capital Markets Day in December.
Our financial position was further bolstered
by a successful debut $500 million bond
issuance in October and we are grateful
for the continued support our creditors
have shown for our business plan.
Your Board is confident that the framework
we have in place represents the right balance
of prudent capital allocation for growth and
sustainable returns to shareholders and we
are pleased to confirm our objective to return
$200 million to shareholders during 2022.
As a Board, we will not compromise the
Company’s balance sheet position and
we believe the established framework we
have in place for the coming years will
deliver an attractive return for shareholders
through the commodity price cycle, whilst
maintaining optionality to execute high
quality growth projects or M&A opportunities
if they exceed our investment hurdles.
Board priorities for 2022
For the Board and the Leadership Team,
our focus during 2022 will be on delivering
safely and responsibly against our operating
targets, executing our capital allocation
programme and growing the business via
selective investments. The macro-economic
environment remains volatile and uncertain
but I am confident that we have the right
team and strategy in place to create value
for all our stakeholders.
Finally, I would like to thank all of our
employees, shareholders, partners and
contractors for their continued support
of Harbour Energy.
R. BLAIR THOMAS
Chairman
Our focus during 2022 will be on delivering
safely and responsibly against our operating
targets, executing our capital allocation
programme and growing the business via
selective investments.
Dear shareholder,
I am delighted to be writing to you on
behalf of the Board in this, Harbour
Energy’s inaugural Annual Report.
Strategic report Governance Financial statements Additional information
57
Harbour Energy plc
Annual Report & Accounts 2021
Male 6
Female 4
British 4
American 4
Norwegian 2
International 10
Oil and gas 9
Financial 9
Listed plc 8
UK listed plc 5
Board of Directors
R. Blair Thomas
Chairman
Skills and experience
Blair was appointed as Non-Executive Chairman
of the Company pursuant to EIG’s right to appoint
up to two directors to the Board. Blair has more
than 30 years’ experience in the investment
management business, with a focus on energy
and energy-related infrastructure. He was also a
member of the Board of Directors of Chrysaor
Holdings Limited from 2017 through to completion
of the Merger. The Board believes that Blair’s
industry experience and knowledge of the Harbour
Group justifies his appointment as Chairman
and is of significant benefit to the Company
and shareholders as a whole.
External appointments with public companies
¼ None
Linda Z. Cook
Chief Executive Officer
Skills and experience
Linda has significant experience in building and
managing large-scale, global energy businesses.
She has a track record of successful strategic
execution and growth, including through M&A,
major project delivery, and raising capital. Her
experience in disciplined capital allocation within
the sector is invaluable for Harbour as the
Company embarks on an ambitious programme
of investment across the portfolio. Also important
are Linda’s many years of experience serving as
a CEO, and as a director in both executive and
non-executive capacities on the boards of large,
publicly listed companies.
External appointments with public companies
¼ BNY Mellon, Non-Executive Director
and Chair of the Human Resources
and Compensation Committee
Alexander Krane
Chief Financial Officer
Skills and experience
Having spent a large portion of his career as
CFO of Aker BP, including during the merger of
Det Norske Oljeselskap and BP Norge, Alexander
has experience leading a large finance function
through an integration process. His listed company
experience and understanding of debt and equity
capital markets will be invaluable in ensuring that
the Company has the balance sheet strength to
be able to deliver its growth and investment plans
through the commodity price cycle.
External appointments with public companies
¼ None
Board gender Board nationality Board skills and experience
Board tenure as at 16 March 2022
Committee membership
Nomination Committee (Chair)
Committee membership
N/A
Committee membership
N/A
Board background, key roles
and responsibilities
58
Harbour Energy plc
Annual Report & Accounts 2021
Simon Henry
Senior Independent Non-Executive Director
Skills and experience
Simon’s position as Senior Independent
Director is vital for the Board in ensuring that the
highest standards of corporate governance are
maintained. He plays a pivotal role in managing
the relationship with the Company’s major
shareholder, EIG, and ensuring the Company
is able to operate independently and in
accordance with its obligations as a listed
company. In addition, Simon brings significant
experience in both the oil and gas sector and
public markets having spent his entire career
working with large-scale companies, including as
the CFO for Royal Dutch Shell plc for many years.
External appointments with public companies
¼ Rio Tinto plc, Non-Executive Director
and Chair of the Audit Committee
¼ PetroChina Company Limited,
Non-Executive Director
Anne Marie Cannon
Independent Non-Executive Director
Skills and experience
Having spent much of her career in the energy
sector including while at Morgan Stanley and J
Henry Schroder Wagg, Anne Marie has significant
experience advising on oil and gas mergers and
acquisitions, and is thus well equipped to engage
with management and provide appropriate
independent challenge in relation to commercial
transactions. Having previously served on the
Premier Board, Anne Marie also brings continuity
to the Company’s Board and Committees in
relation to governance as well as with regard
to the legacy Premier assets and operations.
External appointments with public companies
¼ STV plc, Non-Executive Director and
Chair of the Remuneration Committee
¼ Aker BP ASA, Deputy Chair
Board independence
Directors Independent?
Joined the Harbour
Energy Board
Chairman
R. Blair Thomas No 31 March 2021
Executive
Linda Z. Cook
Alexander Krane
No
No
31 March 2021
15 April 2021
Non-Executive
Simon Henry
Anne Marie Cannon
G. Steven Farris
Alan Ferguson
Andy Hopwood
Margareth Øvrum
Anne L. Stevens
Yes
Yes
No
Yes
Yes
Yes
Yes
31 March 2021
31 March 2021
31 March 2021
31 March 2021
31 March 2021
1 April 2021
31 March 2021
HSES COMMITTEE REPORT P72
DIRECTORS’ REMUNERATION REPORT P74
AUDIT AND RISK COMMITTEE REPORT P66
NOMINATION COMMITTEE REPORT P70
Committee membership
Audit and Risk Committee
HSES Committee
Committee membership
Audit and Risk Committee
Remuneration Committee
G. Steven Farris
Non-Independent Non-Executive Director
Skills and experience
Steve was appointed as a Non-Executive Director
of the Company pursuant to EIG’s right to appoint
up to two directors to the Board. Having spent
his entire career within the energy sector and,
in particular, leading Apache Corporation as
Chairman and CEO through a period of significant
growth and expansion, Steve’s knowledge and
counsel is a great asset to the Board and the
Company as a whole.
External appointments with public companies
¼ None
Committee membership
HSES Committee
Board attendance
Directors
3
Scheduled
meetings attended
Chairman
R. Blair Thomas 8/8 – 100%
Executive
Linda Z. Cook
Alexander Krane
Phil Kirk
1
8/8 – 100%
7/7 – 100%
8/8 – 100%
Non-Executive
Simon Henry
Anne Marie Cannon
2
G. Steven Farris
Alan Ferguson
Andy Hopwood
Margareth Øvrum
Anne L. Stevens
8/8 – 100%
8/8 – 100%
8/8 – 100%
8/8 – 100%
8/8 – 100%
8/8 – 100%
8/8 – 100%
1 Phil Kirk stepped down from the Board on 28 February 2022.
2 Anne Marie Cannon also served on the Board of Premier Oil plc.
3 Roy A. Franklin, Dave Blackwood, Iain Macdonald, Elisabeth Proust and Mike Wheeler
stepped down from the Board of Premier Oil plc on completion of the Merger.
Richard Rose stepped down from the Board on 15 April 2021.
Board representative to the Group Staff Forum
Strategic report Governance Financial statements Additional information
59
Harbour Energy plc
Annual Report & Accounts 2021
Board of Directors continued
Alan Ferguson
Independent Non-Executive Director
Skills and experience
Alan brings current and relevant financial
experience to the Board and as Chair of the Audit
and Risk Committee having spent his executive
career in finance roles along with a decade of
experience leading audit committees of listed
companies. Alan has already successfully led
the tender process for the Group’s external
auditors and his expertise in audit and accounting
is vital for the Group particularly as it enters the
first reporting cycle as Harbour Energy plc.
External appointments with public companies
¼ AngloGold Ashanti Limited, Non-Executive
Director and Chair of the Audit Committee
¼ Marshall Motor Holdings, Interim Chairman,
Senior Independent Director and Chair of
the Audit Committee
Andy Hopwood
Independent Non-Executive Director
Skills and experience
Andy has over 40 years’ experience in the
global oil and gas industry gained during his
long association with BP. He brings a strong
understanding of the technical, operational and
commercial issues associated with development
and managing large-scale, complex energy
assets around the world, from exploration
through to decommissioning, and including in
the areas of safety and the environment. Andy’s
oil and gas technical, operational and leadership
expertise are invaluable to the Board and its
Committees in overseeing the existing portfolio
and assessing opportunities for investment.
External appointments with public companies
¼ None
Margareth Øvrum
Independent Non-Executive Director
Skills and experience
Margareth worked for Equinor and its predecessor
companies from 1982 until January 2021. Latterly,
she was Executive Vice President for 17 years with
responsibility for global HSE, project development,
drilling, procurement, technology and new energy.
She has extensive knowledge of international
oil and gas operations, major projects, health
and safety, sustainability and the role of digital
technology in engineering. In particular, she has a
passion for safety and the environment which will
be of great value to the Board and through her role
as Chair of the HSES Committee. She also has
considerable governance experience through
her non-executive director roles.
External appointments with public companies
¼ FMC Corporation, Non-Executive Director
¼ Technip FMC plc, Non-Executive Director
¼ Transocean Ltd, Non-Executive Director
Committee membership
Audit and Risk Committee (Chair)
Remuneration Committee
Committee membership
HSES Committee
Nomination Committee
Committee membership
HSES Committee (Chair)
Audit and Risk Committee
Board representative to the Group Staff Forum
60
Harbour Energy plc
Annual Report & Accounts 2021
Anne L. Stevens
Independent Non-Executive Director
Skills and experience
Anne has served on remuneration committees,
including as Chair, in a number of large
organisations in recent years. Anne has significant
experience engaging with investors to deliver
remuneration outcomes that are of benefit to
all stakeholders. In addition to her expertise
as a remuneration committee chair, Anne also
contributes a wealth of experience built up over
a long career in engineering and executive roles
in large global companies.
External appointments with public companies
¼ Anglo American plc, Non-Executive Director
and Chair of the Remuneration Committee
1
¼ Aston Martin Lagonda Global Holdings plc,
Non-Executive Director and Chair of the
Remuneration Committee
Committee membership
Remuneration Committee (Chair)
Nomination Committee
1 Anne will step down as Non-Executive Director
of Anglo American plc in April 2022.
Rachel Rickard
Company Secretary
Rachel is a Fellow of the Chartered
Governance Institute with more than 20
years’ experience gained across a variety
of industries and sectors in FTSE 100 and
FTSE 250 listed companies, including three
years within the financial services sector.
As Company Secretary, Rachel is
responsible for advising the Board, through
the Chairman, on all governance matters.
Strategic report Governance Financial statements Additional information
61
Harbour Energy plc
Annual Report & Accounts 2021
1 2
Corporate governance report
Applying the key principles of the Code
The Board of Harbour Energy is committed to strong governance across all
the Company’s activities. The table below summarises how the Company has
applied the Main Principles of the UK Corporate Governance Code and where
further information on each Principle can be found in this Annual Report.
Board leadership
and company purpose
A.
The Company is led by a Board of Directors
who hold the Chief Executive Officer and the
Leadership Team to a very high standard.
The Board includes two appointees from EIG,
the Company’s largest shareholder, but is
majority independent.
Further information
Board of Directors: P58
B.
Shortly after completion of the Merger on
31 March 2021, the Board met to define the
Company’s purpose and strategic scope.
An in-depth review of the Company’s strategy
was presented at the Capital Markets Day in
December 2021. A key focus area for the Board
in 2022 will be on establishing and developing
a culture that supports these stated objectives.
Further information
How we create value: P12
Our culture and values: P20
C.
As part of the process of defining the Company’s
strategic support, the Board also approved a
robust financial framework, underpinned by
prudent capital allocation. In addition, work
undertaken by the Audit and Risk Committee
since the Merger – building on systems and
processes within the two legacy companies
– means that the Company has an effective
and reliable system of internal control in place.
Further information
Financial review: P38
Risk management: P44
Audit and Risk Committee report: P66
Division of
responsibilities
Application of the Main Principles
F.
Whilst the Company’s Chairman, R. Blair Thomas,
was not regarded as independent on appointment,
he brings significant industry knowledge and
experience which the Board believes is of great
benefit to the Company. The Chairman is responsible
for facilitating open conversations and dialogue at
Board level and, following an externally led review in
2021, the Board is of the view that the Chairman
has been very effective in carrying out this role
since the Merger.
Further information
Board of Directors: P58
G.
The Board is made up of a majority of independent
Non-Executive Directors including a very
experienced Senior Independent Director in Simon
Henry. Given EIG’s position as a major shareholder,
the Company has entered into a Relationship
Agreement with EIG to ensure the Company is able
to operate independently and to meet the highest
standards of corporate governance.
Further information
Board of Directors: P58
Other governance disclosures: P65
H.
Non-Executive Directors have all committed to
devoting sufficient time to the Company to meet their
duties. The Company also has robust procedures
in place to ensure that proposed new mandates
for Non-Executives are thoroughly reviewed to
ensure they do not impinge on a Director’s ability
to discharge their obligations to the Company.
Further information
Board of Directors: P58
Nomination Committee report: P70
I.
The Company Secretary supports the Board
and its Committees to ensure they receive
accurate and timely information to carry out
their function effectively. Where possible, the
Leadership Team and the Company Secretary
deliver papers to Non-Executive Directors one
week in advance of scheduled meetings.
Further information
N/A
D.
Engagement with all of our stakeholders is a
priority for the Board. By maintaining good
dialogue, we ensure that our objectives are
understood and that we receive regular
feedback on our strategy, performance and
governance which can then be factored into
the Board decision-making process.
Further information
Engaging with our stakeholders: P16
ESG review: P28
E.
Following the Merger, the Board, its Committees
and the Leadership Team have devoted a
significant amount of time to organisational
design and establishing ways of working for
Harbour Energy. During 2022, implementation of
these plans will continue along with the planned
rollout of a new Enterprise Management System.
Employee engagement and feedback has been
and continues to be a key aspect of developing
the new organisation.
Further information
Nomination Committee report: P70
ESG review: P28
Our culture and values: P20
Application of the Main Principles
62
Harbour Energy plc
Annual Report & Accounts 2021
3 4 5
Applying the Principles of good governance
will support the successful delivery of
long-term value for all of our stakeholders.
R. BLAIR THOMAS
Chairman
Composition, succession
and evaluation
Audit, risk and
internal control
Remuneration
Application of the Main Principles
J.
The Company’s Nomination Committee is
responsible for ensuring that plans are in place
for orderly succession to the Board and senior
management positions with due regard to the
skills, knowledge, experience and diversity
required to execute the Company’s strategy.
Further information
Nomination Committee report: P70
K.
The Board ensures that Committees are comprised
of Non-Executive Directors with a balance of skills,
experience and knowledge appropriate for each
Committee. Following changes to the Board on
completion of the Merger, a full review of Committee
composition was undertaken to ensure each
Committee was appropriately constituted for
the new organisation.
Further information
Board of Directors: P58
L.
The Board and its Committees undertook an
externally facilitated evaluation in late 2021. Given
the significant changes to the Board during the
year it was noted by the Directors that, whilst it
was too early to draw conclusions in some areas,
the Board is satisfied that both the Committees
and the Board are performing effectively and to
a high standard.
Further information
Nomination Committee report: P70
Application of the Main Principles
M.
The Audit and Risk Committee has met six times
since completion of the Merger on 31 March
2021 and has devoted a significant amount
of its time to ensuring policies and procedures
with respect to internal and external audit are
effective. A competitive tender process for the
role of external auditor was undertaken in 2021
resulting in the appointment of Ernst & Young LLP
as the Company’s auditor.
Further information
Audit and Risk Committee report: P66
N.
The Board confirms that, in its view, the Annual
Report and Financial Statements, taken as a
whole, is fair, balanced and understandable,
and provides the information necessary for
shareholders to assess the Group’s position
and performance, business model and strategy.
Further information
Audit and Risk Committee report: P66
Statement of Directors’ responsibilities: P102
O.
Building on the good foundations from the two
legacy companies, the Audit and Risk Committee
has endorsed the framework of internal control
and risk management for the new Company, which
now includes a dedicated Internal Audit function.
The Board and the Audit and Risk Committee
have assessed the Company’s principal risks
and have set the Company’s risk appetite which
the Directors believe is appropriate for the
Group’s strategy.
Further information
Audit and Risk Committee report: P66
Principal risks: P48
Application of the Main Principles
P.
On completion of the Merger the Remuneration
Committee approved a new Remuneration
Policy that reflects the size, scale and strategic
ambitions of the enlarged organisation.
This Policy received the support of 97 per cent
of shareholders who voted at the Company’s
2021 AGM.
Further information
Directors’ remuneration report: P74
Q.
Following the approval of the Company’s new
Remuneration Policy by shareholders at the 2021
AGM, the Remuneration Committee oversaw
the roll out of a new Reward Strategy for the
Leadership Team and the rest of the organisation.
The Committee believes the Policy and Reward
Strategy are appropriate to attract, retain and
motivate high calibre executives and employees
across the organisation.
Further information
Directors’ remuneration report: P74
Our culture and values: P20
R.
The Remuneration Committee exercised
independent judgement and discretion when
reviewing and authorising remuneration
outcomes associated with the legacy Premier
Oil organisation and continues to do so when
assessing performance under the new Policy.
The Committee receives independent advice
from Deloitte, who are founding members of
the Remuneration Consultants Group (RCG),
and have at all times operated under the
RCG’s voluntary Code of Conduct in dealings
with the Committee.
Further information
Directors’ remuneration report: P74
Strategic report
Governance Financial statements Additional information
63
Harbour Energy plc
Annual Report & Accounts 2021
Corporate governance report continued
The role of the Board
The Board is collectively responsible for the governance of the
Company on behalf of Harbour Energy’s shareholders and is
accountable to them for the long-term success of the Company.
The Board governs the Company in accordance with the authority
set out in the Company’s Articles of Association and in compliance
with the Code. Our governance goes beyond regulatory compliance,
putting the interests of all our stakeholders at the heart of the
Board’s decision-making.
Our Articles of Association are available on the Company’s website,
whilst a copy of the Code can be accessed at www.frc.org.uk.
R. Blair Thomas
Non-Independent Chairman
Linda Z. Cook
Chief Executive Officer
Alexander Krane
Chief Financial Officer
Simon Henry
Senior Independent
Non-Executive Director
Anne Marie Cannon
Independent Non-Executive Director
G. Steven Farris
Non-Independent
Non-Executive Director
Alan Ferguson
Independent Non-Executive Director
Andy Hopwood
Independent Non-Executive Director
Margareth Øvrum
Independent Non-Executive Director
Anne L. Stevens
Independent Non-Executive Director
Board Committees
The Board has established Audit and Risk, Nomination, HSES and
Remuneration Committees. Each Committee has formal terms of
reference approved by the Board, copies of which can be found on
the Company’s website. The Company Secretary provides advice
and support to the Board and all Board Committees.
Board Committees are authorised to engage the services
of external advisers as they deem necessary.
Details of all of the Committees are set out in the relevant
sections of this report.
Audit and Risk Committee
Alan Ferguson (Committee Chair)
Anne Marie Cannon
Simon Henry
Margareth Øvrum
Responsibilities
Keeps under review the
effectiveness of the Group’s risk
management and internal control
systems and the programme of
reviews co-ordinated by Internal
Audit and Risk Management;
monitors the integrity of the
Company’s financial statements and
the overall fairness of the Annual
Report and Financial Statements.
Nomination Committee
R. Blair Thomas (Committee Chair)
Andy Hopwood
Anne L. Stevens
Responsibilities
Considers Board and Committee
structure, composition and succession
planning and oversees succession
planning and development of senior
management. It also leads Board-level
engagement with the Company’s
workforce and assesses and monitors
the Company’s culture in order to ensure
its alignment with the Company’s
purpose, values and strategy.
HSES Committee
Margareth Øvrum (Committee Chair)
Simon Henry
Andy Hopwood
G. Steven Farris
Responsibilities
To monitor and review the Group’s
HSES strategy – including related
to Net Zero – ensuring the policies
and systems within the Group are
compliant with HSES regulatory
requirements. This Committee also
monitors the quality and integrity of the
Group’s internal and external reporting
of HSES performance and issues.
Remuneration Committee
Anne L. Stevens (Committee Chair)
Anne Marie Cannon
Alan Ferguson
Responsibilities
Ensures that there is an appropriate
reward strategy in place for Executive
Directors with the intention of
aligning their interests with those of
shareholders. This Committee also
oversees reward strategy for senior
management.
READ MORE
P66
READ MORE
P70
READ MORE
P72
READ MORE
P74
Leadership Team
The Leadership Team supports the Chief Executive Officer with the development and implementation of Group strategy, management of the operations
of the Company including succession planning, financial planning, risk management, internal control, HSES and corporate responsibility.
North Sea operations
Functional oversight and
support
International operations
64
Harbour Energy plc
Annual Report & Accounts 2021
Other governance disclosures
The Company was fully compliant
with the UK Corporate Governance
Code (the Code) throughout 2021
with the exception of Provision 9
regarding the independence of the
Chairman on appointment.
Further details on this and other
governance matters are provided below.
Compliance with the Code
Under Provision 9 of the Code, “the chair
should be independent on appointment
when assessed against the circumstances
set out in Provision 10”. R. Blair Thomas,
the Company’s Chairman, did not meet the
independence criteria of Provision 10 of the
Code by virtue of being appointed pursuant
to EIG’s right to appoint up to two directors
to the Board of Directors under the
Relationship Agreement (further details
of which are set out below).
Blair has more than 30 years’ experience
in the investment management business,
with a focus on energy and energy-related
infrastructure, and he was a member of the
Board of Directors of Chrysaor Holdings
Limited between 2017 until completion
of the Merger. The Board believes that
Blair’s industry experience and knowledge
of Chrysaor justified his appointment as
Chairman and is of continuing benefit
to the Group and shareholders as a whole.
The Board is comprised of a majority of
independent Non-Executive Directors,
including a very experienced Senior
Independent Director in Simon Henry.
The Independent Non-Executive Directors
meet regularly without the EIG-appointed
Directors present, with those meetings
being chaired by Simon Henry. The Board
is therefore of the view that there is
sufficient independent challenge and
judgement within the boardroom.
Relationship Agreement
Due to its 36.73 per cent shareholding in
the Group, EIG (through its wholly owned
subsidiary Harbour North Sea Holdings
Limited) is deemed a controlling shareholder
for the purposes of the Listing Rules.
As a result, the Company has entered
into a Relationship Agreement with EIG
(the Relationship Agreement).
Notwithstanding EIG’s position as a
controlling shareholder, the Directors believe
the Company is still able to carry on an
independent business. The Relationship
Agreement took effect on completion of the
Merger in March 2021 and will continue in
force unless and until EIG and its affiliates
cease to own 10 per cent or more of
the Ordinary Shares or the voting rights
attaching to the Ordinary Shares. EIG may
terminate the Relationship Agreement in
certain circumstances, including where the
Ordinary Shares cease to be admitted to the
premium listing segment of the Official List
and admitted to trading to the London Stock
Exchange’s main market for listed securities.
In addition, the Relationship Agreement
complies with the independence provisions
set out in Listing Rules 6.5.4R and 9.2.2ADR.
Under the Relationship Agreement, EIG is
entitled to nominate one non-executive
director for appointment to the Board so long
as it holds between 10 per cent and 25 per
cent of the issued shares of the Company,
and two non-executive directors for so long
as it holds over 25 per cent of the shares. At
the current time, R. Blair Thomas (Chairman)
and Steve Farris (Non-Executive Director) are
EIG’s nominated appointees. In addition, EIG
undertakes that it shall not:
¼ take any action that would have the
effect of preventing the Company from
complying with its obligations under the
Listing Rules;
¼ propose or procure the proposal of a
shareholder resolution of the Company
which is intended or appears to be
intended to circumvent the proper
application of the Listing Rules;
¼ exercise any of its voting rights in the
Company in a way that would be inconsistent
with, or breach any of the provisions of,
the Relationship Agreement;
¼ influence the day-to-day running of the
Company at an operational level and
shall allow the Company to operate on
an independent basis;
¼ vote its Ordinary Shares (and shall use its
reasonable endeavours to procure that any
director appointed by it does not vote his or
her shares) in a manner that would prevent
the Company from operating and making
decisions for the benefit of shareholders
of the Company as a whole; and
¼ act in a manner which would be
inconsistent with the independence
of the Board being maintained in
accordance with the rules of the London
Stock Exchange or the FCA applicable to
the Company, including the Listing Rules
and the UK Corporate Governance Code.
In accordance with the Listing Rules, the
Board confirms that, throughout the period
under review:
¼ the Company has complied with
the undertakings included in the
Relationship Agreement;
¼ so far as the Company is aware, EIG
and its associates have complied with
the undertakings in the Relationship
Agreement; and
¼ so far as the Company is aware, EIG has
complied with the obligation included in
the Relationship Agreement to procure
the compliance of its associates with the
undertakings in the Relationship Agreement.
Strategic report Governance Financial statements Additional information
65
Harbour Energy plc
Annual Report & Accounts 2021
Financial reporting and audit 60
Risk management and
internal control 30
Governance 10
Audit and Risk Committee report
Dear fellow shareholder,
I am pleased to present the Audit and
Risk Committee’s (the Committee)
report for 2021. The objective of this
report is to provide a summary of
the Committee’s work in ensuring
that the interests of the Company’s
stakeholders are protected through
a robust system of risk management
and transparent financial reporting.
I assumed the position of Chair of the Harbour
Audit and Risk Committee following the
completion of the Merger on 31 March 2021.
Key activities during the year
The Committee held six scheduled meetings
during 2021. A further two meetings were
held in 2022, prior to the publication of this
Annual Report & Accounts. In addition to
the members of the Committee listed on
this page, meetings of the Committee were
normally also attended by the Chief Executive
Officer, the President & CEO Europe, the Chief
Financial Officer, the Corporate Controller,
the VP Internal Audit and Risk Management,
the Group General Counsel, the Company
Secretary, the Deputy Company Secretary,
and the external auditors. Other senior
managers are required to attend when
significant audit and risk management
matters relating to their area of responsibility
are considered by the Committee. During
the year, the Committee met privately with
the VP Internal Audit and Risk Management
and with the Company’s external auditors.
The Committee also undertook an externally
facilitated review of its effectiveness on
1 December 2021.
The Committee met for the first time under
my leadership in April to recommend the
selection of the proposed external auditors
to the Board following a competitive audit
tender process. The Committee also
received presentations on the outcome
of the Financial Position and Prospect (FPP)
Procedures undertaken as part of the
Merger process, the 2020 Auditor Letters
issued by both legacy external auditors,
future financial and management reporting
matters, and the control environment in
place following the completion of the Merger.
The Committee also reviewed and endorsed
the planned schedule of Internal Audits
for the year. Finally, the Committee reviewed
and subsequently approved a number
of amendments to the Committee terms
of reference.
Members
1,3
Meetings attended
(eligible to attend)
Alan Ferguson (Committee Chair) 6(6)
Anne Marie Cannon
2
6(6)
Simon Henry 6(6)
Margareth Øvrum 6(6)
1 Alan Ferguson, Simon Henry and Margareth Øvrum joined the Committee on
completion of the Merger.
2 Anne Marie Cannon also served on the Premier Oil Audit and Risk Committee.
3 Iain Macdonald, Dave Blackwood and Mike Wheeler served on the Premier Oil
Audit and Risk Committee, stepping down on completion of the Merger.
Role of the Committee
¼ Monitors the integrity of the Company’s financial statements and any
formal announcements relating to the Company’s financial performance
and the significant financial reporting judgements they contain.
¼ Reviews the external auditors’ independence and objectivity and
the effectiveness and quality of the audit process.
¼ Monitors and reviews the effectiveness of the Company’s risk
management and internal control systems, including in particular the
identification of emerging risks and the effectiveness of actions taken
to mitigate them, together with the results of the programme of reviews
of these systems and management’s response to the review findings.
¼ Monitors and reviews the effectiveness and objectivity of the
Company’s Internal Audit function, the appropriateness of its
work plan, the results of reviews undertaken, and the adequacy
of management’s response to matters raised.
¼ Develops and implements policy on the engagement of the external
auditors to supply non-audit services.
¼ Monitors the enforcement of the Company’s Global Code of Conduct
and the adequacy and security of its whistleblowing procedure.
How the Committee spent its time during the year (%)
ALAN FERGUSON
Committee Chair
66
Harbour Energy plc
Annual Report & Accounts 2021
Financial judgements and internal control matters
The Committee considered the following significant judgements, estimates
and internal control matters in preparing the 2021 Annual Report & Accounts,
coming to the following conclusions:
The Committee spent considerable time
during the year reviewing the significant
financial reporting judgements and key
accounting estimates associated with
the Company’s full and half-year results.
In this work the impact of climate change
and the energy transition was considered
recognising in particular the uncertainty
around the scale and timing of such impacts.
The Committee reviewed, in particular,
judgements and key accounting estimates
for the Merger, the impairment and
decommissioning provision assessments,
the appropriateness of the financial
modelling work that supported the going
concern recommendations, and the clarity
and completeness of disclosures in the
financial statements. More detail about
the work of the Committee in relation to
financial reporting judgements can be
found in the panel opposite.
During the year, the Committee received
reports on the outcome of the Internal Audits
conducted over the period. The audits
reviewed included treasury controls, cyber
security and UK financial controls in the
legacy Premier business, and the project
to implement a Company-wide Enterprise
Management System (EMS). In reviewing
these reports the Committee took note of
any significant findings and the closeout of
the actions agreed as a result of these
audits. The Committee also reviewed and
endorsed the Internal Audit plan for 2022.
Through the year the Committee also
received presentations on risk management
matters in support of its duty to monitor
and review the effectiveness of the
Company’s risk management and internal
control systems. Presentations included
the control environment in place on the
completion of the Merger; the risk
management framework being implemented
across the business; mapping of the
sources of assurance to assure effective
control across key risk areas; ethics and
compliance matters; and a proposal to
develop an Audit and Assurance policy
document. There was also a ‘deep dive’
presentation on cyber security as the first of
a series of management led presentations
to support understanding and alignment
on specific risk matters. The Committee
also reviewed the processes in place for
understanding the principal and emerging
risks facing the business, in support of
the Board’s review during the year.
Going concern
The Directors are required to consider the
appropriateness of adopting the going concern
basis of accounting. The Committee reviewed
management’s projections of the Group’s liquidity
position. Key assumptions in the projections
included those related to oil and gas prices during
the period. The Committee concluded that it is
satisfied that the judgements applied in making
the assumptions and estimates that underpin the
forecasts and projections have been exercised in an
appropriate manner. The going concern statement
included on page 43 is fair and balanced.
Purchase price accounting
In assessing the purchase price accounting for the
Merger, the Committee reviewed and challenged:
¼ management’s key assumptions for valuing
the acquired assets. This included approval of
management’s long-term planning assumptions
for crude oil prices of $65/bbl in real terms and
UK NBP gas prices of 60p/therm in real terms,
adjusted for the Group’s hedging programme;
¼ valuations of intangible exploration and
evaluation (E&E) assets taking into account the
various valuations available which comprise
financial carrying values, expected monetary
valuations from discounted cash flows and
potential sale proceeds from disposal initiatives;
¼ management’s key assumptions for
decommissioning provisions; and
¼ recoverability of tax credits associated with the
items above.
Impairment of tangible and intangible
properties
In assessing indicators of impairment or reversals
of previous impairments, the Committee:
¼ reviewed and challenged management’s key
assumptions for oil and gas properties, including
the long-term planning assumptions and future
oil and gas prices; and
¼ taking account of available market data,
approved management’s long-term planning
assumptions for crude oil prices of $75/bbl in
2022, $70/bbl in 2023, and $65/bbl (in real
terms) thereafter and for UK NBP gas prices of
150p/therm in 2022, 100p/therm in 2023 and
60p/therm (in real terms) thereafter, adjusted
for the Group’s hedging programme.
The Committee was satisfied that the most significant
assumptions on which the amount of the impairment
charge is based are future commodity prices, the
discount rate applied to the forecast future cash flows
and the decommissioning provisions. The Committee
considered the disclosure of the sensitivity of the
impairment charge to changes in the commodity
prices, as set out in note 12 to the financial
statements on page 139, to be appropriate.
The Committee noted that estimates of the Group’s
oil and gas proven and probable reserves prepared
by independent reservoir engineers were within one
per cent of management’s estimates.
The Committee assessed the carrying values of E&E
assets and whether any indicators of impairment
exist in relation to these assets. The Committee
reviewed the oil and gas resources estimates and
maturation reports from management and satisfied
itself that the resource movements in the year and
balances at year-end were appropriately prepared
and supported and that the corresponding E&E asset
carrying balances and income statement charges
were aligned with the resources reports. Details of
the Group’s intangible E&E assets are provided in
note 11 to the financial statements on page 138.
Oil and gas reserves and resources
The Committee considered reports from
management on the process applied to determine
the oil and gas reserves and resources estimates,
addressing in particular the extent to which the
methodology and techniques applied by the
Company were generally accepted industry practice,
whether the methodology and techniques applied
were consistent with those applied in prior years,
and the experience and expertise of the managers
who prepared and reviewed the estimates. The
Committee noted that estimates of the Group’s oil
and gas proven and probable reserves prepared
by independent reservoir engineers were within
one per cent of management’s estimates.
The Committee discussed with management the
main reasons for the difference between the two
estimates and was satisfied that it was appropriate
to apply management’s estimates for the purpose
of preparing the financial statements.
Provisions for decommissioning
The Committee discussed with management the
estimation process and the basis for the principal
assumptions underlying the cost estimates for
future decommissioning activity, noting in particular
the reasons for any major changes in estimates as
compared with the previous year. The Committee
was satisfied that the approach applied was fair and
reasonable. The Committee was also satisfied that the
combination of discount and contracted rig rates used
to calculate the provision was appropriate. Further
information on decommissioning provisions is provided
in note 20 to the financial statements on page 145.
Taxation
The Committee discussed with management
their projections of probable UK taxable profits
and noted that these projections include existing
producing assets and certain currently unsanctioned
UK development projects. The projections use
underlying assumptions which are consistent with
those used in the asset impairment review and
support the recognition of a net deferred tax asset.
Further details of the deferred tax asset and the
assumptions used to estimate the amount of tax
recoverable in respect of tax losses and allowances
are provided in note 8 to the financial statements
on page 135.
Strategic report
Governance Financial statements Additional information
67
Harbour Energy plc
Annual Report & Accounts 2021
Audit and Risk Committee report continued
In the March 2022 meeting, the
Committee completed its annual review of
the effectiveness of the Company’s risk
management and internal control systems
so as to be able to approve the statements
on the risk management framework in the
Risk management section of the Strategic
Report on page 46. It also completed its
annual review of the processes in place to
prepare the Annual Report & Accounts in
order to support the Statement of Directors’
responsibilities on page 102.
Risk management and internal control
The Committee is responsible for reviewing
the effectiveness of the Company’s risk
management and internal control systems
(also known as its risk management
framework). The framework is discussed
more fully on pages 44 to 46 of the Risk
management section.
The framework includes specific internal
controls governing the financial reporting
process and preparation of financial
statements. These systems include clear
policies, standards and procedures for
ensuring that the Company’s financial
reporting processes and the preparation
of its consolidated accounts comply with
relevant regulatory reporting requirements.
These policies are applied consistently
by the corporate finance reporting teams
and in each business area involved in
the preparation of the financial results.
Management representations covering
compliance with relevant policies and
the accuracy of financial information are
collated on a biannual basis. Detailed
management accounts for each reporting
business unit are prepared monthly and
subject to management review. These
reports detail the performance of the
business and support the preparation and
processes for external financial reporting.
Internal Audit
On the completion of the Merger, the
Committee endorsed management’s
recommendation for an Internal Audit
function, reflecting the increased size,
complexity and risk profile of the enlarged
business. The function is resourced through
an external co-source arrangement and led
and managed by the VP Internal Audit and
Risk Management. The Committee reviewed
and endorsed the Internal Audit plan for the
year and supported its budget and resource
requirements. The Internal Audit plan is
focused on the most significant risks facing
the Company and takes account of other
sources of assurance to avoid duplication.
During 2021 the COVID-19 pandemic
restricted physical access and so most
audits were carried out remotely. The
Committee received reports on Internal
Audit findings at each meeting, noting any
significant findings and the closeout of
actions agreed as a result of the audits.
The Committee met twice with the VP
Internal Audit and Risk Management without
management present, and the Committee
Chair also held private meetings with her in
between Committee meetings.
Auditors’ independence and objectivity
The Committee is responsible for making
recommendations to the Board on the
appointment of the Group’s external
auditors and to oversee the Board’s
relationship with the external auditors.
Following a competitive tender process
between the two incumbent external audit
firms prior to the Merger, the Committee
recommended to the Board the appointment
of Ernst & Young LLP (EY) as the Group’s
external auditors. The Committee agreed to
a more limited tender due to the Merger
and the tight timetable to the 2021 Interim
Results. The appointment will be effective
for up to five years at which point the
Company will run a full competitive tender
process. Shareholders subsequently
approved the appointment of EY at the 2021
AGM to audit the 2021 financial statements.
Furthermore, the Committee can confirm
that the Company fully complies with the
provisions of the Statutory Audit Services
Order 2014.
The Committee regularly reviews the
independence and objectivity of the auditors
which considers the overall relationship
between the auditors and the Group. This
review considers feedback from the Group’s
finance function and from the auditors, the
nature and extent of non-audit services
provided by the auditors, and takes account
of the safeguards established by the
auditors against loss of audit independence,
including rotation of the audit engagement
partner which is required every five years.
The Committee believes that certain
limited non-audit work may be carried
out by the auditors without compromising
their independence and objectivity. The
allocation of non-audit work is considered
by reference to the Company’s policy on
the provision of non-audit services by the
auditors.
1
During 2021, this included services
relating to reporting accountant services
in respect of the Company’s Interim review
(£220k), the bond issuance in October
2021 and the performance of certain
agreed-upon-procedures engagements.
The total non-audit services fee for these
activities was £480k. Any non-audit work
of this nature requires approval by the
Committee. Prior to the Merger, EY provided
tax services to Chrysaor which were
ceased ahead of the regulatory deadlines
on provision of non-audit services. The
Committee approves the fees for the full-year
audit and half-yearly review after reviewing the
scope of work to be performed, and reviews
the scope and fees for potential non-audit
assignments to the auditors to satisfy itself
that the assignments concerned do not give
rise to threats to the auditors’ independence
and objectivity. The global audit fee for the
2021 audit work amounted to £2,018k.
Further details of the fees paid are set out
in note 5 to the financial statements on
page 132.
1 The Company’s policy is available in the Audit and Risk section in the Governance area of its website: harbourenergy.com/about-us/governance.
68
Harbour Energy plc
Annual Report & Accounts 2021
The Committee Chair holds private meetings
with the audit partner throughout the year.
These meetings provide an opportunity
for open discussion with the auditors.
In addition the Committee meets with the
auditors without management present.
Matters discussed included the auditors’
assessment of significant financial risks
and the performance of management in
addressing these risks, the auditors’ opinion
of management’s role in fulfilling obligations
for the maintenance of internal controls,
the transparency and responsiveness of
interactions with management, confirmation
that no restrictions have been placed on it by
management, maintaining the independence
of the audit, and how it has exercised
professional challenge.
EY are required to confirm to the Committee
that they have both the appropriate
independence and objectivity to allow them to
continue to serve the Group. The Committee
also requires the auditors to confirm that
in providing non-audit services, they comply
with the Ethical Standards for Auditors
issued by the UK Auditing Practices Board.
This confirmation was received for 2021.
External audit effectiveness and quality
The Committee has a responsibility for
assessing the effectiveness and quality
of the audit process.
The Committee reviewed the auditors’
work plan at the start of the audit cycle,
considering in particular the auditors’
assessment of the significant areas of
risk in the Group’s financial statements.
Details of the significant risks and
judgement areas can be found on page 67.
For 2021, the significant areas of risk
corresponded with the major areas of
judgement and estimates identified by the
Committee. At the conclusion of the audit,
the Committee discussed with the auditors
the findings of the audit, including key
accounting and audit judgements and
estimates, the level of errors identified
during the audit, the recommendations
made to management by the auditors and
management’s response. The Committee
met privately with the auditors in September
2021 and March 2022 at the conclusion
of the 2021 audit.
The Committee also assessed the
effectiveness and quality of the audit
process, based on its own experience
and on feedback from the corporate and
business finance teams, and considered
in particular:
¼ the experience and expertise of the
audit team;
¼ the auditors’ fulfilment of the agreed audit
plan and any variations from the plan;
¼ the robustness and perceptiveness of
the auditors in their handling of the key
accounting and audit judgements;
¼ the quality of the auditors’
recommendations for financial reporting
process and control improvements; and
¼ delivery against commitments made in
the tender presentations.
As part of this review, the Committee also
sought assessments from management,
Committee members and senior finance staff.
Based on its review of the effectiveness
and quality of the 2021 audit process and
the independence and objectivity of the
auditors, the Committee concluded that the
auditors’ effectiveness and independence
have not been impaired in any way and that
the audit process was operating effectively,
and it has reported accordingly to the Board.
Committee evaluation
As part of the externally facilitated Board
and Committee evaluation, the Committee
discussed the assessment of its own
performance and agreed actions for the
coming year. More detail on the evaluation
process and outcomes are provided in the
Nomination Committee report.
Finally I would like to thank my fellow
Committee members and the management
team for their efforts and support. This was
a challenging year for a new Committee
given the need for an audit tender, reverse
takeover accounting and a significant
purchase price allocation process, while
establishing a unified control environment
for the new organisation. There is still more
to do and areas of focus in 2022 will
include further reviews of the planned
implementation of a single EMS system and
deep dives into a number of principal risk
areas such as commodity price exposure
and information and cyber security.
On behalf of the Audit and Risk Committee:
ALAN FERGUSON
Committee Chair
Strategic report Governance Financial statements Additional information
69
Harbour Energy plc
Annual Report & Accounts 2021
Workforce engagement
including staff forums 30
Governance and
organisation structure 25
Executive Director and senior
management succession 15
Talent management and
development 10
Non-Executive Director
succession 10
Diversity, equity and inclusion 10
Nomination Committee report
Members
1,2
Meetings attended
(eligible to attend)
R. Blair Thomas (Committee Chair) 2(2)
Andy Hopwood 2(2)
Anne L. Stevens 2(2)
1 R. Blair Thomas, Andy Hopwood and Anne L. Stevens joined the Committee
on completion of the Merger.
2 Roy A. Franklin, Dave Blackwood, Anne Marie Cannon, Iain MacDonald,
Elisabeth Proust and Mike Wheeler served on the Premier Oil Nomination
Committee, stepping down on completion of the Merger.
Role of the Committee
¼ To plan Board member succession and oversee plans for senior
management succession, taking into account the strategy of the
Company and the skills, knowledge, diversity and experience required
to deliver the strategy; and to oversee the development of a diverse
pipeline for succession to Board and senior management positions.
¼ To keep under review the structure, size and composition of the
Board and Committees.
¼ To lead the process for the annual Board and Committee effectiveness
evaluation process and oversee the results and actions.
¼ To lead the process for Board appointments, ensuring that the
procedure is formal, rigorous and transparent, and identifying and
nominating candidates for the Board’s approval.
¼ To lead Board-level engagement with the Company’s workforce,
enabling the workforce to raise matters of concern.
¼ To assess and monitor the Company’s culture in order to ensure
that it is aligned with the Company’s purpose, values and strategy.
How the Committee spent its time during the year (%)
R. BLAIR THOMAS
Committee Chair
Dear shareholder,
During 2021, the Nomination
Committee focused its attention on
organisation design and leadership,
workforce engagement, Board and
Committee evaluation and a review
of the Committee’s remit and terms
of reference.
Board and Committee changes
and composition
2021 was a unique year, with an entirely new
group of Directors brought together to lead
Harbour Energy on completion of the Merger.
An external search agency, Spencer Stuart,
supported the process with candidates
selected set out in the Prospectus and
subsequent market announcements prior
to completion of the Merger. The process
was designed to ensure the Board has the
appropriate balance of skills, knowledge,
experience, independence and diversity to
lead Harbour effectively. The composition of
the Committees was also carefully designed
to ensure they consist of the appropriate
combination of skills, experience,
independence, knowledge and diversity, and
that non-executive members are not overly
committed elsewhere. These processes were
completed prior to the Merger and therefore
the Committee was not formally involved.
In December 2021 the Committee
reviewed the constitution of the Board and
Committees, alongside the performance
review process for the first eight months
of working together post Merger.
Externally facilitated Board and
Committee evaluation process
During the year, when reviewing the
Committee’s terms of reference, it was
proposed that the Committee oversee
both the process and overall outcomes
of the Board, Committee and individual
performance evaluation going forward.
In June 2021, the Committee approved a
three-year Board development programme
with Lintstock selected as the external
facilitator. Lintstock worked with the
Chairman and Company Secretary to design
surveys to support the overall process,
including in relation to the performance of
the Board, its Committees and individual
Directors. These surveys were completed
by all Directors. The results were compiled
in reports written by Lintstock which
were used as a basis for discussion
and formulation of action plans.
70
Harbour Energy plc
Annual Report & Accounts 2021
It is intended that in addition to the surveys,
externally facilitated interviews will be
held in autumn 2022. Topics identified for
further focus in 2022 and beyond included:
¼ Diversity
¼ Employee engagement and
Company culture
¼ Board interaction with management
below the executive level
¼ Operational performance and cyber risk
¼ Succession planning and talent
management
The Committee took into account the
findings of the evaluation and concluded
that each Director continues to contribute
effectively. The Committee and the Board are
therefore unanimous in recommending all
Directors for re-election at the 2022 AGM.
Organisational design and structure
A significant organisation design review
project was undertaken following the Merger
on 31 March 2021. The Committee oversaw
the process and considered the composition
of the top three tiers of the organisation,
including diversity, and to ensure a balance
of staff selected from across legacy
organisations as well as new hires.
Workforce engagement
In 2021, the Committee agreed with the
establishment of a workforce advisory
panel to be used as a basis for engagement
in line with the options set out in the UK
Corporate Governance Code. Staff in
Harbour’s operating regions and corporate
offices elect representatives to local staff
forums. These local forums are facilitated
by Human Resources but owned by the
staff representatives themselves, under a
Forum Charter communicated throughout
the Group. The Group Staff Forum, which
includes the staff members who chair the
Aberdeen, Indonesia, London and Vietnam
Forums, meets at least annually with the
CEO, Anne Marie Cannon, Andy Hopwood
and other members of the Board. The
Nomination Committee receives regular
updates on the actions arising from the
feedback provided and reviews progress
achieved. The CEO has committed to holding
more frequent informal sessions with the
Group Staff Forum throughout the year.
The Group Staff Forum met with members of
the Committee and Board in October 2021
and again in January 2022. A range of topics
was selected by Forum members, with
discussion including the process to merge
the organisations, employee development,
Company culture, communication and
hybrid working. A presentation on executive
compensation and alignment with workforce
remuneration was also given to Forum
members with discussion held afterwards.
Outcomes and actions suggested by the
Global Staff Forum were reviewed by the
Leadership Team, and Nomination
Committee, and reported to the Board.
Diversity, equity and inclusion
The Board recognises that diversity, equity
and inclusion are essential both for the Board
and throughout Harbour. All appointments
are made based on merit, experience and
performance and whilst actively seeking
diversity of skills, gender, social and ethnic
backgrounds, cognitive and personal
strengths. The Committee’s oversight role
includes ensuring that diversity, equity and
inclusion are integrated into our Business
Management System, HR standards and
recruitment processes, and remain front
of mind as we continue to build Harbour’s
corporate culture.
The objective of our Board Diversity Policy,
which the Committee reviews annually,
is to ensure the optimal composition of
the Board for successfully delivering the
Company’s strategy. The Committee’s policy
is to embrace diversity in its broadest
sense, including gender, ethnic and social
diversity but without setting formal,
measurable objectives at this time.
The Committee is mindful of the
Hampton-Alexander target on gender
diversity, that women should constitute
at least one third of the membership of
FTSE 350 company boards. Harbour’s
Board met the Hampton-Alexander
target from completion of the Merger
on 31 March 2021 with 36 per cent
of the Board being female from that point,
including our Chief Executive Officer.
As at 16 March 2022, 40 per cent of the
Board is female. With regard to senior
management gender diversity, women
represent 35 per cent of the Leadership
Team and its direct reports. As Harbour
moves forward into 2022, we expect
efforts in the diversity, equity and inclusion
area to increase to ensure our approach
is fit for the Company’s ongoing strategy.
The Committee is fully aware and supportive
of the Parker Review recommendations that
FTSE 250 boards should include a non-white
board director by 2024. One of Harbour’s
Board members identifies as being from
multiple ethnic groups. While we have not
set targets in relation to the Parker Review
recommendations, and notwithstanding that
Harbour meets this recommendation today,
this recommendation will also be borne in
mind in any future recruitment processes.
Further details of the Board’s composition
are outlined on pages 58 to 61.
Committee remit
During 2021 the Committee reviewed
its terms of reference and recommended
to the Board that its scope be widened
to include:
¼ approval of the process, and oversight of
the results, of the Board Committees and
individual Director performance evaluation;
and
¼ oversight of the Board’s governance
arrangements including compliance with
the UK Corporate Governance Code.
The Board adopted the amended terms
of reference in January 2022.
Succession planning
The Committee’s remit includes responsibility
for reviewing the needs of the Company,
both at Executive and Non-Executive levels,
with a view to ensuring the continued ability
of the organisation to compete effectively
in the marketplace, including contingency
planning for any sudden or unforeseen
circumstances. As the new Board continues
to establish itself and develop during 2022,
the Committee will turn its attention to
ensuring that a robust succession plan is in
place for all Board positions and key roles in
the wider organisation. This work will include
a review of the leadership potential of senior
executives below Board level to ensure that
your Company is equipped with the skills,
knowledge and experience to grow and thrive.
R. BLAIR THOMAS
Committee Chair
Strategic report Governance Financial statements Additional information
71
Harbour Energy plc
Annual Report & Accounts 2021
Safety performance, including response
to the COVID-19 pandemic 35
Environmental performance,
including review of Climate Change
Policy and Net Zero strategy 25
HSES strategy and management
system development 20
Review of external reporting
and key performance indicators 15
Review of audit findings 5
HSES Committee report
Members
1,2
Meetings attended
(eligible to attend)
Margareth Øvrum (Committee Chair) 3(3)
Simon Henry 3(3)
Andy Hopwood 3(3)
G. Steven Farris 3(3)
1 Margareth Øvrum, Simon Henry, Andy Hopwood and G. Steven Farris joined
the Committee on completion of the Merger.
2 Dave Blackwood and Elisabeth Proust were members of the Premier Oil
HSES Committee, stepping down on completion of the Merger.
Role of the Committee
¼ To monitor and review the Group’s HSES strategy including related
to Net Zero and the energy transition.
¼ To evaluate the effectiveness of the Group’s policies and systems
for delivering the Group’s HSES strategy.
¼ To monitor the quality and integrity of the Group’s internal and
external reporting of HSES performance and issues.
¼ To assess the policies and systems within the Group for ensuring
compliance with HSES regulatory requirements.
How the Committee spent its time during the year (%)
MARGARETH ØVRUM
Committee Chair
Dear shareholder,
HSES (Health, Safety, Environment
and Security) is a fundamental part of
our business and as Committee Chair,
I am pleased to be able to report
on the activities of the Board HSES
Committee in 2021.
HSES is and always should be Harbour’s
and my own undisputed priority. Safety
is about being accountable, visible and
engaged and we need to put safety first
in everything we do. Sound environmental
management has always been important to
the oil and gas industry but the increasing
focus on combatting climate change and
the energy transition has made this crucial
to Harbour’s licence to operate. The HSES
Committee has and will continue to devote
significant time to these topics.
I was appointed by the Board to act as
Chair of the HSES Committee, alongside
three other Non-Executive Directors. The
Committee meets at least three times a
year and I report formally to the Board as to
how the Committee has discharged its duties.
I am also available to discuss these matters
with shareholders should they wish to do so.
Key activities during the year
At the first meeting in June 2021, the
governance of the HSES Committee was
discussed including its terms of reference
and annual meeting agenda and work plan.
In line with the agreed standing agenda,
at all of its meetings the Committee reviews:
¼ HSES performance against the Company’s
HSES key performance indicators (KPIs);
¼ any serious incidents and high potential
incidents (HiPos) that have occurred
in the business, receiving reports from
management on the specific details of
an incident, the root causes, and any
remedial actions being taken; and
¼ the results of HSES focused audits and
the status of associated actions raised
to close any findings raised.
The impacts of COVID-19 and the Company’s
response were discussed at each Committee
meeting throughout the year. The June 2021
meeting reviewed HSES benchmarking data
showing the Company’s performance against
its peers. The Committee also reviewed
2021 HSES priorities and ensured these and
all HSES efforts were properly resourced.
Focus areas centred on issuing a standard
modified set of Harbour Energy Life Saving
72
Harbour Energy plc
Annual Report & Accounts 2021
Rules and the introduction of Process
Safety Fundamentals, to support Harbour’s
strategic goal to be recognised within the
industry for process safety excellence.
At its September meeting, the Committee
received presentations on key HSES focus
areas including:
¼ safety-critical maintenance work,
which highlighted that the backlog of
maintenance work was much lower
than industry standards; and
¼ dropped objects management, which has
been a focus area across all its regions
and operations with active programmes
aimed at reducing the frequency of
dropped object events by taking a
proactive and preventative approach
offshore and through the supply chain.
The main focus, however, for the September
meeting was the Company’s work in response
to climate change and energy transition.
The Committee reviewed the Net Zero
2035 strategy and associated action
plan. Discussions covered both emissions
reduction initiatives and options for
emissions offsetting.
The Company’s Emissions Reduction ‘Hopper’
was presented, with its stated aim to balance
stable production with material reductions
in emissions from existing operations. A
high level summary of emissions reduction
projects was presented with management
highlighting the efforts being made to
galvanise the organisation to bring additional
ideas forward to reduce emissions and help
meet the Company’s Net Zero goal.
Various strategic considerations with regard
to an offsetting programme were discussed,
covering both short-term and longer-term
offsetting plans and a designed focus on a
blend of different offsetting schemes. At the
end of the discussion the Committee approved
the Net Zero 2035 strategy and plan and,
in doing so, re-emphasised to management
the importance of the Emissions Reduction
Hopper in meeting the Net Zero goal.
The Committee also received detailed
presentations on Harbour’s two UK CO
2
Capture and Storage projects that at the
time were competing for government
funding: the V Net Zero Cluster located in
the Humber region and the Scottish Cluster
(Acorn Project) in the North East of Scotland,
with the Committee giving its endorsement
for continuing with both projects.
The final HSES Committee meeting of 2021
was held in December, with the Committee
reviewing HSES plans for 2022, which are
focused on six strategic priorities namely:
¼ Safe Operations
¼ Process Safety and Learning
¼ Assurance
¼ People
¼ Environment, Social and Governance; and
¼ Integration
A draft of a proposed new HSES Management
System Framework for Harbour Energy, to
be published in 2022, was reviewed and
endorsed. Following on from the September
meeting, at the request of the Committee,
there was a more in depth review of
emissions reduction projects, both those
already implemented and those in various
stages of development. Discussion focused
on work programmes to reduce flaring and
methane emissions and the Committee
endorsed ongoing efforts in these areas.
The Committee discussed the Company’s
efforts to manage process safety
with management, highlighting the tools,
leadership training and awareness
programmes being implemented to manage
major accident risks at Harbour Energy. The
Committee also reviewed its effectiveness
over the course of the year and discussed
plans for HSES engagement in 2022,
including plans for direct engagement with
the organisation to obtain feedback from
various levels of management on HSES
performance and strategy, in addition to
scheduled Committee meetings.
In early 2022, members of the Committee
and other Non-Executive Directors held a
virtual visit with key operations and other
staff from the Company’s Aberdeen office.
We intend to continue with this direct
engagement at least annually.
MARGARETH ØVRUM
Committee Chair
HSES Committee
Highlights HSES
incidents and other
HSES matters which
may have broader
audit or risk
implications
Audit and
Risk Committee
Refers detailed review
of HSES risks, HSES
audit findings and
HSES control matters
as appropriate
Effective risk
management
and internal
control systems
Relationship between the HSES Committee
and the Audit and Risk Committee
The HSES Committee is responsible for HSES strategy and performance,
whilst the Audit and Risk Committee monitors and reviews the effectiveness
of the Group’s risk management and internal control systems.
Strategic report Governance Financial statements Additional information
73
Harbour Energy plc
Annual Report & Accounts 2021
Executive Director Policy review 25
Senior executive remuneration 25
Wider workforce pay and
conditions 25
Employee engagement 10
Shareholder consultation 10
Remuneration reporting
and governance 5
Directors’ remuneration report
Dear shareholder,
On behalf of the Board, I am pleased
to present the first Directors’
Remuneration Report for Harbour
Energy, which was formed on 31March
2021 following the Merger of Premier
Oil and Chrysaor.
Following the completion of the Merger,
all Non-Executive Directors, other than
Anne Marie Cannon, stepped down from
the Premier Oil Board and a new Board
and Remuneration Committee for Harbour
Energy were appointed. Our immediate area
of focus as a new Committee was to design
the remuneration framework for the
Executive Directors, and Harbour Energy’s
first Directors’ Remuneration Policy was
published in our Notice of AGM for the
2021 AGM. We were pleased that over
97 per cent of our shareholders were
supportive of the Policy and voted in favour
of the resolution at the AGM on 23 June
2021. The Policy is reproduced on pages
77 to 85 for information only.
This report sets out how the Policy operated
in 2021 and how we intend to implement
it for 2022. Together with this Annual
Statement, it will be put to an advisory
vote at the AGM on 11 May 2022.
Directors’ Remuneration Policy
The Merger of Premier Oil and Chrysaor to
form Harbour Energy created the largest UK
listed independent oil and gas company,
which in its first year has delivered a solid
set of financial and non-financial results.
Our strategy is to continue building a
global diversified oil and gas company by
reinvesting in our existing asset base, while
aiming to establish material production
in another region over time. In 2021, the
Company safely produced 175 kboepd
and delivered free cash flow of $678
million. 2021 has seen successful drilling
at a number of sites, supporting future
production. In addition, the exit from Brazil
and the Falkland Islands has ensured the
alignment of the portfolio with our strategy.
The integration of Premier Oil and Chrysaor
is already leading to significant synergies,
which will increase over the near term. We
have a diverse portfolio of growth projects
and a strategy for additional, disciplined
M&A, with a sustainable dividend policy
and debt repayment, all underpinned by a
continued focus on safety and progress
towards Net Zero by 2035. The Company
Members
1,3
Meetings attended
(eligible to attend)
Anne L. Stevens (Committee Chair) 6(6)
Anne Marie Cannon
2
6(6)
Alan Ferguson 6(6)
1 Anne L. Stevens and Alan Ferguson joined the Harbour Energy Remuneration
Committee on completion of the Merger.
2 Anne Marie Cannon also served on the Premier Oil Remuneration Committee.
3 Mike Wheeler and Roy A. Franklin served on the Premier Oil Remuneration
Committee, stepping down on completion of the Merger.
Role of the Committee
¼ Develop and maintain a Remuneration Policy that rewards fairly
and responsibly, and attracts, retains and motivates employees
to enable the Company to meet its objectives, taking into account
the long-term interests of employees, shareholders and other
long-term stakeholders.
¼ Consider and approve the remuneration arrangements for the
Chairman, the Executive Directors and other senior executives
as determined by the Committee.
¼ Exercise oversight of the pay and performance conditions across
the Group.
Compliance statement
¼ This report has been prepared in accordance with Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The Companies Act 2006 requires the
auditors to report to the shareholders on certain parts of the Directors’
Remuneration Report and to state whether, in the auditors’ opinion,
those parts of the report have been properly prepared in accordance
with the above regulations. The Chair’s Annual Statement and the Policy
Report are not subject to audit. The sections of the Annual Report
on Remuneration that are subject to audit are indicated accordingly.
How the Committee spent its time during the year (%)
ANNE L. STEVENS
Committee Chair
74
Harbour Energy plc
Annual Report & Accounts 2021
has exciting potential for the future, enabled
by our high quality asset base, financial
flexibility and capacity to consider a wide
range of growth opportunities.
As part of our transformation, in early 2021
we appointed three new Executive Directors
with extensive skills, expertise and sector
knowledge, able to lead us as we execute
our future strategy to create a leading, global,
independent oil and gas company. Many of
our sector peers, with whom we compete for
talent, are located outside the UK where pay
practices vary. This includes several key
competitors in the US where pay levels in the
market are commonly higher. It was important
that our Policy allowed us to offer reward
packages that were competitive in the US
and internationally, in order to attract the top
global talent in our sector. At the same time,
we were aware of the expectations of UK
institutional investors and we worked hard to
develop an approach which balanced these
different factors.
Our Policy has enabled us to offer the
right reward packages to attract FTSE 100
calibre executives with extensive global
sector experience, which is critical to
support our further growth over the
three-year life of the Policy. The Policy
consists of competitive fixed pay, an annual
bonus assessed against a corporate
scorecard and a Long Term Incentive Plan
(LTIP) focused on the delivery of long-term
returns to shareholders. It also contains the
best practice features expected by UK
shareholders including three-year bonus
deferral, a two-year holding period for LTIP
awards, discretion, malus and clawback
provisions, a post-employment shareholding
requirement in line with current views of
best practice and pensions that are aligned
to the wider workforce. A summary table
can be found on page 81.
Prior to the 2021 AGM we consulted with
shareholders holding approximately 80 per
cent of the issued share capital to seek their
views on the Policy, and we were pleased
with the levels of support expressed during
that process. We will continue to engage
regularly with our shareholders on the
executive remuneration framework to ensure
we continue to receive their support.
Implementation of the Remuneration
Policy in 2021
2021 annual bonus
The 2021 annual bonus was based on a
scorecard of performance measures with
five categories: safety & environment,
operations, growth, capital deployment
and financial. In terms of performance,
cash flow generation was particularly strong
and greenhouse gas emissions from our
operations were better than forecast.
We also made good progress on our capital
programme. On the other hand, oil and
gas production was lower than external
guidance and some other targets were
not met. Overall, the scorecard outcome
was 33 per cent of maximum for Executive
Directors. Full details of the measures
and targets, together with the actual
performance outcome for each measure,
are provided on page 90.
The Committee reviewed the result of the
formulaic outcome in the context of wider
Company and individual performance to
determine whether the payout levels were
appropriate. Overall, we were impressed
with the management team’s delivery
of critical work streams to support the
Company’s transition following the Merger,
made especially challenging by the global
pandemic. We therefore concluded that the
scorecard outcome was appropriate. In line
with the new Policy, 50 per cent of the bonus
will be deferred into shares for three years.
2019 LTIP
None of our current Executive Directors
participated in the 2019 LTIP. However,
certain former Premier Oil Executive
Directors participated in the Premier Oil
Performance Share Awards (PSAs) and
Restricted Share Awards (RSAs) granted
in 2019, whose performance period
ended on 31 December 2021.
The PSAs were based on three-year total
shareholder return (TSR) relative to a
comparator group of international oil and gas
sector peers. Premier ranked between 15
th
and 16
th
in the comparator group, therefore
the awards lapsed in full. The Committee
considered the underlying performance
of the Company and concluded that the
outcome was appropriate.
The RSAs were subject to continued
employment and to the achievement of a
financial underpin based on the reduction
of the ratio of net debt to EBITDA, as agreed
with the Company’s lenders. The same
underpin applied to the 2018 RSAs, and
at the time of determining vesting for that
award, the Premier Oil Remuneration
Committee judged that the underpin had not
been met. This was in light of the Company’s
financial position at that time and on the
basis that, while technically no breach had
occurred, waivers had been agreed with
creditors in light of the proposed transaction
with Chrysaor, and without these waivers
these covenants would have been expected
to be breached. The Harbour Energy
Remuneration Committee considered the
appropriate treatment for the 2019 RSAs
and concluded the same assessment that
was made for the 2018 awards was equally
applicable, and that in view of the general
performance of Premier Oil prior to the
Merger and the experience of creditors and
shareholders during the vesting period, it
was not appropriate for the 2019 RSAs to
vest. Consequently, all awards lapsed in full.
Remuneration for 2022
The Committee reviewed salary levels in
late 2021 and determined that no change
in base salaries for Executive Directors
should be made given that salaries had
been set at completion of the Merger
following a full benchmarking exercise.
No changes will be made to variable pay
opportunity levels.
The annual bonus will continue to be based
on a balanced scorecard of measures.
The Committee reviewed the scorecard in
late 2021 and determined that the broad
framework continued to be appropriate.
Some small changes were made to the
weightings including an increase to the
metric related to greenhouse gas
emissions. The full list of measures and
weightings is provided on page 99.
The Executive Directors are granted
performance shares which measure the
Company’s TSR compared to the FTSE 100
and an oil and gas comparator group. During
the year the Committee considered whether
it would be appropriate to introduce a third
measure to the LTIP in response to feedback
from some shareholders. It was determined
that, while this may be suitable in future
years, it was not appropriate for 2022
awards while the business continues to
settle following the Merger. Furthermore,
the Committee noted that our current use
of relative TSR measures is consistent with
the market practice for our sector and had
not been an area of significant concern for
shareholders. The Committee will however
keep the inclusion of a financial or strategic
performance measure into the LTIP under
review for the future. If the Committee
decided to introduce an additional measure
the intention would be to consult with
shareholders in advance. The Committee
reviewed the TSR comparator groups in
late 2021 and determined that no changes
Strategic report Governance Financial statements Additional information
75
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
were required. Consequently, the same
comparators that were used in the 2021
LTIP will apply to the 2022 awards.
Wider workforce considerations
Under its terms of reference, the Committee
has oversight of the remuneration
arrangements for the wider workforce.
In addition to the executive remuneration
review, in 2021 the Company refreshed
its reward strategy for the broader workforce
to align employees to the new Harbour
Energy reward framework. Our reward
strategy enables us to provide attractive,
competitive fixed and variable pay supported
by a generous benefits package.
The reward strategy review was a significant
project consisting of multiple stages.
The Company carried out an extensive job
mapping exercise to align our employees
to a common grading structure, and this
new structure underpins the whole reward
framework at Harbour Energy. All the
elements of the package were reviewed
individually in the context of market
positioning, and to ensure they aligned with
our reward philosophy. We considered which
elements from the legacy Chrysaor and
Premier Oil packages should be retained,
based on how valued they were within the
business, and added some new features to
ensure we are able to especially reward our
high performers. The review also ensured
there was appropriate alignment between
the arrangements for the Executive Directors
and the rest of the workforce.
The review was led by Human Resources,
with significant input from the Executive
Directors, and the Committee provided its
feedback at multiple stages. The Company
carried out an extensive communication
programme to relaunch the reward strategy
in late 2021 and early 2022 and was
pleased with the positive response from
employees. The Committee commended
the Human Resources team for such a
successful delivery of the project in an
ambitious timeframe. We will continue to
consult regularly with employees on reward
and other matters and as part of this, in line
with the UK Corporate Governance Code,
we will seek to understand the views of
employees on executive pay. This was a topic
of discussion at a meeting of the Company’s
Global Staff Forum in January 2022 which
included the CEO, our Senior Independent
Director and a member of the Committee.
During the meeting the Forum members
had the opportunity to engage with
Directors on executive remuneration,
amongst other topics.
Diversity and equality are embedded into
all our policies and processes, and the
Committee ensures that our policies and
practices across the business are fair and
consistent. We conduct analysis across our
business to ensure both men and women
are being paid equally for the same or
similar work, and our first Gender Pay Gap
report for Harbour Energy will be published
in early 2022.
Board changes
As announced on 2 February 2022, Phil Kirk
stepped down from his role as President &
CEO Europe with effect from 28 February
2022. After a successful handover process,
he has been placed on garden leave until
31July 2022. Phil Kirk will continue to
receive salary and contractual benefits
up to 31 July 2022. He will receive a lump
sum payment of £351,200 in lieu of his
remaining notice period (six months from
1 August 2022). Phil will remain eligible to
receive his 2021 annual bonus as outlined
on page 91 but he will not receive a 2022
LTIP award. The Remuneration Committee
has agreed that he will be treated as a good
leaver in respect of his 2021 LTIP award
and 2022 annual bonus. These awards will
be subject to performance conditions and
time pro-rating.
Full details of Phil Kirk’s remuneration
arrangements on departure are disclosed
on page 89.
Former Executive Directors of Premier Oil
Richard Rose served as Interim CEO from
1January 2021 until completion of the Merger,
stepping down from the Board on 15 April
2021. Details of his remuneration received
up to that date are included in this report.
Richard Rose’s remuneration arrangements
on departure were in line with the approved
Premier Oil directors’ remuneration policy.
He received a payment in lieu of his
12-month notice period, a single redundancy
payment of £237,543 (inclusive of his
statutory redundancy entitlement) and a
contribution of £5,500 plus VAT towards
legal fees incurred in connection with his
departure. As disclosed in last year’s report,
he also received a retention payment of
£350,000 (gross) less the aggregate value
of all gross monthly salary supplements paid
to him as Interim CEO and Finance Director,
and the gross 2020 annual bonus. He was
not eligible for any bonus in respect of 2021.
Richard Rose was treated as a good leaver
for all outstanding share awards. Under the
good leaver provisions of the rules of the
2017 LTIP at that time, Deferred Bonus
Awards vested in full on termination. His
2018 PSAs and RSAs and 2019 PSAs and
RSAs lapsed as performance conditions
and financial underpins were not met. His
2016 Deferred Share Award granted under
the 2009 LTIP vested in its entirety at the
normal vesting date on 1 January 2022.
The remaining tranches of his 2017 RSA
will vest in their entirety at their normal
vesting dates and a two-year holding period
will continue to apply.
In conclusion
2021 was a year of significant change for
the Company and the Board is confident
that the hard work and commitment of the
Executive Directors, management team
and wider workforce have placed Harbour
Energy in a strong position as we continue
to execute our strategy and deliver financial
growth. We believe that our Remuneration
Policy supports the achievement of our
objectives and will drive the delivery of
long-term shareholder returns.
The Committee is always pleased to receive
feedback from our shareholders and, in
addition to holding formal consultations,
we welcome your feedback throughout
the year. We hope we can count on your
support for this Remuneration Report at
the upcoming AGM.
On behalf of the Committee, I would like
to thank all our stakeholders for their
continuing support.
ANNE L. STEVENS
Committee Chair
76
Harbour Energy plc
Annual Report & Accounts 2021
This section of the Remuneration Report sets out the current Remuneration Policy (Policy) for Harbour Energy plc (the Company, or
Harbour), which was approved by shareholders on 23 June 2021. The Policy applies to payments made from 23 June 2021 and is next
due for renewal at the 2024 AGM; as such it is reproduced here for information only. Details of how we intend to operate this Policy for
the 2022 financial year are set out as part of the statement from the Remuneration Committee Chair on pages 74 to 76. As announced
on 2 February 2022, Phil Kirk stepped down from his role as Executive Director with effect from 28 February 2022, therefore the Policy
Report has been updated to reflect Phil’s departure.
Key principles of our Remuneration Policy
The objective of the Remuneration Policy is to ensure it supports shareholder interests, reinforces the business strategy and promotes
long-term sustainable success. Overall, the Committee aims to ensure that pay rewards all employees fairly and responsibly for their
contributions. Remuneration packages are intended to be sufficiently competitive to attract, retain and motivate individuals with the deep
sector knowledge and extensive listed company experience required to achieve the Group’s objectives and thereby enhance shareholder
value. In addition, the Committee aims to ensure that the Remuneration Policy does not raise environmental, operational, social, safety
or governance risks by inadvertently motivating irresponsible behaviours.
Premier Oil plc merged with Chrysaor Holdings Limited on 31 March 2021 (the Merger) to form Harbour Energy plc. The Group’s strategy
is to create a leading, global, independent oil and gas company through investment in its high quality, large-scale asset base in the UK
and broad international growth, leading to a more balanced and diversified portfolio and delivering value for shareholders.
At the time of the Merger, the Committee reviewed the existing Directors’ Remuneration Policy to consider its ongoing appropriateness in
the context of the Group’s strategy, purpose and values. In particular, the Policy required the capability to attract FTSE 100 or Fortune 50
calibre global talent who are critical to delivering high performance and growth and returning value to shareholders. Many sector peers,
with whom Harbour competes for talent, are located outside the UK where pay practices vary. The Policy was therefore designed in a way
that ensures pay is competitive for a global oil and gas company with a strong focus on pay for performance, while being structured to
reflect the expectations of UK institutional investors. The Policy framework meets all of the best practice expectations of a UK plc, but pay
levels have been set to recognise the Executive Directors’ deep sector experience and proven track record of delivering large-scale
initiatives at international oil and gas companies and to reflect the global nature of the talent market in our sector.
Committee process in determining the Remuneration Policy
As outlined above, following the Merger, the Committee undertook a detailed review of the Remuneration Policy to ensure that our Policy
was appropriate to support the new Company. The process the Committee went through was as follows:
¼ the Committee considered the Company’s strategy to create a leading, global, independent oil and gas company and the changes
required to the Policy to ensure that we were able to recruit and retain executives of the calibre required to deliver this strategy and
drive high levels of performance;
¼ the Committee sought advice from its independent remuneration consultant in developing the Policy including in relation to current
investor sentiment;
¼ when determining the new Policy the Committee ensured it addressed the factors of Provision 40 of the Code, namely clarity, simplicity,
risk, predictability, proportionality and alignment to culture;
¼ the Committee reviewed the wider workforce remuneration and incentives to ensure the approach to executive remuneration is
appropriate in this context;
¼ the Committee consulted with Executive Directors and other relevant members of senior management on the proposed changes to the
policy; and
¼ the Committee conducted a full consultation exercise with major shareholders (representing over 75 per cent of shares in issue) and
investor bodies on the changes.
The Committee was mindful in its deliberations on the new Remuneration Policy of any potential conflicts of interest and sought to
minimise them through an open and transparent internal consultation process, by seeking independent advice from its external advisers
and by undertaking a full shareholder consultation exercise.
Policy Report
Strategic report Governance Financial statements Additional information
77
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Executive Director Policy
The Policy for Executive Directors is set out below:
Salary
Purpose and link to strategy ¼ To provide an appropriate level of salary to support recruitment and retention of Executive Directors of the
calibre required to deliver the Group’s strategy, and with due regard to the role and the individual’s responsibilities
and experience
Operation ¼ Typically reviewed annually with reference to Company and individual performance, each executive’s responsibilities
and experience, the external market for talent, and salary increases across the Group
¼ Salaries are reviewed taking into account market practice at other oil and gas sector companies in the UK and
internationally and UK-listed companies of a similar size to Harbour
¼ Salary increases are normally effective 1 January
Opportunity ¼ Whilst there is no maximum salary, increases will normally be in line with the typical increases awarded to other
employees in the Group
¼ However, increases may be above this level in certain circumstances such as:
– Where an Executive Director has been appointed to the Board at a lower than typical market salary to allow for
growth in the role, larger increases may be awarded to move salary positioning closer to typical market level as
the Executive Director gains experience
– Where an Executive Director has been promoted or has had a change in responsibilities
– Where the size and complexity of the Company has changed materially
– Where there has been a significant change in market practice
Performance metrics ¼ Not applicable
Pension
Purpose and link to strategy ¼ To help provide a competitive pension provision, facilitating the recruitment and retention of high-calibre Executive
Directors to execute the Group’s strategy
Operation ¼ Executive Directors are eligible to participate in the Company’s defined contribution personal pension plan and/or
receive an equivalent cash supplement
¼ The only pensionable element of pay is salary
Opportunity ¼ Executive Directors will receive pension contributions and/or an equivalent cash supplement in line with the
contribution for the majority of the UK workforce. Pensions for existing Executive Directors are currently set at
15 per cent of base salary, the lower end of the current range for the Company’s UK workforce. If the pension
range of the Company’s UK workforce changes then pension provision for Executive Directors would normally
also change in line with the wider workforce
Performance metrics ¼ Not applicable
Benefits
Purpose and link to strategy ¼ To provide a benefits package competitive in the market for talent and to support the wellbeing of employees
Operation ¼ Executive Directors receive a competitive benefits package, which may include medical and dental insurance,
car allowance, life assurance, income protection cover, personal accident insurance, expatriate benefits, relocation
allowance, health checks and a subsidised gym membership
¼ Where an Executive Director has been required to re-locate to perform their role they may be provided with
additional benefits to reflect their circumstances, which may include items such as a housing allowance, flights
home and tax equalisation. Such benefits will be determined taking into account our expatriate policy for other
employees who are moving from their home location to take up their role
¼ Other benefits may be introduced from time to time to ensure the benefits package is appropriately competitive
and reflects the circumstances of the individual Director
Opportunity ¼ Set at a level which the Committee considers appropriate for the role, location and individual circumstances
Performance metrics ¼ Not applicable
78
Harbour Energy plc
Annual Report & Accounts 2021
All-employee share plans
Purpose and link to strategy ¼ To encourage share ownership in Harbour and increase the alignment of the Executive Directors’ interests to those
of stakeholders
Operation ¼ Executive Directors may participate in any all-employee share plans operated by the Company on the same terms
as other employees
¼ UK-based employees (including UK-based Executive Directors) may be invited to participate in the following tax
advantaged share plans:
– Share Incentive Plan (SIP), under which employees may buy partnership shares using gross pay and the Company
may then grant matching shares. Under the SIP, free shares may also be granted. Dividends may accrue on any
shares and be automatically reinvested
– Save As You Earn (SAYE) scheme under which employees are invited to make regular monthly contributions over
three or five years to purchase shares through options which may be granted at a discount
Opportunity ¼ Under the SIP, participants may participate up to HMRC prescribed limits
¼ Under the SAYE, employees may save up to HMRC prescribed limits
¼ For any other all-employee plan operated, Executive Directors may participate on the same basis as other employees
Performance metrics ¼ Not applicable
Annual bonus
Purpose and link to strategy ¼ To reinforce the delivery of key short-term financial and operational objectives and, through the deferred share
element, help ensure alignment with shareholders and support retention
Operation ¼ Performance is normally measured on an annual basis for each financial year against stretching but achievable
financial and non-financial targets, comprising key performance indicators (KPIs), and other corporate objectives
¼ Performance measures, weightings and targets are set at the beginning of the year and weighted to reflect
business priorities
¼ A proportion, normally at least 50 per cent, of any annual bonus earned is deferred in shares for three years
¼ Deferred Share Awards may be granted in such form as determined by the Committee in accordance with the
LTIP rules including in the form of conditional shares and nil cost options
¼ Dividend equivalents may accrue on Deferred Bonus Awards granted under the LTIP and be paid on those shares
which vest. Dividend equivalent payments made under this Policy will be made in shares
¼ Annual bonus payouts and deferred shares are subject to malus and clawback in the event of material
misstatement of the Company’s financial results, gross misconduct, material error in the calculation of performance
conditions or other conditions, serious reputational damage, corporate failure, or in such other exceptional
circumstances as the Committee sees fit
¼ The Committee may exercise malus and clawback until the later of: (i) two years from the payment of the bonus
or the vesting of the shares, or (ii) the completion of the second audit after payment/vesting
Opportunity ¼ Up to 200 per cent of salary in respect of a financial year
¼ Normally 50 per cent of the maximum pays out for target performance
¼ Normally 0 per cent of the maximum pays out for threshold performance but the Committee may increase this
to up to 25 per cent of maximum if this is considered appropriate
Performance metrics ¼ Performance is normally assessed against a corporate scorecard encompassing several performance categories,
which may include some or all of Safety, Environment, Operations, Growth/Capital Deployment, and Financial.
Other measures may also be incorporated if this is considered appropriate
¼ Normally, the Committee would not expect the weighting for any performance category in the corporate scorecard
to be higher than 50 per cent. However, it retains discretion to adjust weightings to align with the business plan for
each year
¼ The Committee retains the discretion to adjust outcomes in the event that they are not considered reflective of the
underlying business performance and/or wider circumstances over the vesting period
Strategic report Governance Financial statements Additional information
79
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Long-term incentives
The Harbour Energy 2017 Long Term Incentive Plan (LTIP) – Performance Share Awards
Purpose and link to strategy ¼ To support alignment with shareholders by reinforcing the delivery of returns to shareholders, with a focus on
relative stock market out-performance over the long term, and with due regard for the underlying financial and
operational performance of the Company
Operation ¼ The Committee may grant Performance Share Awards annually
¼ Awards may be in the form of nil or nominal priced options or conditional shares
¼ Performance Share Awards normally vest based on performance assessed over a period not shorter than three years
¼ Awards vesting are normally subject to a minimum two-year Holding Period such that the total time horizon is at
least five years (normally on a net of tax basis)
¼ Dividend equivalents may accrue on Performance Share Awards. Dividend equivalent payments made under this
Policy will be made in shares
¼ All Performance Share Awards are subject to malus and clawback in the event of a material misstatement of the
Company’s financial results, gross misconduct, material error in the calculation of performance conditions or other
conditions, serious reputational damage, corporate failure, or in such other exceptional circumstances as the
Committee sees fit
¼ The Committee may exercise malus and clawback until the later of: (i) two years from the vesting date or (ii) the
completion of the second audit after vesting
Opportunity ¼ Performance Share Awards may be granted up to 300 per cent of salary
¼ 25 per cent of the award will normally vest for threshold performance, with full vesting for stretch performance.
Vesting increases on a straight-line basis between threshold and stretch
Performance metrics ¼ The Committee will select performance measures and determine their weighting for each cycle to ensure that they
continue to be linked to the delivery of Company strategy
¼ The Committee retains the discretion to adjust the vesting outcomes in the event that these are not considered
reflective of the underlying business performance and/or wider circumstances over the vesting period
CFO recruitment award This section relates to a one-off award only and does not enable the grant of future awards of this nature
Purpose and link to strategy ¼ To enable the recruitment of a high quality candidate to the role of CFO to support the execution of the Group’s strategy
Operation ¼ The Committee may grant a one-off Conditional Share Award under the LTIP in the form of conditional shares to the
CFO shortly after the approval of the Policy
¼ This award will vest based on continued employment on 1 April 2024
¼ Shares received will be subject to a minimum two-year Holding Period to 1 April 2026 (on a net of tax basis)
¼ Dividend equivalents may accrue on the award. Dividend equivalent payments made under this Policy will be made in shares
¼ The award is subject to malus and clawback as outlined above under the LTIP section
Opportunity ¼ The award will have the value of £1 million at the date of grant
Performance metrics ¼ Subject to continued employment
Share ownership
Purpose and link to strategy ¼ Enhances the Executive Directors’ alignment with shareholders’ long-term interests while in employment and for
a period following departure through the building up of a significant shareholding in the Company
Operation ¼ The Executive Directors are expected to build up, and maintain, ownership of the Company’s shares worth 300 per
cent of salary for the CEO and 250 per cent of salary for the other Executive Directors
¼ Shares owned outright (including by persons closely associated), shares held in the Share Incentive Plan, and any unvested
share awards which are no longer subject to performance (net of taxes) will normally count towards this requirement
¼ The Executive Directors are also expected to retain no less than 50 per cent of the net value of shares vesting under
the Company’s long-term incentive plans until such a time that the share ownership requirement is met
¼ On cessation of employment, Executive Directors are expected to retain their minimum shareholding requirement
immediately prior to departure for two years. Where their shareholding at departure is below the minimum
requirement, the Executive Director’s actual shareholding is expected to be retained for two years
¼ Shares acquired from own resources are excluded from the post-cessation shareholding requirement. The
Committee retains discretion to exclude other shares from the post-cessation shareholding requirement if it
considers it to be appropriate
¼ The Committee intends to operate an appropriate enforcement mechanism of the post-cessation shareholding
requirement. The Committee retains discretion to waive the post-cessation shareholding requirement if it is not
considered to be appropriate in the specific circumstances of an Executive Director’s departure
Opportunity ¼ Not applicable
Performance metrics ¼ Not applicable
80
Harbour Energy plc
Annual Report & Accounts 2021
Summary of changes to the Policy
A summary of the material changes to the Policy compared to the 2020 policy is set out below:
Change to the Policy Reason for change
Increase in annual bonus
opportunity from 120 per cent of
salary to 200 per cent of salary
and increase in LTIP opportunity
from 200 per cent of salary to
300 per cent of salary
¼ Ensures pay is competitive for a global oil and gas company, supporting the recruitment of high calibre international
talent to drive the Group’s strategy following the Merger
¼ Reflects the material increase in the size of the Group
¼ Drives the delivery of strong performance, linked to stretching targets
Provision for a one-time
recruitment award to be made to
the new Chief Financial Officer
¼ Supports the recruitment of a high calibre Chief Financial Officer with the necessary global expertise to support
the execution of the Group’s strategy
Increase in share ownership
guideline for the CEO from 250
per cent of salary to 300 per
cent (no change for other
Executive Directors)
¼ Shareholding guideline set at a level equal to the annual LTIP opportunity for each Executive Director
¼ Ensures an appropriate alignment with the long-term interests of shareholders
Other minor changes have been made to the wording of the Policy to aid operation and to increase clarity.
Further details on the Policy
Selection of performance conditions
For the annual bonus, the Committee believes that a mix of financial and non-financial targets is most appropriate for the Group.
The use of a corporate scorecard encompassing several performance categories ensures delivery of business milestones in a number
of key areas. Performance under the LTIP will typically include a focus on relative stock market out-performance over the long term,
in line with common practice in the oil and gas sector, providing a strong indication of the Group’s long-term financial growth and the
returns delivered to its shareholders.
The Committee retains discretion to amend a performance condition provided that any amended performance condition will be fairer,
a more effective incentive and not materially less demanding than the original target was when set.
Legacy arrangements
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any
discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above,
where the terms of the payment were agreed (i) before 14 May 2014; (ii) before the Policy set out above came into effect, provided that
the terms of the payment were consistent with the shareholder-approved Directors’ Remuneration Policy in force at the time they were
agreed; or (iii) at a time when the relevant individual was not a Director of the Company (or other persons to whom the Policy set out
above applies) and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the
Company or such other person. For these purposes, ‘payments’ includes the Committee satisfying awards of variable remuneration and,
in relation to an award over shares, the terms of the payment are ‘agreed’ no later than at the time the award is granted. This Policy
applies equally to any individual who is required to be treated as a Director under the applicable regulations.
Remuneration Policy for other employees
When determining the Policy, the Committee reviewed wider workforce remuneration and incentives to ensure the approach to executive
remuneration was compatible in this context. As a result of the Merger, the frameworks in place for legacy Premier Oil plc and Chrysaor
employees will be reviewed, to harmonise arrangements where needed and ensure pay continues to appropriately motivate and reward
the workforce. The Committee will continue to consider the approach to executive remuneration in this context.
The Company’s policy for all employees is to provide remuneration packages which reward them fairly and responsibly for their
contributions. In addition to a competitive salary, employees are typically eligible for a performance-related bonus, pension and a number
of benefits, including expatriate benefits where relevant. In the UK, employees are eligible to receive at least the same proportion of
salary in pension contributions as the Executive Directors, in line with UK best practice. The specific bonus framework varies by job level
and scope to ensure annual incentives support motivation and retention accordingly.
The Leadership Team and other senior leaders participate in the same annual bonus plan and Long Term Incentive Plan as for Executive
Directors. Performance is assessed on the same criteria for all, though opportunity levels vary as appropriate. These schemes provide a
clear link between pay and performance, ensuring that superior remuneration is paid only if superior performance is delivered.
We have historically operated SIP and SAYE share schemes, to foster a sense of ownership in the Company and to increase the alignment
of interests across stakeholders. Participation levels among Premier Oil plc employees in these plans have historically been strong,
outperforming market norms.
Strategic report Governance Financial statements Additional information
81
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Incentive plan discretions
The Committee operates the Company’s incentive plans according to their respective rules and the Remuneration Policy, and in
accordance with the Listing Rules and HMRC rules where relevant. The rules of the Long Term Incentive Plan (the Harbour 2017 Long
Term Incentive Plan) were approved by shareholders at the 2017 AGM and amended at the 2020 AGM. Further proposed amendments
were approved by shareholders at the 2021 AGM to reflect the new Policy.
In line with common market practice, the Committee retains discretion as to the operation and administration of these incentive plans,
including with respect to:
¼ who participates;
¼ the timing of grant and/or payment;
¼ the size of an award and/or payment and any other terms of the award (within the plan and Policy limits approved by shareholders);
¼ form of award (e.g. nil cost option or conditional award);
¼ the manner in which awards are settled;
¼ the choice of (and adjustment of) performance measures and targets in accordance with the Remuneration Policy and the plan rules;
¼ in exceptional circumstances, amendment of any performance conditions applying to an award, provided the new performance
conditions are considered fair and reasonable and are not materially less challenging than the original performance targets when set;
¼ discretion relating to the measurement of performance or other condition in the event of a variation of share capital, change of control,
special dividend, distribution or any other corporate event which may affect the current or future value of an award;
¼ determination of a good leaver (in addition to any specified categories) for incentive-plan purposes, based on the plan rules and the
appropriate treatment under the plan rules;
¼ determination of the operation of the post-vesting holding period; and
¼ adjustments required in certain circumstances (e.g. rights issues, share buybacks, special dividends, other corporate events, etc.).
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration for the relevant year.
As appropriate, it might also be the subject of consultation with the Company’s major shareholders.
Minor changes
The Committee may make minor amendments to the Policy set out above (if required for legal, regulatory, exchange control, tax or
administrative purposes or to take account of a change in legislation) without requiring prior shareholder approval for that amendment.
Illustration of application of the Executive Directors’ Remuneration Policy
The performance scenario charts opposite show the estimated remuneration that could be received by the current Executive Directors
for 2021, both in absolute terms and as a proportion of the total package under different performance scenarios. The assumptions
underlying each performance scenario are detailed in the table below:
Remuneration receivable for different performance scenarios
Fixed pay ¼ 2022 salary, as disclosed on page 99 of this report
¼ Estimated housing benefits of £120,000 for the CEO and £60,000 for the CFO
1
¼ Pension contribution of 15 per cent of salary
Minimum On-target Maximum Maximum
with share price growth
Annual bonus Nil payout Payout of 50 per cent of
maximum (100 per cent
of salary)
Payout of 100 per cent of
maximum (200 per cent
of salary)
As per maximum
Long Term Incentive Plan Nil payout Performance Share
Awards vest at 25 per cent
of maximum
Performance Share Awards
vest in full (300 per cent of
salary for the CEO and 250
per cent of salary for other
Executive Directors)
As per maximum with a 50 per
cent share price increase over
three years
Note:
1 No prior year benefits data is available. Maximum value of housing benefits as disclosed on page 87 of this report. Other benefits (including tax equalisation for the CEO) are not easily
estimated and have been excluded.
82
Harbour Energy plc
Annual Report & Accounts 2021
The charts below illustrate the potential reward opportunities for the current Executive Directors for the four performance scenarios.
The CFO’s recruitment award has not been included in these scenario charts on the basis that it does not form part of the ongoing Policy.
Chief Executive Officer (£’000s)
Minimum 100%
£1,098
Maximum + share
price appreciation
On-target 42%
£2,585
33% 25%
Maximum
£5,348
20% 32% 48%
£6,623
17% 26% 38% 19%
LTIP Share price appreciationAnnual bonusFixed pay
Chief Financial Officer (£’000s)
100%
£664
44%
£1,517
£3,026
£3,683
22%
18%
34.5%
35%
28.5%
21.5%
43%
35.5% 18%
Minimum
Maximum + share
price appreciation
On-target
Maximum
LTIP Share price appreciationAnnual bonusFixed pay
Note:
1 The valuation of annual bonus and Performance Share Awards (PSAs) for the on-target and maximum scenarios excludes share price appreciation, any dividend accrual and the impact of
any scale back of awards. PSAs vest after three years subject to TSR performance and continued employment. PSAs are subject to a Holding Period ending on the fifth anniversary of the
date of grant of the awards.
Approach to remuneration of Executive Directors on recruitment
When determining the remuneration package for a newly appointed Executive Director, the Committee would seek to apply the following principles:
¼ The package should be market competitive to facilitate the recruitment of individuals of sufficient calibre and global experience to lead
the business. At the same time, the Committee would intend to pay no more than it believes is necessary to secure the required talent.
¼ New Executive Directors will normally receive a base salary, benefits and pension contributions in line with the Policy described above
and would also be eligible to join the bonus and long-term incentive plans up to the limits set out in the Policy.
¼ In addition, the Committee has discretion to include any other remuneration component or award which it feels is appropriate taking into
account the specific circumstances of the recruitment, subject to the limit on variable remuneration set out below. The key terms and
rationale for any such component would be disclosed as appropriate in the Remuneration Report for the relevant year.
¼ Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of
appointment, the Committee may offer compensatory payments or awards, in such form as the Committee considers appropriate, taking
into account all relevant factors including the form of awards, expected value and vesting timeframe of forfeited opportunities.
¼ When determining any such ‘buyout’, the guiding principle would be that awards would generally be on a ‘like-for-like’ basis unless this is
considered by the Committee not to be practical or appropriate.
¼ The maximum level of variable remuneration which may be awarded (excluding any ‘buyout’ awards referred to above) in respect of
recruitment is 500 per cent of salary, which is in line with the current maximum limit under the annual bonus and LTIP.
¼ Where an Executive Director is required to relocate from their home location to take up their role, the Committee may provide assistance
with relocation (either via one-off or ongoing payments or benefits). Should an Executive’s employment be terminated without cause by
the Group, repatriation costs may be met by the Group.
¼ In the event that an internal candidate is promoted to the Board, legacy terms and conditions would normally be honoured, including any
accrued pension entitlements and any outstanding incentive awards. If an Executive Director is appointed following an acquisition of, or
merger with, another company, legacy terms and conditions that are of higher value than provided in the Policy would normally be honoured.
To facilitate any buyout awards outlined above, the Committee may grant awards to a new Executive Director: (i) relying on the exemption
in the Listing Rules which allows for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director,
without seeking prior shareholder approval; or (ii) under any other appropriate Company incentive plan.
Strategic report Governance Financial statements Additional information
83
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Service contracts and exit payments and change of control provisions
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee and are
designed to recruit, retain and motivate Directors of the quality required to manage the Company. The service contract of each Executive
Director may be terminated on 12 months’ notice in writing by either party. Executive Directors’ contracts are available to view at the
Company’s registered office.
Details of the service contracts of the current Executive Directors are as follows:
Director Contract date Unexpired term of contract
Linda Z. Cook 01.04.2021 Rolling contract
Alexander Krane 01.04.2021 Rolling contract
The Company will consider termination payments in light of the circumstances on a case-by-case basis, taking into account the relevant
contractual terms, the circumstances of the termination and any applicable duty to mitigate. In such an event, the remuneration
commitments in respect of the Executive Director contracts could amount to one year’s remuneration based on salary, benefits in kind
and pension rights during the notice period, together with payment in lieu of any accrued but untaken holiday leave, if applicable.
There are provisions for termination with less than 12 months’ notice by the Company in certain circumstances. If such circumstances
were to arise, the Executive Director concerned would have no claim against the Company for damages or any other remedy in respect of
the termination. The Committee would apply general principles of mitigation to any payment made to a departing Executive Director and
will honour previous commitments as appropriate, considering each case on an individual basis.
The table below summarises how Performance Share Awards under the Harbour Energy 2017 Long Term Incentive Plan and annual bonus awards
are typically treated in different leaver scenarios and on a change of control. Whilst the Committee retains overall discretion on determining
‘good leaver’ status, it typically defines a ‘good leaver’ in circumstances such as retirement with agreement of the Company, ill health,
disability, death, redundancy, or part of the business in which the individual is employed or engaged ceasing to be a member of the Group.
Event Timing of vesting/award Calculation of vesting/payment
Annual bonus/Deferred Bonus Awards
‘Good leaver’ Annual bonus is normally paid at the same time as to continuing
employees but may be paid on departure in compassionate
circumstances
Unvested Deferred Bonus Awards vest on the normal vesting date
(or, at the Committee’s discretion, on cessation of employment)
The Committee has discretion not to defer part of the bonus earned
in the year of leaving
Annual bonus is paid only to the extent that any performance
conditions have been satisfied and is pro-rated for the proportion
of the financial year worked before cessation of employment
Unvested Deferred Bonus Awards will vest in full
‘Bad leaver’ Not applicable Individuals lose the right to their annual bonus and unvested
Deferred Bonus Awards
Change of control
1
Annual bonus is paid and unvested Deferred Bonus Awards vest
on the date of change of control
Annual bonus is paid only to the extent that any performance
conditions have been satisfied, and will normally be pro-rated for
the proportion of the financial year worked to the effective date
of change of control unless the Committee determines otherwise
Unvested Deferred Bonus Awards will vest in full
Performance Share Awards
‘Good leaver’ Awards vest on the normal vesting date subject to the Holding
Period (or earlier at the Committee’s discretion)
Unvested awards normally vest to the extent that any performance
conditions have been satisfied over the full performance period
(or a shorter period at the Committee’s discretion)
The number of unvested awards is normally reduced pro-rata to take
into account the proportion of the vesting period not served
‘Bad leaver’ Unvested awards lapse
Any vested shares subject to the Holding Period are forfeited by
bad leavers who leave due to gross misconduct, but remain and
are released at the end of the Holding Period for other bad leavers
(e.g. following resignation)
N/A
Change of control
1
Awards vest on the date of the event Unvested awards normally vest to the extent that any performance
conditions have been satisfied and a pro-rata reduction applies
for the proportion of the vesting period not completed unless the
Committee determines otherwise
Note:
1 In certain circumstances, the Committee may determine that unvested Deferred Bonus Awards and Performance Share Awards will not vest on a change of control but will instead be
replaced by an equivalent grant of a new award, as determined by the Committee, in the new company.
The leaver treatment for the CFO’s recruitment award will be in line with the provisions for the Performance Share Awards outlined above.
Upon exit or change of control, SAYE and SIP awards will be treated in line with the plan rules.
84
Harbour Energy plc
Annual Report & Accounts 2021
If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under statute or otherwise)
to additional amounts, which would need to be met. In addition, the Committee retains discretion to settle other amounts reasonably
due to the Executive Director, for example to meet the legal fees incurred by the Executive Director in connection with the termination
of employment, outplacement support, where the Company wishes to enter into a settlement agreement (as provided for below) and,
in which case, the individual is required to seek independent legal advice.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including
(but not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These will be used sparingly
and only entered into where the Committee believes that it is in the best interests of the Company and its shareholders to do so.
External appointments
Executive Directors are entitled to accept non-executive director appointments outside the Company and retain any fees received
providing that the Board’s prior approval is obtained.
Consideration of employment conditions elsewhere in the Company
The Committee engages with the wider workforce by taking account of feedback from employee engagement opportunities such as the
Group Staff Forum. The Committee considers the pay and conditions elsewhere in the Company, including how Company-wide pay tracks
against the market. When determining salary and pension for Executive Directors, the Committee takes account of salary increases and
pension contributions across the Group, particularly for those employees based in the UK. The Committee ensures that our policies and
practices across the business are fair and consistent, and support diversity and equality. Further, the Company seeks to promote and
maintain good relationships with employee representative bodies – including trade unions – as part of its employee engagement strategy
and consults on matters affecting employees and business performance as required in each case by law and regulation in the
jurisdictions in which the Company operates.
Consideration of shareholder views
The Committee aims to ensure that the Policy serves shareholder interests and is aligned with the Group’s business strategy, market
practice and evolving best practice. The Committee Chair consulted with major shareholders and proxy advisers in developing this
Remuneration Policy, and will also from time-to-time engage to discuss the Remuneration Policy more generally. The Committee considers
all feedback received from such consultations, as well as guidance from shareholder representative bodies more generally, to help to
ensure the Policy is aligned with shareholder views.
Non-Executive Director Remuneration Policy
Non-Executive Directors have letters of appointment effective for a period of three years, subject to annual re-election by shareholders at
each Annual General Meeting (AGM) in accordance with the UK Corporate Governance Code. All letters of appointment have a notice period
of three months and provide for no arrangements under which any Non-Executive Director is entitled to receive remuneration upon the early
termination of his or her appointment. Non-Executive Directors’ letters of appointment are available to view at the Company’s registered office.
The Company’s Articles of Association provide that the remuneration paid to Non-Executive Directors is to be determined by the Board
within limits set by the shareholders. The Policy for the Chairman and Non-Executive Directors is as follows:
Non-Executive Director fees
Purpose and link
to strategy
¼ To provide fees that allow Harbour to attract and retain Non-Executive Directors of the highest calibre that add value to our business
Operation ¼ Fees for Non-Executive Directors are normally reviewed at least every two years
¼ Fees are set with reference to UK and international oil and gas sector companies and UK-listed companies of a similar size to Harbour
¼ Fees paid to the Chairman are determined by the Committee, while the fees of the other Non-Executive Directors are determined
by the Board
¼ Additional fees may be paid to reflect additional Board or Committee responsibilities as appropriate
¼ Fee increases are normally effective 1 January
¼ The Non-Executive Director fees are summarised on page 99 of this report
¼ Reasonable costs in relation to travel and accommodation for business purposes are reimbursed to the Chairman and
Non-Executive Directors. The Company may meet any tax liabilities that may arise on such expenses
¼ A travel allowance may be provided where intercontinental travel is required to attend a meeting
¼ The Chairman and Non-Executive Directors are not entitled to participate in any of the Group’s incentive plans or pension plans
¼ Additional benefits may be provided to Non-Executive Directors if considered appropriate
Opportunity ¼ Non-Executive Director fees are set at a level that is considered appropriate in the light of relevant market practice and the
size/complexity of the role
¼ Aggregate fees are within the limit approved by shareholders in the Articles of Association
Performance metrics ¼ Not applicable
Approach to Non-Executive Director recruitment remuneration
In the case of hiring or appointing a new Non-Executive Director, the Committee will follow the Policy as set out in the table above.
Strategic report Governance Financial statements Additional information
85
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Committee membership and operation
Harbour Energy plc Committee members
2
Date of appointment
to the Committee
Meetings attended
(eligible to attend)
Anne L. Stevens (Committee Chair) 31 March 2021 6(6)
Anne Marie Cannon
1
17 May 2017 6(6)
Alan Ferguson 31 March 2021 6(6)
Notes:
1 Anne Marie Cannon was also a member of Premier Oil’s Remuneration Committee prior to the Merger.
2 Mike Wheeler and Roy A. Franklin also served on Premier Oil’s Remuneration Committee. Both Roy and Mike stepped down from the Committee on completion of the Merger.
Committee terms of reference
The Committee acts within written terms of reference which are reviewed regularly and published on the Company’s website
harbourenergy.com. The terms of reference were reviewed in 2018 with amendments made in order to comply with the 2018
UK Corporate Governance Code. Minor amendments were also made in August 2020 and September 2021.
The main responsibilities of the Committee include:
¼ determining the Remuneration Policy for Executive Directors and senior management and engaging with the Company’s principal
shareholders thereon;
¼ determining the individual remuneration packages for each Executive Director and any changes thereto;
¼ approving the remuneration package of the Chairman;
¼ considering the design of, and determining targets for, the annual bonus plan;
¼ reviewing and recommending to the Board the establishment of any new employee share plans and any material amendments to the
Company’s existing share plans;
¼ determining the overall quantum and performance conditions for long-term incentive awards;
¼ reviewing pension arrangements, service agreements and termination payments for Executive Directors and senior management;
¼ approving the Directors’ Remuneration Report, ensuring compliance with related governance provisions and legislation;
¼ reviewing the Gender Pay Gap report;
¼ reviewing bonus outcomes for the Group, including Executive Directors; and
¼ considering the remuneration policies and practices across the Group.
Advisers
Following the Merger to form Harbour Energy plc, the Remuneration Committee received advice from independent Remuneration
Committee advisers Deloitte LLP. Deloitte LLP were appointed by the Committee in March 2021 following a competitive tender process.
Before the Merger, the Committee also received advice from Aon, who served as an interim Remuneration Committee adviser.
The fees charged for the provision of independent advice to the Committee during the year were £103,900 from Deloitte LLP, £37,005
from Aon and £21,077 from Bryan Cave Leighton Paisner (BCLP). Other than in relation to advice on remuneration, Deloitte LLP provided
support to management in relation to corporate tax, indirect tax, payroll taxes, and Internal Audit plus other related services.
Deloitte are founding members of the Remuneration Consultants Group and voluntarily operated under its Code of Conduct in dealings
with the Committee. The Committee is satisfied that the Deloitte and Aon engagement teams, who provided remuneration advice to the
Remuneration Committee, do not have connections with Harbour Energy plc or its Directors that may impair their independence.
During the year, the Committee also took advice from the Chief Executive Officer and other members of management. Their attendance at
Remuneration Committee meetings was by invitation from the Committee Chair to advise on specific questions raised by the Committee and
on matters relating to the performance and remuneration of the senior management team. No Director was present for any discussions that
related directly to their own remuneration.
Annual Report on Remuneration
86
Harbour Energy plc
Annual Report & Accounts 2021
Voting on remuneration matters
Votes received at the 2021 AGM in respect of approval of the Annual Report on Remuneration along with votes received on the Directors’
Remuneration Policy are set out below:
Resolution Votes FOR and % of votes cast Votes AGAINST and % of votes cast Votes WITHHELD
Annual Report on Remuneration (2021 AGM)
1
14,913,939,666 98.85% 173,270,899 1.15% 520,322
Directors’ Remuneration Policy (2021 AGM) 14,593,098,273 97.19 % 421,903,633 2.81% 72,728,980
Note:
1 The vote on the Annual Report on Remuneration at the 2021 AGM was for the 2020 Premier Oil Remuneration Report.
Single total figure of remuneration for Executive Directors (audited)
Executive
Directors
1,2
Year
Salary
£’000
Taxable
benefits
3
£’000
Pension
4
£’000
Other
payments
5
£’000
Total fixed
remuneration
£’000
Bonus
£’000
LTIP
£’000
Total variable
remuneration
£’000
Other
variable
6
£’000
Total
remuneration
£’000
Linda Z. Cook 2021 637.5 275.3 94.2 – 1,007.0 422.7 – 422.7 4,548.6 5,978.3
2020 – – – – – – – – – –
Alexander Krane 2021 386.3 62.2 50.0 – 498.5 255.4 – 255.4 1,000 1,753.9
2020 – – – – – – – – – –
Former Executive
Directors
Phil Kirk 2021 450.0 17.0 59.4 – 526.4 396.0 – 396.0 – 922.4
2020 – – – – – – – – – –
Richard Rose
7
2021 150.5 7.0 18.6 0.6 176.7 – – – 259.9 436.6
2020 360.8 22.4 64.1 1.8 449.1 45.1 – 45.1 – 494.2
Notes to 2021 figures (unless stated):
1 Linda Z. Cook and Phil Kirk were appointed to the Board when Harbour Energy plc formed on 31 March 2021. Phil Kirk stepped down from the Board on 28 February 2022.
2 Alexander Krane was appointed to the Board on 15 April 2021. He replaced Richard Rose, interim Chief Executive Officer and Finance Director, who stepped down from the Board
on the same day.
3 The Executive Directors receive a benefits package aligned with the approach for other employees. In 2021, Linda Z. Cook and Alexander Krane relocated from the US and Norway
respectively to join Harbour Energy and they are entitled to receive the same expatriate benefits as other employees relocating internationally. They both elected not to take the full
expatriate benefits available to them, and their benefits are therefore limited to housing costs and two return flights home per year. Linda Z. Cook received £58,073 in respect of housing
costs in the year while Alexander Krane received £30,000. As outlined in the Notice of 2021 AGM, Linda Z. Cook and Alexander Krane’s housing will be paid for by the Company up to
a value of approximately £120,000 p.a. and £60,000 p.a. respectively. The arrangements for Linda Z. Cook will be in place for an initial three-year period and the arrangements for
Alexander Krane will be in place for two years. The Committee considers it appropriate to provide this benefit for a period of time given they have both been required to re-locate to take
up their roles. Linda Z. Cook’s benefit figure also includes £200,097 in respect of tax equalisation payments. As outlined in the Notice of 2021 AGM, her remuneration will be tax
equalised for an initial three-year period to ensure she is not required to pay more tax in the UK than she would do in the US, in line with the policy for all international assignees.
Alexander Krane’s benefit figure also includes £23,582 in respect of tax equalisation payments for this housing allowance.
4 Richard Rose’s pension figure includes a combination of pension contributions to the defined contribution scheme and a salary supplement. Current Executive Directors receive their
pension as a cash supplement that is aligned to the rate of the workforce.
5 Other payments comprise Share Incentive Plan (SIP) awards only. SIP awards are valued as the number of Matching Awards granted, multiplied by the share price at the date of award.
6 Linda Z. Cook received a buyout award to compensate for the loss of incentive arrangements she had as part of her employment at EIG, the terms of which required her incentives be
relinquished on departure. This buyout award was made on a like-for-like basis, at a level equal to the value forfeited and with vesting according to the same timescales. Malus and
clawback conditions apply. Alexander Krane received a one-off award, which was detailed in the Policy and approved by shareholders at the 2021 AGM. The award will vest on the third
anniversary of grant with a two-year post-vesting holding period and malus and clawback conditions apply. Neither Linda Z. Cook’s nor Alexander Krane’s awards have further
performance conditions.
7 The Company made a gross payment of £447,990 in lieu of Richard Rose’s notice period not worked. Richard Rose also received a single redundancy payment of £237,543 (inclusive
of his statutory redundancy entitlement) and a retention payment of £350,000 (gross) less the aggregate value of all gross monthly salary supplements paid to him as Interim CEO and
Finance Director, and the gross 2020 annual bonus. Further details of payments made to him are set out on page 89.
Strategic report Governance Financial statements Additional information
87
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Single total figure of remuneration for Non-Executive Directors (audited)
Non-Executive
Directors
1,2,
Year
Base fees
6
£’000
Additional
payments
7
£’000
Travel
allowance
8
£’000
Expenses
9
£’000
Total remuneration
£’000
R. Blair Thomas (Chairman)
5
2021 225.0 – 5.0 – 230.0
2020 – – – – –
Simon Henry 2021 105.0 21.3 – – 126.3
2020 – – – – –
Anne Marie Cannon
3
2021 102.5 – – – 102.5
2020 64.8 – – – 64.8
G. Steven Farris 2021 71.2 – 5.0 8.4 84.6
2020 – – – – –
Alan Ferguson 2021 90.0 21.3 – – 111.3
2020 – – – – –
Andy Hopwood 2021 78.8 – – – 78.8
2020 – – – – –
Margareth Øvrum 2021 86.2 – – 0.3 86.5
2020 – – – – –
Anne L. Stevens 2021 86.2 21.3 15.0 – 122.5
2020 – – – – –
Former Non-Executive Directors
of Premier Oil plc
4,10
Roy A. Franklin (Chairman) 2021 43.2 – – 0.4 43.6
2020 173.0 – – 1.9 174.9
Dave Blackwood 2021 16.2 – – – 16.2
2020 62.1 – – – 62.1
Iain Macdonald 2021 16.2 – – – 16.2
2020 64.8 – – – 64.8
Elisabeth Proust 2021 13.5 – – – 13.5
2020 40.5 – – 0.2 40.7
Mike Wheeler 2021 16.2 – – – 16.2
2020 54.9 – – – 54.9
Notes to 2021 figures (unless stated):
1 R. Blair Thomas, Simon Henry, G. Steven Farris, Alan Ferguson, Andy Hopwood and Anne L. Stevens joined the Board on 31 March 2021.
2 Margareth Øvrum joined the Board on 1 April 2021.
3 Anne Marie Cannon was appointed to the Board of Premier Oil plc on 1 February 2014. Her remuneration shown in the table above is for the full financial year.
4 The former Non-Executive Directors of Premier Oil plc (Roy A. Franklin, Dave Blackwood, Iain Macdonald, Elisabeth Proust and Mike Wheeler) stepped down from the Board on 31 March 2021.
5 The Base Fees for R. Blair Thomas are paid to Harbour Direct Holdings Limited.
6 In addition to Basic Fees for acting as a Non-Executive Director, Base Fees include amounts payable for acting as a member or Chair of a Committee, and fees for the Senior Independent
Director role. Further detail on the level of these fees is set out on page 99. The Chairman and former Chairman waived their fees for acting as Chair of the Nomination Committee.
7 Additional payments include upfront fees for work undertaken by Non-Executive Directors in advance of the Merger.
8 In accordance with the Remuneration Policy approved by shareholders in June 2021, Steve Farris and Anne L. Stevens received an allowance for intercontinental travel during the year.
9 Amounts disclosed relate to taxable travel and accommodation expenses paid to Non-Executive Directors in respect of qualifying services during the year.
10 Former Non-Executive Directors of Premier Oil plc remained available to support with the transition for three months after they stepped down from the Board. They continued to receive
fees during this period which were as follows: £43,248 for Roy A. Franklin, £16,218 for Iain Macdonald, Dave Blackwood and Mike Wheeler, and £13,515 for Elisabeth Proust.
88
Harbour Energy plc
Annual Report & Accounts 2021
Payments for loss of office and payments to former Directors (audited)
Richard Rose
Richard Rose served as an Executive Director of the Company up to and including 15 April 2021.
Richard Rose’s remuneration arrangements on departure were in line with the approved Premier Oil plc directors’ remuneration policy.
He received a payment in lieu of his 12-month notice period of £447,990, a single redundancy payment of £237,543 (inclusive of his
statutory redundancy entitlement) and a contribution of £5,500 plus VAT towards legal fees incurred in connection with his departure.
As disclosed in Premier Oil’s 2020 directors’ remuneration report, he also received a retention payment of £350,000 (gross) less the
aggregate value of all gross monthly salary supplements paid to him as Interim CEO and Finance Director, and the gross 2020 annual
bonus. He was not eligible for any bonus in respect of 2021.
Richard Rose was treated as a good leaver for all outstanding share awards. Under the good leaver provisions of the rules of the 2017
LTIP, Deferred Bonus Awards vested in full on termination. His 2018 PSAs and RSAs and 2019 PSAs and RSAs lapsed as performance
conditions and underpins were not met. His 2016 Deferred Share Award granted under the 2009 LTIP vested in its entirety at the normal
vesting date on 1 January 2022. The remaining tranches of his 2017 RSA will vest in their entirety at their normal vesting dates and a
two-year holding period will continue to apply. His entitlements under the Share Incentive Plan and the SAYE scheme have been dealt
with in accordance with the relevant plan rules.
No further LTIP awards were made to Richard Rose and he will continue to hold a number of shares in the Company following the
termination of his employment until October 2022.
Remuneration for outgoing Executive Director
Phil Kirk
As announced on 2 February 2022, Phil Kirk stepped down from his role as Executive Director with effect from 28 February 2022.
After a successful handover process, he has been placed on gardening leave until 31 July 2022. Phil Kirk will continue to receive salary
and contractual benefits up to 31 July 2022. He will receive a lump sum payment of £351,200 in lieu of his remaining notice period
(six months from 1 August 2022). He will also receive a contribution of £5,000 plus VAT towards legal fees incurred in connection with
his departure.
Phil Kirk will remain eligible for an annual bonus in respect of 2021 as outlined on page 91. His 2021 annual bonus will be subject to
deferral with awards released on the normal vesting date, in line with plan rules. In respect of his 2022 annual bonus, the Remuneration
Committee has agreed that he will be eligible for a pro-rated award up to 28 February 2022. The bonus will be calculated and paid in line
with the normal timescales in cash.
In line with our Directors’ Remuneration Policy, the Remuneration Committee has treated Phil Kirk as a good leaver in relation to his
2021 LTIP award. The award will be treated in accordance with the plan rules and will remain subject to performance conditions and
will be pro-rated for time over the vesting period up to cessation of employment. The award will be released on its normal vesting date
and remain subject to malus and clawback. The holding period will continue to apply as will post-employment shareholding guidelines.
In line with best practice, he will not be eligible for a 2022 LTIP award.
Strategic report Governance Financial statements Additional information
89
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
2021 Annual bonus outcome (audited)
The maximum bonus opportunity for Executive Directors for 2021 was 200 per cent of salary. The scorecard below summarises the
Group’s performance against the financial and operational targets (on a pro forma basis) set by the Board for 2021 that are used to
determine the level of bonus awarded.
Category Metric Weighting
2021
Performance
Scorecard
Threshold Target Stretch
Safety &
environment
(25%)
Safety Incident Rate
TRIR incident rate/million
hours, 12 month rolling average
10% 1.30 1.10 0.90 0.70
Process Safety
Tier 1 and Tier 2 events
5% 2 3 2 1
GHG Emissions
k tonnes CO
2
e
10% 1,755 2,124 1,865 1,772
Operations
(30%)
Oil and gas production
kboepd
15% 190 201 214 230
Unit Operating Cost
$/boe
15% 15.2 15.0 14.5 13.5
Growth
(10%)
Reserves Replacement
2P, CPR, %
10% <60 60 75 100
Capital
deployment
(20%)
Expenditure vs AFE
%
10% 105 115 100 85
Reserves vs AFE
%
5% 71 80 100 120
Initial Production vs AFE
%
5% 97 80 100 120
Financial
(15%)
Free Cash Flow
Million $, pre-financing,
pre-tax
15% 1,453 850 974 1,100
90
Harbour Energy plc
Annual Report & Accounts 2021
Summary of performance
Note: The metrics in the 2021 Scorecard were set on a pro forma basis – including a full year of Premier – and therefore will differ
from the figures elsewhere in this document which are on a ‘reported’ basis (only nine months of Premier).
Safety & environment
¼ Safety Incident Rate: The Total Recordable Injury Rate target on the scorecard was not met; injuries were predominantly a result of poor
situational awareness
¼ Process Safety: There were two Tier 1 and Tier 2 events during the year, resulting in an ‘on target’ performance. These events related to a gas
release on the West Lobe platform (Indonesia) and the overflow of a diesel tank at Solan (UK); both of these events were classified as Tier 2
¼ GHG Emissions: Emissions for the year were 1,755 kt CO
2
e, better than our target due to a combination of operational improvements
and project delays
Operations
¼ Production: Production was below target as a result of project delays and unplanned maintenance outages
¼ Unit Operating Costs: Unit costs were higher than target, mainly as a result of production at below-target levels
Growth
¼ Reserves Replacement (excluding the impact of the Premier Merger): The outcome was below target with the largest impact being the
reduction in reserves relating to the Tolmount project drilling results
Capital deployment
¼ Expenditure vs AFE: Outcome was near target, reflecting good cost performance demonstrated on drilling and development projects
during the year
¼ Reserves vs AFE: Outcome was below target, impacted by the reserves downgrade at Tolmount and also unsuccessful exploration
drilling in the UK and Norway
¼ Initial Production vs AFE: Outcome was near target, reflecting good initial production from the new wells in our drilling programme
Financial
¼ Free cash flow: Cash flow was higher than the target, largely driven by higher than anticipated commodity prices
The calculated score was 66 per cent of the target bonus (where the target bonus is 100 per cent of salary and the maximum is 200 per
cent of salary). The Committee considered this score and approved bonus payouts for the Executive Directors on that basis, pro-rated to
reflect time served during the year.
Amounts paid to Executive Directors are set out below. In line with the Remuneration Policy, 50 per cent of the bonus paid to the
Executive Directors will be deferred into shares for three years.
Directors
1,2
Bonus as a %
of maximum
Total value
£ ’000s
Cash amount
£ ’000s
Amount deferred
into shares
£ ’000s
Linda Z. Cook 33% 422.7 211.4 211.3
Alexander Krane 33% 255.4 127.7 127.7
Former Director
Phil Kirk 33% 396.0 198.0 198.0
Notes:
1 The bonuses awarded to Linda Z. Cook and Alexander Krane are pro-rated amounts to reflect time served during the year.
2 Richard Rose was not eligible to participate in the 2021 annual bonus award as he stepped down from the Board on 15 April 2021.
Strategic report Governance Financial statements Additional information
91
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
LTIP awards vesting in respect of the year ended 31 December 2021 (audited)
In March 2022, the Committee assessed the performance targets for LTIP awards granted in 2019 with a vesting date of 14 March
2022. The performance period for these awards ran from 1 January 2019 to 31 December 2021 with the outcomes being as follows:
¼ Performance Share Awards (PSAs): Vesting levels for the PSAs granted in 2019 are subject to the Company’s Total Shareholder Return
(TSR) over the performance period relative to a comparator group of 17 international oil and gas sector peers as set out below. During
the performance period, one comparator company delisted and was removed from the comparator group. The Company’s TSR over the
Performance Period was minus 80 per cent resulting in a ranking between 15
th
and 16
th
within the comparator group. Under the Group’s
Remuneration Policy, 25 per cent of an award vests for median performance, 100 per cent for upper decile performance and pro-rata
vesting in between. The Company’s ranking within the comparator group for the 2019 PSA meant that the awards lapsed in full.
2019 comparator group: Aker BP ASA, Beach Energy Limited, Cairn Energy PLC, DNO ASA, Energean PLC, EnQuest plc, Genel Energy plc,
Gulf Keystone Petroleum Limited, Kosmos Energy, Lundin Petroleum, Maurel & Prom, Nostrum Oil & Gas plc, Ophir Energy plc, Pharos
Energy, Rockhopper Exploration plc, Santos Ltd, Tullow Oil plc.
¼ Restricted Share Awards (RSAs): Vesting levels for the RSAs granted in 2019 are subject to a financial underpin based on the reduction
of the ratio of net debt to EBITDA, as agreed with the Company’s lenders. The same underpin applied to 2018 RSAs, and at the time
of determining vesting for that award, the Premier Oil Remuneration Committee judged that the underpin had not been met. This was
in light of the Company’s financial position at that time and on the basis that, while technically no breach had occurred, waivers had
been agreed with creditors in light of the proposed transaction with Chrysaor, and without these waivers these covenants would have
been expected to be breached. The Harbour Energy Remuneration Committee considered the appropriate treatment for the 2019 RSAs
and concluded that the same assessment that was made for the 2018 awards was equally applicable, and that in view of the general
performance of Premier Oil prior to the Merger and the experience of creditors and shareholders during the vesting period, it was
not appropriate for the 2019 RSAs to vest.
LTIP awards granted during the year ended 31 December 2021 (audited)
For the awards granted to Executive Directors under the 2017 LTIP plan during 2021, the performance condition is based 100 per cent
on relative TSR performance conditions against two peer groups. The structure has been summarised below:
Performance element Weighting
Minimum
performance
Mid
performance
Maximum
performance
Performance
period
Relative TSR
performance vs
FTSE 100 index
1
50%
25% vesting at median
performance
(50
th
percentile)
Linear vesting between
minimum and
maximum performance
100% vesting if in the
upper quartile
(75
th
percentile)
1 January 2021 –
31 December 2023
Relative TSR vs bespoke
peer group of oil and gas
companies
2
50%
Notes:
1 Constituents of the FTSE 100 as at the start of the performance period on 1 January 2021.
2 Selected oil and gas peer group, including European and US independent oil and gas companies. The group consists of the following 17 companies:
Company 2020 2021 Company 2020 2021
Aker BP
Lundin Energy
Apache Corp
Marathon Oil
BP
Murphy Oil
Cairn Energy Royal Dutch Shell
Diversified Gas & Oil
Seplat Energy
Energean Tullow Oil
Genel Energy Vermillion Energy
Hess
John Wood Group
Kosmos Energy
92
Harbour Energy plc
Annual Report & Accounts 2021
Details of the awards made to the three Executive Directors are as follows:
Executive Directors Grant date
Number of
shares awarded
Type of
award
Face value
(% of salary) Face value
1
Linda Z. Cook
30 June 2021
674,103
Performance Share Award
300% £2,550,000
Alexander Krane
30 June 2021
346,965
Performance Share Award
250% £1,312,500
Former Director
Phil Kirk
30 June 2021
396,531
Performance Share Award
250% £1,500,000
Note:
1 Face value was calculated using the average of the mid-market closing prices for the five dealing days preceding the award date (on a post-consolidation basis) being £3.7828 per share.
Other awards granted in the year (audited)
Linda Z. Cook received a buyout award to compensate for the loss of performance-based incentives she held as part of her employment
at EIG, the terms of which required the award to be relinquished on departure. This buyout award was made on a like-for-like basis
and vests one-third per year on the first, second and third anniversary of award, reflecting the payout profile for the forfeited awards.
Malus and clawback conditions apply. In the event that a vesting of shares under the buyout award would give rise to the prospect of
an obligation under Rule 9 of The Takeover Code, the Company will settle the vesting in cash, as allowed under the terms of the award.
Her forfeited award was valued at around $8 million using the historical annual average of payouts from 2017-2020 (noting the
payout for 2020 was zero, which brought down the average), with this average multiplied by three to reflect each of the three years that
awards were due to vest. Basing the value of the buyout on the historical average is expected to give a lower value than using future
performance. The Committee is fully satisfied that this buyout is appropriate and that its terms reflect an appropriate like-for-like basis
with the remuneration forfeited. The outcome of the calculation was individually verified, and the Committee is satisfied of its accuracy.
Alexander Krane received a one-off award, which was detailed in the Policy and approved by shareholders at the 2021 AGM.
The award will vest on the third anniversary of grant with a two-year post-vesting holding period. Malus and clawback conditions apply.
Details of the awards are set out below:
Executive Directors Grant date
Number of
shares awarded
Type of
award
Face value
(% of salary) Face value
Vesting
date
Performance
conditions
Linda Z. Cook
1
4 May 2021 1,155,852 Conditional Share Award 536% £4,554,058 In equal thirds on:
4 May 2022
4 May 2023
4 May 2024
None
Alexander Krane
2
30 June 2021 264,354 Conditional Share Award 190% £1,000,000 1 April 2024 None
Notes:
1 Linda Z. Cook’s award face value was calculated using the Volume Weighted Average Price during the month of April 2021, being £0.197 per share (pre-consolidation). The number of
shares above has been restated on a post-consolidation basis.
2 Alexander Krane’s award face value was calculated using the average of the mid-market closing prices for the five dealing days preceding the award date (on a post-consolidation basis)
being £3.7828 per share.
Strategic report Governance Financial statements Additional information
93
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Outstanding share awards
2017 Long Term Incentive Plan (2017 LTIP)
As at 31 December 2021, Linda Z. Cook, Phil Kirk, Alexander Krane and Richard Rose held the following outstanding Performance Share
Awards (PSAs), Conditional Share Awards (CSAs) and Restricted Share Awards (RSAs) under the 2017 LTIP:
Directors Award type
2
Date of
grant
Awards held
at 1 January
2021 Granted Lapsed Vested
Awards
held at
31 December
2021
Market price
of shares on
date of award
Earliest
vesting date
3
Linda Z. Cook CSA 2021-24 04.05.21 – 1,155,852 – – 1,155,852 393.53p 04.05.22
PSA 2021-24 30.06.21 – 674,103 – – 674,103 378.28p 30.06.24
– 1,829,955 – – 1,829,955
Alexander Krane CSA 2021-24 30.06.21 – 264,354 – – 264,354 378.28p 01.04.24
PSA 2021-24 30.06.21 – 346,965 – – 346,965 378.28p 30.06.24
– 611,319 – – 611,319
Former Directors
Phil Kirk PSA 2021-24 30.06.21 – 396,531 – – 396,531 378.28p 30.06.24
– 396,531 – – 396,531
Richard Rose
1
PSA 2018-21 15.03.18 43,272 – 43,272 – – 1430.6p 15.03.21
PSA 2019-22 14.03.19 39,350 – 12,024 – 27, 326 1573.2p 14.03.22
RSA 2018-21 15.03.18 4,945 – 4,945 – – 1430.6p 15.03.21
RSA 2019-22 14.03.19 4,497 – 2,050 – 2,447 1573.2p 14.03.22
92,064 – 62,291 – 29,773
Notes:
1 Awards shown as lapsed for Richard Rose illustrate the impact of time pro-rating following cessation of his employment on 15 April 2021. Awards and prices are shown on a
post-consolidation basis.
2 Any vested awards (except for Linda Z. Cook’s 2021 Conditional Share Award) are subject to a two-year holding period such that the total time horizon is five years.
3 Vesting outcomes for PSAs and RSAs that vested on 15.03.21 were determined by the Premier Oil Remuneration Committee in March 2021 in respect of the performance period running
between 1 January 2018 and 31 December 2020. As noted in the Premier Oil 2020 Directors’ Remuneration Report, the PSAs did not meet the minimum performance threshold and
therefore there was nil vesting, and the underpin for the RSAs was deemed not to have been met, and all awards duly lapsed.
2009 Long Term Incentive Plan (2009 LTIP)
On 4 March 2019, the Committee determined that the Equity Pool and Performance Share Awards granted to Executive Directors on
1January 2016 should vest. Details of the vesting outcomes are set out on page 98 of the Company’s 2018 Annual Report. 50 per cent
of the vested awards were released immediately with the remaining 50 per cent being granted as a Deferred Share Award subject to a
further three-year deferral period. The table below sets out details of the Executive Directors’ outstanding awards under the 2009 LTIP.
Former Director Award type
Date of
grant
Awards held
at 1 January
2021 Granted Lapsed Vested
Awards held
at
31 December
2021
Market price
of shares on
date of award
Earliest
vesting date
Richard Rose Deferred Share
Award
01.01.19 7,574 – – – 7,574 1573.2p 01.01.22
Deferred Bonus Awards
As at 31 December 2021 the following Deferred Bonus Awards were held in respect of the deferred element of the annual bonus
awarded for the years ending 31 December 2017, 31 December 2018, 31 December 2019 and 31 December 2020.
Former Director
Date of
grant
Awards held at
1 January 2021 Granted Lapsed Vested
Awards held at
31 December
2021
Market price
of shares on date
of award
1
Earliest vesting
date (or date of
leaving)
2
Richard Rose 15.03.18 6,453 – – 6,453 – 1430.6p 15.03.21
14.03.19 3,705 – – 3,705 – 1573.2p 15.04.21
25.06.20 9,675 – – 9,675 – 1023.6p 15.04.21
25.03.21 – 4,326 – 4,326 – 521.2p 15.04.21
19,833 4,326 – 24,159 –
Notes:
1 The average of the closing prices of a Premier Oil share over the five dealing days immediately preceding the award date (on a post-consolidation basis).
2 The 2019, 2020 and 2021 Awards for Richard Rose vested on cessation of his employment on 15 April 2021.
94
Harbour Energy plc
Annual Report & Accounts 2021
All-employee share schemes
The Executive Directors may also participate, on the same terms as all other eligible employees, in a Share Incentive Plan (SIP) and
a Savings Related Share Option Scheme (SAYE Scheme). Executive Directors’ interests under the SAYE Scheme are shown below:
Former Director
Date
of grant
Exercisable
dates
Acquisition price
per share
Options held at
1 January 2021 Granted Exercised Lapsed
Options held at
31 December 2021
Richard Rose 05.05.20 01.06.23
– 30.11.23
553.4p 3,252 – – 3,252 –
Shares held beneficially in the SIP by the Executive Directors during the financial year were as follows:
Former Director
Shares held on
1January2021
Total Partnership Shares
purchased in 2021 at
prices between
£0.19695 and £0.2975
Total Matching Shares
awarded in 2021 at
prices between
£0.19695 and £0.2975
Shares held on
31December 2021
Partnership and
Matching Shares
acquired between
1 January and
16 March 2022
Richard Rose
1
37,228 2,693 2,693 42,614 –
Note:
1 Richard Rose participated in the plan until his leaving date of 15 April 2021.
Statement of Directors’ shareholdings and scheme interests (audited)
The table below summarises the Directors’ interests in shares, including unvested awards under employee share schemes, as at
31 December 2021. Further details of all outstanding awards are provided on pages 93 to 95.
Directors
Own shares at
31 December 2021
(or date of leaving)
1
Unvested shares subject
to continued employment
at 31 December 2021
(or date of leaving)
2
Unvested shares subject
to performance at
31 December 2021
3
Unvested SAYE options at
31 December 2021
Linda Z. Cook 8,919,424 1,155,852 674,103 –
Alexander Krane – 264,354 346,965 –
R. Blair Thomas 14,836,700 – – –
Simon Henry 10,000 – – –
Anne Marie Cannon
4
500 – – –
G. Steven Farris 400,662 – – –
Alan Ferguson 14,203 – – –
Andy Hopwood – – – –
Margareth Øvrum – – – –
Anne L. Stevens 30,000 – – –
Former Directors
6
Phil Kirk 13 , 217,698 – 396,531 –
Richard Rose
5
21,884 7,574 29,773 –
Roy A. Franklin 3,000 – – –
Dave Blackwood 500 – – –
Iain Macdonald 1,153 – – –
Elisabeth Proust 500 – – –
Mike Wheeler 1,500 – – –
Notes:
1 Own shares includes shares held by the Director and/or connected persons. For Linda Z. Cook, R. Blair Thomas and G. Steven Farris, this figure includes indirect interests they hold in
shares in the Company through certain EIG-managed entities, the Company’s major shareholder. Blair is also Chief Executive Officer of EIG and a Director of a number of EIG’s wholly
owned subsidiaries. Details regarding EIG’s shareholding are set out on page 101.
2 Unvested shares subject to continued employment comprise Deferred Bonus Awards and Deferred Share Awards under the 2009 LTIP, and Conditional Share Awards awarded to Linda Z.
Cook and Alexander Krane in connection with their recruitment. The Deferred Bonus Awards are subject to malus and clawback in the event of a material misstatement of the Company’s
financial results, gross misconduct or material error in the calculation of performance conditions. The Committee may exercise clawback until the later of: (i) one year from vesting, or (ii)
the completion of the next audit after vesting. Alexander Krane’s CSA is subject to the malus and clawback provisions set out in the Directors’ Remuneration Policy on page 80. The malus
and clawback provisions for Linda Z. Cook’s buyout award are in line with those set out on page 80 for the Performance Share Awards of the 2017 LTIP.
3 Unvested shares for Richard Rose illustrate the impact of time pro-rating following cessation of his employment.
4 Anne Marie Cannon purchased 10,000 Premier Oil plc shares on 14 April 2016. The reported interest shown above is on a post-consolidation basis.
5 Shares owned outright are reported as at 15 April 2021, the date on which Richard Rose’s directorship ceased.
6 Shares owned outright are reported as at 31 March 2021, the date on which all the former Premier Oil Non-Executive Directors’ directorship ceased.
Strategic report Governance Financial statements Additional information
95
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
Awards under all the Company’s share schemes may be met using a combination of market purchases, financed by the Company
through the Harbour Energy plc Employee Benefit Trust, and newly issued shares. The Company complies with the Investment
Association’s recommended guidelines on shareholder dilution through employee share schemes: awards under the Group’s
discretionary schemes which may be satisfied with newly issued shares must not exceed 5 per cent of the Company’s issued share
capital in any rolling 10-year period, and the total of all awards satisfied with newly issued shares under all plans must not exceed
10 per cent of the Company’s issued share capital in any rolling 10-year period.
Directors’ shareholding requirements
The Company requires the Executive Directors to retain no less than 50 per cent of the net value of shares vesting under the Company’s
long-term incentive plans until such a time that they have reached a holding worth 300 per cent of salary (CEO) and 250 per cent of
salary (CFO).
Shares owned outright including shares purchased and received from incentive arrangements, shares subject to deferral or a holding
period (which are not beneficially owned by the senior executive) net of any relevant tax and social security that would be due, vested but
unexercised nil cost options under any share plan, unvested share plan awarded where vesting is not subject to the achievement of any
performance conditions or underpins net of any relevant tax and social security and free shares under any UK share incentive plan count
towards this requirement.
Based on an average share price of £3.73 during the final three months of 2021, Linda Z. Cook currently holds shares (directly and
indirectly) and an unvested Conditional Share Award worth 4,424 per cent of her salary. Alexander Krane holds an unvested Conditional
Share Award worth 188 per cent of his salary using the same average price. The Committee notes that Alexander Krane joined the Board
on 15 April 2021 and will therefore need time to build up his shareholding.
Under the Company’s Remuneration Policy, the shareholding requirement extends for two years post-cessation of employment. Shares
purchased by the departed Executive Directors are not covered by the post-cessation requirement.
Executive Director external appointments
Executive Directors are permitted to accept non-executive appointments outside the Company providing that the Board’s approval is
obtained. Details of external appointments are set out on pages 58 to 61.
Comparison of Company performance
The chart below compares the value of £100 invested in the Company’s shares, including re-invested dividends, on 31December 2011
compared to the equivalent investment in the FTSE All-Share Oil & Gas Producers Index over the last ten financial years. The FTSE
All-Share Oil & Gas Producers Index has been chosen as it comprises companies who are exposed to broadly similar risks and
opportunities as the Company.
10-year TSR performance
Value of £100 invested on 31 December 2011:
£0
£20
£40
£60
£80
£100
£120
£140
£160
31 Dec 202131 Dec 202031 Dec 201931 Dec 201831 Dec 201731 Dec 201631 Dec 201531 Dec 201431 Dec 201331 Dec 201231 Dec 2011
FTSE All-Share Oil & Gas Producers Index Harbour Energy plc
£5.02
£119.65
Note:
1 The closing share price of the Company on 31 December 2021 was 354.00p. On 16 March 2022, being the date of approval of this report, the closing share price was 396.40p.
96
Harbour Energy plc
Annual Report & Accounts 2021
The table below shows the CEO single figure of remuneration for the past 10 years and corresponding performance under the annual and
long-term incentives, as a percentage of maximum.
Year CEO
CEO single figure
of remuneration
£’000s
Annual bonus
payout as %
of maximum
Equity Pool
as % of
maximum
1
Restricted Share
Award vesting as
% of maximum
2
Performance
Share Award
vesting as %
of maximum
Matching Share
Award vesting as
% of maximum
2012 Simon Lockett 2,728.2 45 0 N/A 90 66
2013 Simon Lockett 1,002.7 24 0 N/A 0 0
2014
3
Simon Lockett 680.3 39
(pro-rated)
0 N/A 0 0
Tony Durrant 428.7 40 0 N/A 0 0
2015 Tony Durrant 1,040.4 10 0 N/A 0 0
2016 Tony Durrant 1,404.3 66.5 0 N/A 0 0
2017 Tony Durrant 1,474.3 63.4 0 N/A 0 0
2018 Tony Durrant 1,558.4 54.3 45.1 N/A 75.1 0
2019 Tony Durrant 1,631.1 65 N/A 100 38 N/A
2020
4
Tony Durrant 814.1 10.4 N/A 0 0 N/A
2021
5
Richard Rose 436.6 0 N/A 0 0 N/A
Linda Z. Cook 5,978.3 33 N/A N/A N/A N/A
Notes:
1 Maximum opportunity for the 2016 Equity Pool was 50 per cent of salary.
2 The maximum opportunity for the Restricted Share Award was 20 per cent of salary.
3 Figures shown for 2014 for Tony Durrant relate to the period during 2014 that he served as Chief Executive Officer: 25 June to 31 December 2014; and for Simon Lockett relate to the
period during 2014 that he served as Chief Executive Officer: 1 January to 25 June 2014.
4 Tony Durrant stepped down from the Board on 16 December 2020.
5 Figures shown for 2021 for Richard Rose relate to the period during 2021 that he served as interim Chief Executive Officer: 1 January 2021 to 31 March 2021; and for Linda Z. Cook
relate to the period during 2021 that she served as Chief Executive Officer: 1 April 2021 to 31 December 2021.
Percentage change in Directors’ remuneration compared with other employees
The table below shows the percentage change in each Director’s remuneration, comprising salary/fees, benefits and annual bonus, and
comparable data for the average of all UK-based employees within the Company, between the year ended 31 December 2019 and the
year ended 31 December 2020, and between the year ended 31 December 2020 and 31 December 2021.
Salary / fees Benefits Annual bonus
1
2021 2020 2021 2020 2021 2020
Executive Directors
Linda Z. Cook – – – – – –
Alexander Krane – – – – – –
Non-Executive Directors
R. Blair Thomas – – – – – –
Simon Henry – – – – – –
Anne Marie Cannon
2
36.78% 22.45% – – – –
G. Steven Farris – – – – – –
Alan Ferguson – – – – – –
Andy Hopwood – – – – – –
Margareth Øvrum – – – – – –
Anne L. Stevens – – – – – –
Former Executive Directors
3
Phil Kirk – – – – – –
Richard Rose
4
49.89% 1.98% 0.00% 0.00% (100.00%) (83.65%)
Former Non-Executive Directors
5
Roy A. Franklin 0% 2.00% – – – –
Dave Blackwood 4.17% 17. 3 6 % – – – –
Iain Macdonald 0% 2.04% – – – –
Elisabeth Proust 0% – – – – –
Mike Wheeler 15.28% 3.77% – – – –
All employees 3.69% 2.51% 26.09% (3.54%) 98.20% (69.43%)
Notes:
1 Includes cash bonus and amount deferred into shares (amounts above 50 per cent of salary are deferred into shares).
2 The increase for Anne Marie Cannon reflects the impact of the new Remuneration Policy approved by shareholders in June 2021.
3 Figures for former Directors have been presented on an annualised basis to allow for comparison.
4 The increase in salary for Richard Rose reflects his change of role from Finance Director to Interim CEO.
5 Increases for Dave Blackwood and Mike Wheeler reflect the impact of additional Committee mandates during the year.
Strategic report Governance Financial statements Additional information
97
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ remuneration report continued
CEO pay ratio
The table below sets out the ratio of the CEO’s pay to the lower quartile, median, and upper quartile pay of the Company’s UK employees
for the past three years.
Year Method P25 (lower quartile) P50 (median) P75 (upper quartile)
2021 Method A 76.6 : 1 62.3 : 1 40.99 : 1
Total pay and benefits £80,077 £98,476 £149,729
Salary £58,880 £70,210 £ 97, 3 4 0
2020 Method A 10.8 : 1 7.5 : 1 5.1 : 1
Total pay and benefits £75,717 £108,225 £160,027
Salary £58,140 £81,412 £121,107
2019 Method A 19.8 : 1 11.9 : 1 8.2 : 1
Total pay and benefits £82,237 £136,538 £200,076
Salary £52,508 £79,465 £124,584
The pay ratio has increased significantly from 2020 to 2021. This is primarily due to Linda Z. Cook’s 2021 single total figure of
remuneration including a one-off buyout award in respect of remuneration forfeited at her former employer (see page 93). If the buyout
were excluded, the pay ratio at the P50 level would fall to 16.1:1. Other factors are her larger total compensation package compared to
Tony Durrant, and the higher annual bonus payout for 2021 (33% of maximum) compared to 2020 (10.4% of maximum). No LTIP awards
vested in either year, though the Committee expects that where vesting levels vary year-on-year, this will create volatility in the pay ratio in
future years. Furthermore, the total pay and benefits for the employee at P50 is lower this year, reflecting organisational changes following
completion of the Merger.
The Committee believes that, of the methodologies permitted under the regulations, Method A provides the most statistically accurate
representation of the Chief Executive Officer’s remuneration relative to the UK workforce. Total pay and benefits (on a full-time equivalent
basis) for the people employed at 31 December 2021 have been calculated in line with the ‘single figure methodology’ used for the
Chief Executive Officer. Employees were then ranked to identify each individual at the 25
th
, 50
th
and 75
th
percentiles.
The median pay ratio is consistent with the pay, reward and progression policies for the Company’s UK employees as a whole, as we
have pay grades benchmarked to the oil and gas industry, a graduated bonus scheme based on these grades. The results are consistent
for the professional nature of our workforce and we would not expect to see a disconnect between the CEO pay and the pay of the UK
workforce, excluding the one-off buyout award as detailed above.
Relative importance of spend on pay
The table below shows the Company’s actual expenditure on shareholder distributions and total employee pay expenditure for the
financial years ending 31 December 2020 and 31 December 2021. Total shareholder distribution expenditure is composed of dividends
and share buybacks. The Company did not pay a dividend nor re-purchase shares for the financial years ending 31 December 2020 and
31 December 2021.
2021
$ million
2020
$ million
%
change
Remuneration paid to or receivable by all employees of the Group
1
317.1 219.5 44%
Distributions to shareholders by way of dividend
2
– – –
Distributions to shareholders by way of share buyback – – –
Notes:
1 Remuneration for all employees reflects the impact of the Merger in 2021.
2 This table reflects expenditure during the 2021 financial year. As set out on page 7 of this Report, the Company intends to pay an annual dividend of $200m (subject to shareholder
approval) with the first distribution due in May 2022.
Implementation of Executive Director Remuneration Policy for 2022
This section sets out the proposed implementation of the Directors’ Remuneration Policy in 2022.
Salary
The salaries of the Executive Directors are reviewed annually to ensure they remain appropriate. Following a review in December 2021,
the Remuneration Committee determined not to increase salaries. Opposite are the base salaries of the Executive Directors effective
from 1 January 2022.
98
Harbour Energy plc
Annual Report & Accounts 2021
Directors Position
Salary from
1 April 2021
£
Salary from
1 January 2022
£
Percentage
increase
%
Linda Z. Cook Chief Executive Officer 850,000 850,000 0%
Alexander Krane Chief Financial Officer 525,000 525,000 0%
Former Executive Director
Phil Kirk
1
President & CEO Europe 600,000 600,000 0%
Note:
1 Phil Kirk stepped down from the Board on 28 February 2022.
Pension and benefits
There are no changes intended to the pensions and benefits provided to Executive Directors.
Annual bonus
The Executive Director annual bonus corporate scorecard, setting out measures for 2022, is summarised below. Individual performance
targets are considered to be commercially sensitive and will be disclosed in next year’s Annual Report & Accounts.
Category Targets
Weighting
(% of maximum corporate
bonus opportunity)
1. Safety & environment Safety incident rate, Process safety, GHG emissions 35%
2. Operations Production and unit operating costs 30%
3. Growth & capital deployment Expenditure against budget, Reserves against budget 20%
4. Financial Free cash flow 15%
Long Term Incentive Plan
The Committee intends to grant LTIP awards to Executive Directors of value equal to 300 per cent of salary for the CEO and 250 per cent of
salary for the Chief Financial Officer in line with the Policy. The award will continue to be assessed against relative TSR, with 50 per cent of
the award being assessed against the FTSE 100 index and 50 per cent against a bespoke oil and gas peer group. After a review of the current
bespoke peer group for 2021, the Committee determined not to make any changes for 2022 given that no companies had materially changed in
size or delisted (at the time of this report). The comparator group will therefore be as listed on page 92. The structure of the award will be threshold
vesting (25 per cent of maximum) for performance in line with the median and maximum vesting for performance in line with the upper quartile.
Non-Executive Director remuneration
No increases are proposed for Non-Executive Director fees during 2022, as summarised in the table below:
Basic fees £
Chairman all-inclusive fee 300,000
Other Non-Executive Directors’ base fee 85,000
Supplementary fees
Senior Independent Director
30,000
Chair of Audit and Risk Committee
Chair of Remuneration Committee
20,000
Chair of Health, Safety, Environment and Security Committee
Chair of Nomination Committee (N.B. waived by the Chairman)
15,000
Member of Audit and Risk Committee
Member of Remuneration Committee
Member of Health, Safety, Environment and Security Committee
Member of Nomination Committee 10,000
For and on behalf of the Remuneration Committee:
ANNE L. STEVENS
Committee Chair
16 March 2022
Strategic report Governance Financial statements Additional information
99
Harbour Energy plc
Annual Report & Accounts 2021
Directors’ report
The Directors present their Annual Report on the affairs of the
Group, together with the audited Group and parent company
financial statements and Auditors’ Report for the year ended
31 December 2021. There are certain disclosure requirements
which form part of the Directors’ Report and are included
elsewhere in this Annual Report. The location of information
incorporated by reference into this Directors’ Report is set
out on the next page.
Dividend
The Board is proposing a dividend of 11 cents per Ordinary Share
(2020: nil) to be paid in GBP at the spot rate prevailing on the
record date. This dividend is subject to shareholder approval at
the AGM, to be held on 11 May 2022. If approved, the dividend
will be paid on 18 May 2022 to shareholders on the register as
of 8 April 2022 (the record date).
Annual General Meeting
The Company anticipates that the next AGM will be held on 11 May
2022. The Notice of the AGM, together with details of all resolutions
which will be placed before the meeting, will be published in due
course and will be available online.
Directors
The Directors of the Company as at 16 March 2022 are shown on
pages 58 to 61. Changes to the Directors during the year and up
to the date of this report are set out below:
Name Role
Effective date
of resignation
or appointment
Resignations
Phil Kirk Executive Director 28 February 2022
Richard Rose Executive Director 15 April 2021
Roy A. Franklin Chairman 31 March 2021
Dave Blackwood Non-Executive Director 31 March 2021
Mike Wheeler Non-Executive Director 31 March 2021
Elisabeth Proust Non-Executive Director 31 March 2021
Appointments
Alexander Krane Executive Director 15 April 2021
Margareth Øvrum Non-Executive Director 1 April 2021
R. Blair Thomas Chairman 31 March 2021
Linda Z. Cook Executive Director 31 March 2021
Phil Kirk Executive Director 31 March 2021
Simon Henry Non-Executive Director 31 March 2021
G. Steven Farris Non-Executive Director 31 March 2021
Alan Ferguson Non-Executive Director 31 March 2021
Andy Hopwood Non-Executive Director 31 March 2021
Anne L. Stevens Non-Executive Director 31 March 2021
Articles of Association
The Company’s Articles of Association may only be amended by
special resolution at a General Meeting of shareholders. The
Company’s Articles of Association contain provisions regarding
the appointment, retirement and removal of Directors.
A Director may be appointed by an ordinary resolution of shareholders
in a General Meeting following nomination by the Board or a member
(or members) entitled to vote at such a meeting. The Directors may
appoint a Director during any year provided that the individual stands
for election by shareholders at the next AGM. Further detail regarding
the appointment and replacement of Directors is included in the
Corporate Governance Report.
Subject to applicable law and the Company’s Articles of Association
the Directors may exercise all powers of the Company. Details of the
Matters Reserved for the Board are set out on the Company’s website.
Indemnification of Directors and insurance
During the financial year, the Company had in place an indemnity
to each of its Directors and the Company Secretary under which
the Company will, to the fullest extent permitted by law and to the
extent provided by the Articles of Association, indemnify them
against all costs, charges, losses and liabilities incurred by them
in the execution of their duties. The indemnity was in force for all
Directors who served during the year. The Company also has
Directors’ and Officers’ liability insurance in place.
Share capital
Details of the Company’s issued share capital, together with details of
any movement in the issued share capital during the year, are shown
in note 24 to the consolidated financial statements on page 155.
The Company has one class of Ordinary Shares which carries no right
to fixed income. Each share carries the right to one vote at General
Meetings of the Company.
Subject to applicable law and the Company’s Articles of Association
the Directors may exercise all powers of the Company, including
the power to authorise the issue and/or market purchase of the
Company’s shares, subject to an appropriate authority being given to
the Directors by shareholders in a General Meeting and any conditions
attaching to such authority. The current authority, approved at the
General Meeting held on 23 June 2021, for the allotment of relevant
securities is for a nominal amount of up to (i) £6,170 and (ii) equity
securities up to a nominal amount of £12,340 less the nominal
amount of any shares issued under part (i) of the authority.
In addition to the authority given at the 2021 AGM, at the General
Meeting held on 15 June 2017, in connection with the Company’s
refinancing which was completed on 28 July 2017 shareholders
authorised the Directors to allot Ordinary Shares in the Company
and to grant rights to subscribe for, or to convert any security into,
Ordinary Shares in the Company up to a nominal amount of
£59,039,247.10. This authority is specific to the issue of shares
pursuant to the terms of the Company’s refinancing. Further details
are contained in the Circular to Shareholders dated 30 May 2017,
a copy of which can be accessed in the Shareholder Information
section of the Company’s website.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, both of which are governed by the general
provisions of the Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders
of the Company’s shares that may result in restrictions on the
transfer of securities or on voting rights. Details of employee share
schemes are set out in note 25 to the consolidated financial
statements on page 156. The voting rights in relation to the shares
held within the Employee Benefit Trust are exercisable by the
Trustee but it has no obligation to do so. Details of the number of
shares held by the Employee Benefit Trust are set out in note 24 to
the financial statements on page 155. No person has any special
rights of control over the Company’s share capital and all issued
shares are fully paid.
American Depositary Receipt programme
Harbour Energy plc has a sponsored Level 1 American Depositary
Receipt (ADR) programme which BNY Mellon administers and for
which it acts as Depositary. Each ADR represents one Ordinary
Share of the Company. The ADRs trade on the US over-the-counter
market under the symbol HBRIY.
100
Harbour Energy plc
Annual Report & Accounts 2021
Significant shareholdings
As at 16 March 2022, the Company had received notification from the institutions below, in accordance with Chapter 5 of the Disclosure
and Transparency Rules, of their significant holdings of voting rights (3 per cent or more) in its Ordinary Shares:
Name of shareholder
Date of notification to
the stock exchange
Notified number
of voting rights
1
Notified percentage
of voting rights Nature of holding
Harbour North Sea Holdings, Ltd 09.04.2021 6,798,223,348 36.73% Direct
GIC Private Limited 11.03.2022 110,822,599 11.97% Indirect
FMR LLC 16.11.2021 48,533,713 5.24% Indirect
Marshfield Advisers, LLC 08.04.2021 879,431,317 4.75% Direct
1 Notified number of voting rights in issue at the time of the announcement to the market.
Hedging and risk management
Details of the Group’s hedging and risk management are provided
in the Financial review on page 38. A further disclosure has been
made in note 23 to the consolidated financial statements on pages
151 to 155, related to various financial instruments and exposure
of the Group to price, credit, liquidity and cash flow risk.
Significant agreements
The following significant agreements will, in the event of a change
of control of the Company, be affected as follows:
¼ under the up to $4.5 billion senior secured revolving borrowing
base facility agreement between, among others, the Company,
certain subsidiaries of the Company and a syndicate of
financial institutions, upon a change of control (save for certain
exceptions), each lender has the right to serve notice, and
following a short prescribed period after such notice, all of that
lender’s commitments under the agreement would be cancelled
and all amounts owing to it would become immediately due
and payable; and
¼ the Group has outstanding senior unsecured High Yield Bond
notes totalling $500 million due 2026. Upon a change of control
(save for certain exceptions), each noteholder will have the right
to require Harbour Energy plc to repurchase all or any part of
that holder’s notes at a premium, together with accrued interest.
Political donations
No political donations were made during the year (2020: $nil).
Significant events since 31 December 2021
Details of significant events since the balance sheet date are
contained in note 30 to the financial statements on page 163.
Information set out in the Strategic Report
The Strategic Report set out on pages 2 to 55 provides a
comprehensive review of the performance of the Company’s
operations for the year ended 31 December 2021 and the potential
future developments of those operations. The Strategic Report also
includes details of the Company’s principal risks during the year.
Information regarding the Company’s policy applied during the year
relating to diversity, equity and inclusion, employee engagement,
career development and promotion of staff including employment
of disabled persons is included within the Social and Governance
sections of the ESG review in the Strategic Report on pages 34 and
35. In addition, information regarding the Company’s greenhouse
gas emissions is also included in the Environment section of the ESG
review in the Strategic Report on pages 32 to 33. In accordance
with s414C(11) of the Companies Act 2006, the Directors have
chosen to set out the information outlined above, required to be
included in the Directors’ Report, in the Strategic Report.
The Strategic Report and the Directors’ Report together include
the ‘management report’ for the purposes of the FCA’s Disclosure
& Transparency Rules (DTR 4.1.8R).
Information set out elsewhere in this Annual Report
Information regarding the Company’s governance arrangements is
included in the Corporate Governance Report and related Board
Committee reports on pages 62 to 99. These sections of the report
are incorporated into this report by reference.
For the purposes of Listing Rule 9.8.4C R, the information required
to be disclosed by Listing Rule 9.8.4 R can be found in the following
locations:
Listing Rule
sub-section Item Location
9.8.4 (1) Interest capitalised Note 7 to the financial statements,
page 134
9.8.4 (5) Waiver of emoluments
by a director
Directors’ Remuneration Report,
page 88
9.8.4 (14) Controlling shareholder Corporate Governance Report,
page 65
Audit information
Each of the persons who is a Director at the date of approval of this
Annual Report and Financial Statements confirms that:
¼ so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware; and
¼ the Director has taken all reasonable steps that he/she ought
to have taken as a Director in order to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006. By order
of the Board:
RACHEL RICKARD
Company Secretary
16 March 2022
Strategic report Governance Financial statements Additional information
101
Harbour Energy plc
Annual Report & Accounts 2021
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable United Kingdom
law and regulations.
Group financial statements
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare
the Group and parent company financial statements in accordance with International Accounting Standards in conformity with the requirements
of the Companies Act 2006, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period.
Under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, Group financial statements are required to be
prepared in accordance with UK-adopted International Accounting Standards.
In preparing the Group and parent company financial statements the Directors are required to:
¼ select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then
apply them consistently;
¼ make judgements and accounting estimates that are reasonable and prudent;
¼ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
¼ provide additional disclosures when compliance with the specific requirements in IFRSs (and in respect of the parent company financial
statements, FRS 101) is insufficient to enable users to understand the impact of particular transactions, other events and conditions on
the Group and Company financial position and financial performance;
¼ in respect of the Group financial statements, state whether UK-adopted International Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
¼ in respect of the parent company financial statements, state whether International Accounting Standards in conformity with the
requirements of the Companies Act 2006 / applicable UK Accounting Standards, including FRS 101, have been followed, subject to any
material departures disclosed and explained in the financial statements; and
¼ prepare the financial statements on the going concern basis unless it is appropriate to presume that the Company and/or the Group
will not continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and
Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable
them to ensure that the Company and the Group financial statements comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ report, Directors’
remuneration report and Corporate governance statement that comply with that law and those regulations. The Directors are responsible
for the maintenance and integrity of the corporate and financial information included on the Company’s website harbourenergy.com.
Directors’ responsibility statement (DTR 4.1)
The Directors confirm, to the best of their knowledge:
¼ that the consolidated financial statements, prepared in accordance with UK-adopted International Accounting Standards, give a true
and fair view of the assets, liabilities, financial position and profit of the parent company and undertakings included in the consolidation
taken as a whole;
¼ that the Annual Report & Accounts, including the Strategic Report, includes a fair review of the development and performance of the
business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description
of the principal risks that they face; and
¼ that they consider the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 16 March 2022 and is signed on its behalf by:
LINDA Z. COOK
Chief Executive Officer
102
Harbour Energy plc
Annual Report & Accounts 2021
Independent auditors’ report to the members of Harbour Energy plc
Opinion
In our opinion:
¼ Harbour Energy plc’s Group financial statements and parent company financial statements (the financial statements) give a true and fair view
of the state of the Group’s and of the parent company’s affairs as at 31 December 2021 and of the Group’s profit for the year then ended;
¼ the Group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards;
¼ the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
¼ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Harbour Energy plc (the parent company) and its subsidiaries (the Group) for the year ended
31 December 2021 which comprise:
Group Parent company
Consolidated balance sheet as at 31 December 2021 Balance sheet as at 31 December 2021
Consolidated income statement for the year then ended Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the year then ended Related notes 1 to 10 to the financial statements including a summary
of significant accounting policies
Consolidated statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 31 to the financial statements, including a summary
of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
UK-adopted International Accounting Standards and International Financial Reporting Standards (IFRSs). The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom
Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and parent in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain
independent of the Group and the parent company in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. For the purposes of our evaluation of the Directors’ assessment of the Group
and parent company’s ability to continue to adopt the going concern basis of accounting, we:
¼ confirmed our understanding of management’s going concern assessment process in conjunction with our walkthrough of the Group’s
financial close process, and engaged with management to confirm all relevant assumptions were considered;
¼ tested the integrity of management’s going concern model by ensuring the forecasts were consistent with the budget approved by
the Board and with other areas of the audit such as impairment assessments;
¼ obtained the cash flow forecasts prepared by management for the Group, including the base case and downside scenarios;
¼ challenged the key assumptions included in the model, including management’s oil and gas price assumptions. Our assessment
of these price assumptions included a comparison of management’s price assumptions with recent broker and consultant estimates
together with estimates used by other market participants, including those estimates that forecast the potential impact of the climate
transition risks;
¼ evaluated the reasonableness of all other key assumptions, such as production profiles and operating and capital expenditure forecasts,
through assessing their consistency with other areas of the audit, including impairment assessments. We ensured these assumptions
were consistent with the budget approved by Harbour Energy’s Board;
Strategic report Governance Financial statements Additional information
103
Harbour Energy plc
Annual Report & Accounts 2021
¼ reviewed the Group’s loan agreements, ensuring that the cash outflows relating to interest and repayments are consistent with the
agreements, that no covenants have been breached and that there is no forecast covenant breach in either the base case or downside
case scenarios during the going concern period;
¼ reviewed management’s reverse stress test in order to identify what factors would lead to the Group not meeting the financial covenants
during the going concern period, including the minimum liquidity requirement as set in the Reserve Based Lending loan agreement, and
assessed the likelihood of such a scenario;
¼ where relevant, we challenged the likelihood of management’s ability to execute mitigating actions such as removal of non-committed
capex, as required, to continue its business activities under a downside scenario and under the scenarios in the reverse stress test;
¼ evaluated the impact of Russia’s invasion of Ukraine on the Group’s operations and on the going concern assessment; and
¼ evaluated the appropriateness of the going concern disclosures in the Group financial statements to determine whether they are
accurate and in line with IAS 1 – Presentation of financial statements – and our expectations given the above procedures performed.
Based on the procedures performed, we observed that the key assumptions underpinning the base case scenario, specifically the
oil and gas prices, are within the range of recent brokers and consultants’ estimates, and production profiles are consistent with the
assumptions in our audit work on impairment and oil and gas reserves. In the downside cases modelled by management, we observed
that there remained liquidity headroom before taking into account the mitigating actions management have identified and that under
these cases the Group operates within the requirements of its financial covenants.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s and parent company’s ability to continue as a going concern for the period up to
30 June 2023.
In relation to the Group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and
parent company’s ability to continue as a going concern.
Overview of our audit approach
Audit scope ¼ We performed an audit of the complete financial information of seven components and audit procedures on specific
balances for a further nine components.
¼ The components where we performed full or specific audit procedures accounted for 98% of Adjusted EBITDA,
100% of Revenue and 82% of Total assets.
Key audit matters ¼ Accounting associated with the Reverse Takeover (RTO) and Purchase Price Allocation (PPA) process.
¼ Oil and gas reserves estimation including reserves used in the calculation of depreciation, depletion and
amortisation, impairment testing and the assessment of the recoverability of deferred tax assets.
¼ Impairment of tangible oil and gas properties and associated goodwill.
Materiality ¼ We determined materiality for the Group to be $57 million (2020: $102 million) which is 2.4% of Adjusted EBITDA
($2,384 million). Adjusted EBITDA is earnings before interest, tax, depreciation, impairments and amortisation
($2,129 million), excluding exploration cost write off ($255 million) but including exploration and evaluation expenses
and new ventures ($50 million) (Adjusted EBITDA).
First year audit transition ¼ The year ended 31 December 2021 is our first year as auditor of the newly formed Harbour Energy group following
completion of the Reverse Takeover at the end of March 2021. EY were the previous auditors of Premier Oil plc and
PwC were the previous auditors of Chrysaor, the accounting acquirer.
¼ As part of our audit transition activities, we undertook reviews of the predecessor auditor files related to the audit
of Chrysaor to review the working papers in relation to significant audit risk matters, to identify and assess the
judgements exercised over these risks and to assess the nature, timing and extent of audit procedures performed
by the predecessor auditor in forming the prior year audit opinion.
¼ Prior to signing the interim review opinion, we performed procedures to understand and walk through the key
processes in place for the newly formed group.
Independent auditors’ report to the members of Harbour Energy plc continued
104
Harbour Energy plc
Annual Report & Accounts 2021
Full scope components
Specific scope components
Other procedures
79%
19%
2%
Full scope components
Specific scope components
Other procedures
80%
20%
0%
Full scope components
Specific scope components
Other procedures
71%
11%
18%
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into
account size, risk profile, the organisation of the Group and effectiveness of group-wide controls, changes in the business environment
and other factors such as the potential for and history of material misstatements when assessing the level of work to be performed at
each company.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 88 reporting components of the Group, we selected 16 components covering
entities within the United Kingdom, Vietnam and Indonesia, which represent the principal business units within the Group.
Of the 16 components selected, we performed an audit of the complete financial information of 7 components (full scope components)
which were selected based on their size or risk characteristics. For the remaining 9 components (specific scope components), we
performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact
on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 98% of the Group’s Adjusted EBITDA, 100% of the Group’s
Revenue and 82% of the Group’s Total Assets. For the current year, the full scope components contributed 79% of the Group’s Adjusted
EBITDA, 80% of the Group’s Revenue and 71% of the Group’s Total Assets. The specific scope components contributed 19% of the Group’s
EBITDA, 20% of the Group’s Revenue and 11% of the Group’s Total Assets. The audit scope of these components may not have included
testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.
The primary team also performed specified procedures over six reporting components specifically on exploration asset balances.
Of the remaining 72 components that together represent 2% of the Group’s Adjusted EBITDA, none are individually greater than 1.7% of the
Group’s Adjusted EBITDA, For these components, we performed other procedures, including analytical review and testing of consolidation
journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Adjusted EBITDA Revenue Total assets
Strategic report Governance Financial statements Additional information
105
Harbour Energy plc
Annual Report & Accounts 2021
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under
our instruction. Of the seven full scope components, audit procedures were performed on all of these by the component audit teams in
United Kingdom, Vietnam and Indonesia. For the nine specific scope components, the audit work for three of these was performed by the
primary audit team and for the other six the work was performed by component auditors in United Kingdom, Vietnam and Indonesia. For
these six specific scope components, we determined the appropriate level of involvement to enable us to determine that sufficient audit
evidence had been obtained as a basis for our opinion on the Group as a whole.
As the 2021 audit of Harbour Energy plc is an initial audit, we performed additional procedures to ensure we exercised sufficient
oversight over the components. As the previous auditors of Premier Oil, we had performed oversight procedures on these entities
previously, including site visits to Indonesia and Vietnam. For the Chrysaor components in the United Kingdom we performed two
separate site visits as described below.
Under normal circumstances, the lead audit partner and other senior members of the primary audit team would visit the component
teams on a rotational basis during the audit cycle. During the current year’s audit cycle, visits were undertaken by the primary audit
team to the component team in the United Kingdom (92% of Adjusted EBITDA), both prior to and subsequent to the year-end date.
This component team performs the procedures over 10 out of 13 full and specific scope entities in scope in the United Kingdom.
These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with
local management, attending planning and closing meetings, and reviewing relevant audit working papers on risk areas.
Due to the ongoing travel restrictions and lockdowns in place during the year it was not possible to perform an in-person site visit to
the components in Indonesia and Vietnam. The strategy to evaluate, review and oversee the work of the component teams in Indonesia
(4% of Adjusted EBITDA) and Vietnam (2% of Adjusted EBITDA) included the following procedures:
¼ held a virtual planning event, with members of all component teams in attendance, in order to discuss the audit approach and relevant
business updates;
¼ increased the frequency of our dialogue with our component teams throughout the audit cycle;
¼ reviewed key workpapers prepared by component teams in areas of particular risk such as impairment and revenue recognition through
the interactive capability of EY Canvas, our global audit workflow tool, or share-screen functionality; and
¼ virtually attended closing meetings held between EY component teams and local management in order to discuss the audit status and
any issues arising.
These procedures, together with the additional procedures performed at group level, gave us appropriate evidence for our opinion on the
Group financial statements.
Climate change
There has been increasing interest from stakeholders as to how climate change will impact Harbour Energy plc. The Group has determined
that the most significant future impacts from climate change on their operations will be from the shift in demand for oil and gas in the future
as the world transitions towards a low carbon economy. Additionally, on the supply side, the oil and gas sector may be subject to new climate
change regulations or supply chain challenges that increase costs and impact the decommissioning of high emitting assets. These are
explained in the ESG review on page 32, which includes the required Task Force on Climate-related Financial Disclosures and on page
55 in the principal risks, which form part of the ‘Other information’, rather than the audited financial statements. Our procedures on
these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise appear to be materially misstated.
As explained in Note 2 – Accounting Policies, governmental and societal responses to climate change risks are still developing, and are
interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not
yet known. The degree of certainty of these changes may also mean that they cannot be taken into account when determining asset and
liability valuations and the timing of future cash flows under the requirements of IFRS. In Note 2 to the financial statements a description
has been provided on how climate change risks have been considered in the key judgements and estimates in the financial statements.
Our audit effort in considering climate change was focused on ensuring that the effects of material climate risks disclosed on pages 32
and 55 and the Group’s commitment to be Net Zero (Scope 1 and 2) by 2035 have been appropriately reflected in the estimation of oil
and gas reserves and the impairment assessments for oil and gas assets. Details of climate related procedures and findings are included
within our key audit matters opposite. We also challenged the Directors’ considerations of climate change in their assessment of going
concern and viability and associated disclosures.
Independent auditors’ report to the members of Harbour Energy plc continued
106
Harbour Energy plc
Annual Report & Accounts 2021
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Accounting associated with the Merger and PPA
Risk Our response to the risk
Key observations communicated
to the Audit and Risk Committee
Refer to the Audit and Risk Committee
Report (page 67); Accounting policies
(page 119); and Note 14 of the
Consolidated Financial Statements
(page 142).
Although Premier legally acquired
Chrysaor through the issuance of
shares, Chrysaor is considered the
accounting acquirer on the basis that
it took control of the enlarged group.
Reverse takeovers that involve two
operating entities of significant scale
are rare and involve a number of
technical accounting considerations.
The recognition of Premier’s assets
and liabilities at fair value involve a
number of judgemental estimates,
including the valuation of oil and gas
properties, exploration and evaluation
assets and the recognition of deferred
tax assets which rely on the use of
certain key assumptions. These
include the estimation of future oil and
gas prices, a future production profile
and an appropriate discount rate.
Our audit response was executed by the primary audit team. We performed
the following audit procedures with respect to management’s accounting
for the transaction:
¼ reviewed the underlying agreements and evaluated the commercial
substance of the transaction in order to assess whether the
transaction was a business combination;
¼ recalculated management’s assessment of ‘consideration transferred’
based on the terms of the arrangement and publicly available share
price data;
¼ in auditing the valuation of ‘acquired’ tangible oil and gas assets we
focused on the following areas:
– Price: in conjunction with EY valuations specialists, we assessed
the appropriateness of oil and gas price assumptions through
comparison with the estimates of market participants, including
those estimates that forecast the potential impact of the climate
transition risks;
– discount rate: in conjunction with EY valuations specialists, we
assessed the appropriateness of management’s discount rates
based on an independent re-calculation of the Group’s weighted
average cost of capital; and
– other assumptions (including production and cost estimates):
compared management’s assumptions to those audited as part
of our 2020 audit of Premier and assessed the appropriateness
of any significant changes.
¼ assessed the appropriateness of management’s methodology
of assigning fair value to exploration assets, including the
appropriateness of key assumptions applied throughout;
¼ reviewed the ‘reverse acquisition’ accounting requirements in order to
assess management’s measurement and presentation of equity balances;
¼ tested the appropriateness of management’s deferred tax asset (DTA)
recoverability assessment through reconciliation of the underlying
cash flow forecasts to the audited asset valuation models;
¼ assessed the valuation of Premier’s debt based on the terms of the
agreed settlement as well as the appropriateness of management’s
accounting in respect of the subsequent settlement;
¼ evaluated the appropriateness of management’s decommissioning
discount rates based on comparison with recent government bond
rates and compared management’s decommissioning cost estimates
to those audited during our 2020 year-end audit of Premier, assessing
the appropriateness of any significant changes;
¼ given the judgemental nature of the PPA exercise, we considered
the potential for management bias throughout the execution of our
procedures. Whilst our audit procedures included the determination of
reasonable ranges which assessed the risk of over and understatement
of recognised assets and liabilities, we remained alert to the potential
incentive to reduce the extent of goodwill recognised on acquisition;
¼ reviewed management’s proposed IFRS 3 disclosures and assessed
their appropriateness in disclosing the key judgements applied in
measuring the fair value of acquired assets and liabilities; and
¼ audited any material adjustments made to the provisional PPA during a
maximum period of one year from the acquisition date and assessed
whether, in line with IFRS 3 requirements, those additional assets or
liabilities were based on new information obtained about facts and
circumstances that existed at the acquisition date.
The Merger constituted a ‘reverse
takeover’ of Premier by Chrysaor and
has therefore been accounted for as a
reverse acquisition in accordance with
IFRS 3, Business Combinations. As a
result, Premier is fully consolidated in
the financial statements with effect
from 31 March 2021, and all results
prior to this date represent those of
Chrysaor only.
We reported to the Audit and Risk
Committee that, based on our testing
performed, we consider the key
assumptions applied by management
in its PPA exercise to be reasonable.
Following the execution of our PPA
audit procedures, we did not identify
any positions adopted by management
that were indicative of management
bias. The accounting for and disclosure
of the transaction in the financial
statements are in line with IFRS 3.
The provisional PPA fair values
were finalised at year-end. We
concluded that the final amounts
recognised were reasonable and
the adjustments to the provisional
PPA met the IFRS 3 criteria.
Strategic report Governance Financial statements Additional information
107
Harbour Energy plc
Annual Report & Accounts 2021
Oil and gas reserve estimation
Risk Our response to the risk
Key observations communicated
to the Audit and Risk Committee
Refer to the Audit and Risk Committee
Report (page 67); Accounting policies
(page 119); and Additional information
on page 173.
At 31 December 2021, Harbour reported
487.5 million barrels of oil equivalent
(mmboe) of proven and probable (2P)
reserves (2020: 451.2 mmboe).
The estimation and measurement
of oil and gas reserves impacts
many material elements of the
financial statements including
depreciation, depletion and
amortisation (DD&A), impairment,
going concern, decommissioning
provisions and DTA recoverability.
Auditing the estimation of oil and
gas reserves is complex, as there is
significant estimation uncertainty in
assessing the quantities of reserves
and resources in place. Estimation
uncertainty is further elevated given
the transition to a low-carbon
economy which could impact
life-of-field assumptions and increase
the risk of underutilised or stranded
oil and gas assets. Also, given the
estimation of oil and gas reserves is
complex, there is a risk that
inappropriate management bias
influences the estimates.
Management’s 2P reserves estimates
are prepared by an internal specialist
whilst an external specialist is
engaged for the purpose of assessing
the appropriateness of management’s
internal estimate.
Our audit response was performed by the primary audit team. Our
procedures covered 100% of reserve volumes with a direct impact on
the financial statements. We performed the following audit procedures
with respect to management’s estimation of oil and gas reserves:
¼ confirmed our understanding of Harbour’s oil and gas reserve
estimation process as well as the control environment implemented
by management;
¼ reconciled the opening reserves balances to the prior year reserves
estimate for Chrysaor and assessed the addition in reserves as a
result of the acquisition of Premier;
¼ assessed the appropriateness of reliance on management’s internal
and external reserve specialists by performing procedures to evaluate
their competence and objectivity;
¼ met with management’s internal and external specialists to
understand the basis, and therefore appropriateness, of variances
between the two sets of estimates;
¼ where variances of a technical nature were identified, we utilised
the knowledge and expertise of an EY partner from our Financial
Accounting Advisory Services practice with significant oil and gas
reserves expertise and valuation experience to assess the nature
of the variance and appropriateness of management’s estimate;
¼ we recalculated net entitlement production that reflect the terms of
production sharing contracts for the relevant fields and is derived
from reserves prepared by internal specialists and assessed by
external specialists;
¼ investigated all material volume movements from management’s
prior period estimate together with lack of movement where changes
were expected based on our understanding of the Group’s operations
and findings from other areas of our audit;
¼ in light of Harbour’s pledge to reach Net Zero for Scope 1 and 2
emissions by 2035 (equity share), we considered the extent of
reserves recognised that are due to be produced beyond 2035 in
assessing the potential impact of the climate transition risk and
energy transition on the recognition of Harbour’s reserves; and
¼ ensured reserve volumes were consistently applied throughout all
relevant accounting processes including DD&A, impairment, going
concern, decommissioning provisions and DTA recoverability.
We reported to the Audit and Risk
Committee in its March 2022 meeting
that, based on our testing performed, we
had not identified any errors or factual
inconsistencies with reference to Harbour’s
oil and gas reserve estimates that would
materially impact the financial statements
and that, as a result, we consider the
reserve estimates to be appropriate.
90% of Harbour’s 2P reserves are
expected to be produced by 2035. We
do not believe that Harbour’s 2P reserves
as at 31 December 2021, as well as
associated tangible oil and gas properties,
are significantly exposed to climate
transition risks.
Independent auditors’ report to the members of Harbour Energy plc continued
108
Harbour Energy plc
Annual Report & Accounts 2021
Impairment of tangible oil and gas properties and associated goodwill
Risk Our response to the risk
Key observations communicated
to the Audit and Risk Committee
Refer to the Audit and Risk Committee
Report (page 67); Accounting policies
(page 119); Notes 10 and 12 of the
Consolidated Financial Statements
(pages 137 and 139).
In the current period, management
noted impairment indicators for
certain of the Group’s assets and
recorded a pre-tax impairment charge
of $117 million (2020: $644 million).
Management prepares the tangible
asset impairment tests under the Fair
Value Less Cost to Sell methodology.
The models include a number of
accounting estimates and judgements
including: future oil and gas prices;
discount rates; inflation rates;
production forecasts; operating
expenditures; and capital expenditures
for each CGU. Changes to any of these
key inputs could lead to a potential
impairment or a reversal of impairment,
hence this is considered a key audit
matter. Following the identification of
indicators of impairment for five of the
Group’s CGUs, these were tested for
impairment in the period.
Our audit response was executed by the primary audit team and
Aberdeen, Indonesia and Vietnam component audit teams, covering all
assets at risk of material impairment. We performed the following audit
procedures with respect to management’s impairment assessment:
¼ confirmed our understanding of Harbour’s impairment process,
as well as the control environment implemented by management;
¼ considered the internal and external sources of information included
in IAS 36 to identify any potential indicators of impairment loss and/or
reversal, specifically any sustained increase or decrease in long term
oil and gas prices compared to the prior year;
¼ following identification of indicators of impairment in respect of five
CGUs, we obtained the discounted cash flow model and tested the
model integrity;
¼ in conjunction with our EY valuations specialists, we assessed the
appropriateness of management’s oil and gas price assumptions
through comparison with the estimates of market participants.
Reflective of a narrowing of the range of long-term oil price forecasts,
management elected to revise its long-term Brent oil price assumption
to $65/bbl (real) (2020: $60/bbl, real) during the current period.
Our assessment of management’s long-term oil price assumption
considered the estimates of recognised consultants, including
those that reflect the potential impact of the transition to a Net Zero
economy on future prices;
¼ in conjunction with our EY valuations specialists, we assessed the
appropriateness of management’s impairment discount rates based
on an independent re-calculation of the Group’s weighted average
cost of capital;
¼ tested management’s production profiles through reconciliation to the
results of our testing in respect of reserve estimation;
¼ tested the appropriateness of other cash flow assumptions such
as opex, capex and decommissioning spend by comparing against
Board-approved plans and actual costs incurred; we compared inflation
and FX rates to recent market forecasts to assess their reasonableness;
¼ performed procedures to understand how management intend to
achieve their planned Scope 1 and 2 emissions reductions and
whether these actions have been reflected in the cash flow forecasts
in the corporate model that underpins management’s impairment
assessment;
¼ performed headroom analysis for the material profit making CGUs
as part of our assessment of the goodwill balance; and
¼ performed independent testing of carbon prices to assess
reasonableness of the carbon price forecasts used in the cash
flow models.
We reported to the Audit and Risk
Committee in its March 2022 meeting
that, based on our testing performed, we
considered the current period impairment
charge to be fairly stated. The key
assumptions used within the impairment
models were within a reasonable range.
Strategic report Governance Financial statements Additional information
109
Harbour Energy plc
Annual Report & Accounts 2021
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be $57 million which is 2.4% of earnings before interest, tax, depreciation, impairments and
amortisation ($2,129 million), excluding exploration cost write off ($255 million) but including exploration and evaluation expenses and
new ventures ($50 million) (Adjusted EBITDA). We believe that Adjusted EBITDA represents a measure that is of particular focus to
shareholders and is closely linked to both the metric used in the covenant included in the Group’s major loan agreement and the key
performance indicator for the Group (EBITDAX). Measures such as Adjusted EBITDA are a primary indicator of company valuation and
cash flow generation across the upstream oil and gas sector. For the 2020 audit of Chrysaor Holdings Limited, PwC determined
materiality to be $102 million which represented 1% of Total Assets.
We determined materiality for the parent company to be $37.9 million (2020: $10.0 million), which is 0.5% (2020: 0.5%) of Total Assets.
There has been a significant increase in Total Assets since the prior period due to the Reverse Takeover that occurred during the year.
Starting
basis
Adjustments
Materiality
¼ $2,129 million
¼ EBITDA
¼ $255 million
¼ Adjustments relating to non-recurring items:
exploration cost write off
¼ Totals £2,384 million Adjusted EBITDA
¼ Materiality of $57 million (2.4% of materiality basis)
During the course of our audit, we reassessed initial materiality and found no reason to change from our original assessment at planning.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 50% of our planning materiality, namely $28.5 million. We have set performance materiality at this
percentage due to 2021 being the first period for our audit of the newly formed Harbour Energy listed Group as well as our quantitative
and qualitative assessment of prior year misstatements, our assessment of the Group’s overall control environment, and consideration
of relevant changes in market conditions during the period. Performance materiality for the 2020 audit of Chrysaor Holdings Limited
was set by PwC at $76.5 million, being 75% of planning materiality.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on
the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component.
In the current year, the range of performance materiality allocated to components was $5.7 million to $18.5 million. For the 2020 audit
of Chrysaor Holdings Limited, PwC allocated materiality to in-scope components in the range of $75 million to $90 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of $2.9 million, which
is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Independent auditors’ report to the members of Harbour Energy plc continued
110
Harbour Energy plc
Annual Report & Accounts 2021
Other information
The other information comprises the information included in the annual report as set out on pages 2 to 102, including the Strategic
Report, Governance and Additional Information sections, other than the financial statements and our auditor’s report thereon. The
Directors are responsible for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
¼ the information given in the Strategic Report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
¼ the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the Strategic Report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
¼ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us;
¼ the parent company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns;
¼ certain disclosures of directors’ remuneration specified by law are not made; or
¼ we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Group and company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
¼ directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting as set out on pages 43
and 102;
¼ directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is
appropriate as set out on pages 43 and 47;
¼ directors’ statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its
liabilities as set out on pages 43 and 102;
¼ directors’ statement on fair, balanced and understandable as set out on page 102;
¼ the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out on page 48;
¼ the section of the annual report that describes the review of effectiveness of risk management and internal control systems as set
out on page 68; and
¼ the section describing the work of the Audit and Risk Committee as set out on page 66.
Strategic report Governance Financial statements Additional information
111
Harbour Energy plc
Annual Report & Accounts 2021
Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities as set out on page 102, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including
fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
Company and management.
¼ We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant are those that relate to the reporting framework (IFRS, Companies Act 2006, the UK Corporate Governance Code and the
Listing Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in which Harbour Energy plc
operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination
of the amounts and disclosures in the financial statements, relating to health and safety, employee matters, environmental, and bribery
and corruption practices. We understood how the Group is complying with those frameworks by making enquiries of management, legal
counsel and the Company Secretary. We corroborated the results of our enquiries through our review of Board minutes, papers provided
to the Audit and Risk Committee and correspondence received from regulatory bodies and noted there was no contradictory evidence.
¼ We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
considering the degree of incentive, opportunity and rationalisation that may exist to undertake fraud. We also considered performance
targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts. We engaged
our forensics specialists in assisting our assessment of the susceptibility of the Group’s financial statements to fraud. We have
determined there is a risk of fraud associated with management override in manual revenue journals that do not follow the expected
process. We performed audit procedures to address each identified fraud risk. These procedures were designed to provide reasonable
assurance that the financial statements as a whole are free from material misstatement, due to fraud or error.
¼ Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations, including
specific instructions to full scope components. Our procedures involved journal entry testing, with a focus on manual consolidation journals
and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, Group
management, Internal Audit, component management at all full and specific scope components; and focused testing, including in respect
of management override through manual revenue journals and specific searches derived from forensic investigations experience.
¼ Based on the results of our audit procedures, there were no significant instances of non-compliance with laws and regulations identified
at the Group or component level.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Independent auditors’ report to the members of Harbour Energy plc continued
112
Harbour Energy plc
Annual Report & Accounts 2021
Other matters we are required to address
¼ Following the recommendation from the Audit and Risk Committee, we were appointed by the Company on 22 April 2021 to audit
the Group and parent company financial statements for the year ending 31 December 2021 and for subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is one year, covering the year ended
31 December 2021.
¼ The audit opinion is consistent with the additional report to the Audit and Risk Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
ANDREW SMYTH (Senior statutory auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London, United Kingdom
16 March 2022
Strategic report Governance Financial statements Additional information
113
Harbour Energy plc
Annual Report & Accounts 2021
Note
2021
$ million
2020
$ million
Revenue 4 3,4 78.8 2,4 13.6
Other income 4 1 39. 2 24. 2
Cost of operations (2 , 45 3 . 2 ) (1 , 8 47. 2 )
Impairment of property, plant and equipment 12 (1 1 7. 2 ) (6 4 4 .0 )
Impairment of goodwill 10 – (41 1 . 4 )
Exploration and evaluation expenses and new ventures 5 (49.8 ) (13.2 )
Exploration costs written-off 5 (255 .0 ) (1 6 0 . 8 )
General and administrative expenses (102.5 ) (4 8 . 6 )
Operating profit/(loss) 5 64 0.3 (6 8 7. 4 )
Finance income 7 48.8 11.4
Finance expenses 7 (3 74 . 6 ) (3 01 .7 )
Profit/(loss) before taxation 314 .5 (9 7 7. 7 )
Income tax (expense)/credit 8 (21 3 .4 ) 199. 3
Profit/(loss) for the financial year 101 . 1 (7 78 . 4 )
Consolidated income statement
For the year ended 31 December
114
Harbour Energy plc
Annual Report & Accounts 2021
2021
$ million
2020
$ million
Profit/(loss) for the financial year 101 . 1 (7 78 . 4 )
Items that may be subsequently reclassified to income statement in subsequent periods
Fair value losses on cash flow hedges (3,583.8 ) (173 .7 )
Tax credit on cash flow hedges 1 ,433. 2 71 . 3
Currency exchange differences (5 .7 ) 2 7. 4
Total other comprehensive loss for the financial year, net of tax (2 , 1 5 6 . 3 ) (75.0 )
Total comprehensive loss for the financial year (2 ,0 55 . 2 ) (8 5 3 . 4 )
Attributable to equity holders of the parent (2 ,0 55 . 2 ) (8 5 3 . 4 )
Consolidated statement of comprehensive income
For the year ended 31 December
Note
2021
cents
2020
cents
Basic and diluted 9 11 .6 (1 1 0 . 4 )
Earnings per share
For the year ended 31 December
Strategic report Governance Financial statements Additional information
115
Harbour Energy plc
Annual Report & Accounts 2021
Note
2021
$ million
2020
$ million
Assets
Non-current assets
Goodwill 10 1 , 3 2 7. 1 9 90.0
Other intangible assets 11 87 3 .7 4 54 .1
Property, plant and equipment 12 7, 2 4 6 . 7 6,522.4
Right-of-use assets 13 551 .5 132. 2
Deferred tax assets 8 1 ,938.4 –
Other receivables 16 26 3.0 3.6
Other financial assets 22 10.1 90.4
Total non-current assets 12,21 0. 5 8 , 1 9 2 .7
Current assets
Inventories 15 211 .4 16 0. 5
Trade and other receivables 16 1, 342. 2 4 61 . 3
Other financial assets 22 41 . 8 222.6
Cash and cash equivalents 17 6 9 8 .7 4 45.4
Total current assets 2, 294. 1 1, 28 9. 8
Total assets 14,504.6 9,482. 5
Equity and liabilities
Equity
Share capital 24 171 . 1 0.1
Share premium 1 , 50 4.6 910.0
Capital redemption reserve 8.1 –
Merger reserve 6 7 7. 4 –
Cash flow hedge reserve (2, 06 2.1 ) 80. 2
Costs of hedging reserve 1 .5 9.8
Currency translation reserve 98.3 104 .0
Retained earnings/(accumulated losses) 74 . 6 (36 . 8 )
Total equity 47 3 . 5 1 , 0 6 7. 3
Non-current liabilities
Borrowings 21 2,823.7 2,16 0. 3
Provisions 20 5,022 .6 4,020. 8
Deferred tax 8 1 8 7. 1 1 , 0 31 . 4
Trade and other payables 19 32 .3 29.8
Lease creditor 13 4 89. 2 80.8
Other financial liabilities 22 1 , 373 .6 52. 5
Total non-current liabilities 9,92 8 .5 7, 3 7 5 . 6
Current liabilities
Trade and other payables 19 873.6 540. 3
Borrowings 21 62.3 21 . 5
Lease creditor 13 165. 1 60.1
Provisions 20 358 .6 190. 2
Current tax liabilities 116. 8 153.3
Other financial liabilities 22 2 ,5 26. 2 74 . 2
Total current liabilities 4,102 .6 1 ,039.6
Total liabilities 14 ,031 .1 8 , 41 5 . 2
Total equity and liabilities 14,504.6 9,482. 5
The notes on pages 119 to 165 form part of these financial statements.
The financial statements on pages 114 to 165 were approved by the Board of Directors on 16 March 2022 and signed on its behalf by:
ALEXANDER KRANE
Chief Financial Officer
Consolidated balance sheet
As at 31 December
116
Harbour Energy plc
Annual Report & Accounts 2021
Consolidated statement of changes in equity
For the year ended 31 December
Share
capital
$ million
Share
premium
$ million
Merger
reserve
$ million
Capital
redemption
reserve
$ million
Cash flow
hedge
reserve
1
$ million
Costs of
hedging
reserve
1
$ million
Currency
translation
reserve
$ million
(Accumulated
losses)/
retained
earnings
$ million
Total
equity
$ million
As at 1 January 2020 0.1 910. 0 – – 176 . 1 16 . 3 76 . 6 72 9 . 8 1,908.9
Loss for the financial year – – – – – – – (7 78 . 4 ) (7 78 . 4 )
Share-based payments – – – – – – – 11.8 11.8
Other comprehensive profit/(loss) – – – – (9 5. 9 ) (6 . 5 ) 2 7. 4 – (75.0 )
At 31 December 2020 0.1 910. 0 – – 80. 2 9.8 104.0 (36 . 8 ) 1 , 0 6 7. 3
Shares issued in settlement
of D loan notes – 1 3 4 .7 – – – – – – 1 3 4 .7
Reverse takeover 171 . 0 (5 2 7. 2 ) 635.9 8 .1 – – – – 2 8 7. 8
Settlement of Premier’s debt
2
– 9 8 7. 1 41 . 5 – – – – – 1,028 .6
Profit for the financial year – – – – – – – 101 .1 101 .1
Share-based payments – – – – – – – 13.4 13.4
Purchase of ESOP Trust shares – – – – – – – (3. 1 ) (3 .1 )
Other comprehensive loss – – – – (2 ,1 42 . 3 ) (8 . 3 ) (5 .7 ) – (2, 1 56 . 3 )
At 31 December 2021 171 . 1 1 , 50 4.6 6 7 7. 4 8. 1 (2, 06 2.1 ) 1 .5 98.3 74 . 6 473 . 5
1 Disclosed net of deferred tax.
2 Debt settlement relates to the issuance of shares in partial settlement of Premier’s debt.
The Merger constituted a ‘reverse takeover’ of Premier by Chrysaor and has therefore been accounted for as a reverse acquisition
in accordance with IFRS 3 Business Combinations. The effect on the statement of changes in equity is that the capital structure
(Share capital and Share premium) is a continuation of the legal acquirer (Premier Oil plc), whilst the remaining reserves reflect
the accounting acquirer (Chrysaor Holdings Limited).
Strategic report Governance Financial statements Additional information
117
Harbour Energy plc
Annual Report & Accounts 2021
Note
2021
$ million
2020
$ million
Net cash inflow from operating activities 27 1 ,61 4. 2 1 , 373 .4
Cash flows from investing activities
Expenditure on exploration and evaluation assets (17 6 . 5 ) (8 8 . 3 )
Expenditure on property, plant and equipment (4 37. 4 ) (4 5 7. 6 )
Expenditure on non-oil and gas intangible assets (30. 0 ) (52 . 2 )
Cash acquired on business combinations 14 9 7. 4 –
Receipts for sub-lease income 7. 4 –
Expenditure on business combinations – contingent consideration – (1 2 . 5 )
Expenditure on business combinations – deferred consideration (4 6 . 0 ) –
Finance income received 14.1 7. 4
Net cash outflow from investing activities (571 .0 ) (6 0 3 . 2 )
Cash flows from financing activities
Repayment of senior debt 21 (6 9 7. 5 ) (77 4.0 )
Repayment of junior debt 21 (40 0. 0 ) –
Repayment of financing arrangement 21 (9. 3 ) (1 . 6 )
Repayment of Exploration Financing Facility 21 (1 4 .7 ) (8 .7 )
Repayment of short-term debt arising on business combination 21 (1 , 276 .5 ) –
Repayment of hedging liabilities arising on business combination (48.5 ) –
Proceeds from new borrowings – Exploration Financing Facility 21 45.9 12. 8
Proceeds from new borrowings – senior debt 21 1 , 6 1 7. 5 1 57. 5
Proceeds from new borrowings – High Yield Bond 21 5 00.0 –
Purchase of ESOP Trust shares (3. 1 ) –
Lease payments 13 (16 0 .4 ) (6 0 . 5 )
Redemption of loan notes 21 (1 3 5 .7 ) (7 7. 1 )
Interest paid and bank charges (20 4 .9 ) (1 47. 8 )
Net cash outflow from financing activities (7 8 7. 2 ) (8 9 9. 4 )
Net increase/(decrease) in cash and cash equivalents 256.0 (1 2 9 . 2 )
Effect of exchange rates on cash and cash equivalents (2 .7 ) 1.4
Cash and cash equivalents at 1 January 445.4 573 . 2
Cash and cash equivalents as at 31 December 17 6 9 8 .7 445.4
Consolidated statement of cash flows
For the year ended 31 December
118
Harbour Energy plc
Annual Report & Accounts 2021
1. Corporate information
The consolidated financial statements of Harbour Energy plc (Harbour or the Company, formerly Premier Oil plc) for the year ended
31 December 2021 which comprise the Company and all its subsidiaries (the Group), were authorised for issue in accordance with a
resolution of the Directors on 16 March 2022. Harbour Energy plc is a limited liability company incorporated in Scotland and listed on the
London Stock Exchange. The Company’s registered office is 4
The Merger constituted a ‘reverse takeover’ of Premier by Chrysaor and has therefore been accounted for as a reverse acquisition in
accordance with IFRS 3 Business Combinations. As a result, Premier is fully consolidated in the financial statements with effect from
31March 2021, and all results prior to this date represent those of Chrysaor only.
2. Accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared on a going concern basis in accordance with International Financial
Reporting Standards (IFRS) in conformity with the requirements of the Companies Act 2006 and UK-adopted International Accounting
Standards. The analysis used by the Directors in adopting the going concern basis considers the various plans and commitments of the
Group as well as various sensitivity and reverse stress test analyses. Further details are within the Financial review and Viability Statement.
The Group financial statements are presented in US Dollars ($) and all values are rounded to the nearest $0.1 million except where
otherwise stated.
The financial statements have been prepared on the historical cost basis, except for certain financial assets and liabilities (including
derivative financial instruments) which have been measured at fair value.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended
31December 2021. All accounting policies are consistent with those adopted and disclosed in Chrysaor’s 2020 Annual Report
and Financial Statements, other than where new policies have been adopted, and the comparatives are those of Chrysaor.
In addition, following the Merger with Premier and its material FPSO lease arrangements, the Group has adopted its leasing accounting
policy in relation to lease arrangements of a joint operation, see Leases.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn up to
31December 2021. Subsidiaries are those entities over which the Group has control. Control is achieved where the Group has the
power over the subsidiary, is exposed, or has rights to variable returns from the subsidiary and has the ability to use its power to affect
its returns. All subsidiaries are 100 per cent owned by the Group and there are no non-controlling interests.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements
of subsidiaries acquired to bring the accounting policies used into line with those used by other members of the Group.
All intercompany balances have been eliminated on consolidation.
Impact of climate change on the financial statements and related disclosures
Judgements and estimates made in assessing the impact of climate change and the energy transition
The Group monitors global climate change and energy transition developments and plans accordingly. Management recognises there
is a general high level of uncertainty about the speed and scale of impacts which, together with limited historical information, provides
significant challenges in the preparation of forecasts and plans with a range of possible future scenarios.
The Group’s strategic ambition is to achieve Net Zero by 2035 through several opportunities, including operational improvements, UK
offshore electrification, UK Carbon Capture and Storage (CCS) and the eventual cessation of production of mature fields. Where the Group
cannot reduce its Scope 1 and 2 emissions, it will invest in carbon offsets to achieve the goal of Net Zero. All new economic investment
decisions include the cost of carbon and opportunities are assessed on their climate-impact potential and alignment with Harbour Energy’s
Net Zero goal, taking into consideration both GHG volumes and intensity. Emissions reduction incentives are part of staff remuneration and
annual bonus schemes (refer to Remuneration Committee report). Additionally, the cost of borrowing is tied to our gross operated CO
2
emissions performance, with GHG metrics being linked to our RBL interest expense, further incentivising our emissions reduction targets.
Notes to the consolidated financial statements
Strategic report Governance Financial statements Additional information
119
Harbour Energy plc
Annual Report & Accounts 2021
As a result, climate change and the energy transition have the potential to significantly impact the accounting estimates adopted by
management and therefore the valuation of assets and liabilities reported on the balance sheet. On an ongoing basis management
continues to assess the potential impacts on the significant judgements and estimates used in the financial statements. Estimates
adopted in the preparation of the financial statements reflect management’s best estimate of future market conditions where, in
particular, commodity prices can be volatile. Notwithstanding the challenges around climate change and the energy transition, it is
management’s view that the financial statements are consistent with the disclosures in the Strategic Report.
Impairment of property, plant and equipment, and goodwill
The energy transition has the potential to significantly impact future commodity and carbon prices which would, in turn, affect the
recoverable amount of property, plant and equipment and goodwill. In the current period, management’s estimates of real long-term
commodity price assumptions when testing for impairment were $65/bbl (2020: $60/bbl) and 60p/therm (2020: 40p/therm) for
Brent crude and UK NBP gas, respectively. The real long-term price assumption for the UK regulatory price of carbon is £55/tonne.
The scenarios which reflect the potential impact of the energy transition continue to be developed and with respect to potential
investment criteria, in particular, a carbon price hurdle of $100/tonne is used in combination with other investment parameters.
Such assumptions are inherently uncertain and may ultimately differ from the actual amounts.
See key sources of estimation uncertainty: recoverability of oil and gas assets and goodwill for further information including sensitivity
analysis in relation to reasonably possible changes in price assumptions. Asset impairments were recognised during 2021 as a result of
underlying reservoir performance. In 2020, impairments were recognised on both assets and goodwill as a result of the prior commodity
price assumptions. See notes 10 and 12 for further information.
Property, plant and equipment – depreciation and expected useful lives
The energy transition has the potential to reduce the expected useful lives of assets and consequently accelerate depreciation charges.
No changes have been identified or recognised to date.
See accounting policy: property, plant and equipment for further information.
Intangible assets – exploration and evaluation assets
The energy transition has the potential to affect the future development or viability of exploration and evaluation prospects. A significant
portion of the Group’s exploration and evaluation assets relates to prospects that could be tied back to existing infrastructure and hence
require less capital investment and are less exposed to the impacts of the energy transition compared to large frontier developments.
At each balance sheet date, all exploration and evaluation prospects are reviewed against the Group’s financial framework to ensure that
the continuation of activities is planned and expected.
See judgements: exploration and evaluation expenditure and note 11 for further information.
Decommissioning cost and provisions
The energy transition may accelerate the decommissioning of assets which would result in an increase in the carrying value of associated
decommissioning provisions. Whilst the Group currently expects to incur decommissioning costs over the next 40 years, we anticipate the
majority of costs will be incurred between the next 10 to 20 years which will reduce the exposure to the impact of the energy transition.
Decommissioning cost estimates are based on the known regulatory and external environment. These cost estimates and recoverability
of associated deferred tax may change in the future, including as a result of the energy transition.
On the basis that all other assumptions in the calculation remain the same, a 10 per cent increase in the cost estimates, and a 10 per cent
reduction in the applied discount rates used to assess the final decommissioning obligation, would result in increases to the decommissioning
provision of approximately $622 million and $93 million respectively. This change would be principally offset by a change to the value of the
associated asset unless the asset is fully depreciated, in which case the change in estimate is recognised directly within the income statement.
See key sources of estimation uncertainty: decommissioning costs for further information.
Segment reporting
The Group’s activities consist of one class of business – the acquisition, exploration, development and production of oil and gas reserves
and related activities, and are split geographically and managed in two business units: namely ‘North Sea’ and ‘International’.
Joint arrangements
A joint arrangement is one in which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Exploration and production operations are usually conducted through joint arrangements with other parties. The Group reviews all joint
arrangements and classifies them as either joint operations or joint ventures depending on the rights and obligations of each party to
the arrangement and whether the arrangement is structured through a separate vehicle. The Group’s interest in joint operations, such
as exploration and production arrangements, are accounted for by recognising its:
Notes to the consolidated financial statements continued
2. Accounting policies continued
120
Harbour Energy plc
Annual Report & Accounts 2021
¼ Assets, including its share of any assets held jointly.
¼ Liabilities, including its share of any liabilities incurred jointly.
¼ Revenue from the sale of its share of the output arising from the joint operation.
¼ Expenses, including its share of any expenses incurred jointly.
A joint venture, which normally involves the establishment of a separate legal entity, is a contractual arrangement whereby the parties
that have joint control of the arrangement have the rights to the arrangement’s net assets. The results, assets and liabilities of a joint
venture are incorporated in the consolidated financial statements using the equity method of accounting. During 2021, the Group did
not have any interests in joint ventures.
Where the Group transacts with its joint operations, unrealised profits and losses are eliminated to the extent of the Group’s interest
in the joint operation.
Foreign currency translation
Each entity in the Group determines its own functional currency, being the currency of the primary economic environment in which
the entity operates, and items included in the financial statements of each entity are measured using that functional currency.
The consolidated financial statements are presented in US Dollars.
Transactions recorded in foreign currencies are initially recorded in the entity’s functional currency by applying an average rate of
exchange. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange
ruling at the reporting date. All differences are taken to the income statement. Non-monetary assets and liabilities denominated in foreign
currencies are measured at historic cost based on exchange rates at the date of the transaction and subsequently not retranslated.
On consolidation, the assets and liabilities of the Group’s operations are translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the average monthly exchange rates for the year. Equity is held at historic cost and
is not retranslated. The resulting exchange differences are recognised as other comprehensive income or expense and are transferred
to the Group’s translation reserve.
When an overseas operation is disposed of, such translation differences relating to it are recognised as income or expense.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the
assets transferred, equity instruments issued and liabilities incurred or assumed at the date of completion of the acquisition. Acquisition
costs incurred are expensed and included in administrative expenses. Where applicable, the consideration for the acquisition includes any
asset or liability resulting from a contingent consideration arrangement, measured at its fair value at acquisition.
The identifiable assets, liabilities and contingent liabilities acquired that meet the conditions for recognition under IFRS 3 are recognised
at their fair value at the acquisition date, except that:
¼ Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured
in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively.
¼ Lease arrangements that represent leases as defined by IFRS 16 Leases are recognised and measured in accordance with IFRS 16 Leases.
¼ Liabilities or equity instruments related to the replacement by the Group of an acquirer’s share-based payment awards are measured
in accordance with IFRS 2 Share-based Payment.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted
during the measurement period, or additional assets or liabilities are recognised to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts
and circumstances that existed as of the acquisition date, subject to a maximum of one year.
Goodwill
In the event of a business combination or acquisition of an interest in a joint operation in which the activity constitutes a business, as
defined in IFRS 3 Business Combinations, the acquisition method of accounting is applied. Goodwill represents the difference between
the aggregate of the fair value of purchase consideration transferred at the acquisition date and the fair value of the identifiable assets,
liabilities and contingent liabilities acquired. If however, the fair value of the purchase consideration transferred is lower than the fair
value of the identifiable assets and liabilities acquired, the difference is recognised in the income statement as negative goodwill. Goodwill
is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment. For the purpose
of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s
cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units. Goodwill is treated as an asset of the relevant entity to which it relates and
accordingly non-US Dollar goodwill is translated into US Dollars at the closing rate of exchange at each reporting date.
Strategic report Governance Financial statements Additional information
121
Harbour Energy plc
Annual Report & Accounts 2021
Goodwill, as disclosed in note 10, is not amortised but is reviewed for impairment at least annually by assessing the recoverable amount of
the CGUs to which the goodwill relates. Where the carrying amount of the CGU and related goodwill is higher than the recoverable amount
of the CGU, an impairment loss is recognised in the income statement. The recoverable amounts of the CGUs have been determined on a
fair value less costs to sell basis. Impairment losses relating to goodwill cannot be reversed in future periods. Goodwill acquired through
business combinations has been allocated to two CGUs, being North Sea and International.
Oil and gas assets
(a) Intangible assets
Exploration and evaluation assets
Exploration and evaluation expenditure is accounted for using the successful efforts method of accounting having regard to the
requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources.
Pre-licence costs
Pre-licence costs are expensed in the period in which they are incurred.
Licence and property acquisition costs
Licence and property acquisition costs paid in connection with a right to explore in an existing exploration area are capitalised as
exploration and evaluation costs within intangible assets.
Licence and property acquisition costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount
exceeds the recoverable amount. If no future activity is planned or the related licence has been relinquished or has expired, the carrying
value of the property acquisition costs is written-off through the income statement. Upon recognition of proven reserves and internal
approval for development, the relevant expenditure is transferred to oil and gas properties within development and production assets.
Exploration and evaluation costs
Once the legal right to explore has been acquired, costs directly associated with the exploration are capitalised as exploration and
evaluation intangible non-current assets until the exploration is complete and the results have been evaluated. If no potential commercial
resources are discovered, the exploration asset is written-off.
All such capitalised costs are subject to technical, commercial and management review, as well as review for indicators of impairment at
least annually. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the
case, the costs are written-off through the income statement.
When proven reserves of oil or natural gas are identified and development is sanctioned by management, the relevant capitalised
expenditure is first assessed for impairment and (if required) any impairment loss is recognised, then the remaining balance is
transferred to oil and gas properties within development and production assets. No amortisation is charged during the exploration
and evaluation phase.
Farm-outs – in the exploration and evaluation phase
The Group does not record any expenditure made by the farmee on its account. It also does not recognise any gain or loss on its
exploration and evaluation farm-out arrangements but re-designates any costs previously capitalised in relation to the whole interest
as relating to the partial interest retained. Any cash consideration received directly from the farmee is credited against costs previously
capitalised in relation to the whole interest with any excess accounted for by the farmor as a gain on disposal.
(b) Property, plant and equipment – oil and gas assets
Oil and gas development and production assets are accumulated generally on a field-by-field basis. This represents expenditure on the
construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells,
including Exploration & Evaluation (E&E) expenditures incurred in finding commercial reserves transferred from intangible E&E assets,
as outlined in accounting policy (a) above, which is capitalised as oil and gas properties within development and production assets.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into
operation, the initial estimate of the decommissioning obligation and, for qualifying assets (where relevant), borrowing costs. The
purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.
An item of development and production expenditure and any significant part initially recognised is derecognised upon disposal or when
no future economic benefits are expected. Any gain or loss arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the income statement.
Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of assets, inspection
costs and overhaul costs. Where an asset, or part of an asset, that was separately depreciated and is now written-off is replaced and it is
probable that future economic benefits associated with the item will flow to the Group, the expenditure is capitalised. All other day-to-day
repairs and maintenance costs are expensed as incurred.
Notes to the consolidated financial statements continued
2. Accounting policies continued
122
Harbour Energy plc
Annual Report & Accounts 2021
Depreciation of producing assets
All costs relating to a development are accumulated and not depreciated until the commencement of production. Depreciation is provided
generally on a field-by-field basis, using the unit of production method by reference to the ratio of production in the year and the related
commercial proven and probable reserves of the field, taking into account future development expenditures necessary to bring those
reserves into production. When there is a change in the estimated total recoverable proven and probable reserves of a field, that change
is accounted for in the depreciation charge over the revised remaining proven and probable reserves.
(c) Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for using the acquisition method when the assets acquired and liabilities assumed
constitute a business.
Transactions involving the purchase of an individual field interest, or a group of field interests, that do not constitute a business, are
treated as asset purchases irrespective of whether the specific transactions involve the transfer of the field interests directly or the
transfer of an incorporated entity. Accordingly, no goodwill and no deferred tax gross up arises, and the consideration is allocated to
the assets and liabilities purchased on an appropriate basis.
Proceeds on disposal are applied to the carrying amount of the specific intangible asset or oil and gas properties disposed of and any
surplus is recorded as a gain on disposal in the income statement.
(d) Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present value of
the estimated future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related
oil and gas property. This is subsequently depreciated as part of the capital costs of the production facilities. Any change in the present
value of the estimated expenditure is dealt with from the start of the financial year as an adjustment to the opening provision and the oil
and gas property. The unwinding of the discount is included as a finance cost.
Non-oil and gas assets
(a) Property, plant and equipment – fixtures and fittings and office equipment
Fixtures and fittings and office equipment is stated at cost less accumulated depreciation and impairment. Depreciation is provided for
on a straight-line basis at rates sufficient to write off the cost of the assets less any residual value over their estimated useful economic
lives. The depreciation periods for the principal categories of assets are as follows:
¼ Fixtures and fittings: up to 10 years.
¼ Office furniture and equipment: up to 5 years.
(b) Intangible assets
Intangible assets, which principally comprise IT software, are carried at cost less any accumulated amortisation. These assets are
amortised on a straight-line basis over their useful economic lives of up to three years.
Impairment of non-current assets (excluding goodwill)
In accordance with IAS 36, impairment tests are carried out on items of property, plant and equipment and intangible assets where there
is an indicator of impairment, or an indicator identified that a prior year impairment may have reversed or decreased. Such indications
may be based on events or changes in the market environment, or on internal sources of information.
Impairment indicators
Property, plant and equipment and intangible assets with finite useful lives are only tested for impairment when there is an indication
that they may be impaired. This is generally the result of significant changes to the environment in which the assets are operated or when
asset performance is significantly lower than expected.
The main impairment indicators used by the Group are described below:
¼ External sources of information:
– significant changes in the economic, technological, political or market environment in which the entity operates or to which an asset
is dedicated;
– fall in demand; and
– changes in commodity prices and exchange rates.
¼ Internal sources of information:
– evidence of obsolescence or physical damage;
– significantly lower than expected production or cost performance;
– reduction in reserves and resources, including as a result of unsuccessful results of drilling operations;
– pending expiry of licence or other rights; and
– in respect of capitalised exploration and evaluation costs, lack of planned future activity on the prospect or licence.
Strategic report Governance Financial statements Additional information
123
Harbour Energy plc
Annual Report & Accounts 2021
Measurement of recoverable amount
The CGU applied for impairment test purposes is generally the field, except that a number of field interests may be grouped as a
single CGU where the cash inflows of each field are interdependent. The carrying value of each CGU is compared against the expected
recoverable amount of the asset, which is primarily determined based on the fair value less cost of disposal method where the fair value
is determined from the estimated present value of the future net cash flows expected to be derived from production of commercial
reserves. Standard valuation techniques are used based on the discount rates that reflect the specific characteristics of the operating
entities concerned; discount rates are determined on a post-tax basis and applied to post-tax cash flows.
Any impairment loss is recorded in the consolidated income statement under ‘Impairment of property, plant and equipment’. Impairment
losses recorded in relation to property, plant and equipment may be subsequently reversed if the recoverable amount of the assets
subsequently increases above carrying value. The increased carrying amount of an item of property, plant or equipment attributable to a
reversal of an impairment loss may not exceed the carrying amount that would have been determined (net of depreciation/amortisation)
had no impairment loss been recognised in prior periods.
Financial instruments
(a) Financial assets
The Group uses two criteria to determine the classification of financial assets: the Group’s business model and contractual cash flow
characteristics of the financial assets. Where appropriate the Group identifies three categories of financial assets: amortised cost, fair
value through profit or loss (FVTPL), and fair value through other comprehensive income (FVOCI).
Financial assets held at amortised cost
Financial assets held at amortised cost are initially measured at fair value except for trade debtors which are initially measured at cost.
Both are subsequently carried at amortised cost using the effective interest rate (EIR) method, less impairment. The EIR amortisation is
presented within finance income in the income statement.
Cash and cash equivalents
Cash at bank and in hand in the balance sheet comprise cash deposits with banks and in hand.
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an approximation of the original effective interest rate.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition,
ECLs are provided for credit losses that result from ‘default events’ that are possible within the next 12 months (a 12-month ECL).
Default events could include:
¼ payment default, i.e. the failure to pay principal or interest when it falls due for payment;
¼ prospective default, when payment is not yet due, but it is clear that it will not be capable of being paid when it does fall due; and
¼ covenant default, when the borrower fails to keep a promise (a covenant) that it has made in the contract.
For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is
required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs as allowed under IFRS 9.
Provision rates are calculated based on estimates including the probability of default by assessing counterparty credit ratings, as
adjusted for forward-looking factors specific to the debtors, the economic environment and the Group’s historical credit loss experience.
Credit impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI
are credit impaired. A financial asset is ‘credit impaired’ when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred. Evidence that a financial asset is credit impaired includes the following observable data:
¼ significant financial difficulty of the borrower or issuer;
¼ a breach of contract such as default or past due event;
¼ the restructuring of a loan or advance by the Group on terms that the Group would otherwise not consider;
¼ it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
¼ the disappearance of an active market for a security because of financial difficulties.
(b) Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised
initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
Notes to the consolidated financial statements continued
2. Accounting policies continued
124
Harbour Energy plc
Annual Report & Accounts 2021
Borrowings and loans
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective
interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognised in the income statement.
(c) Derivative financial instruments
The Group uses derivative financial instruments such as forward currency contracts, interest rate swaps, commodity option contracts and
commodity swap arrangements, to hedge its foreign currency risks, interest rate risks and commodity price risks respectively. Derivative
financial instruments are initially recognised and subsequently remeasured at fair value. Certain derivative financial instruments are
designated as cash flow hedges in line with the Group’s risk management policies. When derivatives do not qualify for hedge accounting
or are not designated as accounting hedges, changes in the fair value of the instrument are recognised within the income statement.
Cash flow hedges
The effective portion of gains and losses arising from the remeasurement of derivative financial instruments designated as cash flow
hedges are deferred within other comprehensive income and subsequently transferred to the income statement in the period the hedged
transaction is recognised in the income statement. When a hedging instrument is sold or expires, any cumulative gain or loss previously
recognised in other comprehensive income remains deferred until the hedged item affects profit or loss or is no longer expected to occur.
Any gain or loss relating to the ineffective portion of a cash flow hedge is immediately recognised in the income statement. Hedge
ineffectiveness could arise if volumes of the hedging instruments are greater than the hedged item of production, or where the
credit-worthiness of the counterparty is significant and may dominate the transaction and lead to losses.
(d) Fair values
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. It is determined by reference to quoted market prices adjusted for estimated transaction
costs that would be incurred in an actual transaction, or by the use of established estimation techniques such as option pricing models
and estimated discounted values of cash flows.
For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques.
Under IFRS 9, embedded derivatives are not separated from a host financial asset, and are classified based on their contractual terms
and the Group’s business model.
Equity
(i) Share capital
Share capital includes the total net proceeds, both nominal and share premium, on the issue of ordinary and preference shares of the Company.
(ii) Capital redemption reserve
The capital redemption reserve represents the nominal value of shares transferred following the Company’s purchase of them.
(iii) Merger reserve
On 31 March 2021, Harbour Energy plc (formerly Premier Oil plc) acquired Chrysaor Holdings Limited as part of a reverse acquisition.
Under the terms of the Merger, Premier legally acquired Chrysaor through the issuance of consideration shares whilst Chrysaor was the
acquirer for accounting purposes, primarily as a result of its ability to appoint the Board of the enlarged group. The Merger reserve
primarily represents Premier’s opening balance on the legal reserve plus the fair value of the assets and liabilities acquired by Chrysaor.
(iv) Cash flow hedge reserve
The cash flow hedge and cost of hedging reserves represent gains and losses on derivatives classified as effective cash flow hedges.
Upon the designation of option instruments as hedging instruments, the intrinsic and time value components are separated, with only
the intrinsic component being designated as the hedging instrument and the time value component is deferred in other comprehensive
income as a ‘cost of hedging’.
(v) Currency translation reserve
This reserve comprises exchange differences arising on consolidation of the Group’s operations with a functional currency other than US Dollar.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payment. The Group has share-based awards that are equity and cash
settled as defined by IFRS 2. The fair value of the equity-settled awards has been determined at the date of grant of the award allowing
for the effect of any market-based conditions. The fair value determined at the grant date of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted
for the effect of non-market based vesting conditions. For cash-settled awards, a liability is recognised for the goods or service acquired.
Strategic report Governance Financial statements Additional information
125
Harbour Energy plc
Annual Report & Accounts 2021
This is measured initially at the fair value of the liability. The fair value of the liability is subsequently remeasured at each balance sheet
date until the liability is settled, and at the date of settlement, with any changes in fair value recognised in the income statement.
Inventories
All inventories, except for petroleum products, are stated at the lower of cost and net realisable value. The cost of materials is the
purchase cost, determined on a first-in, first-out basis. Petroleum products and underlift and overlift positions are measured at net
realisable value using an observable year-end oil or gas market price, and are included in other debtors or creditors respectively.
Leases
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the
Group. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on
the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of lease term and useful life. The
Group recognises right-of-use assets and lease liabilities on a gross basis and the recovery of lease costs from joint operations’ partners is
recorded as other income.
Right-of-use assets and lease liabilities arising from a lease are initially measured on a present value basis reflecting the net present value
of the fixed lease payments and amounts expected to be payable by the Group assuming leases run to full term. The Group has applied
judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of
whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly impacts the amount of lease
liabilities and right-of-use assets recognised.
The lease payments are discounted using the Group’s incremental borrowing rates of between 1.5 per cent and 5.9 per cent, being the rate
that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with
similar terms and conditions.
To determine the incremental borrowing rate, the Group where possible:
¼ uses recent third party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions
since third party financing was received; and
¼ makes adjustments specific to the lease, for example term, country, currency and security.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease
liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed
and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
¼ the amount of the initial measurement of lease liability;
¼ any lease payments made at or before the commencement date less any lease incentives received; and
¼ any initial direct costs and restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases and leases of low value assets are recognised on a straight-line basis as an expense in the
income statement. Short-term leases are leases with a lease term of 12 months or less.
For lease arrangements where all partners of a joint operation are considered to share the primary responsibility for lease payments
under a lease contract, the Group recognises its share of the respective right-of-use asset and lease liability. This situation is most
common where the parties of a joint operation co-sign the lease contract. The Group recognises a gross lease liability for leases entered
into on behalf of a joint operation where it has primary responsibility for making the lease payments. In such instances, if the
arrangement between the Group and the joint operation represents a finance sublease, the Group recognises a net investment in
sublease for amounts recoverable from non-operators whilst derecognising the respective portion of the gross right-of-use asset. The
gross lease liability is retained on the balance sheet. The net investment in sublease is classified as either trade and other receivables or
long-term receivables on the balance sheet according to whether or not the amounts will be recovered within 12 months of the balance
sheet date. Finance income is recognised in respect of net investment in subleases.
Provisions for liabilities
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation.
The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money
is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risk specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognised as part of finance costs in the income statement.
Notes to the consolidated financial statements continued
2. Accounting policies continued
126
Harbour Energy plc
Annual Report & Accounts 2021
The estimated cost of dismantling and restoring the production and related facilities at the end of the economic life of each field is
recognised in full when the related facilities are installed. The amount provided is the present value of the estimated future restoration
cost. A non-current asset is also recognised. Any changes to estimated costs or discount rates are dealt with prospectively.
The Group recognises provision for the estimated CO
2
emissions costs when actual emissions exceed the emission rights granted and
still held. When actual emissions exceed the amount of emission rights granted, provision is recognised for the exceeding emission rights
based on the purchase price of allowance concluded in forward contracts or market quotations at the reporting date.
Group retirement benefits
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed
retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the schemes
are equivalent to those arising in a defined contribution retirement benefit plan.
The Group operates a defined benefit pension scheme, which requires contributions to be made to a separately administered fund.
The cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each
balance sheet date. Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as
reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds
and reductions in future contributions to the plan.
Trade payables
Initial recognition of trade payables is at fair value. Subsequently they are stated at amortised cost.
Taxes
(i) Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and laws used to compute the amount are those that are enacted or substantively enacted at the
reporting date in the countries where the Group operates and generates taxable income.
Current income tax related to items recognised directly in other comprehensive income or equity is recognised in other comprehensive
income or directly in equity, not in the income statement.
(ii) Deferred tax
Deferred taxation is recognised in respect of all timing differences arising between the tax bases of the assets and liabilities and their
carrying amounts in the financial statements with the following exceptions:
¼ Deferred income tax assets are recognised only to the extent that it is probable that the taxable profit will be available against which the
deductible temporary difference, carried forward tax credits or tax losses can be utilised.
¼ Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the reporting date.
The carrying amount of the deferred income tax asset is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The Group reassesses
any unrecognised deferred tax assets each year taking into account changes in oil and gas prices, the Group’s proven and probable
reserves and resources profile and forecast capital and operating expenditures.
¼ Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to offset current assets against current tax liabilities,
the deferred income tax relates to the same tax authority and that same tax authority permits the Group to make a single net payment.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other comprehensive income.
Revenue from contracts with customers
Revenue from contracts with customers is recognised when the Group satisfies a performance obligation by transferring a good or service
to a customer. A good or service is transferred when the customer obtains control of that good or service. Revenue associated with the
sale of crude oil, natural gas, and natural gas liquids (NGLs) is measured based on the consideration specified in contracts with
customers with reference to quoted market prices in active markets, adjusted according to specific terms and conditions as applicable
according to the sales contracts. The transfer of control of oil, natural gas, natural gas liquids and other items sold by the Group occurs
when title passes at the point the customer takes physical delivery. The Group principally satisfies its performance obligations at a point
in time and the amounts of revenue recognised relating to performance obligations satisfied over time are not significant.
Over/underlift
Differences between the production sold and the Group’s share of production result in an overlift or an underlift. Overlift and underlift are
valued at net realisable value using an observable year-end oil or gas market price and included within payables or receivables
respectively. Movements during the accounting period are recognised within cost of sales.
Strategic report Governance Financial statements Additional information
127
Harbour Energy plc
Annual Report & Accounts 2021
Interest income
Interest income is recognised on an accruals basis, by reference to the principal outstanding and at the effective interest rate applicable.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the respective assets. Where the
funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the income
statement in the period in which they are incurred.
New accounting standards and interpretations
The Group adopted new and revised accounting standards and interpretations relevant to its business and effective for accounting
periods beginning on or after 1 January 2021, including:
IBOR reform and the effects on financial reporting
The International Accounting Standards Board (IASB) issued Interest Rate Benchmark Reform—Phase 2, which amends IFRS 9 Financial
Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance
Contracts and IFRS 16 Leases. The IASB identified two groups of accounting issues that could have financial reporting implications. In
2019, the IASB issued its initial amendments in Phase 1 of the project, applicable to 2020 reporting, covering reporting in the period
before the replacement of an existing interest rate benchmark with an alternative RFR (Risk Free Rate). This addressed hedge accounting
requirements: the highly probable requirement; prospective assessments; and separately identifiable risk components. The Group
assessed the requirements of Phase 1 which applied for the first time in 2020, none of which had any impact on the financial statements
of the Group because there is no material hedge accounting of interest rate exposures. Phase 2 addresses financial reporting when an
existing interest rate benchmark is replaced with an alternative RFR, including the effects of changes to contractual cash flows or hedging
relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate (replacement issues).
On 1 January 2021, the Group has adopted the amendments to IFRS 9, IFRS 7, IFRS 4 and IFRS 16 Leases that are mandatory for application
for the financial year. The Phase 2 amendments provide temporary reliefs which address the financial reporting effects when an interbank
offered rate (IBOR) is replaced with an alternative RFR. Phase 2 provides practical expedients and reliefs in relation to modifications of
financial instruments and leases that arise from transition of IBORs to RFRs and further relief to hedge accounting requirements.
The adoption of the amended standards did not result in any material impact on the financial statements of the Group predominantly
since hedge accounting is applied to commodity-based hedging activities.
US LIBOR will cease publication after 30 June 2023 and will be replaced by SOFR (Secured Overnight Financing Rate). The Group has
variable rate RBL borrowings that reference US LIBOR, which are partially hedged using interest rate swaps also linked to US LIBOR.
The Group has agreed with the relevant counterparties that the timing and terms for the transition of the swap contracts to SOFR will
be aligned with the borrowings to reduce any future impact on the financial statements after transition.
The following table shows the financial instruments held by the Group as at 31 December 2021 which are referenced to US LIBOR that
will transition to SOFR by 30 June 2023.
RBL borrowings financial liabilities
Nominal value
$ million
USD 1M LIBOR 482.5
USD 3M LIBOR 405.0
USD 6M LIBOR 1,550.0
2,437.5
Derivatives
Interest rate swaps USD 6M LIBOR 700.0
The nominal values in the table above also represent the carrying values of the RBL as at 31 December 2021.
The other pronouncements did not have any impact on the Group’s accounting policies and did not require retrospective adjustments.
Accounting standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s
financial statements are disclosed opposite. The Group intends to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
Notes to the consolidated financial statements continued
2. Accounting policies continued
128
Harbour Energy plc
Annual Report & Accounts 2021
Amendments to IAS 1 – Presentation of Financial Statements – classification of liabilities as current or non-current
On 23 January 2020, the IASB issued a narrow-scope amendment to IAS 1 to clarify that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the reporting period. Liabilities are classified as non-current if the entity
has a substantive right to defer settlement for at least 12 months at the end of the reporting period. The Group does not consider this
amendment to have significant impact on the classification of its liabilities as either current or non-current when the standard becomes
effective on 1 January 2023.
Amendments to IFRS 3 – Reference to the Conceptual Framework
The IASB issued amendments to IFRS 3 to update the reference to the 2018 Conceptual Framework. The amendments add an exception
to the recognition principle for liabilities and contingent liabilities within the scope of IAS 37 or IFRIC 21 and clarify existing guidance for
contingent assets. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively.
Amendments to IAS 8 – Definition of Accounting Estimates
In February 2021, the International Accounting Standards Board issued Definition of Accounting Estimates, which amended IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
The amendments introduced the definition of accounting estimates and included other amendments to IAS 8 to help entities distinguish
changes in accounting estimates from changes in accounting policies, with the distinction important because changes in accounting
estimates are applied prospectively only to future transactions and other future events, but changes in accounting policies are generally
also applied retrospectively to past transactions and other past events.
Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies
In February 2021, the International Accounting Standards Board issued amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 require companies to disclose their material
accounting policy information rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide
guidance on how to apply the concept of materiality to accounting policy disclosures.
Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
On 7 May 2021, the IASB issued amendments to IAS 12 Income Taxes. The amendments require companies to recognise deferred tax
on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. According to the
amended guidance, a temporary difference that arises on initial recognition of an asset or liability is not subject to the initial recognition
exemption if that transaction gave rise to equal amounts of taxable and deductible temporary differences. The proposed amendments will
typically apply to transactions such as leases for the lessee and decommissioning obligations. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023.
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 9. The amendment
clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different
from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including
fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are
modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment.
The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted.
The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual
reporting period in which the entity first applies the amendment.
The amendments listed above are not expected to have a material impact on the Group.
Critical accounting judgements and estimates
The preparation of the Group’s financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions at the date of the financial statements. Estimates and assumptions are continuously evaluated and are based on
management experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to
the carrying amount of the assets or liabilities affected in future periods. In particular, the Group has identified the following areas
where significant judgement, estimates and assumptions are required.
Critical accounting judgements
¼ The application of the going concern basis of accounting (see ‘Basis of preparation’ section on page 119);
¼ carrying value of intangible exploration and evaluation assets, in relation to whether commercial determination of an exploration
prospect had been reached;
¼ carrying value of property, plant and equipment regarding assessing assets for indicators of impairment;
¼ decommissioning costs, relating to the timing of when decommissioning would occur; and
¼ tax and recognition of deferred tax assets, relating to the extent to which future taxable profits are included in the assessment
of recoverability.
Strategic report Governance Financial statements Additional information
129
Harbour Energy plc
Annual Report & Accounts 2021
Key sources of estimation uncertainty
Details of the Group’s critical accounting estimates are set out in these financial statements and are considered to be:
¼ Purchase Price Allocation that involved a number of judgemental estimates in regard to fair value of assets and liabilities acquired
from Premier;
¼ carrying value of property, plant and equipment, where the key assumptions relate to oil and gas prices expected to be realised and 2P
production profiles;
¼ decommissioning costs where the key assumptions relate to the discount and inflation rates applied, applicable rig rates and expected
timing of cessation of production (COP) on each field; and
¼ tax and recognition of deferred tax assets, where key assumptions relate to oil and gas prices expected to be realised, and
production profiles.
Further information is provided in the Audit and Risk Committee report on pages 66 to 69.
3. Segment information
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the Group’s business
segments, has been identified as the Chief Executive Officer.
The Group’s activities consist of one class of business being the acquisition, exploration, development and production of oil and gas
reserves and related activities, and are split geographically and managed in two regions, namely ‘North Sea’ and ‘International’. The
North Sea segment includes the UK and Norwegian Continental Shelves, and the ‘International’ segment includes Indonesia, Vietnam
and Mexico.
Information on major customers can be found in note 4.
Income statement
2021
$ million
2020
$ million
Revenue
North Sea 3,268.2 2,413.6
International 210.6 –
Total Group revenue 3,478.8 2,413.6
Other income
North Sea 139.0 24.2
International 0.2 –
Total Group revenue and other income 3,618.0 2,4 37. 8
Group operating profit/(loss)
North Sea 699.3 (6 87.4)
International (59.0) –
Total Group operating profit/(loss) 640.3 (6 87.4)
Finance income 48.8 11.4
Finance expenses (374.6) (301.7)
Profit/(loss) before taxation 314.5 (977.7)
Income tax (expense)/credit (213.4) 199.3
Profit/(loss) for the financial year 101.1 (778.4)
Notes to the consolidated financial statements continued
2. Accounting policies continued
130
Harbour Energy plc
Annual Report & Accounts 2021
Balance sheet
Segment assets
2021
$ million
2020
$ million
North Sea 13,325.8 9,482.5
International 1,178.8 –
Total assets 14,504.6 9,482.5
Segment liabilities
2021
$ million
2020
$ million
North Sea (13,379.6) (8,415.2)
International (651.5) –
Total liabilities (14,031.1) (8,415.2)
Other information
Capital expenditure
2021
$ million
2020
$ million
North Sea 640.7 556.3
International 68.4 –
Total capital expenditure 709.1 556.3
Depreciation, depletion and amortisation
2021
$ million
2020
$ million
North Sea 1,299.8 1,222.1
International 71.2 –
Total depreciation, depletion and amortisation 1,371.0 1,222.1
Exploration and evaluation expenses and new ventures
2021
$ million
2020
$ million
North Sea 45.4 13.2
International 4.4 –
Total exploration and evaluation expenses and new ventures 49.8 13.2
Exploration costs written-off of $255.0 million (2020: $160.8 million) comprise $133.9 million (2020: $nil) related to the International
segment, in connection with the Group’s exits from exploration acreage in Brazil and the Sea Lion project in the Falkland Islands, and
$121.1 million (2020: $160.8 million) of write-offs in the North Sea business unit, primarily related to uncommercial drilling results from
the Dunnottar, Jerv and Ilder exploration wells, and UK licence relinquishments.
4. Revenue and other income
2021
$ million
2020
$ million
Crude oil sales 2,023.4 1,430.1
Gas sales 1,264.0 805.2
Condensate sales 163.6 138.4
Hydrocarbon revenue 3,451.0 2,373.7
Tariff income 27.2 24.1
Other revenue 0.6 15.8
Total revenue from production activities 3,478.8 2,413.6
Other income 139.2 24.2
Total revenue and other income 3,618.0 2,4 37. 8
Revenue of $4,996.0 million (2020: $1,624.6 million) was from contracts with customers. This excludes realised hedging losses on
crude and gas sales in the year of $1,517.2 million (2020: $789.0 million gain).
Strategic report Governance Financial statements Additional information
131
Harbour Energy plc
Annual Report & Accounts 2021
Other income mainly represents mark to market and realised gains on EUA emissions hedges of $51.0 million (2020: $0.3 million),
a $40.0 million receipt from ConocoPhillips in relation to an adjustment to consideration relating to Chrysaor’s purchase of the
ConocoPhillips UK business in 2019 (2020: $nil), $17.5 million in respect of Research and Development Expenditure credits
(2020: $nil) and $26.0 million partner recovery on IFRS 16 lease accounting (2020: $23.9 million).
Approximately 84 per cent (2020: 95 per cent) of the revenues were attributable to sales to energy trading companies of the Shell group.
The revenues for 2021 include the nine months of oil and gas production from the Premier business following the all-share Merger
described in note 14.
5. Operating profit
Stated after charging/(crediting):
Note
2021
$ million
2020
$ million
Movement in over/underlift balances and hydrocarbon inventories 9.6 (119.9)
Production, insurance and transportation costs 1,085.5 754.2
Gas purchases 28.4 –
Royalties 3.8 –
Depreciation of oil and gas assets 12 1,204.1 1,168.9
Depreciation of non-oil and gas assets 12 5.5 5.7
Amortisation of non-oil and gas intangible assets 11 26.1 17. 2
Depreciation of right-of-use oil and gas assets 13 153.9 50.6
Depreciation of right-of-use non-oil and gas assets 13 10.5 6.2
Amortisation of capacity rights 11 1.6 1.7
Capitalisation of IFRS 16 lease depreciation on oil and gas assets 13 (30.7) (28.2)
Impairment of property, plant and equipment 12 117.2 644.0
Impairment of goodwill 10 – 411.4
Onerous contract provision 20 (2.3) 18.5
Exploration and evaluation expenditure and new ventures 49.8 13.2
Exploration costs written-off 11 255.0 160.8
Remeasurement of royalty valuation (0.5) 1.3
Remeasurement of acquisition completion adjustments – 0.4
Remeasurement – loss/(gain) on termination of lease 0.3 (0.5)
Auditors’ remuneration
Audit fees
Fees payable to the Company’s auditor for the Company’s Annual Report & Accounts 2.3 0.7
Audit of the Company’s subsidiaries pursuant to legislation 0.5 0.5
Non audit fees
Other services pursuant to legislation – interim review 0.3 –
Other services
1
0.4 0.6
1 Other services in 2021 primarily relate to reporting accountant services provided by EY in respect of the acquisition or other corporate transactions. These services are typically provided
by a company’s auditors, and the Audit and Risk Committee concluded that shareholder value was best served by appointing our auditors for this work.
Exploration and evaluation expenditure and new ventures of $49.8 million (2020: $13.2 million) includes $14.4 million (2020: $nil)
of early project costs on new ventures incurred in respect of the Group’s interest in Carbon Capture and Storage (CCS) projects.
Expenses related to both short-term and low value lease arrangements are considered to be immaterial for reporting purposes.
The Company has a policy on the provision of non-audit services by the auditor which is aimed at ensuring their continued independence.
This policy is available on the Group’s website. The use of the external auditor for services relating to accounting systems or financial
statement preparations is not permitted, as are various other services that could give rise to conflicts of interest or other threats to the
auditors’ objectivity that cannot be reduced to an acceptable level by applying safeguards.
Notes to the consolidated financial statements continued
4. Revenue and other income continued
132
Harbour Energy plc
Annual Report & Accounts 2021
6. Staff costs
2021
$ million
2020
$ million
Wages and salaries 223.8 146.4
Social security costs 27.9 21.5
Pension costs 28.2 18.6
Other staff costs including benefits 37.2 33.0
317.1 219.5
2021
Number
2020
Number
Offshore based 589 373
Office and administration 1,218 676
1,807 1,049
Staff costs above are recharged to joint venture partners where applicable, or are capitalised to the extent that they are directly
attributable to capital or decommissioning projects. The above costs include share-based payments as disclosed in note 25.
All employees were engaged in the acquisition, exploration, development and production of oil and gas reserves, and energy
transition activities.
The Group operates two defined contribution schemes and one defined benefit pension scheme for which further details are provided
in note 26.
Strategic report Governance Financial statements Additional information
133
Harbour Energy plc
Annual Report & Accounts 2021
7. Finance income and finance expenses
2021
$ million
2020
$ million
Finance income
Bank interest receivable 0.9 2.8
IFRS 9 modification impact 13.9 –
Lease finance income 3.2 –
Finance income on deferred revenue 1.2 –
Realised gains on foreign exchange forward contracts 10.0 3.9
Gain on derivatives 14.5 –
Exchange differences and other gains 1.9 –
Other interest 3.2 4.7
48.8 11.4
Finance expenses
Interest payable on Reserve Based Lending and junior facilities 101.6 98.5
Interest payable on loan notes 5.6 25.4
Interest payable on High Yield Bond 5.7 –
Other interest and finance expenses 16.6 5.9
Realised losses on interest rate swaps 2.4 0.7
Derivative losses 14.6 –
Lease interest 22.3 7. 2
Foreign exchange losses 65.2 40.0
Bank and financing fees 63.4 36.1
Unwinding of discount on deferred consideration – 0.1
Unwinding of discount on decommissioning and other provisions 78.0 87.8
375.4 301.7
Finance costs capitalised during the year (0.8) –
374.6 301.7
Bank and financing fees include an amount of $38.9 million (2020: $17.0 million) relating to the amortisation of arrangement fees and
related costs capitalised against the Group’s long-term borrowings (note 21).
Net other interest includes an $11.6 million charge (2020: $4.9 million) which represents interest under a financing arrangement (note 21).
The amount of finance costs capitalised was determined by applying the weighted average rate of finance costs applicable to the
borrowings of the Group of 3.7 per cent to the expenditures on the qualifying assets.
Effective March 2021, the Group extended the maturity of its RBL facility from December 2025 to November 2027. The amended terms
did not represent a substantial modification to the terms of the facility and, therefore, the debt was not derecognised. A modification gain
of $13.9 million (2020: $nil) was recognised on amendment of the facility.
Notes to the consolidated financial statements continued
134
Harbour Energy plc
Annual Report & Accounts 2021
8. Income tax
The major components of income tax expense/(credit) for the years ended 31 December 2021 and 2020 are:
2021
$ million
2020
$ million
Current income tax expense
UK corporation tax 202.2 355.7
Overseas tax (5.2) (18.2)
Adjustments in respect of prior years (4.9) (1.9)
Total current income tax expense 192.1 335.6
Deferred tax expense/(credit)
UK corporation tax 7.7 (545.6)
Overseas tax (10.3) 13.0
Adjustments in respect of prior years 23.9 (2.3)
Total deferred tax expense/(credit) 21.3 (534.9)
Tax expense/(credit) in the income statement 213.4 (199.3)
The tax expense/(credit) in the income statement is disclosed as follows: 213.4 (199.3)
Income tax expense/(credit) on continuing operations 213.4 (199.3)
The tax (credit) in the statement of comprehensive income is as follows: (1,433.2) (71.3)
Tax (credit) on cash flow hedges (1,433.2) (71.3)
A reconciliation between total tax expense/(credit) and the profit/(loss) before taxation multiplied by the statutory rate of corporation tax and
supplementary charge applying to UK oil and gas production operations for the years ended 31 December 2021 and 2020 is as follows:
2021
$ million
2020
$ million
Profit/(loss) before taxation 314.5 (977.7)
Profit/(loss) before taxation at 40.0% (2020: 40.0%) 125.8 (391.1)
Effects of:
– Expenses not deductible for tax purposes 56.8 176.6
– Interest not deductible for supplementary charge 13.1 7.6
– Adjustments in respect of prior years 19.0 (4.2)
– Movement in unrecognised deferred tax assets 27.4 17. 3
– Income not taxable – (5.7)
– Impact of losses relieved at different rates 4.0 20.7
– Investment allowance (32.7) (20.5)
Total tax expense/(credit) reported in the consolidated income statement 213.4 (199.3)
The tax expense/(credit) reconciliation has been prepared based on the statutory rate of taxation applying to UK oil and gas production
because the majority of Group profit was generated on the UK Continental Shelf.
The future effective tax rate is impacted by the mix of jurisdictions in which the Group operates. The UK statutory tax rate for oil and gas
production operations is expected to remain a primary influence on the effective tax rate.
Deferred tax
The principal components of deferred tax are set out in the following tables:
2021
$ million
2020
$ million
Deferred tax assets 1,938.4 –
Deferred tax liabilities (187.1) (1,031.4)
Total deferred tax 1,751.3 (1,031.4)
Strategic report Governance Financial statements Additional information
135
Harbour Energy plc
Annual Report & Accounts 2021
The origination of and reversal of temporary differences are, as shown in the next table, related primarily to movements in the carrying amounts
and tax base values of expenditure and the timing of when these items are charged and/or credited against accounting and taxable profit.
Note
Accelerated
capital
allowances
$ million
Decommissioning
$ million
Losses
$ million
Fair value of
derivatives
$ million
Other
$ million
Overseas
$ million
Total
$ million
As at 1 January 2020 (3,160.6) 1,588.9 – (128.9) 53.0 (1.6) (1,649.2)
Deferred tax credit 532.8 25.8 – – (10.7) (13.0) 534.9
Comprehensive income – – – 71.3 – – 71.3
Foreign exchange (22.7) 26.0 – 0.5 1.1 (1.4) 3.5
Additions from business combinations
and joint arrangements – – – – 8.1 – 8.1
As at 31 December 2020 (2,650.5) 1,640.7 – (57. 1) 51.5 (16.0) (1,031.4)
Additions from business combinations
and joint arrangements 14 (569.0) 564.0 1,530.6 8.4 15.2 (183.1) 1,366.1
Deferred tax expense 385.9 (178.2) (216.1) 3.6 (26.8) 10.3 (21.3)
Comprehensive income – – – 1,433.2 – – 1,433.2
Foreign exchange 13.5 (13.6) – 4.0 (1.1) 1.9 4.7
As at 31 December 2021 (2,820.1) 2,012.9 1,314.5 1,392.1 38.8 (186.9) 1,751.3
The Group’s deferred tax assets as at 31 December 2021 are recognised to the extent that taxable profits are expected to arise against
which the tax assets can be utilised. The Group assessed the recoverability of its UK ring fenced losses and allowances using corporate
assumptions which are consistent with the Group’s impairment assessment and business combination accounting (note 14). Based
on those assumptions, the Group expects to fully utilise its recognised UK tax losses and allowances. The recovery of the Group’s UK
decommissioning deferred tax asset is additionally supported by the ability to carry back decommissioning tax losses and set these
against ring fence taxable profits of prior periods.
The Group has unrecognised UK tax losses and allowances as at 31 December 2021 of approximately $343.1 million (2020: $12.5 million)
in respect of ring fence losses, $104.4 million (2020: $nil) in respect of ring fence investment allowance and $741.5 million (2020: $203.2
million) in respect of non-ring fence losses.
The Group also has unrecognised tax losses of approximately $212.8 million (2020: $nil) in respect of its International operations.
These losses include amounts of $148.5 million which will expire, primarily within five years.
No deferred tax has been provided on unremitted earnings of overseas subsidiaries, based on UK tax legislation which provides
exemption for foreign dividends from the scope of UK corporation tax, where relevant conditions are satisfied.
Changes in tax rate
Legislation was introduced in UK Finance Act 2021 to increase the main rate of UK corporation tax for non-ring fence profits from 19 per
cent to 25 per cent from 1 April 2023. This change did not have a material impact on the Group as the UK profits are primarily subject to
the UK ring fence tax rate.
9. Earnings per share
The calculation of basic earnings/(loss) per share is based on the profit/(loss) after tax and the weighted average number of Ordinary
Shares in issue during the period. Basic and diluted earnings per share are calculated as follows:
2021
$ million
2020
$ million
Earnings/(loss) for the period
Earnings/(loss) for the purpose of basic earnings per share 101.1 (778.4)
Effect of dilutive potential Ordinary Shares – –
Earnings/(loss) for the purpose of diluted earnings per share 101.1 (778.4)
Number of shares (millions)
Weighted average number of Ordinary Shares for the purpose of basic earnings per share 871.2 705.0
Dilutive potential Ordinary Shares 1.3 –
Weighted average number of Ordinary Shares for the purpose of diluted earnings per share 872.5 705.0
Earnings/(loss) per share (cents)
Basic 11.6 (110.4)
Diluted 11.6 (110.4)
Notes to the consolidated financial statements continued
8. Income tax continued
136
Harbour Energy plc
Annual Report & Accounts 2021
The weighted number of average shares in the comparative period and prior to the acquisition date is based on number of shares of the
legal acquiree multiplied by the exchange ratio established in the Merger agreement. From the date of acquisition the weighted number
of Ordinary Shares are that of the legal acquirer.
The effect of equity warrants and certain share options outstanding at 31 December 2021 were anti-dilutive as their exercise price was
greater than market price and, therefore, was not included in the calculation of diluted earnings/(loss) per share.
10. Goodwill
Note
2021
$ million
2020
$ million
Cost and net book value
At 1 January 990.0 1,404.3
Additions 14 339.3 –
Impairment charge – (411.4)
Finalisation of 2019 business combination – (5.3)
Currency translation adjustment (2.2) 2.4
At 31 December 2021 1,327.1 990.0
Goodwill represents the difference between the aggregate of the fair value of purchase consideration transferred at the acquisition date
and the fair value of the identifiable assets.
The goodwill balance consists of balances arising from the completion of the all-share Merger between Premier Oil plc and Chrysaor
Holdings Limited in March 2021, on Chrysaor Holdings Limited’s acquisition of the ConocoPhillips UK business, and of the UK North Sea
assets from Shell, which completed on 30 September 2019 and 1 November 2017 respectively.
Goodwill acquired through business combinations has been allocated to two groups of cash-generating units (CGUs), being North Sea,
of $1,278.1 million (2020: $990.0 million) and International, of $49.0 million (2020: $nil), and these are therefore the lowest levels at
which goodwill is reviewed.
Impairment testing of goodwill
In accordance with IAS 36 Impairment of Assets, goodwill has been reviewed for impairment at the year-end. In assessing whether
goodwill has been impaired, the carrying amount of the CGU for goodwill is compared with its recoverable amount.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. At the year-end,
the Group tested for impairment in accordance with accounting policy and no impairment was identified (2020: impairment of $411.4 million).
Determining recoverable amount
The recoverable amounts of the CGU and fields have been determined on a fair value less costs to sell basis. The key assumptions
used in determining the fair value are often subjective, such as the future long-term oil and gas price assumption, or the operational
performance of the assets. Discounted cash flow models comprising asset-by-asset life of field projections using Level 3 inputs (based on
IFRS 13 fair value hierarchy) have been used to determine the recoverable amounts. The cash flows have been modelled on a post-tax and
post-decommissioning basis, inflated at 2 per cent per annum from 1 January 2024, and discounted at the Group’s post-tax discount rate
of between 8 and 10.5 per cent (2020: 8 per cent). Risks specific to assets within the CGU are reflected within the cash flow forecasts.
Key assumptions used in calculations
Assumptions involved in impairment measurement include estimates of commercial reserves and production volumes, future oil and gas
prices, discount rates and the level and timing of expenditures, all of which are inherently uncertain.
Management’s commodity price curve assumptions are benchmarked against a range of external forward price curves on a regular basis.
The first two years reflect the market forward prices curves transitioning to a long-term price thereafter. The long-term commodity prices
used were $65 per barrel for crude and 60p per therm for gas, which are inflated at 2 per cent per annum from 1 January 2024.
Production volumes are based on life of field production profiles for each asset within the CGU. Proven and probable reserves are estimates
of the amount of oil and gas that can be economically extracted from the Group’s oil and gas assets. The Group estimates its reserves using
standard recognised evaluation techniques and they are assessed at least annually by management and by an independent consultant.
Proven and probable reserves are determined using estimates of oil and gas in place, recovery factors and future commodity prices.
Operating expenditure, capital expenditure and decommissioning costs, which have been inflated at 2 per cent per annum from 1 January
2024, are derived from the Group’s business plan.
Strategic report Governance Financial statements Additional information
137
Harbour Energy plc
Annual Report & Accounts 2021
10. Goodwill continued
The discount rate reflects management’s estimate of the Group’s country-based Weighted Average Cost of Capital (WACC), considering
both debt and equity. The cost of equity is derived from an expected return on investment by the Group’s investors, and the cost of debt
is based on its interest-bearing borrowings. Segment risk is incorporated by applying a beta factor based on publicly available market
data. The discount rate is based on an assessment of a relevant peer group’s post-tax WACC.
Foreign exchange rates are based on management’s long-term rate assumptions, with reference to a range of underlying economic indicators.
Sensitivity to changes in assumptions used in calculations
The Group has run sensitivities on its long-term commodity price assumptions, which have been based on long-range forecasts from external
financial analysts, using alternate long-term price assumptions, and discount rates. These are considered to be reasonably possible changes
for the purposes of sensitivity analysis. No impairment arose on the Group’s goodwill under any of the sensitivity scenarios.
11. Other intangible assets
Note
Oil and gas
assets
$ million
Non-oil and gas
assets
$ million
Capacity
rights
$ million
Total
$ million
Cost
At 1 January 2020 425.2 40.0 10.0 475.2
Additions 90.1 50.2 – 140.3
Reduction in decommissioning asset 20 (3.0) – – (3.0)
Disposals – – – –
Transfers to property, plant and equipment 32.6 – – 32.6
Unsuccessful exploration written-off (160.8) – – (160.8)
Currency translation adjustment 7.2 4.7 0.3 12.2
At 31 December 2020 391.3 94.9 10.3 496.5
Additions 210.0 30.2 – 240.2
Additions from business combinations and joint arrangements 14 596.7 0.4 – 597.1
Increase in decommissioning asset 20 10.4 – – 10.4
Transfers to property, plant and equipment (139.5) – – (139.5)
Prior capitalised costs expensed – (4.7) – (4.7)
Unsuccessful exploration written-off (255.0) – – (255.0)
Currency translation adjustment (0.5) (1.4) (0.1) (2.0)
At 31 December 2021 813.4 119.4 10.2 943.0
Accumulated amortisation
At 1 January 2020 – 16.0 5.6 21.6
Charge for the year – 17. 2 1.7 18.9
Currency translation adjustment – 1.6 0.3 1.9
At 31 December 2020 – 34.8 7.6 42.4
Charge for the year – 26.1 1.6 27.7
Currency translation adjustment – (0.7) (0.1) (0.8)
At 31 December 2021 – 60.2 9.1 69.3
Net book value
At 31 December 2020 391.3 60.1 2.7 454.1
At 31 December 2021 813.4 59.2 1.1 873.7
The exploration write-off of $255.0 million (2020: $160.8 million), which relates to costs associated with licence relinquishments and
uncommercial well evaluations, is net of a $6.3 million credit (2020: $nil) relating to the effect of changes in decommissioning provisions
on oil and gas intangible assets previously written-off.
An increase to decommissioning assets of $10.4 million (2020: decrease of $3.0 million) was made during the year as a result of an
update to decommissioning estimates (note 20).
Non-oil and gas assets relate primarily to Group IT software. The capacity rights represent National Transmission System (NTS) entry
capacity at Bacton and Teesside acquired as part of the business combination completed in 2017. These rights have a remaining useful
life of one year and are amortised on a contractual volume basis.
Notes to the consolidated financial statements continued
138
Harbour Energy plc
Annual Report & Accounts 2021
12. Property, plant and equipment
Note
Oil and gas
assets
$ million
Fixtures, fittings
and office
equipment
$ million
Total
$ million
Cost
At 1 January 2020 9,258.3 21.1 9,279.4
Additions 414.9 1.1 416.0
Transfers to intangible assets (32.6) – (32.6)
Increase in decommissioning asset 20 257.6 – 257.6
Currency translation adjustment 97. 8 0.6 98.4
At 31 December 2020 9,996.0 22.8 10,018.8
Additions 464.5 4.4 468.9
Additions from business combinations and joint arrangements 14 1,814.3 4.2 1,818.5
Transfers from intangible assets 139.5 – 139.5
Disposals – (0.3) (0.3)
Decrease in decommissioning asset 20 (357. 8) – (3 57. 8)
Currency translation adjustment (34.5) (0.3) (34.8)
At 31 December 2021 12,022.0 30.8 12,052.8
Accumulated depreciation
At 1 January 2020 1,613.1 9.8 1,622.9
Charge for the year 1,168.9 5.7 1,174.6
Impairment charge 644.0 – 644.0
Currency translation adjustment 54.2 0.7 54.9
At 31 December 2020 3,480.2 16.2 3,496.4
Charge for the year 1,204.1 5.5 1,209.6
Impairment charge 117. 2 – 117. 2
Disposals – (0.1) (0.1)
Currency translation adjustment (16.6) (0.4) (17.0)
At 31 December 2021 4,784.9 21.2 4,806.1
Net book value
At 31 December 2020 6,515.8 6.6 6,522.4
At 31 December 2021 7,237.1 9.6 7,246.7
During the year, the Group recognised a pre-tax impairment charge of $117.2 million (post-tax $70.3 million) (2020: pre-tax $644.0
million; post-tax $386.4 million) within the income statement. This represents a write-down of property, plant and equipment assets
of $108.7 million (2020: $712.1 million) and a pre-tax impairment of $8.5 million (2020: $68.1 million credit) in respect of revisions
to decommissioning estimates on the Group’s non-producing assets with no remaining net book value (see note 20).
The impairment to property, plant and equipment arises primarily due to cessation of production from the Millom field, part of the Group’s
East Irish Sea assets, and from a single CGU in the UK North Sea, driven primarily by underlying reservoir performance. Impairments on
property, plant and equipment are reversible in the future.
Key assumptions used in calculations
Assumptions involved in impairment measurement include estimates of commercial reserves and production volumes, future oil and gas
prices, discount rates and the level and timing of expenditures, all of which are inherently uncertain.
The Group uses the fair value less cost of disposal method (FVLCD) to calculate the recoverable amount of the cash-generating units (CGU)
consistent with a level 3 fair value measurement (see note 22). In determining the recoverable value, appropriate discounted-cash-flow valuation
models were used, incorporating market-based assumptions. Management’s commodity price curve assumptions are benchmarked against
a range of external forward price curves on a regular basis. Individual field price differentials are then applied. The first two years reflect the
market forward prices curves transitioning to a long-term price from 2024, thereafter inflated at 2 per cent per annum. The long-term
commodity prices used were $65 per barrel for crude and 60p per therm for gas.
Strategic report Governance Financial statements Additional information
139
Harbour Energy plc
Annual Report & Accounts 2021
Production volumes are based on life of field production profiles for each asset within the CGU. Proven and probable reserves are
estimates of the amount of oil and gas that can be economically extracted from the Group’s oil and gas assets. The Group estimates its
reserves using standard recognised evaluation techniques, assessed at least annually by management. Proven and probable reserves
are determined using estimates of oil and gas in place, recovery factors and future commodity prices.
Operating expenditure, capital expenditure and decommissioning costs are derived from the Group’s business plan. The discount rate
reflects management’s estimate of the Group’s Weighted Average Cost of Capital (WACC), see note 10 for further details. Foreign
exchange rates are based on management’s long-term rate assumptions, with reference to a range of underlying economic indicators.
Reductions or increases in the long-term oil and gas prices of 10 per cent are considered to be reasonably possible changes for the
purpose of sensitivity analysis. Decreases to the long-term oil and gas prices specified above would result in a further post-tax
impairment of $73.3 million. A 10 per cent increase in the long-term oil and gas price deck would reduce the post-tax impairment charge
by $35.7 million. Considering the discount rates, the Group believes a 1 per cent increase in the post-tax rate is considered to be a
reasonable possibility for the purpose of sensitivity analysis. A 1 per cent increase in the post-tax rate would lead to a further post-tax
impairment of $28.3 million, and a 1 per cent decrease in the post-tax rate would reduce the post-tax impairment charge by $31.1
million. The impairment was calculated as detailed above.
A decrease in the decommissioning assets of $357.8 million (2020: increase of $257.6 million) was made during the year as a result
of both new obligations and an update to the decommissioning estimates (note 20).
Further information on additions from business combinations and joint arrangements can be found in note 14.
Included within property, plant and equipment additions of $468.9 million (2020: $416.0 million) are associated cash flows of $437.4
million (2020: $457.6 million) and non-cash flow movements of $31.5 million (2020: ($41.6 million)), represented by a $9.0 million
increase in capital accruals (2020: $58.2 million decrease) and $22.5 million of capitalised lease depreciation (2020: $16.6 million).
13. Leases – right-of-use assets
(i) This note provides information for leases where the Group is a lessee:
Right-of-use assets
2021
$ million
2020
$ million
Land and buildings 78.0 54.9
Drilling rigs 54.9 75.6
FPSO 407.8 –
Equipment 10.8 1.7
551.5 132.2
Lease liabilities
2021
$ million
2020
$ million
Current 165.1 60.1
Non-current 489.2 80.8
654.3 140.9
Additions of $612.5 million, which arise primarily from business combinations (see note 14) of $567.9 million and $42.7 million from a
new drilling rig contract, were made to the right-of-use assets during the year (2020: $nil).
The significant portion of the Group’s lease liabilities represent lease arrangements for FPSO vessels on the Catcher and Chim Sáo assets.
The lease liabilities and associated right-of-use-assets have been calculated by reference to in-substance fixed lease payments in the
underlying agreements incurred throughout the non-cancellable period of the lease along with periods covered by options to extend the
lease where the Group is reasonably certain that such options will be exercised. When assessing whether extension options were likely
to be exercised, assumptions are consistent with those applied when testing for impairment.
12. Property, plant and equipment continued
Notes to the consolidated financial statements continued
140
Harbour Energy plc
Annual Report & Accounts 2021
(ii) The consolidated income statement includes the following amounts relating to leases:
Depreciation charge of right-of-use assets
2021
$ million
2020
$ million
Land and buildings – non-oil and gas assets 10.5 6.2
Land and buildings – oil and gas assets 1.1 1.0
Drilling rigs 44.8 48.3
FPSO 102.1 –
Equipment 5.9 1.3
164.4 56.8
Capitalisation of IFRS 16 lease depreciation
Drilling rigs (27.2) (27.4)
Equipment (3.5) (0.8)
Depreciation charge included within consolidated income statement 133.7 28.6
Of the $30.7 million (2020: $28.2 million) capitalised IFRS 16 lease depreciation, $22.5 million (2020: $16.6 million) has been
capitalised within property, plant and equipment and $8.2 million (2020: $11.6 million) within provisions (note 20).
Note
2021
$ million
2020
$ million
Lease interest (included in finance expenses) 7 22.3 7. 2
The total cash outflow for leases in 2021 was $160.4 million (2020: $60.5 million).
14. Business combinations and acquisition of interests in joint arrangements
Business combinations during the year ended 31 December 2021
In October 2020, Harbour Energy Limited entered into an agreement with Premier regarding an all-share Merger between Premier and
Harbour Energy Limited’s subsidiary, Chrysaor Holdings Limited. Under the terms of the Merger, Premier legally acquired Chrysaor through
the issuance of consideration shares whilst Chrysaor was the acquirer for accounting purposes, primarily as a result of its ability to appoint
the Board of the enlarged group. The transaction completed on 31 March 2021, whereupon Premier, being the legal acquirer and
accounting acquiree, changed its name from Premier Oil plc to Harbour Energy plc (Harbour).
The Merger constituted a ‘reverse takeover’ of Premier by Chrysaor and has therefore been accounted for as a reverse acquisition in
accordance with IFRS 3 Business Combinations. As a result, Premier is fully consolidated in the financial statements with effect from
31March 2021, and all results prior to this date represent those of Chrysaor only.
Premier was an upstream exploration and production company with its primary assets located in the UK North Sea, Vietnam and Indonesia.
The Merger brought together two complementary businesses and created the largest independent oil and gas company listed on the London
Stock Exchange with a strong balance sheet and significant international growth opportunities.
A Purchase Price Allocation (PPA) exercise has been performed under which the identifiable assets and liabilities of Premier were recognised
at fair value.
Strategic report Governance Financial statements Additional information
141
Harbour Energy plc
Annual Report & Accounts 2021
The fair values of the net identifiable liabilities as at the date of acquisition are as follows:
Fair value
$ million
Assets
Exploration, evaluation and other intangible assets 597.1
Property, plant and equipment – oil and gas assets 1,814.3
Property, plant and equipment – non-oil and gas assets 4.2
Property, plant and equipment – right-of-use assets 567.9
Long-term receivables 258.8
Deferred tax 1,549.2
Inventories 15.2
Trade and other receivables 291.0
Derivative financial instruments 9.2
Cash and cash equivalents 97. 4
5,204.3
Liabilities
Trade and other payables (317. 5)
IFRS 16 lease liabilities (637.8)
Deferred tax (183.1)
Provision for decommissioning (1,683.0)
Derivative financial instruments (153.7)
Short-term debt (2,219.3)
Deferred income (33.6)
Other provisions (34.5)
(5,262.5)
Fair value of identifiable net liabilities acquired (58.2)
Fair value of shares acquired 285.7
Transaction cost adjustments (4.6)
Cost of acquisition 281.1
Goodwill recognised 339.3
A provisional PPA exercise was completed and presented within the Group’s 2021 Half-Year results. As is permitted under IFRS 3
Business Combinations, if during a maximum measurement period of one year from the acquisition date, the Group identifies additional
assets or liabilities based on new information obtained about facts and circumstances that existed at the acquisition date, then those
assets and liabilities should be recognised at that date.
As a result, the decommissioning provision has increased by $130.2 million from that presented in the provisional PPA presented in the
Half-Year results, and the deferred tax asset increased by $40.4 million, resulting in a net increase to goodwill of $89.8 million.
The fair values of the oil and gas assets and intangible assets acquired have been determined using valuation techniques based on
discounted cash flows using forward curve commodity prices and estimates of long-term prices consistent with those applied by
management when testing assets for impairment, a discount rate based on market observable data and cost and production profiles
generally consistent with the 2P reserves acquired with each asset. Where applicable other observable market information has also
been used. The decommissioning provisions recognised have been estimated based on Harbour’s internal estimates with reference
to observable market data, including rig rates.
The fair value of debt facilities has been determined based on the total fair value of cash paid and new shares issued to creditors
to satisfy Premier’s historical debt arrangements.
The consideration was measured using the closing market price of Premier’s Ordinary Share capital and the number of shares in issue
immediately before the acquisition date. The transaction cost adjustments relate to share-based payment charges accruing prior to
31 March 2021 and certain transaction costs settled by Premier on behalf of Chrysaor which have been recognised as an expense
within general and administrative expenses.
14. Business combinations and acquisition of interests in joint arrangements continued
Notes to the consolidated financial statements continued
142
Harbour Energy plc
Annual Report & Accounts 2021
Goodwill of $339.3 million has been recognised on the acquisition, representing the excess of the total consideration transferred over the
fair value of the net assets acquired. The goodwill arises principally because of the following factors:
1. The ability to deliver cost synergies as a result of combining the two businesses.
2. The avoidance of costs that would otherwise have been incurred by Chrysaor as a result of an initial stock exchange listing.
3. The expertise and experience of the acquired business, particularly with respect to fulfilling the obligations of a UK listed entity.
4. The requirement to recognise deferred tax liabilities for the difference between the assigned fair values and the tax bases of assets acquired.
None of the goodwill is deductible for corporation tax.
Acquisition related costs of $13.5 million and $26.5 million were incurred by the Group and recognised as an expense within general
and administrative expenses within 2020 and 2021 respectively.
From the date of acquisition, the acquired business contributed $815.6 million of revenue and a loss of $89 million to the profit before
tax from continuing operations of the Group. Had the acquisition completed at 1 January 2021, the business would have contributed
revenue of $1,078.5 million in the year to 31 December 2021, and a loss of $93.9 million towards the profit before tax.
15. Inventories
2021
$ million
2020
$ million
Hydrocarbons 65.4 34.1
Consumables and subsea supplies 146.0 126.4
211.4 160.5
Inventories of consumables and subsea supplies include a provision of $8.5 million (2020: $8.9 million) where it is considered that the
net realisable value is lower than the original cost.
Inventories recognised as an expense during the year ended 31 December 2021 amounted to $3.3 million (2020: $3.3 million).
These expenses are included within production costs.
16. Trade and other receivables
2021
$ million
2020
$ million
Trade debtors 364.0 189.5
Underlift position 147.5 93.1
Other debtors 74.1 98.7
Prepayments and accrued income 677.4 61.0
Corporation tax receivable 79.2 19.0
1,342.2 461.3
Trade debtors are non-interest bearing and are generally on 20 to 30 days’ terms. As at 31 December 2021, there were no trade
receivables that were past due (2020: $nil).
Prepayments and accrued income mainly comprise amounts due, but not yet invoiced, for the sale of oil and gas. Other debtors mainly
relate to amounts due from joint venture partners.
The carrying value of the trade and other receivables are equal to their fair value as at the balance sheet date.
Non-current
2021
$ million
2020
$ million
Net investment in sublease 52.9 –
Decommissioning funding asset 67.1 –
Long-term employee benefit plan surplus 0.8 –
Other receivables 142.2 3.6
263.0 3.6
Strategic report Governance Financial statements Additional information
143
Harbour Energy plc
Annual Report & Accounts 2021
Other long-term receivables include $120.7 million in cash held in escrow accounts for expected future decommissioning expenditure in
Indonesia, Vietnam and Mauritania (2020: $nil).
The decommissioning funding asset relates to the Decommissioning Liability Agreement entered into with E.ON whereby E.ON agreed to
part fund Premier’s share of decommissioning the Johnston and Ravenspurn North assets. Under the terms of the agreement, E.ON will
reimburse 70 per cent of the decommissioning costs between a range of £40 million to £130 million based on Premier’s net share of the
total decommissioning cost of the two assets. This results in maximum possible funding of £63 million from E.ON. At 31 December 2021,
a long-term decommissioning funding asset of $67.1 million has been recognised utilising the year-end $/£ exchange rate and underlying
assumptions consistent with those used for the corresponding decommissioning provision.
17. Cash and cash equivalents
2021
$ million
2020
$ million
Cash at bank and in hand 698.7 445.4
Included within cash at bank and in hand balances is $23.9 million (2020: $nil) held as security for the Mexican letters of credit and
performance bonds relating to Andaman (Indonesia) E&E licences.
Cash at bank earns interest at floating rates based on daily bank deposit rates. The Group only deposits cash with major banks of high
quality credit standing.
18. Commitments
Capital commitments
As at 31 December 2021, the Group had commitments for future capital expenditure amounting to $451.1 million (2020: $231.1 million).
Where the commitment relates to a joint arrangement, the amount represents the Group’s net share of the commitment. Where the Group
is not the operator of the joint arrangement then the amounts are based on the Group’s net share of committed future work programmes.
19. Trade and other payables
Current
2021
$ million
2020
$ million
Trade payables 120.9 108.5
Overlift position 76.7 20.0
Other payables 148.6 105.7
Accruals 482.4 272.0
Deferred income 45.0 34.1
873.6 540.3
Non-current
2021
$ million
2020
$ million
Other payables 27.6 29.8
Deferred income 4.7 –
32.3 29.8
16. Trade and other receivables continued
Notes to the consolidated financial statements continued
144
Harbour Energy plc
Annual Report & Accounts 2021
Other payables, within both current, $24.1 million (2020: $46.0 million) and non-current $nil (2020: $24.4 million), includes the present
value of additional completion payments payable to ConocoPhillips Company as part of the acquisition of the ConocoPhillips UK business.
The remaining amount is payable in late 2022.
Deferred income includes $20.8 million in relation to the closing year-end fair value payable to FlowStream. In June 2015, Premier
received $100.0 million from FlowStream in return for granting them 15 per cent of production from the Solan field until sufficient barrels
have been delivered to achieve the rate of return within the agreement. This balance is being released to the income statement within
revenue as barrels are delivered to FlowStream from production from Solan. The estimated fair value includes unobservable inputs and
is level 3 in the IFRS 13 hierarchy and is held at fair value through profit and loss. The balance has reduced by $12.8 million since the
completion of the Merger reflecting the impact of barrels delivered to FlowStream and a change in estimate following an increase in the
long-term oil price assumption resulting in a debit to the income statement within finance expense.
Deferred income of $16.1 million (2020: $nil) is expected to be delivered to FlowStream within the next 12 months and has been
classified as a current liability, with the balance of $4.7 million classified as non-current liabilities.
20. Provisions
Note
Decommissioning
provision
$ million
Other
$ million
Total
$ million
At 1 January 2020 3,949.8 – 3,949.8
Additions 29.9 18.5 48.4
Changes in estimates – increase to oil and gas tangible decommissioning assets 227.7 – 227.7
Changes in estimates – decrease to oil and gas intangible decommissioning assets (3.0) – (3.0)
Amounts used (142.0) (5.4) (147.4)
Amounts recovered from prior owner 4.0 – 4.0
Interest on decommissioning lease (1.4) – (1.4)
Depreciation, depletion & amortisation on decommissioning right-of-use leased asset (11.6) – (11.6)
Unwinding of discount 87.8 – 87. 8
Currency translation adjustment 55.9 0.8 56.7
At 31 December 2020 4,1 97.1 13.9 4,211.0
Additions 17.1 1.0 18.1
Additions from business combinations and joint arrangements 14 1,683.0 34.5 1,717. 5
Changes in estimates – decrease to oil and gas tangible decommissioning assets (381.0) – (381.0)
Changes in estimates – increase to oil and gas intangible decommissioning assets 14.3 – 14.3
Changes in estimates – credit to income statement – (2.3) (2.3)
Changes in estimates on oil and gas tangible assets – debit to income statement 8.5 – 8.5
Changes in estimates on oil and gas intangible assets – credit to income statement (6.3) – (6.3)
Amounts used (225.9) (9.2) (235.1)
Interest on decommissioning lease (0.7) – (0.7)
Depreciation, depletion & amortisation on decommissioning right-of-use leased asset (8.2) – (8.2)
Release of royalty provision (note 22) – (10.2) (10.2)
Unwinding of discount 78.0 – 78.0
Currency translation adjustment (22.2) (0.2) (22.4)
At 31 December 2021 5,353.7 27.5 5,381.2
Classified within
Non-current
liabilities
$ million
Current
liabilities
$ million
Total
$ million
At 31 December 2020 4,020.8 190.2 4,211.0
At 31 December 2021 5,022.6 358.6 5,381.2
Of the $17.1 million (2020: $29.9 million) decommissioning provision additions, $14.7 million (2020: $29.9 million) relates to oil and
gas tangible assets, and $2.4 million (2020: nil) to oil and gas intangible assets.
Strategic report Governance Financial statements Additional information
145
Harbour Energy plc
Annual Report & Accounts 2021
The Group provides for the estimated future decommissioning costs on its oil and gas assets at the balance sheet date. The payment
dates of expected decommissioning costs are uncertain and are based on economic assumptions of the fields concerned. The Group
currently expects to incur decommissioning costs over the next 40 years, the majority of which are anticipated to be incurred between
the next 10 to 20 years. Decommissioning provisions are discounted at a risk-free rate of between 0.9 per cent and 1.8 per cent
(2020: 1.2 per cent and 2.1 per cent) and the unwinding of the discount is presented within finance costs.
These provisions have been created based on internal and third party estimates. Assumptions based on the current economic
environment have been made, which management believe are a reasonable basis upon which to estimate the future liability. These
estimates are reviewed regularly to consider any material changes to the assumptions. However, actual decommissioning costs will
ultimately depend upon market prices for the necessary decommissioning work required, which will reflect market conditions at the
relevant time. In addition, the timing of decommissioning liabilities will depend upon the dates when the fields become economically
unviable, which in itself will depend on future commodity prices and climate change, which are inherently uncertain.
Other provisions relate to a provision for an onerous contract in respect of the termination cost of the rig which had been operating on
the Schiehallion field, but no future approved activities have resulted in the contract being terminated. Also included within other
provisions is a termination benefit provision in Indonesia of $25.3 million (2020: $nil), where the Group operates a Service, Severance
and Compensation pay scheme under a Collective Labour Agreement with the local workforce.
21. Borrowings and facilities
The Group’s borrowings are carried at amortised cost.
2021
$ million
2020
$ million
Reserve Based Lending facility 2,312.0 1,448.6
Junior facility – 396.4
High Yield Bond 489.5 –
10% Unsecured D loan notes 2027 – 264.8
Exploration Financing Facility 44.6 14.1
Other loans 39.9 37. 5
2,886.0 2,161.4
Classified within
Non-current liabilities 2,823.7 2,160.3
Current liabilities 62.3 21.5
2,886.0 2,181.8
Non-current assets (deferred fees) – (0.1)
Current assets (deferred fees) – (20.3)
2,886.0 2,161.4
The deferred fees shown in current and non-current assets reflect the expected amortisation of fees within earlier periods where there is no
expected repayment of principal.
Interest of $17.4 million (2020: $2.8 million) on the Reserve Based Lending facility (RBL), High Yield Bond and Exploration Financing Facility
(EFF) had accrued by the balance sheet date and has been classified within accruals.
The key terms of the RBL facility are:
¼ term extended to 23 November 2027;
¼ facility size now at $4.5 billion (with $0.75 billion accordion option);
¼ debt availability currently at $3.32 billion;
¼ debt availability to be redetermined on an annual basis;
¼ interest at USD LIBOR plus a margin of 3.25 per cent, rising to a margin of 3.5 per cent from November 2025;
¼ the incorporation of a margin adjustment linked to carbon emission reductions; and
¼ the syndication group now stands at 19 banks.
Notes to the consolidated financial statements continued
20. Provisions continued
146
Harbour Energy plc
Annual Report & Accounts 2021
The $400 million junior facility was fully repaid and cancelled in October 2021 through issuance of a $500 million High Yield Bond.
The remaining proceeds were used to pay legal fees and pay down some of the drawn debt on the senior facility. The bond was issued
under Rule 144A and has a tenor of five years to maturity. The coupon was set at 5.50 per cent and interest is payable semi-annually.
Certain fees are also payable, including fees on available commitments at 40 per cent of the applicable margin and commission on
letters of credit issued at 50 per cent of the applicable margin.
Since 2019, Chrysaor has been operating within an Exploration Financing Facility, currently for NOK 1 billion, in relation to part-financing the
exploration activities of Chrysaor Norge AS. At the balance sheet date, the amount drawn down on the facility was NOK 396 million/$44.9
million (2020: NOK 124 million/$14.5 million).
A further $77.2 million of arrangement fees and related costs were capitalised in 2021 following amendments to the RBL facility which
became effective from March 2021, related to replacement of Premier’s debt prior to completion of the Merger. In addition, $10.9 million
of arrangement fees and related costs were capitalised as part of the issuance of the High Yield Bond in October 2021, and $0.4 million
capitalised following further drawdowns on the EFF. These amounts are being amortised over the term of the relevant arrangement.
At 31 December 2021, $136.0 million of arrangement fees and related costs remain capitalised (2020: $72.5 million), of which $43.6
million are due to be amortised within the next 12 months (2020: $20.4 million).
During the year $38.9 million (2020: $17.0 million) of arrangement fees and related costs have been amortised and are included within
financing costs. Also included is a $13.9 million modification gain (2020: nil) following a maturity extension of the RBL debt prior to the
completion of the Merger.
At the balance sheet date, the outstanding RBL balance excluding incremental arrangement fees and related costs was $2,438 million
(2020: $1,918 million including the $400 million junior facilities). As at 31 December 2021, $884 million remained available for
drawdown under the RBL facility.
On 15 March 2021, a partial cash redemption of the 10 per cent unsecured D loan notes of $135.7 million took place, and on 30 March
2021, the outstanding balance of the D loan notes, with a principal and accrued interest value of $134.7 million, was exchanged for
16,186,811 F Ordinary Shares of £0.0001 each.
The Group has facilities to issue up to $1.25 billion of letters of credit, of which $796 million was in issue as at 31 December (2020:
$557 million), mainly in respect of future abandonment liabilities.
Other loans represent a commercial financing arrangement with Baker Hughes (formerly BHGE), covering a three-year work programme
for drilling, completion and subsea tie-in of development wells on Harbour’s operated assets. As part of the deal, Baker Hughes
contributes to the costs of the work programme by funding a portion of the capital expenditure, in exchange for a greater exposure to
returns, as well as risks, should certain targets and success criteria, both operational and geological, be met. Interest on this financing
arrangement has been calculated using the effective interest method with reference to the expected cash flows, using an estimated
reserve case.
Strategic report Governance Financial statements Additional information
147
Harbour Energy plc
Annual Report & Accounts 2021
The table below details the change in the carrying amount of the Group’s borrowings arising from financing cash flows.
$ million
Total borrowings as at 1 January 2020 2,822.7
Repayment of senior debt (774.0)
Repayment of financing arrangement (1.6)
Repayment of Exploration Financing Facility (8.7)
Proceeds from drawdown of borrowing facilities 157. 5
Proceeds from Exploration Financing Facility 12.8
Loan notes redemption (77.1)
Arrangement fees and related costs on senior debt paid and capitalised (18.4)
Currency translation adjustments 0.8
Loan notes interest capitalised 25.4
Financing arrangement interest payable 5.0
Amortisation of arrangement fees and related costs 17.0
Total borrowings as at 31 December 2020 2,161.4
Repayment of senior debt (697.5)
Repayment of junior debt (400.0)
Short-term debt arising on business combination (2,219.3)
Repayment of debt – equity allocation to borrowings 942.8
Repayment of debt – cash allocation to borrowings 1,276.5
Conversion of D loan notes to equity (134.7)
IFRS 9 modification gain (13.9)
Repayment of financing arrangement (9.3)
Repayment of Exploration Financing Facility loan (14.7)
Proceeds from drawdown of borrowing facilities 1,617. 5
Proceeds from Exploration Financing Facility loan 45.9
Proceeds from issue of High Yield Bond 500.0
Loan notes redemption (135.7)
Arrangement fees and related costs on senior debt paid and capitalised (77. 2)
Arrangement fees and related costs on High Yield Bond capitalised (10.9)
Arrangement fees and related costs on Exploration Financing Facility loan capitalised (0.4)
Currency translation adjustment on Exploration Financing Facility loan (0.6)
Loan notes interest capitalised 5.6
Financing arrangement interest payable 11.6
Amortisation of arrangement fees and related costs 38.9
Total borrowings as at 31 December 2021 2,886.0
Notes to the consolidated financial statements continued
21. Borrowings and facilities continued
148
Harbour Energy plc
Annual Report & Accounts 2021
22. Other financial assets and liabilities
The Group held the following financial instruments at fair value at 31 December 2021. The fair values of all derivative financial instruments
are based on estimates from observable inputs and are all level 2 in the IFRS 13 hierarchy, except for the royalty valuation, which includes
estimates based on unobservable inputs and is level 3 in the IFRS 13 hierarchy.
31 December 2021 31 December 2020
Assets
$ million
Liabilities
$ million
Assets
$ million
Liabilities
$ million
Measured at fair value through profit and loss
Royalty consideration – – 3.0 –
Foreign exchange derivatives 0.9 (2.2) – –
Interest rate derivatives 3.3 – – –
Fair value of embedded derivative within gas contract – (11.5) – –
Carbon swaps 36.6 (15.6) – –
40.8 (29.3) 3.0 –
Measured at fair value through other comprehensive income
Commodity derivatives 1.0 (2,496.9) 191.6 (74.2)
Foreign exchange derivatives
1
– – 12.6 –
Carbon swaps
1
– – 15.4 –
1.0 (2,496.9) 219.6 (74.2)
Total current 41.8 (2,526.2) 222.6 (74.2)
Measured at fair value through profit and loss
Royalty consideration – – 6.7 –
Interest rate derivatives 8.3 – – –
8.3 – 6.7 –
Measured at fair value through other comprehensive income
Commodity derivatives 1.8 (1,373.6) 72.8 (48.5)
Interest rate derivatives
1
– – – (4.0)
Carbon swaps
1
– – 10.9 –
1.8 (1,373.6) 83.7 (52.5)
Total non-current 10.1 (1,373.6) 90.4 (52.5)
Total current and non-current 51.9 (3,899.8) 313.0 (126.7)
1 The accumulated gains and losses relating to carbon swaps, interest rate and foreign exchange derivatives recognised in the hedge reserve as at 31 December 2020 have been
recycled to the income statement in the current period, along with gains and losses arising in the year to 31 December 2021.
Part of the consideration received on the sale of Chrysaor’s interest in a pre-production development in 2015 to Premier was a royalty
interest, which prior to 2021 was recognised on the balance sheet as a financial asset. Subsequent to the Merger with Premier to form
Harbour Energy plc, the royalty agreement was terminated in May 2021.
Fair value measurements
All financial instruments that are initially recognised and subsequently remeasured at fair value have been classified in accordance with
the hierarchy described in IFRS 13 Fair Value Measurement. The hierarchy groups fair value measurements into the following levels
based on the degree to which the fair value is observable.
¼ Level 1: fair value measurements are derived from unadjusted quoted prices for identical assets or liabilities.
¼ Level 2: fair value measurements include inputs, other than quoted prices included within level 1, which are observable directly or indirectly.
¼ Level 3: fair value measurements are derived from valuation techniques that include significant inputs not based on observable data.
Strategic report Governance Financial statements Additional information
149
Harbour Energy plc
Annual Report & Accounts 2021
Financial assets Financial liabilities
As at 31 December 2021
Level 2
$ million
Level 3
$ million
Level 2
$ million
Level 3
$ million
Fair value of embedded derivative within gas contract – – (11.5) –
Commodity derivatives 2.8 – (3,870.5) –
Foreign exchange derivatives 0.9 – (2.2) –
Carbon swaps 36.6 – (15.6) –
Interest rate derivatives 11.6 – – –
51.9 – (3,899.8) –
Financial assets Financial liabilities
As at 31 December 2020
Level 2
$ million
Level 3
$ million
Level 2
$ million
Level 3
$ million
Royalty valuation – 9.7 – –
Commodity derivatives 264.4 – (122.7) –
Foreign exchange derivatives 12.6 – – –
Carbon swaps 26.3 – – –
Interest rate derivatives – – (4.0) –
303.3 9.7 (126.7) –
There were no transfers between fair value levels in the year. The movements in the year associated with financial assets and liabilities
measured in accordance with level 3 of the fair value hierarchy are shown below:
Financial assets Financial liabilities
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Fair value as at 1 January 9.7 12.1 – (12.5)
Additions from business combinations and joint arrangements (10.2) – (4.2) –
Settlements – (1.1) – 12.5
Gains and (losses) recognised in the income statement 0.5 (1.3) 4.2 –
Fair value as at 31 December – 9.7 – –
The agreement with the sellers of the UK North Sea assets purchased by the Group in 2017 included contingent consideration
dependent on future commodity prices. The final contingent payment was settled in full during 2020.
Fair value movements recognised in the income statement on financial instruments are shown below:
Income/(expense) included in the income statement
2021
$ million
2020
$ million
Remeasurement of royalty valuation 0.5 (1.3)
0.5 (1.3)
22. Other financial assets and liabilities continued
Notes to the consolidated financial statements continued
150
Harbour Energy plc
Annual Report & Accounts 2021
Fair values of other financial instruments
The following financial instruments are measured at amortised cost and are considered to have fair values different to their book values.
2021 2020
Book value
$ million
Fair value
$ million
Book value
$ million
Fair value
$ million
High Yield Bond (489.5) (483.0) – –
Long-term borrowings – loan notes – – (264.8) (299.0)
(489.5) (483.0) (264.8) (299.0)
The fair values of the loan notes are within level 2 of the fair value hierarchy and have been estimated by discounting all future cash flows
by the relevant market yield curve at the balance sheet date adjusted for an appropriate credit margin. The fair values of other financial
instruments not measured at fair value including cash and short-term deposits, trade receivables, trade payables and floating rate
borrowings equate approximately to their carrying amounts.
Cash flow hedge accounting
The Group uses a combination of fixed price physical sales contracts and cash-settled fixed price commodity swaps and options to
manage the price risk associated with its underlying oil and gas revenues. As at 31 December 2021, all of the Group’s cash-settled
fixed price commodity swap derivatives have been designated as cash flow hedges of highly probable forecast sales of oil and gas.
The following table indicates the volumes, average hedged price and timings associated with the Group’s financial commodity derivatives.
Volumes hedged through fixed price contracts with customers for physical delivery are excluded.
Position as at 31 December 2021 2022 2023 2024 2025
Oil volume hedged (thousand bbls) 18,798 7,30 0 – –
Weighted average hedged price ($/bbl) 61.15 61.05 – –
Gas volume hedged (million therms) 1,472 1,334 483 90
Weighted average hedged price (p/therm) 51p 41p 43p 45p
As at 31 December 2021, the fair value of net financial commodity derivatives designated as cash flow hedges, all executed under ISDA
agreements with no margining requirements, was a net payable of $3,867.7 million (2020: net receivable of $141.7 million) and net
unrealised pre-tax losses of $3,454.2 million (2020: gains $113.0 million) were deferred in other comprehensive income in respect
of the effective portion of the hedge relationships. Amounts deferred in other comprehensive income will be released to the income
statement as the underlying hedged transactions occur. As at 31 December 2021, net deferred pre-tax losses of $2,495.9 million
(2020: gains $117.4 million) are expected to be released to the income statement within one year.
23. Financial risk factors and risk management
The Group’s principal financial assets and liabilities comprise trade and other receivables, cash and short-term deposits accounts, trade
payables, interest bearing loans and derivative financial instruments. The main purpose of these financial instruments is to manage
short-term cash flow and price exposures and raise finance for the Group’s expenditure programme. Further information on the Group’s
financial instrument risk management objectives, policies and strategies are set out in the discussion of capital management policies in
the Strategic Report.
Risk exposures and responses
The Group manages its exposure to key financial risks in accordance with its financial risk management policy. The objective of the policy
is to support the delivery of the Group’s financial targets while protecting future financial security. The main risks that could adversely
affect the Group’s financial assets, liabilities or future cash flows are market risks comprising commodity price risk, interest rate risk and
foreign currency risk, liquidity risk, and credit risk. Management reviews and agrees policies for managing each of these risks which are
summarised in this note.
The Group’s senior management oversees the management of financial risks. The Group’s senior management ensures that financial
risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed
in accordance with Group policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist
teams that have the appropriate skills, experience and supervision. It is the Group’s policy that no trading in derivatives for speculative
purposes shall be undertaken.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: commodity price risk, interest rate risk and foreign currency risk. Financial instruments mainly
affected by market risk include loans and borrowings, deposits and derivative financial instruments.
The sensitivity analyses in the following sections relate to the position as at 31 December 2021 and 2020.
Strategic report Governance Financial statements Additional information
151
Harbour Energy plc
Annual Report & Accounts 2021
The sensitivity analyses have been prepared on the basis that the number of financial instruments are all constant. The sensitivity analyses
are intended to illustrate the sensitivity to changes in market variables on the composition of the Group’s financial instruments at the
balance sheet date and show the impact on profit or loss and shareholders’ equity, where applicable.
The following assumptions have been made in calculating the sensitivity analyses:
¼ The sensitivity of the relevant profit before tax item and/or equity is the effect of the assumed changes in respective market risks for
the full year based on the financial assets and financial liabilities held at the balance sheet date.
¼ The sensitivities indicate the effect of a reasonable increase in each market variable. Unless otherwise stated, the effect of a
corresponding decrease in these variables is considered approximately equal and opposite.
¼ Fair value changes from derivative instruments designated as cash flow hedges are considered fully effective and recorded in
shareholders’ equity, net of tax.
¼ Fair value changes from derivatives and other financial instruments not designated as cash flow hedges are presented as a sensitivity
to profit before tax only and not included in shareholders’ equity.
(a) Commodity price risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mix of oil and gas products. On a rolling basis,
the Group’s policy is to hedge the commodity price exposure associated with 50 to 70 per cent of the next 12 months’ production (‘year 1’),
between 40 and 60 per cent of ‘year 2’ production, from ‘year 3’ up to 50 per cent of production and from ‘year 4’ up to 40 per cent of
production. The Group manages these risks through the use of fixed price contracts with customers for physical delivery and derivative
financial instruments including fixed price swaps and options.
The following table summarises the impact on the Group’s pre-tax profit and equity from a reasonably foreseeable movement in commodity
prices on the fair value of commodity based derivative instruments held by the Group at the balance sheet date.
As at 31 December 2021 Market movement
Effect on profit
before tax
$ million
Effect
on equity
$ million
Brent oil price USD 10/bbl increase – (156.6)
Brent oil price USD 10/bbl decrease – 156.6
NBP gas price GBP 0.1/therm increase – (208.9)
NBP gas price GBP 0.1/therm decrease – 208.9
As at 31 December 2020 Market movement
Effect on profit
before tax
$ million
Effect on
equity
$ million
Brent oil price USD 10/bbl increase – (123.3)
Brent oil price USD 10/bbl decrease – 123.3
NBP gas price GBP 0.1/therm increase – (261.9)
NBP gas price GBP 0.1/therm decrease – 261.9
(b) Interest rate risk
Floating rate borrowings comprise loans under the RBL facility which incurs interest fixed either one month, three months or six months
in advance at USD LIBOR plus a margin of 3.25 to 3.5 per cent. Fixed rate borrowings at 31 December 2021 comprise a High Yield Bond
which incurs interest at 5.5 per cent per annum (at 31 December 2020 fixed rate borrowings comprised a series of shareholder loan
notes which incurred interest at 10 per cent per annum). Floating rate financial assets comprise cash and cash equivalents which earn
interest at the relevant market rate. The Group monitors its exposure to fluctuations in interest rates and uses interest rate derivatives
to manage the fixed and floating composition of its borrowings.
The interest rate financial instruments in place at the balance sheet date are shown below:
As at 31 December 2021
Derivative Currency Period of hedge Terms
Interest rate swaps $700 million June 20 – June 25 Average 0.5561%
As at 31 December 2020
Derivative Currency Period of hedge Terms
Interest rate swaps $700 million June 20 – June 25 Average 0.5561%
23. Financial risk factors and risk management continued
Notes to the consolidated financial statements continued
152
Harbour Energy plc
Annual Report & Accounts 2021
The interest rate and currency profile of the Group’s interest-bearing financial assets and liabilities are shown below:
As at 31 December 2021
Cash at bank
$ million
Fixed rate
borrowings
$ million
Floating rate
borrowings
$ million
Total
$ million
US Dollar 477.9 (489.5) (2,351.9) (2,363.5)
Pound Sterling 201.0 – – 201.0
Norwegian Krone 14.6 – (44.6) (30.0)
Other 5.2 – – 5.2
698.7 (489.5) (2,396.5) (2,187.3)
As at 31 December 2020
Cash at bank
$ million
Fixed rate
borrowings
$ million
Floating rate
borrowings
$ million
Total
$ million
US Dollar 414.6 (264.8) (1,882.5) (1,732.7)
Pound Sterling 27.3 – – 27.3
Norwegian Krone 3.3 – (14.1) (10.8)
Other 0.2 – – 0.2
445.4 (264.8) (1,896.6) (1,716.0)
The following table illustrates the indicative pre-tax effect on profit and equity of applying a reasonably foreseeable increase in interest
rates to the Group’s financial assets and liabilities at the balance sheet date.
Market movement
Effect on profit
before tax
$ million
Effect on
equity
$ million
2021
US Dollar interest rates +100 basis points (1.6) –
2020
US Dollar interest rates +100 basis points (15.0) 25.2
(c) Foreign currency risk
The Group is exposed to foreign currency risk primarily arising from exchange rate movements in US Dollar against Pound Sterling.
To mitigate exposure to movements in exchange rates, wherever possible financial assets and liabilities are held in currencies that
match the functional currency of the relevant entity. The Group has subsidiaries with functional currencies of Pound Sterling, US Dollar,
Norwegian Krone, Mexican Pesos and Brazilian Reals. Exposures can also arise from sales or purchases denominated in currencies
other than the functional currency of the relevant entity; such exposures are monitored and hedged with agreement from the Board.
The Group enters into forward contracts as a means of hedging its exposure to foreign exchange rate risks. As at 31 December 2021, the
Group had £20.0 million hedged at a forward rate of $1.3903/£1 for the period to January 2022 and EUR18.4 million hedged at forward
rates of between EUR1.1926 and EUR1.2030/£1 for the period January 2022 to December 2022.
As at 31 December 2020, the Group had £135.0 million hedged at forward rates of between $1.2321 and $1.2990/£1 for the period
January 2021 to November 2021.
The following table demonstrates the sensitivity to a reasonably foreseeable change in US Dollar against Pound Sterling with all
other variables held constant, of the Group’s profit before tax (due to foreign exchange translation of monetary assets and liabilities).
The impact of translating the net assets of foreign operations into US Dollars is excluded from the sensitivity analysis.
Market movement
Effect on
profit before tax
$ million
Effect on
equity
$ million
2021
US Dollar/Pound Sterling 10% strengthening 284.5 –
US Dollar/Pound Sterling 10% weakening (284.5) –
2020
US Dollar/Pound Sterling 10% strengthening 163.8 18.5
US Dollar/Pound Sterling 10% weakening (163.8) (18.5)
Strategic report Governance Financial statements Additional information
153
Harbour Energy plc
Annual Report & Accounts 2021
(d) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to
financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing
activities, including deposits with banks and derivative financial instruments.
The Group only sells hydrocarbons to recognised and creditworthy parties, typically the trading arm of large, international oil and gas
companies. An indication of the concentration of credit risk on trade receivables is shown in note 4, whereby the revenue from one
customer exceeds 84 per cent of the Group’s consolidated revenue.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are internationally recognised
banking institutions and are considered to represent minimal credit risk.
There are no significant concentrations of credit risk within the Group unless otherwise disclosed, and credit losses are expected to be
near to zero. The maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date.
(e) Liquidity risk
The Group monitors the amount of borrowings maturing within any specific period and expects to meet its financing commitments from
the operating cash flows of the business and existing committed lines of credit.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2021 and 2020 based on contractual
undiscounted payments.
As at 31 December 2021
Within 1 year
$ million
1 to 2 years
$ million
2 to 5 years
$ million
Over 5 years
$ million
Total
$ million
Non-derivative financial liabilities
Reserve Based Lending facility 85.8 758.4 1,569.5 305.8 2,719.5
High Yield Bond 27.3 27.5 582.5 – 637.3
Exploration Financing Facility 45.8 – – – 45.8
Other loans 17.7 12.7 20.9 3.3 54.6
Trade and other payables 913.7 32.2 – – 945.9
Lease obligations 181.7 127.8 309.4 97.4 716.3
1,272.0 958.6 2,482.3 406.5 5,119.4
Derivative financial liabilities
Net-settled commodity derivatives 2,496.8 1,090.6 283.1 – 3,870.5
Net-settled foreign exchange derivatives 2.2 – – – 2.2
Net-settled carbon derivatives 15.6 – – – 15.6
Total as at 31 December 2021 3,786.6 2,049.2 2,765.4 406.5 9,007.7
As at 31 December 2020
Within 1 year
$ million
1 to 2 years
$ million
2 to 5 years
$ million
Over 5 years
$ million
Total
$ million
Non-derivative financial liabilities
Reserve Based Lending facility 53.0 73.1 1,595.9 – 1,722.0
Junior facility 22.3 175.2 225.2 45.7 468.4
Loan notes – – – 507.9 507.9
Exploration Financing Facility 14.7 – – – 14.7
Other loans 7.3 14.9 31.3 5.8 59.3
Trade and other payables 673.6 29.8 – – 703.4
Lease obligations 60.1 44.9 23.8 31.5 160.3
831.0 3 37. 9 1,876.2 590.9 3,636.0
Derivative financial liabilities
Net-settled commodity derivatives 74. 2 20.4 28.0 – 122.6
Net-settled interest rate derivatives – – 4.1 – 4.1
Total as at 31 December 2020 905.2 358.3 1,908.3 590.9 3,762.7
23. Financial risk factors and risk management continued
Notes to the consolidated financial statements continued
154
Harbour Energy plc
Annual Report & Accounts 2021
The maturity profiles in the above tables reflect only one side of the Group’s liquidity position and will be recorded in the income
statement against future production and revenue which are recognised on the balance sheet as assets. Interest bearing loans and
borrowings and trade payables mainly originate from the financing of assets used in the Group’s ongoing operations such as property,
plant and equipment and working capital such as inventories. These assets are considered part of the Group’s overall liquidity risk.
24. Called up share capital
Allotted, called up and fully paid Number
2021
$ million Number
2020
$ million
Ordinary Shares of 0.002p each 925,532,639 – – –
Ordinary non-voting deferred shares of 12.4999p each 925,532,639 171.1 – –
F Ordinary Shares of £0.01 each – – 4,994,624 0.1
G Ordinary Shares of £0.40 each – – 18,900 –
M Ordinary Shares of £0.01 each – – 9,865 –
171.1 0.1
The rights and restrictions attached to the Ordinary Shares are as follows:
¼ Dividend rights: the rights of the holders of Ordinary Shares shall rank pari passu in all respects with each other in relation to dividends.
¼ Winding up or reduction of capital: on a return of capital on a winding up or otherwise (other than on conversion, redemption or
purchase of shares) the rights of the holders of Ordinary Shares to participate in the distribution of the assets of the Company available
for distribution shall rank pari passu in all respects with each other.
¼ Voting rights: the holders of Ordinary Shares shall be entitled to receive notice of, attend, vote and speak at any General Meeting of the Company.
The rights and restrictions attached to the non-voting deferred shares are as follows:
¼ They will have no voting or dividend rights and, on a return of capital or on a winding up of the Company, will have the right to receive
the amount paid up thereon only after holders of all Ordinary Shares have received, in aggregate, any amounts paid up on each
Ordinary Share plus £10 million on each Ordinary Share. The Non-Voting Deferred Shares will not give the holder the right to receive
notice of, nor attend, speak or vote at, any general meeting of the Company.
Issue of Ordinary Shares
In March 2021, the Company completed a subdivision of each of the existing 12.5 pence Ordinary Shares, subdividing them into:
¼ one Ordinary Share with a nominal value of 0.0001 pence each; and
¼ one Non-voting Deferred Share with a nominal value of 12.4999 pence each.
Following the subdivision of shares, the Company issued 14,253,203,210 shares in consideration for the acquisition of Chrysaor
Holdings Limited. In addition to the consideration shares, 3,331,916,120 shares were issued to former creditors of the Company in
connection with the restructuring of the Company’s debt, as announced on 16 December 2020.
On 25 June 2021, the Company undertook a consolidation of its shares whereby 1 new Ordinary Share of 0.002 pence each was issued
for every 20 existing Ordinary Shares of 0.0001 pence each previously held. As at 31 December 2021, the Company had 925,532,639
shares of 0.002 pence each in issue.
Purchase and cancellation of own shares
During 2021, none of the Company’s Ordinary Shares were re-purchased or cancelled.
Own shares
2021
$ million
At 1 January 2021 –
Additions from business combinations and joint arrangements 0.6
Purchase of ESOP Trust shares 3.3
Release of shares (0.2)
At 31 December 2021 3.7
The own shares represent the net cost of shares in Harbour Energy plc purchased in the market or issued by the Company into the
Harbour Energy plc Employee Benefit Trust. This ESOP Trust holds shares to satisfy awards under the Group’s share incentive plans.
At 31 December 2021, the number of Ordinary Shares of 0.002 pence each held by the Trust was 775,523.
Strategic report Governance Financial statements Additional information
155
Harbour Energy plc
Annual Report & Accounts 2021
25. Share-based payments
The Group currently operates a Long Term Incentive Plan (LTIP) for certain employees and a Share Incentive Plan and a Save As You Earn
scheme for UK-based and expatriate employees only.
For the year ended 31 December 2021, the total cost recognised by the Company for share-based payment transactions was $13.4 million.
A credit of $13.4 million has been recorded in retained earnings for all equity-settled payments of the Company. Like other elements of
remuneration, this charge is processed through the time-writing system which allocates cost, based on time spent by individuals, to various
entities within the Harbour Energy plc group. Part of this cost is therefore recharged to the relevant subsidiary undertakings, part is
capitalised as directly attributable to capital projects and part is charged to the income statement as operating costs, pre-licence exploration
costs or general and administration costs.
Details of the various share incentive plans currently in operation are set out below.
2017 Long Term Incentive Plan (2017 LTIP)
The Long Term Incentive Plan (LTIP) was introduced as discretionary share awards granted to employees. The following types of award have
been granted under the 2017 LTIP:
¼ Performance Share Awards (PSA): vesting is subject to a Performance Target, normally measured over a three-year period from 1January
based on Total Shareholder Return (TSR) relative to a peer group of companies and aligns to longer-term strategic objectives.
¼ Restricted Share Awards (RSA): aligns to the primary objective of balance sheet recovery, independent of other performance objectives
and vesting of awards is subject to a financial underpin and continued employment.
¼ Conditional Share Awards (CSAs): one-off retention awards where vesting is only subject to continued employment.
¼ Premier Value Share Plan (PVSP) awards: the PVSP is made up of two awards, Base Awards and Multiplier Awards. Under the PVSP, annual
awards of time-vesting restricted shares (Base Awards) and three-year performance-vesting shares (Performance Multiplier Awards) may
be made, with performance-vesting shares subject to achievements of Premier’s delivery of long-term shareholder return.
¼ Deferred Bonus Share Plan (DBSP) awards: certain employees are required to defer a portion of their annual bonus into shares which
vest over a three-year period subject to continued employment.
All LTIP awards are granted in the form of nil-cost options or conditional share awards and therefore there is no exercise price payable on
the exercise of these awards.
No RSA or PVSP awards were granted in 2021.
For further details of the LTIP awards, including the performance conditions of the PSAs granted in 2021, please refer to the Directors’
Remuneration Report.
The following table shows the movement in the number of LTIP awards:
2021
(million)
Outstanding at 1 January –
Additions from business combinations and joint arrangements
1
31.2
Granted pre-share consolidation 23.1
Vested pre-share consolidation (0.6)
Forfeited pre-share consolidation (0.8)
20 to 1 share consolidation (50.3)
Granted post-share consolidation 18.0
Vested post-share consolidation –
Forfeited post-share consolidation (0.1)
Outstanding at 31 December
2
20.5
1 Includes DBSP awards.
2 This includes 0.2 million cash settled awards at 31 December 2021, which are revalued using the year-end share price.
Notes to the consolidated financial statements continued
156
Harbour Energy plc
Annual Report & Accounts 2021
LTIP awards totalling 0.03 million shares (adjusted for the 20 to 1 share consolidation) were vested during the period. The weighted
average remaining contractual life of the LTIP awards at 31 December 2021 was 2.0 years.
Key assumptions used to calculate the fair value of awards
The fair value of awards which are subject to a TSR condition, such as the PSAs, is determined using a Monte Carlo simulation. The fair value
of all other awards is calculated using the share price at the date of grant, adjusted for dividends not received during the vesting period.
The following table lists the inputs to the model used in respect of the PSA awards granted during the financial year.
2021
Share price at date of grant £3.60 – £3.77
Dividend yield 0%
Expected term 1.5 years – 3.0 years
Risk free rate 0.1% – 0.5%
Share price volatility of the Company 70%
The weighted average fair value of the PSA awards granted in 2021 was $1.57.
Expected volatility was determined by reference to both the historical volatility of the Company and the historical volatility of a group
of comparable quoted companies over a period in line with the expected term assumption.
Share Incentive Plan
Under the Share Incentive Plan employees are invited to make contributions to buy partnership shares. If an employee agrees to buy
partnership shares the Company currently matches the number of partnership shares bought with an award of shares (matching shares),
on a one-for-one basis. 62,688 matching shares were awarded to employees in 2021.
Save As You Earn (SAYE) scheme
Under the SAYE scheme, eligible employees with one month or more continuous service can join the scheme. Employees can save to a
maximum of £500 per month through payroll deductions for a period of three or five years after which time they can acquire shares at up
to a 20 per cent discount. No SAYE options were granted in 2021.
2021
Options
(million)
Weighted
average
exercise price
Outstanding at 1 January – –
Additions from business combinations and joint arrangements 10.3 £5.82
20 to 1 share consolidation (9.8) –
Granted during the year – –
Lapsed during the year (0.1) £6.01
Exercised during the year
1
– –
Outstanding as at 31 December 0.4 £5.78
1 No Ordinary Shares were issued under the SAYE scheme during 2021.
No SAYE options were exercised during 2021. The SAYE options outstanding at 31 December 2021 had exercise prices ranging from
£5.53 to £20.09 and a weighted average remaining contractual life of 1.9 years.
Strategic report Governance Financial statements Additional information
157
Harbour Energy plc
Annual Report & Accounts 2021
26. Group pension schemes
Balance sheet
2021
$ million
2020
$ million
UK funded pension scheme 0.8 –
Total surplus in balance sheet 0.8 –
2021
$ million
2020
$ million
UK unfunded pension scheme 0.7 –
Total liability in balance sheet 0.7 –
Unfunded pensions
The Group is paying an unfunded pension to a former director of Premier in the UK in regard to which annual increases and a reversionary
spouse’s pension apply on the same basis as to pensions paid under the Scheme.
On the same actuarial basis as used to assess the Scheme’s pension costs, the present value as at 31 December 2021 of the future
payments projected to be made in respect of UK unfunded pensions is $0.7 million.
Funded pensions
The Group operates a defined benefit pension scheme in the UK – The Retirement and Death Benefits Plan (the Scheme), primarily
inflation-linked annuities based on an employee’s length of service and final salary. The Scheme is closed to new members.
The disclosures set out below are based on calculations carried out as at 31 December 2021 by a qualified independent actuary.
The figures have been prepared in compliance with IAS 19 Employee Benefits.
The Scheme’s assets are held in a separate trustee-administered fund to meet long-term pension liabilities to beneficiaries. The Trustee
of the Scheme is required to act in the best interest of the Scheme’s beneficiaries. The appointment of trustee directors is determined by
the trust documentation.
The liabilities of the defined benefit Scheme are measured by discounting the best estimate of future cash flows to be paid out of the
Scheme using the projected unit credit method. This amount is reflected in the surplus or the deficit in the balance sheet. The projected
unit credit method is an accrued benefits valuation method in which the Scheme liabilities make allowance for the projected earnings.
The liabilities set out in this note have been calculated using membership data current as at 31 December 2021. The results of the
calculations and the assumptions adopted are shown below.
As at 31 December 2021, contributions are payable to the Scheme by the Group at the rates set out in the schedule of contributions
signed by the trustees on 23 March 2021. Under this schedule, the Company contributes on a monthly basis at the rate of 30 per cent
of the aggregate of members’ pensionable salaries.
Principal assumptions
At 31 December
2021
At 31 December
2020
Discount rate 1.8% p.a. –
RPI inflation 3.4% p.a. –
CPI inflation 2.4% p.a. –
Rate of increase in salaries 3.4% p.a. –
Rate of increase in pensions in payment: LPI (max 5%) 3.3% p.a. –
Mortality
S3PA Light CMI_2020 with 0.5% IAMI
and 1.25% long term –
Proportion married 80% –
Withdrawals No allowance –
Cash commutation 75% of maximum tax-free cash –
Life expectancy of male aged 65 now 23.6 –
Life expectancy of male aged 65 in 20 years 24.8 –
Life expectancy of female aged 65 now 25.1 –
Life expectancy of female aged 65 in 20 years 26.5 –
Notes to the consolidated financial statements continued
158
Harbour Energy plc
Annual Report & Accounts 2021
Asset breakdown – the major Scheme assets as a percentage of total Scheme assets are:
2021
%
2020
%
Equities 41.2 –
Gilts 29.3 –
Corporate bonds 29.1 –
Cash 0.4 –
Total 100.0 –
Reconciliation of funded status and amount recognised in balance sheet:
2021
$ million
2020
$ million
Fair value of Scheme assets (55.4) –
Present value of defined benefit obligation 39.4 –
Surplus (16.0) –
Unrecognised amount due to effect of IFRIC 14
1
15.2 –
Defined benefit asset recognised in balance sheet (0.8) –
1 The trustees have certain rights to grant benefit increases to members and accordingly it has been concluded the Group does not have an unconditional right to the surplus by way of a refund.
Statement of amount recognised in the income statement:
2021
$ million
2020
$ million
Current service cost 0.1 –
Net interest on the net defined benefit liability (asset) – –
Total 0.1 –
Reconciliation of defined benefit obligation:
2021
$ million
2020
$ million
Opening present value of defined benefit obligation – –
Additions from business combinations and joint arrangements 41.5 –
Service cost 0.1 –
Interest cost 0.5 –
Actuarial (gains)/losses from changes in demographic assumptions – –
Actuarial (gains)/losses from changes in financial assumptions (1.7) –
Changes due to experience adjustments 0.4 –
Benefits paid (1.1) –
Currency translation effects (0.3) –
Closing defined benefit obligation 39.4 –
Reconciliation of fair value of assets:
2021
$ million
2020
$ million
Opening present value of Scheme assets – –
Additions from business combinations and joint arrangements 53.4 –
Interest income 0.6 –
Return on assets less interest income 2.9 –
Benefits paid (1.1) –
Currency translation effects (0.4) –
Closing fair value of Scheme assets 55.4 –
Actual return on Scheme assets 3.5 –
Strategic report Governance Financial statements Additional information
159
Harbour Energy plc
Annual Report & Accounts 2021
Statement of amount recognised in comprehensive income:
2021
$ million
2020
$ million
(Gain)/loss from changes in the financial assumptions for value of Scheme liabilities (1.7) –
(Gain)/loss from changes in the demographic assumptions for value of Scheme liabilities – –
Changes due to experience adjustments 0.4 –
Return on assets (excluding amounts included in net interest on the net defined benefit liability (asset)) (2.9) –
Change in the effect of the asset ceiling excluding amounts included in net interest on the net defined liability 4.2 –
Currency translation effects 0.1 –
Other comprehensive income 0.1 –
Statement of amount recognised in profit and loss and other comprehensive income:
2021
$ million
2020
$ million
Amount recognised in profit and loss 0.1 –
Other comprehensive income 0.1 –
Total comprehensive loss 0.2 –
Sensitivity of balance sheet at 31 December 2021
The results of the calculations are sensitive to the assumptions used. The balance sheet position revealed by IAS 19 calculations must
be expected to be volatile, principally because the market value of assets (with significant exposure to equities) is being compared with
a liability assessment derived from corporate bond yields.
The below table shows the sensitivity of the IAS 19 balance sheet position to small changes in some of the assumptions. Where one
assumption has been changed all the other assumptions are kept as disclosed above.
Revised
(surplus)/deficit
$ million
Change from
disclosed
(surplus)/deficit
$ million
Discount rate less 0.1% p.a. (15.4) 0.6
RPI inflation and linked assumptions plus 0.1% p.a. (15.5) 0.5
Members living one year longer than assumed (14.5) 1.5
Projected components of pension costs for period to 31 December 2022
Because of the significant volatility in investment markets, it is difficult to project forward the IAS 19 figures for the next year with
confidence. The following projections should therefore be treated with caution. Assumptions implicit in the following projections are:
¼ the interest on the defined benefit liability/(asset) from 31 December 2021 is 1.8% p.a.;
¼ contributions to the Scheme will continue throughout 2022 in accordance with the current Schedule of Contributions in place at the date
of signing this report; and
¼ there will be no changes to the terms of the Scheme.
The amounts recognised in the components of pension expense are:
2022
$ million
Current service cost 0.1
Interest on defined benefit liability/(asset) –
Net actuarial (gain)/loss recognised –
Total 0.1
Notes to the consolidated financial statements continued
26. Group pension schemes continued
160
Harbour Energy plc
Annual Report & Accounts 2021
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes. The only obligation of the Group with respect to the retirement
benefit schemes are to make specified contributions. Payments to the defined contribution schemes are charged as an expense as they
fall due. The total cost charged to income of $28.2 million (2020: $18.6 million) represents contributions payable to these schemes by
the Group at rates specified in the rules of the schemes.
27. Notes to the statement of cash flows
Net cash flows from operating activities consist of:
2021
$ million
2020
$ million
Profit/(loss) before taxation 314.5 (977.7 )
Finance cost, excluding foreign exchange 309.4 261.7
Finance income, excluding foreign exchange (48.8) (7.5)
Depreciation, depletion and amortisation 1,371.0 1,222.1
Impairment of property, plant and equipment 117.2 644.0
Impairment of goodwill – 411.4
Taxes paid (279.8) (189.6)
Share-based payments 8.4 11.8
Decommissioning payments (244.8) (162.1)
Onerous contract provision (2.3) 18.5
Exploration costs written-off 255.0 160.8
Write-off of non-oil and gas assets 4.7 –
Pre-Merger costs 7.0 –
Remeasurement of acquisition completion adjustments – 0.4
Onerous contract payments (9.2) (5.4)
(Increase)/decrease in royalty consideration receivable (0.5) 2.4
Loss/(gain) on termination of IFRS 16 lease 0.3 (0.5)
Loss on disposal of asset 0.1 –
Movement in realised cash flow hedges not yet settled 361.6 (5.6)
Unrealised foreign exchange loss 57.3 34.7
Working capital adjustments:
– Increase in inventories (13.0) (11.2)
– (Increase)/decrease in trade and other receivables (607.4) 41.5
– Increase/(decrease) in trade and other payables 13.5 (76.3)
Net cash inflow from operating activities 1,614.2 1,373.4
Strategic report Governance Financial statements Additional information
161
Harbour Energy plc
Annual Report & Accounts 2021
Reconciliation of net cash flow to movement in net borrowings:
2021
$ million
2020
$ million
Proceeds from drawdown of borrowing facilities (1 ,617.5) (157.5)
Proceeds from issue of High Yield Bond (500.0) –
Short-term debt arising on business combination 2,219.3 –
Repayment of debt – equity allocation to borrowings (942.8) –
Repayment of debt – cash allocation to borrowings (1,276.5) –
Conversion of D loan notes to equity 134.7 –
Proceeds from Exploration Financing Facility loan (45.9) (12.8)
Repayment of senior debt 697.5 774.0
Repayment of junior debt 400.0 –
Loan notes redemption 135.7 77.1
IFRS 9 modification gain 13.9 –
Repayment of Exploration Financing Facility loan 14.7 8.7
Repayment of financing arrangement 9.3 1.6
Arrangement fees and related costs capitalised 88.5 18.4
Financing arrangement interest payable (11.6) (4.9)
Amortisation of arrangement fees and related costs capitalised (38.9) (17.1)
Currency translation adjustment on EFF loan 0.6 (0.8)
Loan notes interest capitalised (5.6) (25.4)
Movement in total borrowings (724.6) 661.3
Movement in cash and cash equivalents 253.3 (127. 8)
(Increase)/decrease in net borrowings in the year (471.3) 533.5
Opening net borrowings (1,716.0) (2,249.5)
Closing net borrowings (2,187.3) (1,716.0)
Analysis of net borrowings
2021
$ million
2020
$ million
Cash and cash equivalents 698.7 445.4
Reserve Based Lending facility (2,312.0) (1,448.6)
High Yield Bond (489.5) –
Junior facility – (396.4)
Exploration Financing Facility
(44.6) (14.1)
Net debt (2,147.4) (1,413.7)
Shareholder loan notes – (264.8)
Financing arrangement (39.9) (37.5)
Closing net borrowings (2,187.3) (1,716.0)
Notes to the consolidated financial statements continued
27. Notes to the statement of cash flows continued
162
Harbour Energy plc
Annual Report & Accounts 2021
28. Related party disclosures
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
Before year-end the Company entered into a secondment agreement with EIG to second two EIG employees to work for Harbour for an
initial period of up to six months from 1 December 2021. The secondment agreement provides that the secondees will work for Harbour
on a substantially full-time basis which may be terminated or extended with the agreement of the parties. The secondees, who are both
familiar with Harbour’s business and assets, will provide the Company with additional support and expertise on a temporary basis.
Directors and Executive remuneration
The remuneration of Directors during the year is set out in the Directors’ Remuneration Report.
Remuneration of key management personnel, including Directors of the Group, is shown below:
2021
$ million
2020
$ million
Salaries and short-term benefits 18.6 13.6
Payments made in lieu of pension contributions 0.7 0.8
Pension benefits – 0.1
19.3 14.5
Note:
2021 data includes remuneration of key management personnel for the Chrysaor Holdings Group in the three months to 31 March 2021.
29. Dividends
A dividend of $100.0 million is proposed for the year ended 31 December 2021 (2020: $nil).
30. Post balance sheet events
As announced on 2 February 2022, Phil Kirk stepped down from his role as Executive Director with effect from 28 February 2022.
The Group has assessed and will continue to assess the implications of the events in Ukraine. Currently there is considered to be no
material impact to Group’s financial performance or position.
The Company confirmed that the Directors intend to submit a proposal to shareholders at the Company’s forthcoming Annual General
Meeting for a general authority to purchase the Company’s own Ordinary Shares. The Directors believe that the Board should be afforded
the flexibility to be able to buy back the Company’s shares when it is in the best interests of shareholders to do so and will result in an
increase in earnings per share. The resolution will specify the maximum number of shares that can be acquired (approximately 15 per
cent of the issued of Ordinary share capital) and the minimum and maximum prices at which they may be bought. Any share purchased
under the authority granted by the resolution will either be cancelled or may be held as treasury shares. In accordance with the Listing
Rules, a further announcement would be made by the Company in the event that the Directors intend to commence a programme to
repurchase shares.
Strategic report Governance Financial statements Additional information
163
Harbour Energy plc
Annual Report & Accounts 2021
31. Investments and amounts due from subsidiary undertakings
At 31 December 2021, the subsidiary undertakings of the Company which were all wholly owned were:
Name of company Area of operation Country of incorporation Main activity
Premier Oil Group Holdings Limited (i) UK UK (iii) Intermediate holding company
Premier Oil Group Limited UK UK (vi) Intermediate holding company
Premier Oil Finance (Jersey) Limited (i) Jersey Jersey (vii) Investment management
Premier Oil Holdings Limited UK UK (iii) Intermediate holding company
Premier Oil Overseas BV Netherlands Netherlands (viii) Intermediate holding company
Premier Oil UK Limited UK UK (vi) Exploration, production & development
Premier Oil E&P Holdings Limited UK UK (iii) Intermediate holding company
Premier Oil E&P UK Limited UK UK (iii) Exploration, production & development
Premier Oil E&P UK EU Limited UK UK (iii) Exploration, production & development
Premier Oil E&P UK Energy Trading Limited UK UK (iii) Gas trading
Premier Oil Barakuda Limited Indonesia UK (iii) Exploration, production & development
Premier Oil Natuna Sea BV Indonesia Netherlands (viii) Exploration, production & development
Premier Oil Vietnam Offshore BV Vietnam Netherlands (viii) Exploration, production & development
Premier Oil (Vietnam) Limited Vietnam British Virgin Islands (ix) Exploration, production & development
Premier Oil Andaman Limited Indonesia UK (iii) Exploration, production & development
Premier Oil Andaman I Limited Indonesia UK (iii) Exploration, production & development
Premier Oil ANS Limited Alaska UK (iii) Exploration, production & development
Premier Oil Exploration and Production Limited Falkland Islands UK (iii) Exploration, production & development
Premier Oil do Brasil Petróleo e Gás Ltda Brazil Brazil (x) Exploration, production & development
Premier Oil Exploration and Production Mexico S.A.de C.V. Mexico Mexico (xi) Exploration, production & development
Premier Oil Mexico Recursos S.A. de C.V. Mexico Mexico (xi) Exploration, production & development
Premier Oil South Andaman Limited Indonesia UK (iii) Exploration, production & development
Premier Oil Tuna BV Indonesia Netherlands (viii) Exploration, production & development
Ebury Gate Limited Guernsey Guernsey (xii) Risk Mitigation Services
EnCore (NNS) Limited UK UK (iii) Intermediate holding company
EnCore Oil Limited UK UK (iii) Intermediate holding company
FP Mauritania A BV Mauritania Netherlands (viii) Decommissioning activities
FP Mauritania B BV Mauritania Netherlands (viii) Decommissioning activities
Premier Oil (EnCore Petroleum) Limited UK UK (iii) Intermediate holding company
Premier Oil ANS Holdings Limited UK UK (iii) Intermediate holding company
Premier Oil Aberdeen Services Limited UK UK (iii) Service company
Premier Oil and Gas Services Limited UK UK (iii) Service company
Premier Oil Exploration (Mauritania) Limited Mauritania Jersey (vii) Decommissioning activities
Premier Oil Far East Limited Singapore UK (iii) Service company
Premier Oil Mauritania B Limited Mauritania Jersey (vii) Decommissioning activities
Premier Oil Mexico Holdings Limited UK UK (iii) Intermediate holding company
Premier Oil Vietnam 121 Limited Vietnam UK (iii) Exploration, production & development
Premier Oil Mexico Investments Limited UK UK (iii) Intermediate holding company
Chrysaor Holdings Limited (i) UK Cayman Islands (xiv) Intermediate holding company
Chrysaor E&P Limited UK UK (ii) Intermediate holding company
Chrysaor Production Holdings Limited UK UK (ii) Intermediate holding company
Chrysaor Resources (UK) Holdings Limited UK UK (ii) Intermediate holding company
Chrysaor E&P Finance Limited UK UK (ii) Financing company
Chrysaor E&P Services Limited UK UK (ii) Service company
Chrysaor North Sea Limited UK UK (ii) Exploration, production & development
Chrysaor Limited UK UK (ii) Exploration, production & development
Chrysaor CNS Limited UK UK (ii) Exploration, production & development
Chrysaor Norge AS Norway Norway (iv) Exploration, production & development
Chrysaor Resources (Irish Sea) Limited UK UK (ii) Exploration, production & development
Chrysaor Marketing Limited UK UK (ii) Gas trading
Chrysaor Energy Limited UK UK (ii) Non-trading
Notes to the consolidated financial statements continued
164
Harbour Energy plc
Annual Report & Accounts 2021
Name of company Area of operation Country of incorporation Main activity
Chrysaor Production Limited UK UK (ii) Intermediate holding company
Chrysaor Production (U.K.) Limited UK UK (ii) Exploration, production & development
Chrysaor Petroleum Company U.K. Limited UK UK (ii) Exploration, production & development
Chrysaor (U.K.) Theta Limited UK UK (ii) Exploration, production & development
Chrysaor (U.K.) Alpha Limited UK UK (ii) Exploration, production & development
Chrysaor (U.K.) Beta Limited UK UK (ii) Exploration, production & development
Chrysaor Developments Limited UK UK (ii) Exploration, production & development
Chrysaor Petroleum Limited UK UK (ii) Exploration, production & development
Chrysaor (U.K.) Sigma Limited UK UK (ii) Exploration, production & development
Chrysaor (U.K.) Zeta Limited UK UK (ii) Non-trading intermediate holding company
Chrysaor (U.K.) Delta Limited UK UK (ii) Non-trading intermediate holding company
Premier Oil Belgravia Holdings Limited UK UK (iii) Non-trading Intermediate holding company
Chrysaor (U.K.) Eta Limited UK UK (ii) Non-trading
Premier Oil Belgravia Limited UK UK (iii) Non-trading
Premier Oil Ebury Limited UK UK (iii) Non-trading
Premier Oil Exploration Limited UK UK (vi) Non-trading
Premier Oil Buton BV Netherlands Netherlands (viii) Non-trading
Premier Oil International Holding BV Netherlands Netherlands (viii) Non-trading
Premier Oil Vietnam North BV Netherlands Netherlands (viii) Non-trading
Harbour Energy Developments Limited – UK (ii) Dormant company
Chrysaor Supply & Trading Limited (formerly
Harbour Energy Limited) – UK (ii) Dormant company
Chrysaor (U.K.) Lambda Limited – ROI (v) Dormant company
Chrysaor Investments Limited – UK (ii) Dormant company
Harbour Energy Production Limited – UK (ii) Dormant company
Harbour Energy Services Limited – UK (ii) Dormant company
Chrysaor (U.K.) Britannia Limited – UK (ii) Dormant company
EnCore (VOG) Limited – UK (iii) Dormant company
EnCore CCS Limited – UK (iii) Dormant company
EnCore Natural Resources Limited – UK (iii) Dormant company
EnCore Oil and Gas Limited – UK (iii) Dormant company
Premier Oil B Limited – UK (iii) Dormant company
Premier Oil Bukit Barat Limited – UK (iii) Dormant company
Premier Oil CCS Limited – UK (iii) Dormant company
Premier Oil Congo (Marine IX) Limited – Jersey (vii) Dormant company
Premier Oil Exploration and Production (Iraq) Limited – UK (iii) Dormant company
Premier Oil Exploration ONS Limited – UK (iii) Dormant company
Premier Oil Investments Limited – UK (iii) Dormant company
Premier Oil ONS Limited – UK (iii) Dormant company
Premier Oil Pakistan Offshore BV – Netherlands (viii) Dormant company
Premier Oil Pacific Limited – Hong Kong (xiii) Dormant company
Premier Oil Philippines Limited – Netherlands (viii) Dormant company
Premier Overseas Holdings Limited – UK (iii) Dormant company
XEO Exploration plc – UK (iii) Dormant company
Notes:
(i) Held directly by the Company. All other companies are held through a subsidiary undertaking.
(ii) Registered office – Brettenham House, Lancaster Place, London, United Kingdom, WC2E 7EN.
(iii) Registered office – 23 Lower Belgrave Street, London, United Kingdom, SW1W ONR.
(iv) Registered office – Haakon VII’s gate 1, 4
th
Floor, 0161 Oslo, Norway.
(v) Registered office – Riverside One, Sir John Rogerson’s Quay, Dublin 2, Ireland.
(vi) Registered office – 4
th
Floor, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN.
(vii) Registered office – IFC 5, St Helier, Jersey, JE1 1ST.
(viii) Registered office – Herikerbergweg 88, 1101 CM, Amsterdam, Netherlands.
(ix) Registered office – Commerce House, Wickhams Cay 1, Road Town, Tortola, VG1110.
(x) Registered office – Rua Lauro Müller, 116 – Sala 3201, Botafogo, Rio de Janeiro – CEP: 22.290-160, Brazil.
(xi) Registered office – Presidente Masaryk 111, Piso 1, Polanco V Seccion, Mexico City, CP 11560, Mexico.
(xii) Registered office – Level 5, Mill Court, La Charroterie, St Peter Port, Guernsey, GY1 1EJ.
(xiii) Registered office – 31/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.
(xiv) Registered office – Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111.
Strategic report Governance Financial statements Additional information
165
Harbour Energy plc
Annual Report & Accounts 2021
Note
2021
$ million
2020
$ million
Assets
Non-current assets
Investments in subsidiaries 3 4,965.6 565.5
Long-term employee benefit plan surplus 7 0.8 1.0
Long-term receivables 4 2,782.6 –
Total non-current assets 7,749.0 566.5
Current assets
Trade and other receivables 4 4.8 1,403.8
Total current assets 4.8 1,403.8
Current liabilities
Trade and other payables 5 (10.9) (2.9)
Derivative financial instruments – (40.9)
Borrowings 6 – (204.4)
Net current(liabilities)/assets (6.1) 1,155.6
Non-current liabilities
Borrowings 6 (489.5) –
Long-term employee benefit plan deficit 7 (0.7) (0.8)
Net assets 7,252.7 1,721.3
Equity and reserves
Share capital 9 171.1 171.1
Share premium account 1,504.6 517. 5
Retained earnings 762.6 650.3
Other reserves 4,814.4 382.4
Total equity and reserves 7,252.7 1,721.3
Profit for the year ending 31 December 2021 was $104.3 million (2020: $20.4 million).
The financial statements, including the notes, of Harbour Energy plc (registered number SC234781) on pages 166 to 169 were approved
by the Board of Directors on 16 March 2022 and signed on its behalf by:
ALEXANDER KRANE
Chief Financial Officer
Company balance sheet
As at 31 December
166
Harbour Energy plc
Annual Report & Accounts 2021
Share
capital
$ million
Share
premium
$ million
Merger
reserve
$ million
Capital
redemption
reserve
$ million
Retained
earnings
$ million
Total equity
$ million
As at 1 January 2020 156.5 499.4 374 .3 8.1 619.0 1, 657. 3
Issue of Ordinary Shares 14.6 18.1 – – 1.9 34.6
Purchase of ESOP Trust shares – – – – (1.5) (1.5)
Profit for the financial year – – – – 20.4 20.4
Provision for share-based payments – – – – 11.3 11.3
Pension costs – actuarial gains – – – – 0.3 0.3
Movement in cash flow hedges – – – – (1.1) (1.1)
At 1 January 2021 171.1 517. 5 374 .3 8.1 650.3 1,721.3
Merger shares issued – – 4,432.0 – – 4,432.0
Debt settlement non top-up – 987.1 – – – 987.1
Profit for the financial year – – – – 104.3 104.3
Provision for share-based payments – – – – 13.1 13.1
Purchase of ESOP Trust shares – – – – (4.9) (4.9)
Movement in cash flow hedges – – – – (0.2) (0.2)
At 31 December 2021 171.1 1,504.6 4,806.3 8.1 762.6 7,252.7
Company statement of changes in equity
For the year ended 31 December
Strategic report Governance Financial statements Additional information
167
Harbour Energy plc
Annual Report & Accounts 2021
1. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets
the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council.
These financial statements have been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
accounting standards issued but not yet effective or implemented, share-based payment information, financial instruments, capital
management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement and certain
related party transactions.
The financial statements have been prepared on a going concern basis. Further information relating to the going concern assumption
is provided in the Financial review on page 38.
Where required, the equivalent disclosures are given in the consolidated financial statements. Key sources of estimation uncertainty
disclosure are provided in the Accounting policies and in relevant notes to the consolidated financial statements as applicable. Details
of the Company’s share-based payment schemes are provided in note 25 of the consolidated financial statements.
The financial statements have been prepared on the historical cost basis except for the remeasurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out on pages 119 to 130 to the consolidated financial
statements except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
2. Profit for the year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the
year. The Company reported a profit for the financial year ended 31 December 2021 of $104.3 million (2020: $20.4 million).
Other comprehensive expense for the year was $0.2 million (2020: $0.8 million).
The auditors’ remuneration for audit and other services is disclosed in note 5 to the consolidated financial statements.
3. Fixed asset investments
Cost and net book value
2021
$ million
At 1 January 565.5
Additions 4,400.1
At 31 December 4,965.6
As a result of the all-share Merger between Premier and Chrysaor on 31 March 2021 Premier legally acquired Chrysaor through the
issuance of 14,253,203,210 consideration shares at a price of 22.4p per share ($0.3087 per share).
A list of all investments in subsidiaries held at 31 December 2021, including the name and type of business, the country of operation
and the country of incorporation or registration, is given in note 31 to the consolidated financial statements.
4. Receivables
Current
2021
$ million
2020
$ million
Amounts owed by subsidiary undertakings 0.3 1,399.3
Other receivables – 4.5
Prepayments 4.5 –
4.8 1,403.8
Non-current
2021
$ million
2020
$ million
Amounts owed by subsidiary undertakings 2,782.6 –
2,782.6 –
Amounts owed by subsidiary undertakings include loans that are interest bearing and are repayable on demand, although the
Company has confirmed that it has no current intention to call on the loans until at least 12 months from the date of the approval
of these financial statements.
Notes to the Company financial statements
168
Harbour Energy plc
Annual Report & Accounts 2021
The carrying value reflects an impairment provision required under IFRS 9, which was calculated using the Group’s 12-month probability
of default.
The carrying values of the Company’s debtors approximate their fair value.
5. Trade and other payables
2021
$ million
2020
$ million
Derivative financial instruments – warrants – 0.7
Amounts owed to subsidiary undertakings 1.7 –
Other creditors 1.4 –
Accruals 7.8 2.2
10.9 2.9
The carrying values of the Company’s creditors approximate their fair value.
6. Borrowings
2021 2020
Book value
$ million
Fair value
$ million
Book value
$ million
Fair value
$ million
High Yield Bond (489.5) (483.0) – –
Retail bonds – – (204.4) (160.1)
In October 2021 the Company issued a $500 million High Yield Bond under Rule 144A and has a tenor of five years to maturity.
The coupon was set at 5.5 per cent and interest is payable semi-annually.
The borrowings at 31 December 2020 relate to £150.0 million of UK retail bonds, which were put in place as part of a £500.0 million
Euro Medium Term Notes (EMTN) programme. On completion of the Merger with Chrysaor in March 2021, these were settled via a
combination of cash and equity.
The carrying value of the bonds are stated in the Company balance net of the unamortised portion of the debt arrangement fee
of $10.5 million (2020: $0.4 million).
7. Long-term employee benefit plan
Defined benefit schemes
The Company operates a defined benefit scheme in the UK – The Retirement and Death Benefits Plan (the Scheme). Further details
of the Scheme are disclosed in note 26 of the consolidated financial statements.
Defined contribution schemes
The Company operates a defined contribution retirement benefit scheme. Further details of this scheme are provided in note 26 of the
consolidated financial statements.
8. Commitments and guarantees
At the year-end date the Company (together with certain subsidiary undertakings) guaranteed the Group’s borrowing facilities, which comprise:
¼ $4.5 billion Reserve Based Lending facility, of which $1.25 billion is available for drawing letters of credit; and
¼ $500 million High Yield Bond.
9. Share capital
Further details of these items are disclosed in note 24 of the consolidated financial statements.
10. Dividends
A dividend of $100.0 million is proposed for the year ended 31 December 2021 (2020: $nil).
Strategic report Governance Financial statements Additional information
169
Harbour Energy plc
Annual Report & Accounts 2021
UK Government payment reporting
For the year ended 31 December
Basis of preparation
The Reports on Payments to Governments Regulations (UK Regulations) came into force on 1 December 2014 and require UK companies
in the extractive sector to publicly disclose payments made to governments in the countries where they undertake extractive operations. The
aim of the regulations is to enhance the transparency of the payments made by companies in the extractive sector to host governments in
the form of taxes, bonuses, royalties, fees and support for infrastructure improvements.
This consolidated report provides information in accordance with DTR 4.3A in respect of payments made by the Company and its subsidiaries
to governments for the year ended 31 December 2021 and in compliance with the Reports on Payments to Governments Regulations 2014
(SI 2014/3209), as amended by the Reports on Payments to Governments (Amendment) Regulations 2015 (SI 2015/1928).
The payments disclosed are based on where the obligation for the payment arose: payments levied at a project level have been disclosed
at a project level and payments levied at a corporate level have been disclosed on that basis.
The payments disclosed are for the 12 month period ending 31 December 2021.
Within the UK Regulations, a project is defined as being the operational activities which are governed by a single contract, licence, lease,
concession or a similar legal agreement. The Company undertakes extractive activities in different types of fiscal petroleum regimes and
therefore the types of payments disclosed vary from country to country. For the purposes of our reporting, for the UK, individual licences
have been grouped into geographical hubs and are classified as projects; for the Falkland Islands, Brazil and Norway we have classified
each individual licence as a project, whereas for Indonesia, Vietnam and Mexico each PSC arrangement has been classified as a project.
All of the payments disclosed have been made to national governments, either directly or through a Ministry or Department, or to a
national oil company, who have a working interest in a particular licence. For projects where we are the operator we have disclosed the
full payment made on behalf of the project; where we have a non-operated interest we have not disclosed payments made on our behalf
by another party.
In line with the UK Regulations, where a payment or a series of related payments do not exceed $118,336 (£86,000), they have not been
disclosed. Where the aggregate payments made in the period for a project or country are less than $118,336 we have not disclosed the
payments made for this project or country.
Our total economic value distributed to all stakeholders can be found on page 34 of the Annual Report.
Reporting currency: Payments disclosed in this report have been disclosed in US Dollars, consistent with the rest of the 2021 Annual
Report. Where actual payments have been made in a currency other than US Dollars, they have been translated using the prevailing
exchange rate when the payment was made.
Production entitlements in barrels: Includes non-cash royalties and state non-participating interest paid in barrels of oil or gas out of the
Group’s working interest share of production in a licence. The figures disclosed are on a cash paid liftings basis.
Income taxes: This represents cash tax calculated on the basis of profits including income or capital gains and taxes on production. Income
taxes are usually reflected in corporate income tax returns. The cash payment of income taxes occurs in the year in which the tax has arisen
or up to one year later. Income taxes also include any cash tax rebate received from the government or revenue authority during the year.
Income taxes do not include fines and penalties. In accordance with the UK Regulations, payments made in relation to sales, employee,
environmental or withholding taxes have not been disclosed.
Dividends: This includes dividends that are paid in lieu of a production entitlement or royalty. It does not include any dividends paid to a
government as an ordinary shareholder.
Royalties: This represents cash royalties paid to governments during the year for the extraction of oil or gas. The terms of the royalties are
described within our PSCs and can vary from project to project within one country. Export duties paid in kind have been recognised within
the royalties category. The cash payment of royalties occurs in the year in which the tax has arisen.
Bonus payments: This represents any bonus paid to governments during the year, usually as a result of achieving certain milestones,
such as a signature, discovery or production bonuses.
Licence fees: This represents licence fees, rental fees, entry fees and other consideration for licences and/or concessions paid for
access to an area during the year (with the exception of signature bonuses which are captured within bonus payments). For 2021, this
also includes the exit fee paid for the operated Brazil licence 717.
Infrastructure improvement payments: This represents payments made in respect of infrastructure improvements for projects that are
not directly related to oil and gas activities during the year. This can be a contractually obligated payment in a PSC or a discretionary
payment for building/improving local infrastructure such as roads, bridges and ports.
170
Harbour Energy plc
Annual Report & Accounts 2021
Country
Licence/company
level
Production
entitlements
bbls ‘000s
Production
entitlements
$ ‘000s
Income
taxes
$ ‘000s
Royalties;
cash only
$ ‘000s
Dividends
$ ‘000s
Bonus
payments
$ ‘000s
Licence
fees
$ ‘000s
Infrastructure
improvement
payments
$ ‘000s
Total
$ ‘000s
Brazil CE-M-717-R11 – – – – – – 41,103 – 41,103
Total Brazil – – – – – – 41,103 – 41,103
Falkland Sea Lion – – – – – – 400 – 400
Islands
Corporate – – – – – – 1,080 1,080
Total Falkland Islands – – – – – – 1,480 – 1,480
Indonesia Natuna Sea Block A 4,097 250,779 55,990 – – – – – 306,769
Total Indonesia 4,097 250,779 55,990 – – – – – 306,769
Mexico Block 11 – – – – – – 837 – 837
Block 13 – – – – – – 837 – 837
Total Mexico – – – – – – 1 ,674 – 1,674
Norway Corporate – – (20,440) – – – – – (20,440)
Total Norway – – (20,440) – – – – – (20,440)
United Central North Sea – – (747 ) – – – 6,843 – 6,096
Kingdom
Southern North Sea – – (11,240) – – – 1,625 – (9,615)
East Irish Sea – – – – – – 1,800 – 1,800
West of Shetland – – – – – – 193 – 193
Other – – – – – – 247 – 247
Corporate – – 257,778 – – – – – 257,778
Total UK – – 245,791 – – – 10,708 – 256,499
Vietnam Chim Sáo 202 14,040 – – – 450 – – 14,490
Corporate – – 13,097 8,636 – – – – 21,733
Total Vietnam 202 14,040 13,097 8,636 – 450 – – 36,223
Total Group 4,299 264,819 294,438 8,636 – 450 54,965 – 623,308
Strategic report Governance Financial statements Additional information
171
Harbour Energy plc
Annual Report & Accounts 2021
UK Government payment reporting continued
For the year ended 31 December
Country Government
Production
entitlements
bbls ‘000s
Production
entitlements
$ ‘000s
Income
taxes
$ ‘000s
Royalties
(cash only)
$ ‘000s
Dividends
$ ‘000s
Bonus
payments
$ ‘000s
Licence
fees
$ ‘000s
Infrastructure
improvement
payments
$ ‘000s
Total
$ ‘000s
Brazil National Petroleum
Agency – – – – – – 41,103 – 41,103
Total Brazil – – – – – – 41,103 – 41,103
Falkland
Islands
Falkland Islands
Government
– Department of
Mineral Resources – – – – – – 1,480 – 1,480
Total Falkland Islands – – – – – – 1,480 – 1,480
Indonesia
SKK Migas 4,097 250,779 – – – – – – 250,779
Directorate General
of Taxes – – 55,990 – – – – – 55,990
Total Indonesia 4,097 250,779 55,990 – – – – – 306,769
Mexico Fondo Mexicano del
Petróleo para la
Estabilización y el
Desarrollo (FMP) – – – – – – 666 – 666
Servicio de
Administración
Tributaria (SAT) – – – – – – 1,008 – 1,008
Total Mexico – – – – – – 1 ,674 – 1,674
Norway Tax authorities
(Skatteetaten) – – (20,440) – – – – – (20,440)
Total Norway – – (20,440) – – – – – (20,440)
United
Kingdom
HM Revenue
& Customs – – 245,791 – – – – – 245,791
Oil & Gas Authority – – – – – – 10,010 – 10,010
The Crown Estate – – – – – – 456 – 456
Crown Estate Scotland – – – – – – 242 – 242
Total UK – – 245,791 – – – 10,708 – 256,499
Vietnam
Petro Vietnam 202 14,040 – – – 450 – – 14,490
HCM Tax Department – – 13,097 4,790 – – – – 17,8 87
Vung Tau
Customs Office – – – 3,846 – – – – 3,846
Total Vietnam 202 14,040 13,097 8,636 – 450 – – 36,223
Total Group 4,299 264,819 294,438 8,636 – 450 54,965 – 623,308
172
Harbour Energy plc
Annual Report & Accounts 2021
Group 2P reserves and 2C resources
For the year ended 31 December
North Sea
1
International
1
Total
1
Oil and
NGLs Gas Total
Oil and
NGLs Gas Total
Oil and
NGLs Gas Total
mmbbls bcf mmboe
2
mmbbls bcf mmboe
2
mmbbls bcf mmboe
2
2P reserves (working interest)
At 31 December 2020
3
234.1 1,136.1 451.2 – – – 234.1 1,136.1 451.2
Acquisition
4
42.8 323.5 102.9 12.7 126.9 36.1 55.5 450.4 139.0
Revisions
5
(11.7) (114.3) (33.6) (0.3) (26.1) (5.0) (11.9) (140.5) (38.6)
Production (33.4) (136.9) (59.8) (1.3) (16.0) (4.2) (34.7) (152.9) (64.1)
At 31 December 2021 231.8 1,208.4 460.7 11.2 84.8 26.9 242.9 1,293.2 487.5
2P reserves (entitlement)
6
At 31 December 2021 231.8 1,208.4 460.7 8.8 64.0 20.5 240.6 1,272.4 481.1
2C contingent resources (working interest)
At 31 December 2021 220.0 516.1 309.2 115.5 207.8 151.2 335.5 723.9 460.4
1 Volumes reflect internal estimates. ERCE as a competent independent person has audited the Group’s 2P net entitlement and working interest reserves as at 31 December 2021 and
ERCE considers these to be fair and reasonable as per the SPE Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information. ERCE has also audited c. 80 per
cent of the Group’s 2C contingent resources as at 31 December 2021 and is of the opinion that Harbour’s estimates are fair and reasonable. Further, ERCE believes that if its audit had
included all of Harbour’s 2C resources then it would have been able to express the same opinion.
2 Conversion of gas volumes from bcf to boe is determined using an energy conversion of 5.8 mmbtu per boe. Fuel gas is not included in these estimates.
3 2P reserves as at 31 December 2020 reflect internal estimates of Chrysaor’s reserves as at that date.
4 Acquisition volumes reflects Premier’s volumes acquired following the completion of the Merger on 31 March 2021. Acquisition volumes have been adjusted from Premier year-end 2020
estimates through deduction of production from Q1 2021 and removal of fuel gas, which Harbour does not include in 2P reserves estimates.
5 The most material 2P reserves revision is related to the Tolmount field based on the outcome of the 2021 development drilling programme.
6 Harbour’s net entitlement 2P reserves are lower than its working interest 2P reserves for its International assets, reflecting the terms of the Production Sharing Contracts.
The Group provides for amortisation of costs relating to evaluated properties based on direct interests on an entitlement basis, which
incorporates the terms of the PSCs in Indonesia and Vietnam. On an entitlement basis, reserves were 481.1 mmboe as at 31 December
2021. This was calculated at 31 December 2021, using the following oil and gas price assumptions: $75/bbl and 150p/therm in 2022,
$70/bbl and 100p/therm in 2023 and $65/bbl and 60p/therm in real terms thereafter.
Strategic report Governance Financial statements Additional information
173
Harbour Energy plc
Annual Report & Accounts 2021
United Kingdom
Operated producing assets
Location Asset Operator Harbour equity
Associated fields/
discoveries
Armada Area Armada, Everest & Lomond Harbour 100.0% Includes Armada, Everest, Lomond,
Drake, Fleming, Hawkins & Maria
Catcher Area Catcher Harbour 50.0% Includes Catcher, Burgman, Varadero & Laverda
Greater Britannia
Area
Britannia
Brodgar
Callanish
Enochdhu
Harbour
Harbour
Harbour
Harbour
58.7%
93.8%
83.5%
50.0%
J-Area J-Block & Jasmine
Jade
Harbour
Harbour
67.0 %
67.5%
West of Shetland Solan Harbour 100.0%
Southern North Sea Johnston
Tolmount
Harbour
Harbour
50.1%
50.0%
East Irish Sea
1
Dalton, Millom & Calder Harbour 100.0%
1 Managed on our behalf by Spirit Energy.
Non-operated producing assets
Location Asset Operator Harbour equity
Associated fields/
discoveries
West of Shetland Clair
Schiehallion
BP
BP
7.5%
10.0%
Central North Sea Alder
Buzzard
Elgin, Franklin & West Franklin
Erskine
Glenelg
Nelson
Ithaca
CNOOC
Total
Ithaca
Total
Shell
26.3%
21.7%
19.3%
32.0%
33.3%
1.7%
Beryl & Ness Area Apache 19.7%-49.1% Includes Beryl, Buckland, Callater,
Ness, Nevis, Skene & Storr
Southern North Sea Galleon
Ravenspurn North
Shell
Perenco
8.4%
28.8%
Note:
These lists are not exhaustive. Harbour Energy also holds a number of operated and non-operated interests in fields on the UK Continental Shelf that have ceased production and are in or
are entering decommissioning, as well as operated exploration, appraisal and pre-development interests.
Infrastructure
Asset Operator Harbour equity
Rivers Terminal Harbour Energy
1
100.0%
Brent Pipeline System TAQA 1.6%
Sullom Voe Terminal EnQuest 1.0%
CATS Pipeline Kellas Midstream 0.7%
ETS Pipeline Kellas Midstream 10.0%
SAGE System Ancala Midstream 19.7%
SEAL Pipeline Shell 10.8%
SILK Pipeline Total 16.0%
GAEL Pipeline (Northern) Ineos 4.0%
GAEL Pipeline (Southern) Ineos 13.4%
West of Shetland Pipeline System BP 2.7%
Glen Lyon FPSO BP 8.2%
1 Operated by Spirit Energy on behalf of Harbour.
Worldwide licence interests
As at 31 December 2021
174
Harbour Energy plc
Annual Report & Accounts 2021
Norway
Location Asset Operator Harbour equity
Associated fields/
discoveries
PL038D Block 15/12 OKEA 35.0% Grevling
PL956 Block 25/8 Vår Energi 15%
PL973 Block 15/12 Harbour 50.0%
PL973B Block 15/12 Harbour 50.0%
PL974 Block 15/12 OKEA 40.0% Storskrymten
PL1032 Blocks 2/7 and 2/10 Lundin 40.0%
PL1033 Blocks 1/9 and 2/7 OMV 40.0%
PL1034 Block 15/12 Harbour 60.0%
PL1046 Blocks 24/3, 24/6, 25/1 & 25/4 Harbour 40.0%
PL1058 Blocks 6307/1 and 6407/10 Equinor 40.0%
PL1060 Blocks 6407/8 and 6407/9 Equinor 20.0%
PL1066 Block 6507/3 Aker BP 50.0% Galtvort
PL1087 Blocks 2/2 & 2/5 Harbour 50.0%
PL1089 Blocks 1/5 & 1/6 Lundin 50.0%
PL1092 Blocks 15/6 & 9 Lundin 50.0%
PL1093 Blocks 16/4, 5, 6, 8 & 9 Harbour 50.0%
PL1113 Blocks 6407/8, 9 & 11 Neptune 30.0%
PL1114 Blocks 640/7/7. 8, 10 & 11 Harbour 40.0%
Other worldwide licences
Licence Blocks Operator Harbour equity
Associated fields/
discoveries
Falkland Islands
PL003a 14/14 (part) & 14/19 (part) Rockhopper 4.5%
PL003b 14/14 (part) & 14/19 (part) Rockhopper 6.9%
PL004a 14/15 (part), 14/20, 15/11 (part)
& 15/16 (part)
Harbour 36.0% Isobel Deep
PL004b 14/15 (par t) Harbour 36.0% Beverley, Casper South
& Zebedee
PL004c 14/15 (par t) Harbour 36.0%
PL032 14/5, 14/10 Harbour 60.0% Casper North, Sea Lion
PL033 15/1 (part) & 15/6 (part) Harbour 60.0%
Indonesia
South Andaman South Andaman Mubadala Petroleum 20.0%
Andaman I Andaman I Mubadala Petroleum 20.0%
Andaman II Andaman II Harbour 40.0%
Natuna Sea Block A Harbour 28.67% Anoa, Gajah Baru, Naga, Pelikan,
Bison, Iguana & Gajah Puteri
Tuna Block Tuna Block Harbour 50.0% Kuda Laut, Singa Laut
Mauritania
PSC (Chinguetti) Deepwater Blocks 4 & 5 Petronas 8.1% Chinguetti
Mexico
Mexico Block 7 7 Talos 25.0% Zama
Mexico Block 11 11 Harbour 100.0%
Mexico Block 13 13 Harbour 100.0%
Mexico Block 30 30 WDEA 30.0%
Vietnam
Block 12W 12W Harbour 53.1% Chim Sáo
Strategic report Governance Financial statements Additional information
175
Harbour Energy plc
Annual Report & Accounts 2021
AGM Annual General Meeting
ALARP As low as reasonably practicable
bbl Barrel
BBtud Billion British thermal units per day
Bcf Billion cubic feet
BIG-P Bison, Iguana and Gajah Puteri
BMS Business Management System
boe Barrel(s) of oil equivalent
BRINDEX The Association of British Independent
Oil Exploration Companies
CAGR Compound annual growth rate
CGU Cash-generating unit
Chrysaor Chrysaor Holdings Limited and subsidiaries
COP Cessation of production
CPRs Competent Person Reports
DD&A Depreciation, depletion and amortisation
DTA Deferred tax asset
E&E Exploration and evaluation
E&P Exploration and production
EBITDA Earnings before interest, tax, depreciation and amortisation
EBITDAX Earnings before interest, tax, depreciation, amortisation
and exploration
EIA Environmental Impact Assessment
EIS Environmental Impact Statement
EMTN Euro Medium Term Notes
EPA Equity Pool Awards
ERM Enterprise risk management
ESG Environmental, social and governance
ExCo Executive Committee
FDP Field development plan
FEED Front end engineering and design
FPSO Floating production, storage and offtake vessel
FVOCI Fair value through other comprehensive income
FVTPL Fair value through profit or loss
GBP Pound Sterling
GHG Greenhouse gas
GRI Global Reporting Initiative
GSA Gas Sales Agreement
HiPo High potential incidents
HiPoR High Potential Incident Rate
HSES Health, safety, environment and security
HSFO High Sulphur Fuel Oil
IAS International Accounting Standards
IASB International Accounting Standards Board
IEA International Energy Agency
IFRIC IFRS Interpretations Committee
IFRSs International Financial Reporting Standards
IOGP International Association of Oil and Gas Producers
IPIECA International Petroleum Industry
Environmental Conservation Association
ISAs (UK) International Standards on Auditing (UK)
IVC Investor Code
kboepd Thousand barrels of oil equivalent per day
KPI Key performance indicator
LDAR Leak detection and repair programmes
LNG Liquefied natural gas
LOPC Loss of primary containment
LTIP Long Term Incentive Plan
LTIR Lost Time Injury Rate (relating to Harbour’s employees
and contractors, and operated assets only)
LWDC Lost work day cases
M&A Mergers and acquisitions
The Merger All share merger between Premier Oil plc and Chrysaor Holdings
Limited, effective 31 March 2021 via a reverse takeover
mmbbls Million barrels
mmboe Million barrels of oil equivalent
MODU Mobile Offshore Drilling Unit
MSA Matching Share Awards
mscf Thousand standard cubic feet
mt Metric tonne
MTC Medical treatment cases
NOK Norwegian Krone
NSTA North Sea Transition Authority
OGA Oil and Gas Authority
ORB Order Book of Retail Bonds
PB3 OPT PB3 PowerBuoy®
Premier Premier Oil plc and subsidiaries
PSA Performance Share Awards
PSC Production sharing contract
PVSP Premier Value Share Plan
RSA Restricted Share Award
RWDC Restricted work day cases
SAYE Save As You Earn
SDGs UN Sustainable Development Goals
SIP Share Incentive Plan
SPA Sale and Purchase Agreements
Tcf Trillion cubic feet
TCFD Task Force on Climate-related Financial Disclosures
te Tonnes
TRIR Total Recordable Injury Rate
TSR Total shareholder return
UNGC UN Global Compact
USD US Dollar
USPP US Private Placement
WTI West Texas Intermediate
2C Best estimate of contingent resources
2P Proven and probable reserves
Glossary
176
Harbour Energy plc
Annual Report & Accounts 2021
Non-IFRS measures
Harbour uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting
principles. These non-IFRS measures, which are presented within the Financial review, are defined below:
¼ Capital investment: Depicts how much the Group has spent on purchasing fixed assets in order to further its business goals and
objectives. It is a useful indicator of the Group’s organic expenditure on oil and gas assets, and exploration and appraisal assets,
incurred during a period.
¼ DD&A per barrel: Depreciation and amortisation of oil and gas properties for the period divided by working interest production.
This is a useful indicator of ongoing rates of depreciation and amortisation of the Group’s producing assets.
¼ EBITDAX: Earnings before tax, interest, depreciation and amortisation, impairments, remeasurements, onerous contracts
and exploration expenditure. This is a useful indicator of underlying business performance.
¼ Free Cash Flow: Operating cash flow less cash flow from investing activities less interest and lease payments.
¼ Leverage ratio: Net Debt/EBITDAX.
¼ Liquidity: The sum of cash and cash equivalents on the balance sheet and the undrawn amounts available to the Group on our
principal facilities. This is a key measure of the Group’s financial flexibility and ability to fund day-to-day operations.
¼ Net Debt: Total senior and junior debt, High Yield Bond and Exploration Financing Facility (net of the carrying value of unamortised fees)
less cash and cash equivalents recognised on the consolidated balance sheet. This is an indicator of the Group’s indebtedness and
contribution to capital structure.
¼ Operating cost per barrel: Direct operating costs (excluding over/underlift) for the period, including tariff expense, insurance costs
and mark-to-market movements on emissions hedges, less tariff income, divided by working interest production. This is a useful
indicator of ongoing operating costs from the Group’s producing assets.
Strategic report Governance Financial statements Additional information
177
Harbour Energy plc
Annual Report & Accounts 2021
Registrar
All enquiries concerning your shareholding
should be directed to Equiniti:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
Telephone: 0371 384 2030
Telephone number from outside UK:
+44 (0)371 384 2030
Calls are charged at the standard
geographic rate and will vary by provider.
Calls outside the United Kingdom will be
charged at the applicable international rate.
Lines are open 8.30am – 5.30pm Monday
to Friday, excluding public holidays in
England and Wales.
Email: For enquiries about shareholdings,
send a secure email to us regarding your
enquiry from our ‘Help pages’ on the
Shareview website www.shareview.co.uk.
Share portal
As a shareholder you have direct access to
an online share portal operated by Equiniti
at www.shareview.co.uk. You can access
the share portal with your Shareholder
Reference Number (SRN) which can be
found on your share certificate. The portal
provides a range of services, free of charge,
to help you to administer your shareholding
quickly and efficiently by allowing you to:
¼ check your share balance;
¼ change your address details;
¼ choose to receive electronic shareholder
communications;
¼ set up or amend a dividend mandate so
dividends can be paid directly to your
bank account; and
¼ buy and sell Harbour Energy plc shares using
the dealing service operated by Equiniti.
Dividend history
Details of dividend payments made are
included within the Shareholder Information
section of the Investors area of the Company
website: harbourenergy.com
Shareholder information
Dividend Reinvestment Plan
The Company operates a Dividend
Reinvestment Plan (DRIP) which enables
shareholders to buy the Company’s shares
on the London Stock Exchange with their
cash dividend. Further information about
the DRIP is available from Equiniti.
Tax on dividends from April 2022
From April 2022, UK residents will pay tax
on any dividends received over the £2,000
dividend allowance at the following rates:
¼ 8.75 per cent on dividend income within
the basic rate band.
¼ 33.75 per cent on dividend income within
the higher rate band.
¼ 39.35 per cent on dividend income within
the additional rate band.
Dividends received on shares held in
an Individual Savings Account (ISA) will
continue to be tax free.
E-communications
Shareholders have the option to receive
communications including annual reports
and notices of meetings electronically. This is
a faster, more environmentally friendly and,
for Harbour Energy plc, a more cost-effective
way for shareholders to receive annual
reports and other statutory communications
as soon as they are available.
To register for this service, please visit
the share portal: www.shareview.co.uk.
You will need your 11 digit Shareholder
Reference Number which can be found
on documents that you have been sent by
Equiniti. Once registered, Harbour Energy
plc will communicate with you via email
rather than post.
Shareholder security
Shareholders are advised to be cautious about
any unsolicited financial advice, including
offers to buy Harbour Energy plc shares at
inflated prices, or offers of free reports about
the Company. More information can be found
at www.fca.org.uk/consumers/scams and
in the Shareholder Information section of
the Investors area of the Company website:
harbourenergy.com.
American Depositary Receipt programme
Harbour Energy plc has a sponsored Level
1 American Depositary Receipt (ADR)
programme which BNY Mellon administers
and for which it acts as Depositary. Each
ADR represents one Ordinary Share of the
Company. The ADRs trade on the US
over-the-counter market under the symbol
HBRIY. When dividends are paid to
shareholders, the Depositary converts such
dividends into US Dollars, net of fees and
expenses, and distributes the net amount
to ADR holders.
Registered Depositary Receipt holders
can trade, access account balances
and transaction history, find answers to
frequently asked questions and download
commonly needed forms online at
www.adrbnymellon.com. To speak directly
to a BNY Mellon representative, please call
1-888-BNY-ADRS (1-888-269-2377) if you
are calling from within the United States.
If you are calling from outside the United
States, please call 001-201-680-6825.
You may also send an email enquiry to
shrrelations@cpushareownerservices.com
or visit the website at
www.computershare-na.com/bnym_adr.
178
Harbour Energy plc
Annual Report & Accounts 2021
Notes
Strategic report Governance Financial statements Additional information
179
Harbour Energy plc
Annual Report & Accounts 2021
Notes
180
Harbour Energy plc
Annual Report & Accounts 2021
Printed by Principal Colour on FSC
®
certified paper.
Principal Colour is an EMAS certified company and
its Environmental Management System is certified
to ISO 14001.
100% of the inks used are vegetable oil based, 95%
of press chemicals are recycled for further use and,
on average, 99% of any waste associated with this
production will be recycled.
This document is printed on Ultra Fine Offset, paper
containing 100% Environmental Chlorine Free (ECF)
virgin fibre sourced from well managed, responsible,
FSC
®
certified forests and other controlled sources.
This is a certified Carbon Balanced publication.
Emissions generated during the manufacture and
delivery of this product have been measured and
reduced to net zero through a verified carbon balancing
project via the World Land Trust.™
Designed and produced by three thirty studio
www.threethirty.studio
harbourenergy.com
Registered office
4
th
Floor
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EN
Registered No. SC234781
Tel: +44 (0)20 7730 1111
Email: info@harbourenergy.com
Email: investor.relations@harbourenergy.com
Head office
Harbour Energy plc
23 Lower Belgrave Street
London
SW1W 0NR