Harbour Energy plc (HBR) Earnings Call Transcript & Summary

In the short term, we expect to prioritize debt reductions over buybacks. But as we've done in the past, we will continue this under -- continuous review with the potential to commence share buybacks as early as late this year. Now let me go over how we plan to put our capital allocation framework to work in the coming years. At the range of prices outlined here, we expect to generate between $4 billion and $6 billion of post-tax cash flow before investments during the 2025 to 2027 time period. Included within this is around $500 million from portfolio measures and cost reduction initiatives referred to earlier. In terms of uses of our cash flow, then in line with our capital allocation priorities, we're looking to invest around $2 billion post-tax over the 3-year period to support our production and future cash flow. After investment, that leaves around $2 billion to $4 billion of free cash flow or at the midpoint of these price scenarios shown, about $1 billion of free cash flow per year, more than covering our annual dividend of $455 million, even in the low-price scenario. With regards to excess cash in the short term, and like we've done in the past, we are prioritizing debt reduction, reinforcing our financial strength. Then as can be seen by this chart, we see the potential to generate significant excess free cash flow over and above investments, debt reductions and dividends that we would look to return to shareholders. Now I leave you with a reminder of our consistent capital allocation priorities and our commitment to delivering returns-focused value through our disciplined capital allocation strategy. We will continue to invest in our business, and we will work hard to improve our portfolio, prioritizing the best and the most profitable projects. We will deliver attractive through the cycle shareholder returns, and we will do this whilst maintaining our investment-grade rating. So thank you for listening, and I will hand you back to Linda.

Thank you, Alexander. I'll wrap it up now with a few words about M&A. It's a core part of Harbour's DNA and the path we've taken to grow the company. But we've only transacted where we saw the potential to create value. And each transaction has brought us something different. And our first two acquisitions, both in the U.K. North Sea, we saw the opportunity to achieve scale, drive synergies and reinvest in assets deemed nonstrategic by their previous owners. As a result, we increased reserves by more than 25% compared to estimates at the time of those transactions. With Premier Oil, we secured three key benefits: a public listing, substantial financial synergies in the U.K., and our first steps towards international diversification. Finally, with the Wintershall Dea transaction, as shared throughout this presentation, we've transformed our portfolio, making it more diverse, more resilient and more sustainable. But we're not necessarily at the end of the journey. A successful oil and gas company must continually add to its reserve space, and we're no different. So it's valuable to have those M&A skills in our toolkit to supplement our organic growth options. What will we look for? Mainly opportunities that continue to expand our reserve life, while preserving our margins and our investment-grade credit rating. And the opportunity set remains fairly robust. Large companies looking to refine portfolios following consolidation, private companies looking for liquidity, and smaller independents like us not that long ago, looking for scale, diversity, and access to capital. We have the financial strength, the operating capability and the integration skills to transact, but we'll continue to do so only where we see an opportunity to create value. That brings us to the end of the presentation. We hope you found it helpful when it comes to understanding the company we are today. With the Wintershall Dea transaction now complete, we believe the strength of our producing assets, our reserves and resources, our strong balance sheet and capital returns policy, all led by the fantastic team we now have in place, position us well for the future. And now Alexander, Alan and I will be happy to take your questions.

Thank you. There will now be a short break for your convenience. And when we return, we will take your questions. [Operator Instructions] [Break]

Welcome back. We will now take your questions. [Operator Instructions] Our first question is an audio question from Lydia Rainforth.

Hopefully, you can hear me. My mic isn't quite working well. Thank you for the presentation and the very thorough run-through of the businesses. Can I come back to capital allocation [indiscernible]. And obviously, so you set the CapEx budget, you're seeing efficiencies from '25 into '26, '27. How are you setting that CapEx budget? Is it sort of a top down? Or is it bottom up in terms of that? And then in terms of how I think about free cash flow and the use of the free cash flow, you obviously said flat dividends coming through. When might you look at -- so what determines the buyback decision effectively?

Yes. Great. Thanks, Lydia, for the question. I'll start with a few words and then maybe Alexander can chime in and help me out. I think let me maybe start with the buyback question because I know there have been some comments and questions in particular about that this morning. For those who have followed us over the years, you've seen that what we've consistently done after an acquisition is three things. Number one, we look after the balance sheet. We want to make sure that we have our consistent approach to managing that and be conservative when it comes to managing our debt levels. Number two, we reinvest in the asset base. And we continue to do that even while we're paying our dividend and looking after the balance sheet. And then third, we've paid our dividend regularly. This year, it's up 5% year-on-year. And then finally, with excess free cash flow, we've paid that out in buybacks. And we can do all of these things at once. They're not mutually exclusive, as we have shown in past years. And there's no change to that approach going forward. We're going to, as Alexander already said, we have a priority to reduce the debt by a certain amount. So that's going to be kind of on our front of mind. At the same time, we're reinvesting $2.5 billion around this year and the balance sheet. So we're doing that. At the same time, we're thinking about debt. We're paying our dividend, of course, again, increased 5% this year versus last year on a per share basis. And then finally, as we have said in the presentation, excess free cash flow, the priority for that is to return it to shareholders, and beginning possibly later this year. One of the things that we're doing to enable us to have maximum flexibility and optionality around that is as Alexander also said, to get the authorization at our upcoming shareholders meeting to do a directed buyback from BASF, should the opportunity for that arise and ended at a point at which it's beneficial for both BASF and we think it's in the best interest of the rest of our shareholders, so that's going to be a discussion that at some point, we want to be able to make sure we're in the position to be able to have that discussion. So that will be important for us to get that authorization. Then when it comes to the budget and how we set the budget bottoms-up, top-down, I think it's a mixture of both, but let me turn to Alexander to say a few words about that.

Yes. So starting on that bit, Lydia, thanks for the question. Yes, it's -- as you would expect, it's a pretty thorough process that we've been through this year with the expanded portfolio. So it's a bottom-up process, but then with plenty of top-down challenge as well. And there's -- as I think I showed on one of my slides, it's a lot of elements that goes into the consideration. So it's both on specific projects, assessing those risks, upside as well. And then it's also the portfolio effects, concentration effects and how CapEx is faced. So lots of challenge, again, as you would expect. And this year with a bigger portfolio, there's been plenty of visits around to each of the countries to go through the portfolios and assess those opportunities. So extra emphasis on that this year, I would say. On your buyback question, I think Linda covered it pretty well. Again, I think there's value in being consistent and being pretty clear on the capital allocation priorities and not changing from year-to-year. So hopefully, you will agree that we've been fairly consistent year-to-year, and repaying some debts. We try to be explicit here as well on CapEx spending, but also what's the amount of debt we now seem to reduce. So we put a number out there, about $500 million to $1 billion, which we think makes sense, gives us the flexibility needed here. And then, yes, like we've done in the past, we will look to do buybacks. And as Linda said, getting that flexibility to be able to both on-market buybacks like you've seen us done over the last few years, but now mindful of having a large shareholder in BASF also securing that off-market buyback authorization, we think, is the right thing to do here.

Our next question comes from Matt Smith from the Bank of America.

A couple as well. Same topics really, but I think, hopefully, asking them with a slightly different flavor. So I mean, if I did start on CapEx, you pointing to a pretty significant drop down from 2026. I guess I just wanted to be crystal clear that you saw that sort of level of CapEx was sufficient to sustain production on an organic basis. And given it's quite a tight funnel for all of your projects or potential projects to fit through, I just wanted to sort of explore the implications for M&A, both from a disposal point of view, but also how that necessarily competes with potential acquisitions as well. So I could wrap that up into one question on the CapEx side of things, organic and inorganic. And then just back to the buyback. I just -- perhaps useful just to recap timing and quantum. So I mean, first of all, would I be right in taking that excess cash or free cash flow is really defined as the free cash flow you've guided, less the dividend, less the deleveraging target as well. So therefore, that remaining part is all potentially to be directed towards buyback in the coming years? And then I guess the second part was on timing, which I think you've alluded to, whether you have to do that deleveraging first before you commence the buyback? Because I suppose the wider question there is how you think about buybacks as a pure return on investment decision given where the current share price is?

Yes. Matt, thanks. I lost track of exactly how many questions there was, but we'll try to remember and answer as many of them as we can. Let me start with a bit about CapEx. Alexander may want to supplement that, and then he can talk a bit more about buybacks. I think you're right to first point out that we have quite a material decrease in our total CapEx from 2025 to 2026, going from around $2.5 billion to $2 billion or less over the next couple of years. And I think that's both -- going back to Lydia's question, both a function of top down and bottoms up. If we think about what's happening underneath the surface of that, we have declining investment in the U.K. We had accelerated a lot of investment last year, in particular, some of it going in early this year in the U.K. in light of what was happening with the fiscal and regulatory situation. So that now it's beginning to trail off. At the same time, we're adding in some additional investments in some of the countries you heard about during the presentation. But we're also taking a look at the more of the top-down approach to do some high grading on that. We have more flexibility as we get to 2026 and 2027. So we're squeezing that curve, if you will, letting the cream rise to the top and being quite selective and disciplined about the projects that we do decide to invest in. And so what that means is it drives us down to around that $2 billion or a bit lower. And we think that's the right level of investment for us, given the size of our company today and the portfolio that we have that, that will support that relatively flat production going forward based on the portfolio we have today, which actually we're quite excited about. I think you asked about divestments. Yes, I mean, portfolio management is alive and well in Harbour Energy. We've done it since day 1 after we completed the Premier Oil transaction. I think we exited Brazil, Falkland Islands, one or two other small positions. I believe we've announced the divestment of Vietnam. Since we've completed Wintershall Dea, we've already exited a couple of the CCS licenses that we don't think can compete for capital in our portfolio. So it's something that we do on an ongoing basis, and that will continue to be the case, whether or not it's country exits or back to the capital investment program, reducing our investment levels by farming down or exiting certain potential projects that don't quite compete for capital in the portfolio would be part of that as well. So now let me turn it to Alexander.

Yes. Yes. Thanks, Linda. Yes, I mean on the CapEx, just to add, I mean, there's obviously lots more competition for funding now with the broader portfolio. So we will be disciplined here, and we will prioritize the best projects here. On buybacks, I mean, Matthew, you've been following us for some years. So you will have seen from the past that we've been deleveraging quite a bit on the back of acquisitions. And after the previous -- well, before Wintershall Dea, we were almost down to a net cash position. Now we don't think that's the right thing to do now with the expanded portfolio and the size of the business now. So deleveraging just down $500 million or down to $1 billion, we think that's more the right ZIP code for us now. But paying down debt and doing buybacks are not mutually exclusive. So we will look to -- we try to have two thoughts in our head at the same time. So we will look to do both there. But in the very short term, we expect to prioritize debt repayments.

Our next question comes from Chris Wheaton of Stifel.

Great. Linda and Alexander, three questions, if I may. Firstly, let's start on the buyback. Can you expand a little bit more Alexander, on why you think debt paydown is the right use of cash flow straight away? If you look at where your leverage is 0.7x net debt to EBITDAX, it's -- even if you were to adjust for the hybrid bond element, the bonds, still below 1x. And still feels slightly surprising to me, you feel you need to pay debt down. You're not owned by private equity anymore as you have done in the past. You've paid debt down immediately post acquisitions. I wonder if you can expand a bit more on that because it doesn't feel like your balance sheet needs deleveraging at this point. And obviously, the use of capital, if not to pay down debt, would be to return it to shareholders, which is my next question. Is there anything in the BASF acquisition agreement, the same price, which a buyback would be -- an off-market buyback would be made. Obviously, BASF's in price is 360p a share. Your share price today is regrettably about half that. Is there a price -- is it 360p, is it somewhere in the middle? Is it subject to negotiation? And my last question was going to the portfolio was really on Argentina, which I think is a really interesting growth potential here, as you say, an amazing and untapped shale growth opportunity. There's a lot of growth potential there, but it's reliant on third-party infrastructure. I'm interested in where you see those constraints and how quickly you see those constraints potentially be taken away, and therefore, to get after that 1,000 well opportunity that your country manager talked about, rather than just the drilling rate of 15 wells a year at the moment. Those are my three questions.

Great. Chris, thanks for the questions. I'll turn it to Alexander to talk a bit more about the buyback question. On the question about BASF, there's no pre-agreed price at which we might -- which they might sell shares to us in a directed buyback or otherwise. That would all have to be something that's agreed at the time of any decision made for us to do that. So that's the answer to that question. So I'll let Alexander say a bit more about buybacks and then maybe have Alan talk a bit about Argentina.

Yes. Yes. Thanks for the question, Chris. And yes, I think, again, after each acquisitions, we've made sure to just have maximum flexibility, good capital discipline. And now when you see all the volatility out there in markets, we think that is a sensible thing to do to pay down some debt. But as you will see, it's not a very significant amount compared to the outstanding debt levels. So again, you should just expect us to be just a bit proactive on how we're dealing with the debt levels here. And again, yes, on the buyback to BASF. No, nothing in the [indiscernible] or otherwise. And the first opportunity to get shareholder approval here to do off-market buybacks, well, that is the upcoming AGM in just a couple of months' time.

I'm going to touch on the infrastructure question. Yes. Thank you. So as you touched on, we noted in the presentation, 2,300 wells and over 1.5 billion barrels of resource is something that we are super excited about as well. Because we have conventional assets out there already, there's actually some running room leverage in some of the existing infrastructure before we get to the point where we're constrained. So that's the first protocol is utilizing the existing infrastructure that exists. And of course, with the RIGI mechanism in place, there are strong incentives for the development of further infrastructure. So we're seeing good progress on that already. Our participation in the LNG project would be an example of that, and there's further examples ongoing. So as you say, we see really good progress already and great support for continuing to develop up not just our position, but the broader base in Argentina.

Yes. And maybe, Chris, let me just add to that a little bit because it's not just infrastructure that's required. It's also finding a market for the oil and gas that's produced. In terms of the infrastructure, as Alan mentioned, we have a position in Southern Energy LNG, which we're quite excited about. There are plans already by third-party developers to put a direct connection between where that -- those FLNG vessel will reside in port to connect it to the Vaca Muerta shale, that will enable large amounts of gas to get to the port on a year-round basis. And importantly, it gives us access to other demand -- other centers of demand in order to help support the continued growth of our production in the Vaca Muerta. So we'll be accessing international LNG markets through that. Other -- tons of other benefits with that as well, which include being able to keep your revenues offshore, so dollarization of our revenues there, which reduces some other risks that some people might be familiar with in Argentina, so tons of benefits associated with that. So thank you for that, Chris, for your questions.

Our next question comes from James Carmichael of Berenberg.

I just had a couple, if possible. Just wondering if you had any sort of initial take on the U.K.'s oil and gas tax consultation. I appreciate it's a bit light on detail at this stage, but if there's anything in there that might give you sort of a bit more encouragement about the long-term outlook for the U.K. And then just a couple on the U.S. I was just wondering if there's any impact from the tariffs on how you're sort of thinking about your Mexican production on the export options. And then more generally, I guess, there's obviously been talk about you're looking at the U.S. listing backed up by some form of corporate transaction over there. Just interested to get your thoughts on both of those things in relation to the U.S. I guess, if they've changed over the last months.

Yes. Great, James. Thanks for that. Let me see if I can take those in order. So number one, for those of you who may not have seen the news, the U.K. government yesterday launched their consultation process for both -- to solicit to engage with industry and the public in general on two topics, both the future of the U.K. Continental Shelf from a broader energy standpoint, and then second, on the EPL. And we welcome that the launch of that process, we're eager to engage and our message will be what it's been for some time now that what we need in order to have healthy oil and gas sector and industry and employment and to keep domestic production alive, supporting all the jobs that go into doing that in the country. We need a fair fiscal regime that may tax windfall profits, but not all profits, and we need it before 2030. And that's the message that we're going to be sending in this part of our participation in that consultation. I think the second question was around tariffs. Yes, every day, it seems something new. It's coming out as Alexander referred to volatility. I think that's one reason why we're a little bit cautious right now about making commitments in some areas. It's just the volatility in the commodity prices, everything going on from a global economic standpoint and geopolitical standpoint. It's a lot more than the usual amount of background noise, I think, that's impacting our sector. And tariffs are one of those. So far, no specific impact on us. We have very little production in Mexico today. I think longer term, of course, we have ambitions to have much more production in the country, but that's several years away given that it would only follow the development of both the Kan and Zama oil discoveries. And so I think too early to say if there's going to be any real impact on that. Third question around the U.S. listing. I understand the question. We get it a lot. I think the fact of the matter is that today, our center of gravity, even following the Wintershall Dea transaction, remains in Europe. 70% of our production is here. And so I think because of that, London continues to make the most sense for us. In addition, a lot of companies that are thinking about changing their listing or have changed their listing, they all -- you typically have a substantial presence in the U.S. And at this point in time, we don't. And so I think we'd struggle a bit hard to get into some of the indices, even a bit of investor attention. So I think for now it continues to make sense that we keep the listing in London. Thanks for those questions, James.

Our next question comes from Sasikanth Chilukuru from Morgan Stanley.

I had three, please. The first was on the cost and portfolio initiatives, the $500 million that's embedded within your free cash flow guidance. I was just wondering if you could give more details on where it's coming from and how quickly you can actually achieve it and where it's actually reflected in the guidance as well? That would be helpful. The second one was on the CapEx. Again, the guidance for 2026 and 2027, I was just wondering if you could split it into how much exploration comes into it, how much is decommissioning costs and the development CapEx itself, what are your kind of including for Mexico, how potentially for Argentina and also Indonesia in that guidance at least initially? Third one was more of a confirmation on the chart that you've provided for shareholder distributions, the buybacks bars as well. I was just wondering if that is a range or is that the average buyback that you have indicated in that chart?

Good, Sasi. Thanks for the good questions. I think the first one was around the $500 million and what's included in that. The impact of that is included in the models and the forecast that we've put forward today. I think that's going to come from three different categories. I think the first could be divestments, as I said earlier, portfolio management, alive and well in Harbour Energy. And the criteria, nothing's decided at this point in time. We're not here to announce what it might be, but the criteria remain unchanged, and that's that if we don't see the opportunity to get to scale in a country over the short to medium term, then typically, we start to consider whether or not it might be something better off in the hands of someone else. Second category might be because we're not opportunity constrained when it comes to our capital investment program, selling down interest in some of our key projects where we feel like maybe we don't quite need the exposure we have today. So that's a possibility. And then the third category could come from additional savings from cost initiatives that we have underway. And maybe I'll turn it to Alan in a minute so that he can put a little bit more color on that maybe. Your second question was around categories of the CapEx. I think if we just look over the 3-year period, and on average, around 75% of that is P&D, so production and development. So these are mainly near-term opportunities, getting reserves, resources directly into production, mainly reserves, only about 10% on E&A and then about 15% on decom. So that's kind of a broad breakdown on that. And then you had a question, I think, also about buybacks. And maybe first to Alan on cost savings and then Alexander on buybacks. Or to correct anything that I said that wasn't right.

Great. Thank you. So firstly, on the cost side of things, as we said in the presentation, we expect our G&A to fall from around $400 million to $350 million as we get into '26. And actually, we see further opportunities into '27. And to give a bit of color on that, some of the opportunities are in the IT space, for example. We're working on consolidating data centers, consolidating applications, rationalizing the portfolio, one service desk. So we've made really good progress on that. And we're good way through transitioning off of the sort of transitional services agreement that was in place. And so as we move into next year, we'll start to see the full year impact of that and again, further savings in '27. Your question on the CapEx split over the 3-year period, it's roughly sort of 75% of production and development, 10% exploration and appraisal and about 15% decommissioning. And in that time frame, it's mostly allocated to Europe, 75% to 80% is Europe, and it's not until we get beyond the 3-year period, we'll start to see greater ramp up in Mexico. We're starting to see ramp-up in Argentina and the pace of that, of course, will be dependent on fiscal conditions there. And Alexander?

Yes. So I think your last question, you're referring to a chart, I think it's the one where you're showing -- or we are showing sources and uses. And the question is if it's an average, yes. So what we're trying to illustrate there is what is happening in terms of the price assumptions that you're using on average throughout those years, and you'll see there's a table that specifies just the assumption that goes into there. So it's an average for those years and anything from low up to mid and then to a high case. So we can follow up with you, Sasi, if there is -- if that was unclear. Thank you.

[Operator Instructions] Our next question comes from Werner Riding of Peel Hunt.

Yes, a lot of focus on cash flow, dividend buybacks. And so you've covered some of what I wanted to discuss. But I'd be interested to hear based on your FY '25 guidance on production and costs, et cetera. What combination of oil and gas price does your dividend become just 1x covered by free cash flow?

Yes. Thanks, Werner, for the question. I'm going to turn that to Alexander.

Yes. Yes. Thanks for the question, Werner. So if you look at the guidance that we've provided for the year and the $1 billion, we were quite explicit on the oil price that we assumed in coming to that. And then we also provided a sensitivity where you could see what does $1 movement in the gas price or a $5 movement in the oil price do. So it should just be just a sensitivity on those if you reduce either one depending on your outlook on either hydrocarbon stream or both of them, you can use that and you'll get down from the $1 billion to $455 million to find that breakeven.

Our next question comes from Lydia Rainforth at Barclays again.

Thank you for taking the extra questions. Just -- when I'm thinking about sort of the bigger picture for Harbour and so you outlined that idea of we've got the next -- we've got details for the next 3 years and then what kind of the idea of you've got the resource base towards 2030? So when you're thinking of in ways of Harbour 2030, and I know you talked about Harbour 3.0, but it almost Harbour 4.0. So what's that kind of overriding thing what you want Harbour to be in 4, 5 years' time? I think that, given everything you've outlined today around the different projects you have, it is still a business that is changing and improving. And I just think that sense of really the long-term ambition.

Thanks, Lydia. Let me have a go at that. And we did try to give a bit of insight into the longevity of the portfolio and the presentation today. So we've highlighted that we have a 19-year life when it come when you look at 2C plus 2P divided by our production today. So quite a substantial portfolio of opportunities and options for us to invest in going forward. And the main idea is to maximize value from that portfolio. So a lot of it will monetize ourselves through capital investment and project development. You saw some of the highlights of what we're hoping to invest in and plan to invest in over the coming years, in particular, in the little vignettes we had from our business unit leaders. So today, if you think about our portfolio today, our biggest producer is Norway, second biggest is U.K., and then they trail off after that. I think if you kind of fast forward over time and as investment goes down to $2 billion or a bit under over the next couple of years, things look sort of stable at the top level, but there's a lot going on underneath all of that. And so you have the managed decline in the U.K. So that becomes, over time, a smaller and smaller part of our portfolio. And that's one reason why we're able to keep unit operating costs relatively flat because the contribution from the higher cost center of production is getting less and less. And what's replacing that is the lower cost production from places like Norway, like Argentina. And then over time, with developments in either Mexico and/or Argentina also kind of feathering in. And so you see sort of a transformation of us, and we get margins get -- stay the same -- unit cost stays the same, margins, depending on what your view on oil and gas prices do, may also improve. We have the lower CapEx, which fits off more cash flow. And so we become a different company even though bottom line, top line might look the same. We're actually a different company from a portfolio standpoint. And we get a bit oilier as well, for example, as we make that transition. So we're excited about that. We think the portfolio can sustain material production beyond 2030 and also cash flow. And that gets back to the confidence in our ability to maintain what is a very competitive dividend today and then also have considerable excess free cash flow for buybacks. Thanks for that, Lydia.

Our next question comes from Mark Wilson from Jefferies. [Operator Instructions]

My first one is on the debt. Clearly, the balance sheet and the debt is in the focus for you. So this is to Alexander. You spoke to volatility in the market, which is fair enough, and I think you've reduced your leverage target to below 1x, which is obviously where you are, but from 1.5x. Can I just confirm that this is in response to market conditions, rather than something you've seen internally? And also what are the plans with that 2025 debt? So that's the first question. Second, a couple for Linda here. I did -- I think I picked up that the operatorship of the Zama field is under discussion to move back to the actual private operators like yourself. Just comment on that and the time line. And then finally, you're a company and obviously, led by yourself, Linda, who's grown through M&A. Your stock is trading now below what it was heading into the Wintershall. Do you worry about approaches for Harbour in this? Is that something you think could happen at this valuation?

Yes. Thanks, Mark. Alexander, why don't you take the first one, and then I'll take the last two.

Yes. Thanks. Yes, I mean, you'll -- again, you've been following us for quite some time, Mark. So you know the history and what we've done in the past. So proactive management of the balance sheet is something we've done ever since we became Harbour. And repaying debt after doing an acquisition, having as much flexibility as you can. And we are an oil and gas company, which have various commodity prices, anything that's impacting us, which you again see in our approach to financial risk management. You also saw us hit out of the starting blocks as soon as we could after the completion of the Wintershall Dea transaction back in September to proactively manage that bridge facility we have put in place as part of the consideration for the Wintershall Dea portfolio. So we were quick to act in that regard. As it relates to the '25 bonds and other maturities, again, you should expect us to keep that proactive sense of managing the balance sheet like we've done over the last 4 years.

Thanks, Mark. The question on Mexico, it's a good one. So I think it's now been a couple of years ago when Pemex was assigned the operatorship of the Zama unit. It's no secret that Pemex has some financial difficulties. We're a good partner with them in two or three different places in Mexico. So we're building a good relationship with them. New administration is now in the country, and I give them credit. They seem to be taking quite a practical and realistic approach to how they move forward. The importance of oil and gas production in the country remains extremely high on their radar screen and on their list of priorities. And so they're starting to be a bit more open-minded about how we can move some of the big strategic projects forward. And part of that is a discussion that we're now having about the possibility of maybe asking the Block 7 partners to operate in return for helping to move the project forward. So we think that's a good sign. It gives us a bit more excitement about the project. And hopefully, eventually, it means that we have quite a bit of momentum building towards a possible FID. Your last question was around are we worried about someone making an offer for Harbour. I mean that's not something that we worry about on a day in or day out basis. What we're really focused on is continued execution of our strategy. So we've just completed the Wintershall Dea transaction 6 months ago. We're now focused on operating those assets efficiently and responsibly, generating the cash flow from them, reinvesting part of that in the large portfolio we now have of investment options, focusing on the balance sheet and at the same time on shareholder returns of the dividend and then excess cash flow to shareholders over time. And that's what myself and the team are focused on. Thanks, Mark.

Our next question comes from James Carmichael of Berenberg.

I just had a couple of quick ones. I guess you sort of talked earlier about the increased competition for capital in the enlarged portfolio. And obviously, one project that did get there was Greensand CCS in Denmark. So just wondering if you could maybe provide a bit more color on the returns in that project? And then whether you're still confident that the CCS business more broadly is scalable? And then just secondly on Indonesia. I guess that is an area where you've focused on a bit more in previous presentations, but it was sort of, I thought, notably absent today. So just wondering if your thoughts around Indonesia and the Andaman Sea, I guess, in particular, has changed the...

Yes. Great, James. Thanks for that. On Indonesia, it's -- yes, it's nothing conspicuous about its absence. Maybe I'll say that from the presentation, there's not time to cover everything. And given that it's been in the portfolio for some time, we decided instead to focus on the newer things, but I'll let Alan say a bit about the Andaman Sea in a minute. Let me take your first question. So Greensand. Yes. So now we're in situation where we've actually taken the investment decision on the CCS project. So that's exciting for us. We have a 40% interest in it. I think Graeme mentioned that earlier. The CapEx requirement is actually very low because we're reusing a lot of existing infrastructure. On top of that, we're deferring a lot of decommissioning costs because we're reusing that infrastructure that would otherwise need to be decommissioned in the near future. And we had a large EU grant. So when you put all of those things together and you come up with a return, it exceeded our hurdle rate by quite a wide margin when it comes to returns. So we were very excited about that and able to get that one over the hurdle. Now it's a small bespoke project. I don't know that we'll find ones with that high of a return elsewhere. But nonetheless, we were excited to be moving it forward. Will we find others that we can invest in? I mean they're going to have to compete for capital just along with everything else. What CCS does have going for it is that it can attract quite high leverage on a lot of the projects, up to 80%. And if we factor that in, along with a relatively low risk profile, if it's a regulated project, then we do see the potential for it for CCS project, some of them, to meet or exceed our hurdle rates. How big will it be a part of our company going forward? It will depend on just that. Can we find ones that are scalable and cost competitive and deserve allocation of our capital? That will be the main consideration. Alan, now for Indonesia?

Yes. Thank you. Just real quick on Andaman Sea. So we have made a number of discoveries that we're really excited about over the last several years. And of course, we see lots of follow-on potential there. The challenge at the moment is just sort of thinking through the balance of the scale of the development and taking into consideration the future potential that exists relative to managing that in our overall financial framework and within our overall capital allocation priorities. So really just working through the various different development concepts that exist, looking at the economics of those, and then we'll decide on sort of what the future strategy is off the back of that.

Our last question comes from Matt Smith from the Bank of America again.

Just a couple to round out, I guess, I think, a consistent sort of theme in terms of the close to 20-year reserve or/and plus resource life that you have at the moment, that being the sort of key step change with the transaction, the sustainability of the portfolio that you have. So I mean clearly, a big part of that will be about converting those 2C barrels today, first into 2P and then into production further down the line. So I just wanted to -- what major projects perhaps would you point to in terms of the next events we should look for, whether that's FEED, FID, when we referenced Indonesia, a couple of projects in Mexico, Tuna. Perhaps could you just -- which of those projects are most progressed, I guess, might be my question. And then the second related to sort of portfolio sustainability. Just wondered if you could clarify how many exploration wells you have assumed in the plan over the next few years, please?

Great. Thanks, Matt. I think I'll turn to Alan to give those a shot.

Sure. Thanks, Linda. Okay. So taking the last one first. Eight exploration wells in Norway and those are over the 3-year period. We've got a few this year that we're excited about. And following the same strategy in terms of close to infrastructure that we can turn around reasonably quickly. And staying in Norway, as Michael mentioned, we have a number of projects that are in the pipeline, and we'll see FID on those over the next several years, probably more heavily weighted in terms of volumes to the kind of '26 '27 time frame, but we should expect to see some reserves booking as we take decisions on those projects. And then larger scale, you touched on some of the key ones. But of course, now that we've appraised Kan and that's looking good and we have competition with Zama and the potential future changes there, we're going to be moving those forward in parallel. You touched on Tuna. So it's again at an advanced stage in terms of the subsurface and engineering work. So we'll be in a position to evaluate where we are with that over the course of the next year or 2. And then probably the Andaman Sea is a bit longer term, just as I mentioned in the last question, there's a bit more work that needs to go into assessing the development concepts there, thinking about the requirements for any future appraisal and how it's all going to tie together.

Great. Thanks, Alan. Thanks, Matt, for the questions. Sam, I think you said that was the last question. Is that right?

Yes, that was the last question. I'll now hand back over to you, Linda, for closing remarks.

Great. Well, thanks, everyone, for joining today. I hope what you've seen is just a glimpse of the great team that we have assembled here at Harbour Energy, and also the excitement we have about the portfolio following the closing of the Wintershall Dea transaction and all the opportunities embedded in it for the future. It makes us, I know we're excited about what the future holds for the company, and I hope you've seen a bit of that today. So thanks once again for joining, and thanks for all the good questions.