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Harvest Natural Resources Announces 2010 First Quarter Results

HOUSTON, May 7, 2010 /PRNewswire via COMTEX News Network/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2010 first quarter earnings.

Harvest posted first quarter 2010 net income of $24.6 million, or $0.64 per diluted share, compared to a net loss of $4.8 million, or $0.15 per diluted share, for the 2009 first quarter.

The first quarter results include exploration charges of $1.2 million, or $0.03 per diluted share. Petrodelta, S.A. (Petrodelta), Harvest's Venezuelan affiliate, reported first quarter 2010 earnings of $64.0 million, $20.5 million net to Harvest's 32 percent equity interest, under International Financial Reporting Standards (IFRS). Included in Petrodelta's IFRS first quarter earnings is a gain on exchange rate resulting from a revaluation of assets and liabilities recorded by Petrodelta due to the Venezuela Bolivar/U.S. Dollar currency exchange rate devaluation announced by the Venezuelan government on January 8, 2010. After adjustments to Petrodelta's IFRS earnings, primarily to conform to U.S. GAAP, Harvest's 32 percent share of Petrodelta's earnings was $30.7 million.

Excluding the effects of the Venezuelan devaluation and exploration charges, we estimate net income for the first quarter of 2010 would have been approximately $7.8 million, or $0.21 per diluted share.

Highlights for first quarter 2010 include:

Harvest President and Chief Executive Officer, James A. Edmiston, said, "The first quarter of 2010 was pivotal for Harvest as we made important progress in diversifying our asset base and strengthening our financial resources. In the United States, we completed our initial eight-well Monument Butte extension and development drilling program, which increased oil production from the southern part of our Antelope land position. In the northern part of the Antelope project area, we successfully completed the Bar F exploration well in the Lower Green River and Upper Wasatch oil zones and we are moving ahead with permanent production facilities while continuing to test the well. Based on the positive results of the Bar F well, the Board of Directors has authorized a five-well drilling program to further delineate and appraise our substantial acreage position in the area and we are optimistic about the potential for sustained development activity in this project area."

Edmiston continued, "We continue to be excited about the near-term catalysts in our international portfolio, including the commencement of drilling operations on two exploration wells on our onshore Budong-Budong prospect in Indonesia. After several delays, we expect to spud the first of the two wells late in the second quarter of this year."

Edmiston added, "Investor confidence in our assets, team and operating plans enabled us to raise thirty million dollars in February of 2010. These additional funds provide Harvest with the financial resources needed to help accelerate oil development drilling onshore in the United States and continue to advance our international prospects."

EXPLORATION AND PRODUCTION PROGRAMS

Venezuela

During the three months ended March 31, 2010, Petrodelta drilled and completed four successful development wells, produced approximately 2.0 million barrels of oil and sold 0.7 BCF of natural gas. Petrodelta produced an average of 21,867 BOPD during the three months ended March 31, 2010. Production for the quarter was affected approximately 1,500 BOPD due to various operational issues and the delay in contracting a second drilling rig and a workover rig.

Petrodelta shareholders intend that the company be self-funding and rely on internally-generated cash flow to fund operations. On February 4, 2010, Petrodelta's Board of Directors endorsed a capital budget of $205 million for Petrodelta's 2010 business plan. The budget includes utilizing two rigs to drill both development and appraisal wells to maintain production capacity and to appraise the substantial resource bases in the El Salto Field and the presently non-producing Isleno Field. Currently, Petrodelta has one drilling rig operating in the Temblador Field. A second drilling rig has been contracted and is expected to commence operations late in the second quarter. Also, Petrodelta is currently seeking a workover rig which it expects to have under contract during the second quarter of 2010.

During the three months ended March 31, 2010, Petrodelta started the engineering work for expanded production facilities to handle the expected production from the development and appraisal wells projected to be drilled this year.

United States - Antelope

Operations activities in our Antelope prospect in Duchesne County, Utah are focused on three projects: the Mesaverde Gas Exploration and Appraisal Project, the Lower Green River/Upper Wasatch Oil Delineation and Development Project, and the Monument Butte Extension Appraisal and Development Project.

Mesaverde Gas Exploration and Appraisal Project

The Mesaverde Gas Exploration and Appraisal Project (Mesaverde) is targeted to explore for and develop oil and natural gas from multiple reservoir intervals in the Mesaverde formation in the Uintah Basin of northeastern Utah in Duchesne and Uintah Counties. Operational activities during the three months ended March 31, 2010 included completion of the initial testing activities on the Mesaverde horizons in the deep natural gas test well, the Bar F, that commenced drilling on June 15, 2009. The Bar F was drilled to a total depth of 17,566 feet and an extended production test of the Mesaverde has been completed. Testing was focused on the evaluation of the natural gas potential of the Mesaverde tight gas reservoir over a prospective interval from 14,000 to 17,400 feet. Completion activities consisted of hydraulic fracturing of eight separate reservoir intervals in the Mesaverde and multiple extended flow tests of the individual fractured intervals, along with a flow test of the commingled eight intervals. Gas was tested at flow rates of 1.5 to 2 MMCFD from selected intervals. While the results to date have not definitively determined the commerciality of a stand-alone development of the Mesaverde in the current gas price environment, we believe these results indicate progress toward that commerciality determination and that the Mesaverde reservoir remains potentially prospective over a portion of our land position. Drilling costs incurred to drill and test the Mesaverde gas have been suspended pending further future evaluation of the Mesaverde potential on our land position.

Lower Green River/Upper Wasatch Oil Delineation and Development Project

A second project has also been pursued in the Bar F exploration well. After completion of the initial testing program on the Mesaverde deep gas as described above, we moved uphole in the same well to test multiple oil bearing intervals at depths from 8,200 feet to 9,500 feet in the Lower Green River and Upper Wasatch formations. Operational activities during the three months ended March 31, 2010 included preparing the well for the oil zone tests, hydraulic fracturing of six separate oil bearing intervals, and conducting flow testing of the fractured intervals. Results of the testing have been positive and we believe the results indicate that we have made a commercial oil discovery in the Lower Green River and Upper Wasatch formations. The well has been flowing naturally on extended test since March 24, 2010, with initial rates of approximately 900 BOPD of 42 degree API oil. As of April 30, 2010, the well had produced in excess of 18,000 gross barrels of oil since the commencement of the flow test, with the oil being sold in the Salt Lake City, Utah market. Work is currently in progress to design and install permanent production facilities to enable the well to be placed on permanent production during the second quarter of 2010.

Our Board of Directors has authorized a five-well Lower Green River/Upper Wasatch delineation and development drilling program (Lower Green River/Upper Wasatch) which is planned to take place beginning in the third quarter of 2010 at a capital cost of $13.5 million (net to Harvest). This five-well program would further delineate and appraise the extent of the Lower Green River/Upper Wasatch discovery made in the Bar F, and is also expected to establish additional production from the Lower Green River/Upper Wasatch reservoirs in at least some of the five appraisal wells. The Lower Green River and Upper Wasatch formations are productive in the Altamont/Bluebell oil field approximately six miles north of the Bar F well. During the three months ended March 31, 2010, we incurred $2.0 million in lease acquisition, drilling, completion and testing activities. We plan to develop an estimate of reserves accessed by the Bar F well during second quarter of 2010, incorporating the results of the flow testing and initial phases of permanent production operation of the well.

Monument Butte Extension Appraisal and Development Project

The Monument Butte Extension Appraisal and Development Project (Monument Butte Extension) was initiated with an eight-well appraisal and development drilling program to produce oil and natural gas from the Green River formation on the southern portion of our Antelope land position. The Monument Butte Extension is non-operated and we hold a 43 percent working interest in the initial eight wells. The parties participating in the wells formed a 320 acre AMI which contained the initial eight drilling locations. Operational activities during the three months ended March 31, 2010 on the Monument Butte Extension focused on drilling and completion activities on the original eight-well program. As of March 31, 2010, all eight wells have been drilled. As of April 30, 2010, seven of the eight wells are currently on production. The remaining well has been completed and production is pending expansion of the fluid handling capacity in the surface production system to accommodate the unexpectedly high fluid production volumes from the eight-well program. As of April 30, 2010, the seven producing wells have produced 52,000 barrels of oil (net to Harvest). The seven wells combined are currently producing 400 BOPD (net to Harvest). During the three months ended March 31, 2010, we incurred $2.4 million in well costs. There is no remaining 2010 budget for the initial eight-well program.

Our Board of Directors has authorized five additional Monument Butte Extension appraisal and development wells planned to be drilled beginning in the third quarter of 2010. The estimated gross drilling and completion cost per well is $0.9 million, and Harvest will have an approximate 32 percent working interest in the five wells. This five-well expansion program is a follow up to the successful completion of the initial eight-well program that was drilled in late 2009 and early 2010. The expansion is planned to occur on acreage immediately adjacent to the initial eight-well program. The 2010 budget for this five well program is $4.5 million (gross).

Budong-Budong Project, Indonesia (Budong PSC)

Two drill sites were selected in 2009. Operational activities during the three months ended March 31, 2010 focused on well planning, construction for the two test well sites, mobilization of rig and ancillary equipment to the first drill site, and purchase of drilling equipment. It is expected that the first of two exploration wells will spud late in the second quarter of 2010. In accordance with the farm-in agreement, we expect to fund 100 percent of the well expenditures to earn our 47 percent working interest up to a cap of $10.7 million; thereafter, we will pay in proportion to our working interest. During the three months ended March 31, 2010, we incurred $2.3 million for well planning, construction and drilling equipment, and $0.5 million for seismic data processing and reprocessing. The remaining 2010 budget for the Budong PSC is $12.1 million. Contingent on the successful results of the two exploratory test wells and availability of funds, this 2010 budget could be increased by an additional $13.1 million.

Dussafu Project - Gabon (Dussafu PSC)

Operational activities during the three months ended March 31, 2010 focused on maturation of prospect inventory and well planning. Subject to drilling rig availability, we expect to drill an exploration well in the fourth quarter of 2010. During the three months ended March 31, 2010, we incurred $0.4 million in well planning and $0.1 million for seismic data processing and reprocessing. The remaining 2010 budget for the Dussafu Project is $1.7 million. Contingent on rig availability, successful results from the exploration well and availability of funds, this budget could be increased by an additional $17.9 million.

Oman (Block 64 EPSA)

Operational activities during the three months ended March 31, 2010 include the continued compilation of existing data over two prospect areas of approximately 1,000 square kilometers and geological studies to determine drillable prospects. Well planning is expected to commence in 2010 for exploration drilling in 2011. During the three months ended March 31, 2010, we incurred $0.3 million for seismic data processing and reprocessing. The remaining 2010 budget for the Block 64 EPSA is $2.5 million.

LIQUIDITY AND CAPITAL RESOURCES

We ended the first quarter of 2010 with a cash balance of approximately $44.1 million. As previously announced, we closed a Senior Convertible Notes offering on February 17, 2010, which raised $32.0 million with net proceeds to Harvest of approximately $30.0 million. The notes bear interest at 8.25 percent and are initially convertible into 175.2234 shares of common stock per $1,000 principal amount, equivalent to a conversion price of approximately $5.71 per share, subject to adjustment. The notes mature on March 1, 2013. This capital raise provides us with additional financial resources for executing our diversification and growth plan in 2010.

Non-GAAP Financial Measures

In this press release, Petrodelta's EBITDA disclosure is not presented in accordance with accounting principals generally accepted in the United States (GAAP) and Petrodelta's financials are not intended to be used in lieu of GAAP presentations of net income or cash flows from operating activities. EBITDA is presented because we believe it provides additional information with respect to both the performance of our fundamental business activities as well as our ability to meet our future capital expenditures and working capital requirements. We also believe that financial analysts commonly use EBITDA to analyze Petrodelta's performance. Although we present selected items that we consider in evaluating our performance, you should also be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, exchange rates and numerous other factors. These types of variations are not separately identified in this release, but will be discussed, as applicable, in management's discussion and analysis of operating results in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

A reconciliation of EBITDA to net income and cash flows from operating activities for the periods presented is included in the tables attached to this release.

Conference call

Harvest will hold a conference call at 10:00 a.m. Central Daylight Time on Friday, May 7, 2010, during which management will discuss Harvest's 2010 first quarter results. The conference leader will be James A. Edmiston, President and Chief Executive Officer. To access the conference call, dial 719-457-2658 or 888-455-2265, five to ten minutes prior to the start time. At that time you will be asked to provide the conference number, which is 6215427. A recording of the conference call will also be available for replay at 719-457-0820, passcode 6215427, through May 14, 2010.

About Harvest Natural Resources

Harvest Natural Resources, Inc., headquartered in Houston, Texas, is an independent energy company with principal operations in Venezuela, producing and exploration assets in the United States, exploration assets in Indonesia, West Africa, China and Oman and business development offices in Singapore and the United Kingdom. For more information visit the Company's website at www.harvestnr.com.

This press release may contain projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. They include estimates and timing of expected oil and gas production, oil and gas reserve projections of future oil pricing, future expenses, planned capital expenditures, anticipated cash flow and our business strategy. All statements other than statements of historical facts may constitute forward-looking statements. Although Harvest believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from Harvest's expectations as a result of factors discussed in Harvest's 2009 Annual Report on Form 10-K and other public filings.



    CONTACT:
    Stephen C. Haynes
    Vice President, Chief Financial Officer
    (281) 899-5716


                     HARVEST NATURAL RESOURCES, INC.
                       CONSOLIDATED BALANCE SHEETS
                        (in thousands, unaudited)




                                              March 31,    December 31,
                                              ---------    ------------
                                                     2010           2009
                                                     ----           ----

    ASSETS:
    -------

    CURRENT ASSETS:
      Cash and cash equivalents                   $44,115        $32,317
      Restricted Cash                               1,000              -
      Accounts and notes receivable, net
        Oil and gas revenue receivable              2,459            166
        Joint interest and other                    1,099          8,047
        Notes receivable                            3,304          3,265
      Advances to equity affiliate                  3,861          4,927
      Prepaid expenses and other                    1,864          2,214
                                                    -----          -----
        Total current assets                       57,702         50,936

    OTHER ASSETS                                    7,746          3,613

    INVESTMENT IN EQUITY AFFILIATES               272,356        233,989

    PROPERTY AND EQUIPMENT, net                    71,675         60,241
                                                   ------         ------

        TOTAL ASSETS                             $409,479       $348,779
                                                 ========       ========


    LIABILITIES AND EQUITY:
    -----------------------

    CURRENT LIABILITIES:
      Revenue and royalty payable                    $134             $-
      Accounts payable, trade and other             2,101            696
      Accrued expenses                              9,591         10,253
      Accrued Interest                                308          4,691
      Income taxes payable                            600          1,090
                                                      ---          -----
        Total current liabilities                  12,734         16,730

    LONG-TERM DEBT                                 32,000              -

    ASSET RETIREMENT OBLIGATION                        79             50

    COMMITMENTS AND CONTINGENCIES                       -              -

    EQUITY:
    STOCKHOLDERS' EQUITY:
      Common stock and paid-in capital            214,585        213,732
      Retained earnings                           150,834        126,244
      Treasury stock                              (65,494)       (65,383)
                                                  -------        -------
        Total Harvest stockholders' equity        299,925        274,593
                                                  -------        -------
    Noncontrolling Interest                        64,741         57,406
                                                   ------         ------
      Total Equity                                364,666        331,999
                                                  -------        -------
    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                      $409,479       $348,779
    -----------------------------------          ========       ========


                             HARVEST NATURAL RESOURCES, INC.
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands except per share amounts, unaudited)



                                                  Three months Ended March
                                                             31,
                                                -------------------------
                                                        2010          2009
                                                        ----          ----

    REVENUE:
      Oil sales                                       $2,784            $-
      Gas sales                                          340             -
                                                       3,124             -
                                                       -----           ---

    EXPENSES:
      Lease operating costs                              126             -
      Production taxes                                   119             -
      Depletion, depreciation, and amortization          566            69
      Exploration expense                              1,246           972
      General and administrative                       5,416         6,467
      Taxes other than on income                         300           317
                                                         ---           ---
                                                       7,773         7,825
                                                       -----         -----
    LOSS FROM OPERATIONS                              (4,649)       (7,825)
                                                      ------        ------

    OTHER NON-OPERATING INCOME (EXPENSE)
      Investment earnings and other                      131           358
      Interest expense                                  (416)            -
      Loss on exchange rate                           (1,527)          (27)
                                                      (1,812)          331
                                                      ------           ---
    NET LOSS BEFORE INCOME TAXES                      (6,461)       (7,494)
      Income tax expense (benefit)                       (19)          889
      ----------------------------                       ---           ---
    NET LOSS FROM CONSOLIDATED COMPANIES              (6,442)       (8,383)
    Net income from unconsolidated equity
     affiliates                                       38,367         4,410
    NET INCOME (LOSS)                                 31,925        (3,973)
    Less:  Net Income Noncontrolling Interest          7,335           803
    -----------------------------------------
    NET INCOME (LOSS) ATTRIBUTABLE TO HARVEST        $24,590       $(4,776)
    -----------------------------------------        =======       =======


    NET INCOME (LOSS) ATTRIBUTABLE TO HARVEST
     PER COMMON SHARE:
      Basic                                            $0.74        $(0.15)
      Diluted                                          $0.64        $(0.15)
      -------                                                       ------
    Weighted average shares outstanding:
      Basic                                             33.3          32.9
      Diluted                                           39.1          32.9
      -------                                           ----          ----


                             HARVEST NATURAL RESOURCES, INC.
                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands, unaudited)


                                         Three months Ended March 31,
                                         ----------------------------
                                                 2010              2009
                                                  ---               ---
    Cash Flows From Operating
     Activities:
      Net Income (Loss)                       $31,925           $(3,973)
      Adjustments to reconcile net
       income (loss) to net cash used in
       operating activities:
        Depletion, depreciation and
         amortization                             566                69
        Amortization of debt financing
         costs                                    108                 -
        Net income from unconsolidated
         equity affiliate                     (38,367)           (4,410)
        Non-cash compensation related
         charges                                  853             1,154
      Changes in operating assets and
       liabilities:
        Accounts and notes receivable           4,616               162
        Advances to equity affiliate            1,066              (180)
        Prepaid expenses and other                350               104
        Revenue and royalty payable               134                 -
        Accounts payable                        1,405               265
        Accrued expenses                          793            (2,779)
        Accrued Interest                       (4,383)                -
        Income taxes payable                     (490)              881
        --------------------
        Net Cash Used In Operating
         Activities                            (1,424)           (8,707)
        --------------------------             ------            ------
    Cash Flows From Investing
     Activities:
      Additions of property and
       equipment                              (13,495)           (7,067)
      Increase in restricted cash              (1,000)           (1,735)
      Investment costs                         (1,656)             (531)
      ----------------                         ------              ----
        Net Cash Used In Investing
         Activities                           (16,151)           (9,333)
        --------------------------            -------            ------
    Cash Flows From Financing
     Activities:
      Net proceeds from issuances of
       common stock                                 -                69
      Proceeds from issuance of long-
       term debt                               32,000                 -
      Financing costs                          (2,627)             (785)
      ---------------                          ------              ----
        Net Cash Provided by (Used In)
         Financing Activities                  29,373              (716)
        ------------------------------         ------              ----
        Net Increase (Decrease) in Cash        11,798           (18,756)
    Cash and Cash Equivalents at
     Beginning of Period                       32,317            97,165
    Cash and Cash Equivalents at End
     of Period                                $44,115           $78,409
    --------------------------------          =======           =======



                               PETRODELTA, S. A.
                           STATEMENTS OF OPERATIONS
       (in thousands except per BOE and per share amounts, unaudited)



                               Three months Ended     Three months Ended
                               ------------------     ------------------
                                 March 31, 2010         March 31, 2009
                                 --------------         --------------

    Barrels of oil
     sold                        1,968                   1,725
    MCF of gas sold                660                   1,414
          Total BOE              2,078                   1,961
          Total BOE -Net
           of 33% Royalty        1,385                   1,307

    Average price/
     barrel                     $71.90                  $40.60
    Average price/
     mcf                         $1.54                   $1.54


                                     $   $/BOE - net         $   $/BOE - net
                                   ---   -----------       ---   -----------
    REVENUES:
      Oil sales               $141,502                 $70,029
      Gas sales                  1,018                   2,183
      Royalties                (47,427)                (24,787)
                                95,093         68.66    47,425         36.28
                                ------         -----    ------         -----
    EXPENSES:
      Operating
       expenses                 11,192          8.08    11,716          8.96
      Depletion,
       depreciation,
       amortization              8,608          6.22     7,688          5.88
      General and
       administrative            1,368          0.99     2,225          1.70
      Windfall profits
       tax                       1,251          0.90         -             -
      Taxes other than
       on income                 2,353          1.70     3,071          2.35
                                24,772         17.89    24,700         18.89
                                ------         -----    ------         -----
    INCOME FROM
     OPERATIONS                 70,321         50.77    22,725         17.39
                                ------         -----    ------         -----

    Gain on exchange
     rate                      118,716         85.72         -             -
    Investment
     Earnings and
     Other                       2,894          2.09         2             -
                                 -----          ----       ---           ---

    Income before
     income tax                191,931        138.58    22,727         17.39

      Current income
       tax expense              85,420         61.68     9,786          7.48
      Deferred income
       tax expense
       (benefit)                42,464         30.66    (4,083)        (3.12)
                                               -----                   -----
    NET INCOME                  64,047         46.24    17,024         13.03
    Adjustment to
     reconcile to
     reported Net
     Income from
     Unconsolidated
     Equity
     Affiliate:
              Deferred income
               tax expense
               (benefit)       (32,989)                  5,001
                               -------                   -----
              Net income
               equity
               affiliate        97,036                  12,023
    Equity interest
     in
     unconsolidated
     equity
     affiliate                      40%                     40%
    ---------------                ---                     ---
    Income before
     amortization of
     excess basis in
     equity
     affiliate                  38,814                   4,809
        Amortization of
         excess basis in
         equity
         affiliate                (334)                   (311)
        Conform
         depletion
         expense to GAAP          (113)                    703
    Net income from
     unconsolidated
     equity
     affiliate                 $38,367                  $5,201
    ---------------            -------                  ------

    Non-GAAP
     Financial
     Measures:

    Reconcile NET
     INCOME as
     reported under
     IFRS to
     adjusted
     EBITDA:
       NET INCOME              $64,047         46.24   $17,024         13.03
       Add back non-
        cash items:
          Depletion,
           depreciation
           and
           amortization          8,608          6.22     7,688          5.88
          Deferred income
           tax expense
           (benefit)            42,464         30.66    (4,083)        (3.12)
       Adjustments for
        non-recurring
        items - Gain
        on exchange
        rates, net of
        tax                    (65,274)       (47.13)        -             -

     CASH FROM
      OPERATIONS                49,845         35.99    20,629         15.79

       Investment
        earnings and
        other                   (2,894)        (2.09)       (2)            -
       Current income
        tax expense             31,978         23.09     9,786          7.48

       Adjusted EBITDA
        (IFRS)                 $78,929         56.99   $30,413         23.27
                               =======         =====   =======         =====


SOURCE Harvest Natural Resources, Inc.

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