Harvest Natural Resources Announces 2012 Third Quarter Results

HOUSTON, Nov. 9, 2012 /PRNewswire/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2012 third quarter net income and provided an operational update.

Harvest reported third quarter net income of approximately $5.8 million, or $0.15 per diluted share, compared to earnings of $7.7 million, or $0.20 per diluted share, for the same period last year.  The third quarter 2012 results included exploration charges of $1.5 million, or $0.04 per diluted share, and $1.1 million, or $0.03 per diluted share, for transaction costs incurred related to the pending sale of our 32 percent interest in Petrodelta.  Additionally, during the third quarter, Harvest incurred $1.0 million, or $0.02 per diluted share, in debt conversion expense and $0.6 million, or $0.02 per diluted share, in discontinued operations related to income taxes.  Excluding the exploration charges, transaction costs, debt conversion expense, and discontinued operations charges, third quarter 2012 earnings would have been $10.0 million, or $0.26 per diluted share. 

Petrodelta reported net income during the third quarter of $45.7 million, as reported under International Financial Report Standards (IFRS), compared to $57.0 million for the same period in 2011.  Petrodelta's decrease in net income for the quarter was primarily due to higher operational costs of $14.2 million resulting from a 30 percent increase in salaries and related benefits retroactive to October 2011.  Harvest's 32 percent share of Petrodelta's net income for the third quarter as reported under U.S. GAAP was $16.2 million, compared to $14.8 million, for the same period one year ago.

Highlights for the third quarter of 2012 include:

Venezuela

  • During the third quarter of 2012, Petrodelta drilled and completed four wells and sold approximately 3.5 million barrels of oil (MMBO) for a daily average of approximately 38,173 barrels of oil per day (BOPD), an increase of 16 percent over the same period in 2011;
  • Of the four new wells successfully drilled, three were in the El Salto field with current total production from this field of approximately 16,500 BOPD; the fourth well was drilled in the Temblador field;
  • Petrodelta's current production rate is approximately 39,000 BOPD;
  • Two new drilling rigs, the modular rig PDV-48 and the PDV-86 are expected to start operations by the end of November 2012;
  • The 2012 projected average production rate is 37,000 BOPD, with capital expenditures projected at $200 million
  • Harvest and PT Pertamina (Persero) met in September 2012 to evaluate the progress toward the closing of the sale by Harvest of its interests in Venezuela.  Both parties agreed to continue pursuing the various approvals required to close the transaction.

Gabon

  • The semi-submersible drilling unit, the Scarabeo 3, is expected to spud the next exploration well in mid-November 2012.  This well will be drilled on the Tortue prospect targeting stacked pre-salt reservoirs.

Corporate

  • On October 12, 2012, Harvest sold $79.8 million aggregate principal amount of 11% senior unsecured notes due October 11, 2014;
  • Harvest has extinguished all of the senior unsecured convertible notes issued on February 17, 2010.

VENEZUELA

During the three months ended September 30, 2012, Petrodelta sold approximately 3.5 MMBO for a daily average of 38,173 BOPD, an increase of 16 percent over the same period in 2011 and 5 percent higher than the previous quarter.  Petrodelta sold 0.41 billion cubic feet (BCF) of natural gas for a daily average of 4.5 million cubic feet per day (MMCFD), decreasing 31 percent over the same period in 2011, and a decrease of 17 percent from the previous quarter.  Petrodelta's current production rate is approximately 39,000 BOPD.

During the third quarter of 2012, Petrodelta drilled and completed four development wells, three in the El Salto field and one in the Temblador field.  Currently, Petrodelta is operating two drilling rigs and one workover rig and is continuing with infrastructure enhancement projects in the El Salto and Temblador fields.

Two new drilling rigs are rigging up, the PDV-48 in the Isleno field and the PDV-86 in El Salto field; they are expected to begin drilling operations by the end of November 2012.  The current production from the Isleno field is approximately 1,960 BOPD and is being trucked to the Uracoa field.  Plans are underway to build a pipeline connection between the Isleno field and the main production facility at the Uracoa field.

Petrodelta's production for 2012 is projected to average approximately 37,000 BOPD.  The 2012 Petrodelta capital budget is expected to be approximately $200.0 million with a significant portion of that total related to infrastructure costs to support the further development of the Temblador and El Salto fields.  Petrodelta expects to drill 12 oil wells, and is anticipating finishing this year with five rigs on site with four new rigs, two already rigging up and two more arriving at the end of the fourth quarter.  The current plan is to retire one of the older rigs upon the arrival of the new rigs so that four of the anticipated five drilling rigs will be new modular rigs that are fit-for-purpose for Petrodelta's operations.

The average sales price for crude oil produced during the quarter was approximately $92.43 per barrel, compared to $100.62 per barrel during the third quarter of 2011.

As previously announced, Harvest and PT Pertamina (Persero) met in September 2012 to evaluate the progress toward the closing of the sale by Harvest of its interests in Venezuela and agreed to continue pursuing the various approvals required to close the transaction.

EXPLORATION AND OTHER ACTIVITIES

Dussafu Project - Gabon (Dussafu PSC)

Operational activities during the three months ended September 30, 2012, included completion of the processing of 545 square kilometers of seismic which was acquired in the fourth quarter of 2011 and well planning for the drilling of an exploration well in the fourth quarter.  The 3-D Pre-Stack Time Migration (PSTM) was completed in July 2012. A depth imaging project commenced in the third quarter with 3-D Pre-Stack Depth Migration (PSDM) of this Central 2011 survey and the 2005 M'Bya inboard survey, the project is expected to be completed in the second quarter of 2013. Well planning progressed to drill an exploration well in November of 2012 on the Tortue prospect targeting stacked pre-salt reservoirs with mean unrisked prospective resource of 62 MMBO.

The semi-submersible drilling unit, the Scarabeo 3, owned and operated by Saipem S.p.A, will be mobilized on location and is projected to spud in mid-November 2012.

Budong-Budong PSC – Indonesia

Operational activities during the three months ended September 30, 2012, included a review of geological and geophysical data obtained from the drilling of Lariang-1 (LG-1) and Karama-1 (KD-1) wells to upgrade the prospectivity of the block and to define a prospect for potential drilling in 2013.  Based on the multiple oil and gas shows encountered in both LG-1 and KD-1, an exploration program targeting the Pliocene and Miocene sands encountered in the previous two wells is being matured.  Operations completed remapping of both the Lariang and Karama Basins with eight prospects in the Lariang Basin and five prospects in the Karama Basin having been identified in the Pliocene, Middle-Late Miocene and Eocene sands.  The Joint Venture has high graded the Madjene prospect in the Lariang Basin as the preferred prospect for 2013 drilling with stacked Pliocene and Miocene mean unrisked prospective resource of 96 MMBO.

The initial exploration term of the Budong PSC expires on January 15, 2013.  In September 2012, the operator of the Budong PSC, on behalf of Harvest and the other co-venturer, submitted a request to BPMIGAS, Indonesia's oil and gas regulatory authority, under the terms of the Budong PSC for a four year extension of the initial six year exploration term of the Budong PSC.  The request for extension of the initial exploration term includes a firm exploration well in late 2013.  The extension of the initial exploration term will enable the joint venture to continue exploration activities on the Budong PSC.  The granting of such request for an extension of the initial exploration term may not be unreasonably withheld.

Oman Block 64 EPSA

Operational activities during the three months ended September 30, 2012, included post-well evaluation and review of geological and geophysical data obtained from the drilling of the Mafraq South-1 ("MFS-1") and Al Ghubar North-1 ("AGN-1") wells.  Work continues on Block 64 EPSA to mature other drilling opportunities for a possible exploration well in the Second Phase of the license.

A one year extension for the license has been granted until May 2013, at which time Harvest must decide whether to commit to the second phase of the license.

CORPORATE

On October 12, 2012, subsequent to the third quarter financial statements, Harvest sold $79.8 million aggregate principal amount of 11% senior unsecured notes due October 11, 2014, and warrants to purchase up to 686,761 shares of its common stock with an exercise price of $10.00 per share.  The warrants can be exercised at any time up until the three-year anniversary of the closing.  If all of the warrants were exercised, the impact on dilution of the common shares outstanding would be approximately 1.8 percent.

The notes were issued at a price of 96 percent of principal amount.  The purchase price of the notes was paid in cash, except for approximately $10.5 million in principal amount, which was exchanged by a single purchaser for a combination of approximately $6.0 million in face value of that purchaser's existing 8.25% senior convertible notes issued by the Company in 2010 and the value agreed to by the Company and the noteholder, that otherwise would have been attained by the noteholder had the noteholder converted the note into 1,059,751 shares of common stock; the remaining $3.0 million in face value of that convertible note was converted into shares of common stock under the terms of the indenture governing that convertible note.

The net cash proceeds of the offering to Harvest were approximately $63.5 million after deducting the issuance discount from the face value of the notes, placement fees, and other transaction costs.  Harvest intends to use the net proceeds of the offering to fund capital expenditures planned for Gabon and other potential projects, for working capital needs and general corporate purposes. 

Also, as of October 12, 2012, the Company has extinguished all the senior convertible notes and accrued interest due, which was originally issued on February 17, 2012.

Non-GAAP Financial Measures

These measures are included due to the significant nature of Petrodelta's earnings to Harvest.  In this press release, Petrodelta's adjusted EBITDA disclosure is not presented in accordance with accounting principles 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.  Adjusted 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 internally fund our future capital expenditures and working capital requirements.  We also believe that financial analysts commonly use adjusted EBITDA to analyze Petrodelta's performance. 

The Company defines Adjusted EBITDA as net income (loss) before interest expense, investment earnings, current income taxes, and certain non-cash items in the Company's statements of operations, including depreciation, depletion and amortization, accretion of asset retirement obligations, deferred income taxes, certain employee compensation charges and gains or losses from foreign exchange.  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 September 30, 2012.

A reconciliation of adjusted 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. CST on Friday, November 9, 2012, during which management will discuss Harvest's 2012 third quarter results.  The conference leader will be James A. Edmiston, President and Chief Executive Officer.  To access the conference call, dial 800-309-1245 or 719-325-2302, five to ten minutes prior to the start time.  The conference identification number is 6817420.  A recording of the conference call will also be available for replay at 719-457-0820, passcode 6817420, through November 16, 2012.

The conference call will also be transmitted over the internet through the Company's website at www.harvestnr.com.  To listen to the live webcast, enter the website fifteen minutes before the call to register, download and install any necessary audio software.  For those who cannot listen to the live broadcast, a replay of the webcast will be available beginning shortly after the call and will remain on the web site for approximately 90 days.

The Company intends to file its third quarter 2012 Form 10-Q with the Securities and Exchange Commission on Friday, November 9, 2012.  A copy of the Form 10-Q will be available on the Company's website at www.harvestnr.com.

About Harvest Natural Resources:

Harvest Natural Resources, Inc., headquartered in Houston, Texas, is an independent energy company with principal operations in Venezuela, 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.

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

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, timing and certainty of future transactions 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 2011 Annual Report on Form 10-K and other public filings.

Harvest may use certain terms such as resource base, contingent resources, prospective resources, probable reserves, possible reserves, non-proved reserves or other descriptions of volumes of reserves.  These estimates are by their nature more speculative than estimates of proved reserves and accordingly, are subject to substantially greater risk of being actually realized by the Company.

 







HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)

















September 30,

December 31,





2012

2011







ASSETS:









CURRENT ASSETS:




Cash and cash equivalents

$             20,419

$             58,946


Restricted cash

-

1,200


Accounts and notes receivable, net





Dividend receivable - equity affiliate

-

12,200



Joint interest and other

3,411

14,342



Notes receivable

-

3,335


Advances to equity affiliate

2,690

2,388


Deferred income taxes

2,628

2,628


Prepaid expenses and other

2,435

728



Total current assets

31,583

95,767







OTHER ASSETS

5,730

5,427







LONG-TERM RECEIVABLE - DIVIDEND, EQUITY AFFILIATE

12,200

-







INVESTMENT IN EQUITY AFFILIATES

404,705

345,054







PROPERTY AND EQUIPMENT, net

73,064

66,799










TOTAL ASSETS

$           527,282

$           513,047













LIABILITIES AND EQUITY:









CURRENT LIABILITIES:




Accounts payable, trade and other

$                  952

$               7,381


Accounts payable -  carry obligation

-

3,596


Accrued expenses

9,164

15,247


Accrued Interest

679

1,372


Deferred tax liability

4,835

4,835


Income taxes payable

1,579

718


Current portion - long term debt

9,000

-



Total current liabilities

26,209

33,149







OTHER LONG-TERM LIABILITIES

1,054

908







LONG-TERM DEBT

-

31,535







COMMITMENTS AND CONTINGENCIES

-

-







EQUITY:




STOCKHOLDERS' EQUITY:




Common stock and paid-in capital

264,781

236,598


Retained earnings

205,868

193,283


Treasury stock

(66,145)

(66,104)



Total Harvest stockholders' equity 

404,504

363,777

Noncontrolling Interest

95,515

83,678


Total Equity

500,019

447,455

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$           527,282

$           513,047

 

HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts, unaudited)





Three Months Ended September 30,


2012

2011




EXPENSES:



  Depreciation and amortization 

$              106

$              111

  Exploration expense

1,475

1,575

  General and administrative

5,080

4,291


6,661

5,977

LOSS FROM OPERATIONS

(6,661)

(5,977)




OTHER NON-OPERATING INCOME (EXPENSE)



  Investment earnings and other

82

159

  Interest expense

(19)

(806)

  Debt conversion expense

(958)

-

  Loss on extinguishment of debt

-

-

  Other non-operating expenses

(1,078)

(316)

  Loss on exchange rates

(24)

(43)


(1,997)

(1,006)

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS



        BEFORE INCOME TAXES 

(8,658)

(6,983)

 Income tax expense

1,126

226

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS

(9,784)

(7,209)

Net income from unconsolidated equity affiliates

20,232

18,476

NET INCOME FROM CONTINUING OPERATIONS

10,448

11,267

DISCONTINUED OPERATIONS



  Gain on sale of assets

-

36

  Income tax (expense) benefit

(595)

-

      Income from discontinued operations

(595)

36

NET INCOME  

9,853

11,303

Less:  Net Income Attributable to Noncontrolling Interest

4,036

3,592

NET INCOME ATTRIBUTABLE TO HARVEST

$           5,817

$           7,711

 


 Three Months Ended