HOUSTON, Aug. 21 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced that its 80 percent owned affiliate, Harvest Vinccler, C.A. (HVCA), signed a Memorandum of Understanding (MOU) with Corporacion Venezolana del Petroleo S.A. (CVP) for the addition of three fields to Empresa Mixta Petrodelta, S.A. The three fields are Isleno, Temblador and El Salto. The MOU amends the Memorandum of Understanding signed by HVCA and CVP on March 31, 2006 to form a mixed company, since designated as Empresa Mixta Petrodelta, S.A. (Petrodelta). Petrodelta will be a joint venture mixed company in which a Harvest Natural Resources affiliate will own 40 percent of the shares (32 percent net to Harvest Natural Resources) and CVP will own the remaining 60 percent. In addition to the Isleno, Temblador and El Salto fields, Petrodelta will operate and develop the three South Monagas Unit (SMU) fields to be contributed to Petrodelta by HVCA. All of the fields will be developed under a 20-year grant from the Venezuelan government. MOU and the award of the additional fields is subject to 1) completion of definitive agreements, 2) approval by the boards of directors of the entities which control HVCA, 3) approval by the shareholders of Harvest Natural Resources, Inc. and 4) approval by the Venezuelan Ministry of Energy and Petroleum and the Venezuelan National Assembly. Harvest President and Chief Executive Officer, James A. Edmiston, said, "The addition of the Isleno, Temblador and El Salto fields combined with the SMU fields will give Petrodelta a portfolio of both cash flow and growth assets. The fields provide Petrodelta with significant oil development opportunities upon which to apply the same technologies which have resulted in substantially improved recovery from SMU, but on a much broader scale." Upon formation of Petrodelta, proved reserves as of April 1st for the mixed company will be 211 million barrels of oil equivalent (Boe), or 45 million Boe net to Harvest*. The discovered unrisked resource potential of the fields is approximately 705 million Boe, or 150 million Boe net to Harvest. The proved reserves net to Harvest and the unrisked resource potential have been evaluated by the independent engineering firm of Ryder Scott Company L.P. Edmiston added, "The plan being jointly developed by HVCA and CVP projects rapid growth for the Petrodelta fields during the next five years with production from proved reserves increasing at a compound annual growth rate in excess of 20 percent to approximately 75,000 barrels of oil equivalent (Boe) per day by 2011, or 16,000 Boe per day net to Harvest. Further, the target production rate from the unrisked resource potential is in excess of 130,000 Boe per day, or 27,000 per day net to Harvest. The development costs of the net undeveloped resources in these fields are projected to be very competitive in the $3.50 per Boe range. We expect Petrodelta to both fund the development program and pay dividends to its shareholders with its internally generated cash flow." Background Since 1992, HVCA has operated SMU and has delivered 113 million barrels of oil and 64 billion cubic feet of gas to Petroleos de Venezuela S.A. (PDVSA). The fields currently produce 19,000 barrels of oil per day and 40 million cubic feet of gas per day. HVCA operated SMU pursuant to an operating service agreement under which HVCA delivered oil to PDVSA for a service fee capped at two-thirds of the market value of the oil delivered. As a service arrangement, there was no royalty obligation. The operating service agreement was scheduled to end July 2012. Under the mixed company fiscal arrangement, Petrodelta will sell oil to PDVSA at market prices and receive $1.54 per thousand cubic feet for the natural gas. Since the one-third royalty volume will be taken in-kind by Venezuela, this fiscal arrangement has the effect of reducing reported reserves and production but the market based crude pricing will increase realized prices per barrel. The income tax rate for Petrodelta will be 50 percent. Proved reserves for SMU in the mixed company as evaluated by Ryder Scott Company L.P. as of April 1, 2006 are 27 million Boe net to Harvest which is 60 percent of the 45 million Boe net to Harvest for its share of all the properties in the mixed company. SMU proved reserves are 128 million Boe on a gross basis. The Isleno, Temblador and El Salto fields are located in the same geographic area as SMU and have the same geology and productive formations as the three SMU fields developed and operated by HVCA since 1992. Like SMU prior to Harvest's entry in 1992, there has been minimal development activity in the three newly awarded fields during the last 20 years. The Isleno area contains two oil fields discovered in 1953. Two- dimensional seismic is available over a portion of the Isleno Fields. The fields have three discovered oil bearing structures with an estimated unrisked resource potential of 10 million Boe net to Harvest, or 50 million Boe on a gross basis. Seven oil appraisal wells have been drilled in Isleno which have confirmed the presence of commercial oil deposits. The fields are located approximately five kilometers south of existing infrastructure in the SMU Uracoa field. The Petrodelta business plan under discussion with CVP projects full development of the Isleno fields over the next three years. The Temblador Field was discovered in 1936 and developed in the 1940s and the 1950s. Temblador has produced 118 million barrels of oil and 66 billion cubic feet of natural gas from 155 wells since 1936. Three-dimensional (3-D) seismic is available over all of the Temblador Field. Proved reserves for the Temblador Field are 4 million Boe net to Harvest, or 14 million Boe on a gross basis. The estimated unrisked resource potential of the field is 32 million Boe net to Harvest, or 150 million Boe on a gross basis. The field is currently producing approximately 1,000 Bopd from ten wells. The El Salto Field was discovered in 1936. A total of 31 appraisal wells have been drilled identifying nine productive structures and six productive formations. The field has produced less than 1 million barrels of oil and is currently dormant. 3-D seismic data is available over one-third of the El Salto Field. Under the business plan being developed with CVP, Petrodelta would acquire additional 3-D seismic over El Salto during the first stage of field evaluation. Proved reserves for El Salto are 14 million Boe net to Harvest, or 68 million Boe on a gross basis. The estimated unrisked resource potential is 80 million Boe net to Harvest, or 377 million Boe gross, based on existing discoveries. In addition, El Salto has substantial exploration upside from several fault blocks which have been identified on seismic but have not yet been confirmed through drilling. Edmiston said, "Moving from a services agreement to a mixed company represents a change in both our economic and operating environment. We believe the change will create a more durable arrangement with Venezuela. Signing the MOU represents important progress on our path to conversion to a mixed company." More in-depth information regarding the development and cash flow potential of the Petrodelta fields will be made available later today on our website at http://www.harvestnr.com. Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent oil and gas production and development company with principal operations in Venezuela and business development offices in Russia and the United Kingdom. Additional information regarding the Company, including information regarding its operations in Venezuela and the newly awarded oil and gas fields, is available on 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 2005 Annual Report on Form 10-K and other public filings." "Cautionary note to investors - The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. From time to time, we use certain terms such as resource potential, risked potential, probable reserves, possible reserves, non-proved reserves or other descriptions of volumes of reserves that SEC guidelines strictly prohibit us from including in filings with the SEC. 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. Investors are urged to consider closely the disclosure in our 2005 Annual Report on Form 10-K and other public filings." * The term "net to Harvest" assumes a completion of the conversion of HVCA's interest to the mixed company and represents Harvest's 32 percent ownership interest in Petrodelta net of a one-third royalty (Example: 209 X 32% X 66.67% = 45).
SOURCE Harvest Natural Resources