Harvest Natural Resources Announces 2010 Second Quarter Results

HOUSTON, Aug. 9 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2010 second quarter earnings and provided an operational update.

Harvest reported a second quarter loss of $296,000, or $0.01 per share, compared with a loss of $4.2 million, or $0.13 per share, for the same period last year.  The second quarter results include exploration charges of $1.5 million, or $0.04 per share. Petrodelta reported second quarter earnings of $8.7 million, $2.8 million net to Harvest's 32 percent interest, under International Financial Reporting Standards (IFRS).  After adjustments to Petrodelta's IFRS earnings, primarily to conform to U.S. GAAP, Harvest's 32 percent share of Petrodelta's earnings were $7.1 million.

Petrodelta's earnings include a nonrecurring charge of $17.1 million ($5.5 million net to Harvest's 32 percent interest) in the second quarter reflecting adjustments to the current tax expense. The impact of this nonrecurring charge, net of tax, to Harvest is $0.16 per share.

Highlights for the second quarter of 2010 include:

VENEZUELA

• Oil production from Petrodelta averaged 21,561 barrels of oil per day (BOPD). Petrodelta operated one drilling rig during the quarter and drilled five successful development wells;
• Petrodelta is now operating two drilling rigs; one rig is operating in the El Salto field and a second rig started operations in the Temblador field in mid-July. Current production rate is 24,000 BOPD;
• On May 11, 2010, Petrodelta’s board of directors declared dividends to shareholders in the amount of $30.5 million, or $9.8 million net to Harvest;

UNITED STATES

• Harvest’s share of production related to the Antelope projects in Utah totaled 50,125 barrels of oil equivalent during the second quarter;
• The Bar F 1-20-3-2 well, completed in the Lower Green River and Upper Wasatch formations on the Antelope project in Utah, is producing 142 BOPD and 120 thousand cubic feet of gas per day (MCFD), gross, and has produced 37,000 barrels of oil cumulatively through July. On July 14, 2010, Harvest spud the first well, Kettle #1-10-3-1, of a five-well Lower Green River/Upper Wasatch delineation and development drilling program to follow up on the Bar F well oil discovery;
• The eight partner-operated Monument Butte Field Extension wells, which were drilled in late 2009 and early 2010, are producing a combined 544 BOPD and 2,890 MCFD of natural gas, gross, and have produced 232,000 barrels of oil equivalent cumulatively through July 31, 2010;
• On July 29, 2010, a second phase of the Monument Butte Field Extension project began with the spud of the Stewart #2A-29-4-2 well operated by our partner.  Six wells are planned during this phase of the appraisal and development of the Monument Butte Field Extension appraisal and development drilling program;
• On July 28, 2010, Harvest’s board of directors approved the acquisition of an incremental 10 percent interest in the Antelope Project from our partner through a farmout, increasing Harvest’s interest to 70 percent.

INDONESIA

• Permitting delays associated with the mobilization of the drilling rig from its port location to the drilling pad have delayed the expected spud date for the first of Harvest’s Budong Budong exploratory wells into the third quarter of this year.

Harvest President and Chief Executive Officer, James A. Edmiston, said:  "The second quarter was a busy one for our team as we worked to advance appraisal and development activities in Utah. In spite of the delays in acquiring another drilling rig, Petrodelta's oil production was stable, providing that company with sufficient cash flow to both declare a dividend and to continue executing its drilling program. Assuming receipt of the heavy transportation permits, we are poised to spud the first of two exploration wells on our Budong prospect in Indonesia and are in the process of high-grading drilling locations in our West Bay and Dussafu projects.”

Edmiston continued, "This time last year we had zero production outside of Venezuela.  Today, Harvest has established production in the Uintah Basin of Utah and is working diligently to enhance that production, develop new opportunities to continue production growth, all while maintaining a strong balance sheet and continue to work toward a more balanced portfolio.  Any success from the upcoming exploration program in Indonesia and Gabon will further improve that balance.”

Edmiston added, “From time to time we learn of possible interests in acquiring ownership in certain assets within our property portfolio.  We evaluate these potential opportunities taking into consideration our overall property mix, our operational and liquidity requirements, our strategic focus and our commitment to long-term shareholder value.  For example, we have recently received such expressions of interest in acquiring some of our international producing and exploration assets, and we are currently evaluating these potential opportunities.  These considerations are at a very preliminary stage, and there can be no assurances that our discussions will continue or that any transaction may ultimately result from our discussions.”

EXPLORATION AND PRODUCTION PROGRAMS

Venezuela

Petrodelta delivered 1.96 million barrels of oil, or an average of 21,561BOPD, and 0.7 billion cubic feet of natural gas (BCF) to PDVSA Petroleo, S.A. for the three months ending June 30, 2010, as compared to 2.01 million barrels of oil, or an average of 22,057BOPD and 1.31BCF of natural gas to PDVSA Petroleo, S.A for the same period in 2009.  The primary reason for this decrease in oil production was the delay in contracting a second drilling rig and a workover rig.  Currently, Petrodelta is operating two drilling rigs; one rig is operating in the El Salto field and a second rig started operations in the Temblador field in mid-July.  Also, Petrodelta is seeking a workover rig which it expects to have under contract during the third quarter of 2010.  The plan is to drill 13 additional oil wells before the end of the year.  Petrodelta currently is producing around 24,000 BOPD and the forecast is to achieve an exit rate of 30,000 BOPD at the end of the year.

During the second quarter of 2010, the world market price for the quality of oil produced by Petrodelta averaged approximately $69.60 per barrel, or 90 percent of the price for West Texas Intermediate.  The natural gas price received by Petrodelta is contractually fixed at $1.54 per thousand cubic feet.

During the six months ended June 30, 2010, Petrodelta drilled and completed nine successful development wells, produced approximately 3.9 million barrels of oil and sold 1.3 BCF of natural gas.  Petrodelta produced an average of 21,713BOPD during the six months ended June 30, 2010.

The appraisal and development activity in the El Salto field continues to exceed expectations.  During the second quarter of 2010, the ELS-32 was drilled in the El Salto field and completed with initial production of 2,400 BOPD, which confirms the potential of Upper Jobo reservoir in Block 5.  Also in mid-July Petrodelta spud the ELS-33, a well whose plan includes the drilling of two pilot holes. The initial pilot hole was intended to test the downdip limits in Block 5.  Logs indicate significant oil columns exist in the Lower Jobo and the Upper and Lower Morichal formations in an area not previously included in the Block’s mapped oil in place.

On May 11, 2010, Petrodelta’s board of directors declared dividends of $30.5 million, $9.8 million net to our 32 percent interest.  Petrodelta’s shareholders are now completing the required steps to proceed with payment.

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 for both maintaining production capacity and appraising the substantial resource bases in the El Salto field and presently non-producing Isleno field. Workover activity is also planned to restore production from identified wells that require maintenance and optimization. Also, the budget provides for the design and construction of surface infrastructure and procurement of equipment required for the development of the El Salto field.

During the six months ended June 30, 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 in 2010.

Nonrecurring Charge

The nonrecurring charge incurred by Petrodelta during the second quarter of 2010 in the amount of $17.1 million ($5.5 million net to Harvest's 32 percent interest) is a result of adjustments to the current tax expense.  Current tax expense increased due to certain expected tax deductions that are no longer available and adjustments to the projected tax on the currency exchange revaluation gain recognized in the first quarter.

Western United States – Antelope

On July 28, 2010, Harvest’s board of directors approved the acquisition of an incremental 10 percent interest in most of the Antelope Project from our partner through a farmout agreement.  This acquisition includes all leases, the Mesaverde Gas Exploration and Appraisal Project and the Lower Green River/Upper Wasatch Oil Delineation and Development Project.  The acquisition excludes the initial eight wells previously drilled in the Monument Butte Field Extension Appraisal and Development Project.  Total consideration for the incremental 10 percent interest is $20.0 million, which includes $3.0 million paid on August 2, 2010 (closing date), $3.0 million to be paid by October 1, 2010, and a capped $14.0 million carry of a portion of our partner’s exploration and development cost obligations in the upcoming Lower Green River/Upper Wasatch and Monument Butte Extension drilling programs in the Antelope project.  Based on current plans, we anticipate the full carry obligation to be met in the first half of 2011.  This acquisition increases Harvest’s ownership to 70 percent.

During the six months ended June 30, 2010, Harvest had cash capital expenditures of $1.8 million for leasing activities on the Antelope prospect.  The remaining 2010 budget for leasing activities on the Antelope prospect is $8.3 million.  Drilling, completion and testing activities are in progress on two separate projects on the Antelope prospect in Duchesne and Uintah Counties, Utah.

Lower Green River/Upper Wasatch Oil Delineation and Development Project

After completion of the initial testing program on the Mesaverde deep gas in the Bar F exploration well, 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/Upper Wasatch formations.  Operational activities during the six months ended June 30, 2010 included completion of testing of the Bar F, completion of the Bar F including installation of an electric submersible pump in May 2010 and completion of production facilities for the Bar F in June of 2010.  As of July 31, 2010, the well had produced in excess of 37,000 gross barrels of oil since the commencement of the flow test, with the oil being sold in the Salt Lake City, Utah market.  During the six months ended June 30, 2010, we had cash capital expenditures of $5.2 million in drilling, completion and testing activities.

Harvest’s board of directors has authorized a five-well Lower Green River/Upper Wasatch delineation and development drilling program, which is planned to take place beginning in the third quarter of 2010 at a capital cost of approximately $21.0 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/Upper Wasatch formations are productive in the Altamont/Bluebell oil field approximately six miles north of the Bar F well.  Operational activities during the six months ended June 30, 2010 on the five-well Lower Green River/Upper Wasatch delineation program included preparations and well planning for the drilling program to be implemented in the second half of 2010.  The first well of the five-well delineation program, the Kettle #1-10-3-1, spud on July 14, 2010, and is drilling as of August 9, 2010.  The five wells are planned to be drilled back-to-back.  During the six months ended June 30, 2010, we had cash capital expenditures of $0.1 million in well planning.  The remaining 2010 budget for the Lower Green River/Upper Wasatch delineation and development drilling program is approximately $21.0 million.

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 had been drilled and were on production.  Operational activities on these eight wells during the three months ended June 30, 2010 consisted of routine production operations from the wells.  As of July 31, 2010, the eight producing wells have produced approximately 77,000 barrels of oil (net to Harvest).  The eight wells combined are currently producing about 180 BOPD (net to Harvest).  During the six months ended June 30, 2010, we had cash capital expenditures of $3.2 million in well costs.

Harvest’s board of directors has authorized six 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 we will have an approximate 35 percent working interest in the six wells after the acquisition of the incremental 10 percent interest from our partner.  This six-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 first well of the six-well delineation program, the Stewart #2A-29-4-2, spud on July 29, 2010 and was logged on August 1, 2010.  The well is currently awaiting completion. The six wells are all planned to be drilled during the third quarter of 2010.  Our 2010 budget for this six well program is $2.0 million.

Budong-Budong Project, Indonesia (Budong PSC)

Two drill sites were selected in 2009.  Operational activities during the six months ended June 30, 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.  Permitting delays associated with the mobilization of the drilling rig from its port location to the drilling pad have resulted in the expected spud date of the first of two exploratory wells to be pushed into the third 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.  Prior to drilling the first exploration well, subject to the estimated cost of that well, our partner will have a one-time option to increase the level of the carried interest to a maximum of $20.0 million, and as compensation for the increase, we will increase our participation to a maximum of 54.65 percent.  This equates to a total carried cost for the farm-in of $9.1 million.  Our partner intends to exercise their option to increase the level of the carried interest and is currently reviewing the amount of the increase. During the six months ended June 30, 2010, we had cash capital expenditures of $5.6 million for well planning, construction and drilling equipment and $1.3 million for seismic data processing and reprocessing.  The remaining 2010 budget for the Budong PSC is $14.5 million.

Dussafu Project - Gabon (Dussafu PSC)

The Dussafu PSC partners and the Republic of Gabon, represented by the Ministry of Mines, Energy, Petroleum and Hydraulic Resources, entered into the second exploration phase of the Dussafu PSC with an effective date of May 28, 2007.  It has been agreed that the second three-year exploration phase will be extended until May 27, 2011, at which time the partners can elect to enter a third exploration phase.  Operational activities during the six months ended June 30, 2010 focused on maturation of prospect inventory and well planning.  Subject to drilling rig availability, we expect to drill an exploratory well in the second quarter of 2011.  During the six months ended June 30, 2010, we had cash capital expenditures of $1.6 million in well planning and $0.3 million for seismic data processing and reprocessing.  The remaining 2010 budget for the Dussafu PSC is $3.7 million.

Oman (Block 64 EPSA)

Operational activities during the six months ended June 30, 2010 include the geological studies, baseline environmental and social study and 3-D pre-stack depth migration reprocessing of approximately 1,000 square kilometers of existing 3-D seismic data.  During the six months ended June 30, 2010, we had cash capital expenditures of $0.4 million on geological, environmental and social studies and $0.5 million for seismic data processing and reprocessing.  The remaining 2010 budget for the Block 64 EPSA is $1.6 million.

Non-GAAP Financial Measures

In this press release, Petrodelta’s 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. 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 June 30,2010.

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 Monday, August 9, 2010, during which management will discuss Harvest's 2010 second quarter results.  The conference leader will be James A. Edmiston, President and Chief Executive Officer.  To access the conference call, dial 719-457-2632 or 888-539-3679, five to ten minutes prior to the start time.  At that time you will be asked to provide the conference number, which is 3064334.  A recording of the conference call will also be available for replay at 719-457-0820, passcode 3064334, through August 16, 2010.

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 website for approximately 90 days.

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."

SOURCE Harvest Natural Resources, Inc.