Harvest Natural Resources Announces 2011 Second Quarter Results

Aug 09, 2011, 06:10 ET from Harvest Natural Resources, Inc.

HOUSTON, Aug. 9, 2011 /PRNewswire/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2011 second quarter earnings and provided an operational update.

Harvest reported second quarter earnings of approximately $90.1 million, or $2.24 per diluted share, compared to a loss of $296,000, or $0.01 per diluted share, for the same period last year.  The second quarter results include exploration charges of $4.7 million, or $0.12 per diluted share, and a loss on the extinguishment of debt of $9.7 million, or $0.24 per diluted share. Also during the second quarter, the Company reported income from discontinued operations of $99.2 million, or $2.47 per diluted share, for revenue, expenses and gain recognized related to the sale of the Utah assets.  Adjusted for exploration charges, loss on extinguishment of debt, gain from the sale of the Utah assets and the income related to the discontinued operations, second quarter 2011 earnings would have been $5.3 million, or $0.13 per diluted share.  

Petrodelta reported earnings during the second quarter of $47.3 million, $15.1 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 was $14.2 million.  

Highlights for the second quarter of 2011 include:

Venezuela

  • Oil production from Petrodelta averaged 30,680 barrels of oil per day (BOPD), an increase of 42 percent over the same period in 2010.  The current production rate from Petrodelta is approximately 35,000 BOPD;
  • During the three months ended June 30, 2011, Petrodelta drilled and completed four development wells and one water injection well;
  • Initial production (IP) rates for the Temblador (TT-80) and El Salto (ELS-36) wells were approximately 3,200 BOPD each; the highest IP rates recorded since the beginning of the drilling campaign in 2008;
  • Currently, Petrodelta is operating two drilling rigs and one workover rig.  Petrodelta expects to take possession of a third drilling rig in late August 2011;

United States

  • Completed sale of Utah assets on May 17, 2011 and received $217.8 million, $205 million net of transaction related costs and estimated taxes; achieving a return on investment of 138% with a project cycle time of 3 years;

Indonesia

  • The Karama-1 (KD-1) well spud on June 20, 2011, and is the second of two planned exploration wells located in the Budong-Budong Block, onshore West Sulawesi;
  • The KD-1 well will be drilled to test a thrusted surface anticline with stacked Miocene and Eocene targets to a planned total measured depth of approximately 10,800 feet;
  • After setting 13 3/8” casing at 3,227 feet on July 21, 2011, the rig substructure and derrick were temporarily moved to remediate settling on the drilling pad.  Drilling is expected to recommence on August 11, 2011;
  • Geological and geophysical studies continue on the Lariang basin to mature an LG appraisal well and further exploration prospects;

Gabon

  • Harvest announced that it has encountered oil in the Dussafu Ruche Marin-1 (DRM-1) exploration well drilled in the Dussafu Marin PSC, in the offshore waters of Gabon, West Africa;
  • DRM-1 well reached a vertical depth of 9,953 feet within the Upper Dentale Formation.  Log evaluation, pressure data and samples indicate that Harvest has discovered approximately 60 feet of pay in a 90 foot oil column within its primary objective, the Gamba Formation;
  • Subsequently the DRM-1 well has been deepened to reach a true vertical depth subsea (TVDSS) of 11,355 feet to test the prospectivity of the Middle and Lower Dentale Formations.  Log evaluation, pressure data and a fluid sample indicate that Harvest has discovered a second oil accumulation with approximately 35 feet of oil pay within the secondary objective of the Middle Dentale Formation;
  • The Gamba discovery has been appraised by drilling two sidetracks to test the lateral extent and structural elevation of the Gamba reservoir under a salt ridge;
  • The first sidetrack (DRM-1ST1) 0.75 miles to the southwest was drilled to a total depth (TD) in the Upper Dentale of 11,562 feet (9,428 feet TVDSS) and found 19 feet of oil pay in the Gamba reservoir;
  • The second sidetrack (DRM-1 ST2) 0.5 miles to the northwest of the original DRM-1 was drilled to a TD in the Upper Dentale of 10,615 feet (9,429 feet TVDSS) and found 40 feet of oil pay in the Gamba reservoir;
  • The well will be suspended pending further exploration and development activities;

Oman

  • Exploration drilling is scheduled to commence late in the fourth quarter of 2011 with two wells planned on two large structures with combined mean prospective resources of 2.45 trillion cubic feet (TCF) of gas with 100 million barrels (MMBBLS) condensate.  In the upside case this could rise to 4.4 TCF of gas with 185 MMBBLS of condensate;
  • Tendering process initiated to contract a drilling rig and oil field services and materials;
  • Thirteen prospects and leads have been evaluated for the Barik Miqrat and Amin reservoirs with total mean prospective resources of 8.9 TCF of gas with 350 MMBBLS of condensate and upside (P10) of 17.7 TCF of gas with 730 MMBBLS of condensate;

Corporate

  • Paid off $60.0 million bridge loan on May 17, 2011.  Reduced outstanding debt to $32.0 million.

Harvest President and Chief Executive Officer, James A. Edmiston, said:  “In the second quarter, the company saw significant progress across all its assets.  Petrodelta set production records with production up 40 percent year on year and 7 percent above the previous quarter.  Further, cash from operations at Petrodelta was up 18 percent over the prior quarter in spite of the effects of the new Windfall Profits Tax.  With the arrival of the third drilling rig in late August, we expect this impressive production growth to continue.”

“In Gabon, we announced the Gamba oil discovery in our Ruche Marin 1 well and subsequently drilled two sidetracks to delineate the structure, both of which found oil as well.  The significance of this discovery and the appraisal sidetracks is that it sets the company on a course toward a future development of the Ruche discovery, the two pre-existing discoveries, Moubenga and Walt Whitman, and further nearby structures which have been substantially de-risked as a result of the information gained in drilling the Ruche well.”  

“In Indonesia, we are progressing, after remedial work to the drilling pad, toward the primary targets in the KD-1 well on the Budong-Budong block.  And finally, in Oman, we have begun procurement activities for the end of year drilling of two wells to test two large gas-condensate structures on our Qarn Alam block.”

Venezuela

During the three months ended June 30, 2011, Petrodelta produced approximately 2.8 MMBBLS of oil and sold 0.4 billion cubic feet (BCF) of natural gas; the average daily oil production was 30,680 barrels of oil per day (BOPD), an increase of 42 percent over the same period in 2010 and an increase of 7 percent over the previous quarter.  Cash from Operations for the quarter was $58.0 million, or $30.48 per barrel of oil equivalent, with average prices for the quarter of $101.72 per barrel.

During the second quarter of 2011, Petrodelta drilled and completed five wells, four of which were development wells drilled in the Uracoa, El Salto and Temblador Fields and one water injection well drilled in the Uracoa Field.  Currently, Petrodelta is operating two drilling rigs and one workover rig.  Petrodelta expects to take possession of a third drilling rig in late August 2011.

Petrodelta completed facilities at PDVSA’s EPM transfer point for the El Salto field.  Completion of the facilities has enabled Petrodelta to increase production from the El Salto field and deliver oil production via pipeline.  Petrodelta is continuing additional infrastructure enhancement projects in El Salto and Temblador.  

On April 18, 2011, the Venezuelan government published in the Official Gazette, the Law Creating a Special Contribution on Extraordinary Prices and Exorbitant Prices in the International Hydrocarbons Market (amended Windfall Profits Tax).  The amended Windfall Profits Tax establishes a special contribution for extraordinary prices to the Venezuelan government of 20 percent to be applied to the difference between the price fixed by the Venezuela budget for the relevant fiscal year (set at $40 per barrel for 2011) and $70 per barrel.  The amended Windfall Profits Tax also establishes a special contribution for exorbitant prices to the Venezuelan government of (1) 80 percent when the average price of the Venezuelan Export Basket (VEB) exceeds $70 per barrel but is less than $90 per barrel; (2) 90 percent when the average price of the VEB exceeds $90 per barrel but is less that $100 per barrel; and (3) 95 percent when the average price of the VEB exceeds $100 per barrel.  The amended Windfall Profits Tax caps the royalty paid on production at $70 per barrel.  It is not clear from the drafting of the amended Windfall Profits Tax how the $70 cap on royalty barrels will be applied to royalties paid in-kind.  Petrodelta pays royalties in-kind and has not applied the $70 cap to its royalty barrels as doing so may overstate earnings.  Until further guidance is issued, Petrodelta will continue applying the current sales price to its royalty barrels.  Also, the amended Windfall Profits Tax considers that an exemption of this tax could be granted by MENPET for the incremental production of projects and grass root developments until the specific investments are recovered.  This exemption has to be considered and approved in a case by case basis by MENPET.  We believe several of the fields operated by Petrodelta may qualify for the exemption from the amended Windfall Profits Tax.  We are waiting for clarification from MENPET on the definitions of incremental production and grass roots developments, as well as guidance on the process for applying for the exemption.  There is still a lack of clarity on several issues.

UNITED STATES - Antelope Project - Utah

On May 17, 2011, the Company completed the sale of its oil and gas assets in Utah's Uinta Basin to an affiliate of Newfield Exploration Company (Newfield).  We received cash proceeds of approximately $217.8 million which reflects increases to the purchase price for customary adjustments and deductions for transaction related costs.  The sale has an effective date of March 1, 2011.  The net proceeds from the sale are estimated to be $205.0 million after deductions for transaction related costs and estimated taxes.

Bank of America Merrill Lynch served as the Company's financial advisor in connection with the transaction.  This transaction is part of the Company's ongoing process of exploring strategic alternatives announced in September of 2010.

EXPLORATION DRILLING ACTIVITIES

Indonesia

Budong-Budong PSC - Indonesia

The Lariang-1 (LG-1) well spud on January 6, 2011, and was the first of two planned exploration wells located in the Budong-Budong Block, onshore West Sulawesi.  The well was drilled to a depth of 5,311 feet and encountered multiple oil and gas shows within the secondary Miocene objective.  Wireline logs and samples of reservoir fluids confirmed the presence of hydrocarbons, trap and seal thus greatly de-risking the exploration potential of the license.  The high formation pressures and control difficulties required the use of more casing strings at shallower depths than were originally planned.  At a depth of 5,300 feet, losses of heavy drilling mud into the formation were encountered which, when coupled with the very high formation pressures, led to the decision to discontinue operations and plug and abandon the well for safety reasons on April 8, 2011.  The primary Eocene targets had not yet been reached, as the well was planned for a total measured depth of approximately 7,200 feet.

The KD-1 well spud on June 20, 2011 and is the second of two planned exploration wells located in the Budong-Budong Block, onshore West Sulawesi.  The KD-1 well will be drilled to test a thrusted surface anticline with stacked Miocene and Eocene targets to a planned total measured depth of approximately 10,800 feet.  

After setting 13 3/8” casing at 3,227 feet on July 21, 2011, the rig substructure and derrick were temporarily moved to remediate settling on the drilling pad.  Drilling is expected to recommence on August 11, 2011.  

Harvest owns a 64.4 percent non-operated working interest in the Budong-Budong Block PSC.

Gabon West Africa

Dussafu Project - Gabon (Dussafu PSC)

On June 13, 2011, the Company announced that it has encountered oil in the wildcat well DRM-1 drilled in the Dussafu Marin PSC, in the offshore waters of Gabon, West Africa.  The well spud on April 28, 2011 and was drilled to test the potential of the pre-salt Gamba and Dentale Formations.

Drilled with the Transocean Sedneth 701 semi-submersible drilling unit in 380 feet of water, the DRM-1 well reached a vertical depth of 9,953 feet within the Upper Dentale Formation.  Log evaluation, pressure data and samples indicate that Harvest has discovered approximately 60 feet of pay in a 90 foot oil column within its primary objective, the Gamba Formation.

Subsequently the DRM-1 well was deepened to reach a TVDSS of 11,355 feet to test the prospectivity of the Middle and Lower Dentale Formations.  Log evaluation, pressure data and a fluid sample indicate that Harvest discovered a second oil accumulation with approximately 35 feet of oil pay within the secondary objective of the Middle Dentale Formation.

The Gamba discovery has been appraised by drilling two appraisal sidetracks to test the lateral extent and structural elevation of the Gamba reservoir underneath the thick salt ridge.  The first sidetrack (DRM-1ST1) 0.75 miles to the southwest was drilled to a TD in the Upper Dentale of 11,562 feet, (9,428 feet TVDSS) and found 19 feet of oil pay in the Gamba reservoir.

The second sidetrack (DRM-1ST2) 0.5 miles to the northwest of the original DRM-1 wellbore was drilled to a TD in the Upper Dentale of 11,562 feet, (9,428 feet TVDSS) and found 40 feet of oil pay in the Gamba reservoir.  Following completion of the drilling operations in the second sidetrack, the well will be suspended for possible future use and the rig demobilized.

Initial oil in place volume for the Gamba reservoir is estimated to be in the order of 30 - 40 MMBBLS.

The well will be suspended pending further exploration and development activities.  The Ruche well information will be used to refine the 3-D seismic depth model and improve our understanding for predicting Gamba structure under the salt and defining potential resources in the nearby satellite structures for future drilling targets.  Reservoir and concept engineering studies will now start with the aim of evaluating the commerciality of the discovered oil at Ruche, as well as the two previous oil discoveries in the Walt Whitman and Moubenga wells.

Harvest operates the Dussafu PSC, holding a 66.667 percent interest.

Oman

Block 64 EPSA

A comprehensive work program aimed at evaluating the prospectivity and maturing drillable prospects has been completed and included 1,185 square kilometers of PSDM 3D seismic reprocessing and technical studies.  The resulting PreSDM seismic data has improved the understanding of highly prospective salt-supported structures.  The culmination of this work has been the recognition of considerable prospectivity, and high-grading of prospects with stacked Paleozoic reservoirs in large tilted fault blocks.  Thirteen prospects and leads have been identified in the license with combined mean prospective resources of 8.9 TCF of gas and 350 MMBBLS of condensate.

The first two prospects to be drilled are Mafraq South, with mean prospective resources of 255 million barrels of oil equivalent (MMBOE), and the Al Ghubar North with mean prospective resources of 254 MMBOE.

Mafraq South (MFS-A): The Mafraq structure is a large salt-supported high with stacked reservoir targets in the Barik, Miqrat and Amin reservoirs in both the footwall and hanging wall fault blocks comprising four segments (north, west, south and east).  Mean prospective resources of the entire Greater Mafraq fault blocks is approximately 2.5 TCF of gas and 93 MMBBLS of condensate with an upside of 4.3 TCF of gas and 169 MMBBLS of condensate.  Mean prospective resources in the South segment total 1.25 TCF of gas with 46 MMBBLS of condensate.  The MFS-A well will be drilled to 3,300 meters TVDSS to test coincident fault bounded dip closure at all three reservoir levels.  The geological chance of success for a discovery in the Barik is estimated to be 28 percent.  The dry hole cost for the well is estimated to be $8.45 million.

Al Ghubar North (AGN-A): This structure is a northeast-southwest trending fault block with stacked reservoir targets in the Barik, Miqrat and Amin Formations.  Mean prospective resources of 960 BCF of gas and 54 MMBBLS of condensate in the Barik and 241 BCF of gas in the Miqrat have been calculated for the Al Ghubar North segment.  In the (P10) upside case, the prospect could contain prospective resources of 2.23 TCF of gas and 102 MMBBLS of condensate.  The well will be drilled to 3,140 meters TVDSS to test coincident fault bounded dip closure at the three reservoir levels.  The geological chance of success for a discovery in the Barik is estimated to be 23 percent.  The dry hole cost for the well is estimated to be $8.11 million.

Well planning and procurement of long lead items began in April 2011 in anticipation of spudding the first of the two exploratory wells in late 2011.  The tendering process has been initiated to contract a drilling rig and other drilling services and materials.

Stellar Energy Advisors Limited have been retained to market and seek a partner to fund the drilling of these wells in exchange for equity in the license, via a farmout.

Harvest operates the Block 64 EPSA, holding an 80 percent interest.

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 June 30, 2011.

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 Tuesday, August 9, 2011, during which management will discuss Harvest's 2011 second quarter results.  The conference leader will be James A. Edmiston, President and Chief Executive Officer.  To access the conference call, dial 800-723-6575 or 785-830-1997, five to ten minutes prior to the start time.  At that time you will be asked to provide the conference number, which is 9236641.  A recording of the conference call will also be available for replay at 719-457-0820, passcode 9236641, through August 13, 2011.

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, exploration assets in the United States, 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 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 2010 Annual Report on Form 10-K and other public filings.

HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)

June 30,

December 31,

2011

2010

ASSETS:

CURRENT ASSETS:

Cash and cash equivalents 

$ 136,032

$        58,703

Restricted cash 

7,323

-

Accounts and notes receivable, net 

Oil and gas revenue receivable 

-

1,907

Dividend receivable - equity affiliate 

12,200

-

Joint interest and other 

7,203

2,325

Notes receivable 

3,335

3,420

Advances to equity affiliate 

2,002

1,706

Assets held for sale 

-

88,774

Prepaid expenses and other 

1,732

4,793

Total current assets 

169,827

161,628

OTHER ASSETS 

2,499

2,477

INVESTMENT IN EQUITY AFFILIATES 

310,351

287,933

PROPERTY AND EQUIPMENT, net 

61,094

36,206

TOTAL ASSETS

$ 543,771

$      488,244

LIABILITIES AND EQUITY: 

CURRENT LIABILITIES: 

Accounts payable, trade and other 

$   11,373

$          3,205

Accounts payable -  carry obligation 

3,617

8,395

Accrued expenses 

14,622

15,087

Liabilities held for sale

-

663

Accrued Interest

880

896

Income taxes payable

5,585

72

Total current liabilities 

36,077

28,318

OTHER LONG-TERM LIABILITIES 

1,133

1,834

LONG-TERM DEBT 

32,000

81,237

COMMITMENTS AND CONTINGENCIES 

-

-

EQUITY: 

STOCKHOLDERS' EQUITY: 

Common stock and paid-in capital 

231,120

230,763

Retained earnings 

232,404

141,584

Treasury stock 

(65,925)

(65,543)

Total Harvest stockholders' equity 

397,599

306,804

Noncontrolling Interest 

76,962

70,051

Total Equity 

474,561

376,855

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$ 543,771

$      488,244

HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts, unaudited)

Three months Ended June 30,

2011

2010

EXPENSES:

 Depreciation and amortization

$      119

$    142

 Exploration expense

4,650

1,491

 General and administrative

6,742

5,829

 Taxes other than on income

307

198

11,818

7,660

LOSS FROM OPERATIONS

(11,818)

(7,660)

OTHER NON-OPERATING INCOME (EXPENSE)

 Investment earnings and other

240

140

 Interest expense

(1,704)

(688)

 Loss on extinguishment of debt

(9,682)

-

 Other non-operating expenses

(244)

-

 Loss on exchange rates

(32)

(24)

(11,422)

(572)

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS

       BEFORE INCOME TAXES

(23,240)

(8,232)

Income tax expense (benefit)

260

152

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS

(23,500)

(8,384)

Net income from unconsolidated equity affiliates

17,899

8,915

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

(5,601)

531

DISCONTINUE OPERATIONS

 Income from discontinued operations

480

803

 Gain on sale of assets

103,933

-

 Income tax expense on gain

(5,200)

-

     Income from discontinued operations

99,213

803

NET INCOME

93,612

1,334

Less:  Net Income Attributable to Noncontrolling Interest

3,562

1,630

NET INCOME (LOSS) ATTRIBUTABLE TO HARVEST

$ 90,050

$   (296)

Three months Ended

June 30, 2011

June 30, 2010

NET INCOME (LOSS) ATTRIBUTABLE TO HARVEST PER COMMON SHARE:

Basic

Dilutive

Basic

Dilutive

  Income from continuing operations

(9,163)

(9,163)

(1,099)

(1,099)

  Discontinued operations

99,213

99,213

803

803

       Net income attributable to Harvest

90,050

90,050

(296)

(296)

  Weighted average common shares outstanding

34,039

34,039

33,399

33,399

  Effect of dilutive shares

6,162

-

-

       Weighted average common shares including dilutive effect

34,039

40,201

33,399

33,399

Per Share:

  Loss from continuing operations

$   (0.27)

$  (0.23)

$          (0.03)

$  (0.03)

  Discontinued operations

$     2.92

$   2.47

$            0.02

$   0.02

       Net income (loss) attributable to Harvest

$     2.65

$   2.24

$          (0.01)

$  (0.01)

HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts, unaudited)

Six months Ended June 30,

2011

2010

EXPENSES:

 Depreciation and amortization

$      243

$      243

 Exploration expense

5,839

2,737

 General and administrative

13,068

10,846

 Taxes other than on income

656

498

19,806

14,324

LOSS FROM OPERATIONS

(19,806)

(14,324)

OTHER NON-OPERATING INCOME (EXPENSE)

 Investment earnings and other

385

271

 Interest expense

(3,916)

(1,104)

 Loss on extinguishment of debt

(9,682)

-

 Other non-operating expenses

(675)

-

 Loss on exchange rates

(43)

(1,551)

(13,931)

(2,384)

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS

       BEFORE INCOME TAXES

(33,737)

(16,708)

Income tax expense (benefit)

482

133

LOSS FROM CONSOLIDATED COMPANIES CONTINUING OPERATIONS

(34,219)

(16,841)

Net income from unconsolidated equity affiliates

36,003

47,282

NET INCOME FROM CONTINUING OPERATIONS

1,784

30,441

DISCONTINUED OPERATIONS

 Income (loss) from discontinued operations

(2,786)

2,818

 Gain on sale of assets

103,933

-

 Income tax expense on gain

(5,200)

-

     Income from discontinued operations

95,947

2,818

NET INCOME

97,731

33,259

Less:  Net Income Attributable to Noncontrolling Interest

6,911

8,965

NET INCOME ATTRIBUTABLE TO HARVEST

$ 90,820

$ 24,294

Six Months Ended

June 30, 2011

June 30, 2010

NET INCOME ATTRIBUTABLE TO HARVEST PER COMMON SHARE:

Basic

Dilutive

Basic

Dilutive

  Income (loss) from continuing operations

(5,127)

(5,127)

21,476

21,476

  Discontinued operations

95,947

95,947

2,818

2,818

       Net income attributable to Harvest

90,820

90,820

24,294

24,294

  Weighted average common shares outstanding

33,992

33,992

33,337

33,337

  Effect of dilutive shares

-

5,841

-

4,038

       Weighted average common shares including dilutive effect

33,992

39,833

33,337

37,375

Per Share:

  Income (loss) from continuing operations

$   (0.15)

$   (0.13)

$   0.64

$   0.57

  Discontinued operations

$     2.82

$     2.41

$   0.09

$   0.08

       Net income attributable to Harvest

$     2.67

$     2.28

$   0.73

$   0.65

HARVEST NATURAL RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

Six months Ended June 30,

2011

2010

Cash Flows From Operating Activities:

Net income

$   97,731

$ 33,259

Adjustments to reconcile net income (loss) to net cash

 used in operating activities:

Depletion, depreciation and amortization

1,053

1,825

Impairment of long-lived assets

4,707

-

Amortization of debt financing costs

530

329

Amortization of discount on debt

816

-

Gain on sale of property and equipment

(103,933)

Loss on early extinguishment of debt

7,533

Net income from unconsolidated equity affiliate

(36,003)

(47,282)

Share-based compensation-related charges

2,673

1,844

Changes in operating assets and liabilities:

Accounts and notes receivable

(2,887)

3,115

Advances to equity affiliate

(296)

2,730

Prepaid expenses and other

3,061

263

Accounts payable

8,168

2,474

Accrued expenses

(2,469)

(7)

Accrued Interest

(418)

(3,723)

Other liabilities

(701)

370

Income taxes payable

5,513

(353)

Net Cash Used In Operating Activities

(14,922)

(5,156)

Cash Flows From Investing Activities:

Proceeds from sale of property and equipment

217,833

-

Additions of property and equipment

(28,067)

(23,913)

Additions to assets held for sale

(31,742)

-

Proceeds from sale of equity affiliate

1,385

-

Increase in restricted cash

(7,323)

(1,000)

Investment costs

(62)

(36)

Net Cash Provided by (Used In) Investing Activities

152,024

(24,949)

Cash Flows From Financing Activities:

Net proceeds from issuances of common stock

416

115

Proceeds from issuance of long-term debt

-

32,000

Payments of long-term debt

(60,000)

-

Financing costs

(189)

(2,818)

Net Cash Provided by (Used In) Financing Activities

(59,773)

29,297

Net Increase (Decrease) in Cash

77,329

(808)

Cash and Cash Equivalents at Beginning of Period

58,703

32,317

Cash and Cash Equivalents at End of Period

$ 136,032

$ 31,509

PETRODELTA, S. A.

STATEMENTS OF OPERATIONS

(in thousands except per BOE and per share amounts, unaudited)

Three months Ended

June 30, 2011

Three months Ended

June 30, 2010

Barrels of oil sold

2,782

1,955

MCF of gas sold

440

663

     Total BOE

2,855

2,066

     Total BOE - Net of 33% Royalty

1,904

1,377

Average price/barrel

$   101.72

$69.55

Average price/mcf

$1.54

$1.54

$

$/BOE - net

$

$/BOE - net

REVENUES:

 Oil sales

$ 282,975

135,964

 Gas sales

679

1,022

 Royalties

(96,214)

(46,391)

187,440

98.45

90,595

65.79

EXPENSES:

 Operating expenses

18,684

9.81

10,632

7.72

 Workovers

7,021

3.69

-

-

 Depletion, depreciation, amortization

13,231

6.95

9,770

7.09

 General and administrative

3,782

1.99

2,641

1.92

 Windfall profits tax

65,345

34.32

1,664

1.21

108,063

56.76

24,707

17.94

INCOME FROM OPERATIONS

79,377

41.69

65,888

47.85

Gain on exchange rate

-

-

1,938

1.40

Interest earnings and other

185

0.09

(13)

-

Interest expense

(3,146)

(1.65)

(1,328)

(0.97)

Income before income tax

76,416

40.13

66,485

48.28

 Current income tax expense (benefit)

31,618

16.60

52,656

38.24

 Deferred income tax expense (benefit)

(2,513)

(1.32)

5,118

3.71

NET INCOME

47,311

24.85

8,711

6.33

Adjustment to reconcile to reported Net Income from

-

   Unconsolidated Equity Affiliate:

         Deferred income tax expense (benefit)

1,176

(14,499)

         Net income equity affiliate

46,135

23,210

Equity interest in unconsolidated equity affiliate

40%

40%

Income before amortization of excess basis in equity affiliate

18,454

9,284

   Amortization of excess basis in equity affiliate  

(452)

(322)

   Conform depletion expense to GAAP

(216)

(47)

Net income from unconsolidated equity affiliate

$   17,786

$   8,915

Non-GAAP Financial Measures:

Reconcile NET INCOME as reported under IFRS to adjusted EBITDA:

  NET INCOME

$   47,311

24.85

$   8,711

6.33

  Add back non-cash items:

     Depletion, depreciation and amortization

13,231

6.95

9,770

7.09

     Pension liability, net of tax

-

-

-

-

     Deferred income tax expense (benefit)

(2,513)

(1.32)

41,118

29.86

Special Charges, net of tax

-

-

(969)

(0.70)

CASH FROM OPERATIONS

58,029

30.48

58,630

42.58

  Investment earnings and other

(185)

(0.09)

13

-

  Interest expense

3,146

1.65

1,328

0.97

  Current income tax expense

31,618

16.60

16,656

12.10

  Adjusted EBITDA (IFRS)

$   92,608

48.64

$ 76,627

55.65

PETRODELTA, S. A.

STATEMENTS OF OPERATIONS

(in thousands except per BOE and per share amounts, unaudited)

Six months Ended

June 30, 2011

Six months Ended

June 30, 2010

Barrels of oil sold

5,365

3,923

MCF of gas sold

910

1,323

     Total BOE

5,517

4,144

     Total BOE - Net of 33% Royalty

3,678

2,762

Average price/barrel

$94.98

$70.73

Average price/mcf

$1.54

$1.54

$

$/BOE - net

$

$/BOE - net

REVENUES:

 Oil sales

$ 509,588

$ 277,466

 Gas sales

1,405

2,040

 Royalty

(173,529)

(94,377)

337,464

91.75

185,129

67.03

EXPENSES:

 Operating expenses

32,966

8.96

20,675

7.49

 Workovers

13,496

3.67

-

-

 Depletion, depreciation and amortization

25,718

6.99

18,377

6.65

 General and administrative

2,852

0.78

6,058

2.19

 Windfall profits tax

92,471

25.14

2,915

1.06

167,503

45.54

48,025

17.39

INCOME FROM OPERATIONS

169,961

46.21

137,104

49.64

Gain on exchange rate

-

-

120,654

43.68

Investment earnings and other

352

0.09

2,881

1.04

Interest expense

(4,418)

(1.20)

(2,223)

(0.80)

Income before income tax

165,895

45.10

258,416

93.56

 Current income tax expense

84,961

23.10

138,076

49.99

 Deferred income tax expense (benefit)

(28,275)

(7.69)

47,582

17.23

NET INCOME

109,209

29.69

72,758

26.34

Adjustment to reconcile to reported Net Income from

   Unconsolidated Equity Affiliate:

         Deferred income tax expense (benefit)

19,739

(47,488)

         Net income equity affiliate

89,470

120,246

Equity interest in unconsolidated equity affiliate

40%

40%

Income before amortization of excess basis in equity affiliate

35,788

48,098

   Amortization of excess basis in equity affiliate  

(873)

(656)

   Conform depletion expense to GAAP

(297)

(160)

Net income from unconsolidated equity affiliate

$   34,618

$   47,282

Non-GAAP Financial Measures:

Reconcile NET INCOME as reported under IFRS to adjusted EBITDA:

  NET INCOME

$ 109,209

29.69

$   72,758

26.34

  Add back non-cash items:

     Depletion, depreciation and amortization

25,718

6.99

18,377

6.65

     Deferred income tax expense (benefit)

(28,275)

(7.69)

83,582

30.26

Special Charges, net of tax

-

-

(66,243)

(23.98)

CASH FROM OPERATIONS

106,652

28.99

108,474

39.27

  Investment earnings and other

(352)

(0.09)

(2,881)

(1.04)

  Interest expense

4,418

1.20

2,223

0.80

  Current income tax expense

84,961

23.10

48,634

17.61

  Adjusted EBITDA (IFRS)

$ 195,679

53.20

$ 156,450

56.64

SOURCE Harvest Natural Resources, Inc.



RELATED LINKS

http://www.harvestnr.com