Harvest Natural Resources Announces Third Quarter 2008 Results

Nov 04, 2008, 06:00 ET from Harvest Natural Resources

HOUSTON, Nov. 4 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2008 third quarter earnings and an operations update. Highlights for the quarter include:

    --  Receipt of an advance of cash dividend of $16.6 million net to
        Harvest, from Petrodelta on October 29, 2008 relating to net income as
        reported under International Financial Accounting Standards through
        the period ending June 30, 2008;
    --  Third quarter oil production averaging 16,300 barrels per day; an
        increase of 20 percent over the second quarter with only one rig
    --  Continuing progress in US, Gabon and Indonesian exploration programs;
    --  Purchase of 1.1 million shares authorized by the Board under the $20
        million 2008 Share Repurchase Program and
    --  Completed drilling operations on the Harvest Hunter # 1 well in
        Calcasieu Parish, Louisiana.


Harvest reported 2008 third quarter loss of $5.9 million, or $0.17 per share, compared with earnings of $5.4 million, or $0.14 per share, for the same period last year. Harvest adopted the successful efforts method of accounting in 2007. The third quarter results include exploration charges of $4.8 million. Petrodelta reported third quarter earnings of $32.7 million, $10.5 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 $3.7 million. Further, Harvest received a net $16.6 million advance of cash dividend from Petrodelta on October 29, 2008.

Harvest President and Chief Executive Officer, James A. Edmiston, said, "During the third quarter an advance of a cash dividend was declared by the Board of Directors of Petrodelta in the amount of $51.9 million ($16.6 million net to HNR's 32 percent interest). The payment for the advance of cash dividend was received by Harvest on October 29, 2008. Petrodelta's drilling program commenced in April of 2008 and production continues to increase in spite of delays to rig mobilization. A second rig spudded its first well on October 24, 2008 and the third rig is now expected to spud later this month. These delays in rig mobilization and the excessive drilling days per well in the third quarter will likely lead to 2008 year-end productions rates toward the low end of prior guidance. Moving to our exploration program, we continued to progress the seismic acquisition programs on our exploration blocks in Indonesia and Gabon, and we completed the drilling operations on the Harvest Hunter # 1 well in Calcasieu Parish, Louisiana and expect to begin testing operations in November." Edmiston continued, "In spite of the recent upheaval in the credit and oil and gas markets, our strong cash position and debt-free balance sheet coupled with our maturing exploration program and production increases from our low-cost Venezuelan assets position the company well to be able to continue to execute our growth plan without interruption."


Petrodelta delivered 1.5 million barrels of oil or 16,300 barrels of oil per day, and 2.8 billion cubic feet of natural gas to PDVSA Petroleo, S.A. for the three months ending September 30, 2008, compared to 1.3 million barrels of oil or 14,400 barrels of oil per day, and 3.5 billion cubic feet of natural gas to PDVSA Petroleo, S.A for the same period in 2007.

Sequentially, Petrodelta oil production increased 20% over the second quarter average of 13,600 BOPD.

For the third quarter of 2008, the world market price for the quality of oil produced by Petrodelta averaged approximately $107.97 per barrel, or 92 percent of West Texas Intermediate. The Windfall Profits Tax, which is applied as a further reduction to the price per barrel received above certain thresholds, reduced the actual price for Petrodelta's crude deliveries by $22.76 per barrel to $85.21 per barrel. The total impact of the Windfall Profits Tax on third quarter net income to Petrodelta was $17.0 million, or $5.5 million net to Harvest's 32 percent interest. In September 2008 Petrodelta received communication from the PDVSA affiliate, CVP that the amended Windfall Profits Tax should be applied to gross production and third quarter statements reflect this change. We have expressed our disagreement with the appropriate representatives of Petrodelta, CVP and PDVSA. The natural gas price received by Petrodelta is contractually fixed at $1.54 per thousand cubic feet.

Petrodelta Development Activities

Petrodelta commenced drilling operations in the Uracoa field on April 21st of this year with the first well coming on line May 29, 2008. As of September 30, 2008, Petrodelta had drilled and completed four successful oil wells, with initial production rates ranging from 900 to 2,000 barrels of oil per day. On average these wells required 36 days to drill and cost $3.4 million. A fifth well has been successfully completed and began production on October 16, 2008. This last well was drilled in 18 days for a cost of $2.0 million, and has been tested at 1,075 barrels of oil per day. This improved performance was driven by modifications to the mud and bit designs based on experience from the first several wells. Petrodelta's target is to average less than 25 days to drill and complete at costs below $2.5 million per well.

The drilling program and ongoing workover and field improvement activities resulted in average production rates exceeding 16,500 barrels of oil per day in September and 17,500 barrels of oil per day presently.

Petrodelta currently has two drilling rigs running in the Uracoa field, the second of which spud its first well October 24, 2008. A third rig is expected to spud its first well later this month.


Dussafu Marin, Gabon

On September 11, 2008, Harvest Natural Resources, Inc., through its subsidiary Harvest Dussafu, B.V., closed on its acquisition to acquire an additional 16.667 percent working interest in the Dussafu Marin Exploration Production Sharing Contract. Harvest now has a 66.667 percent operated working interest in the Dussafu Marin Permit offshore Gabon in West Africa. We are committed to shoot 500 kilometers of 2-D seismic, perform geological, geophysical and engineering studies, and the drilling of a conditional well. In line with our commitments, we completed the acquisition of 675 kilometers of 2-D seismic which is currently being processed. We have also commenced the re-processing of 1,076 square kilometers of existing 3-D seismic which we expect to be completed in the first half of 2009. Remaining 2008 net expenditures on the Dussafu block are expected to be $2.8 million.

Budong-Budong, Indonesia

In April, the final Indonesian governmental approval was received for the farm-in of the Budong-Budong Exploration Production Sharing Contract to earn a 47 percent working interest. The work program includes the acquisition and processing of 550 kilometers of 2-D seismic and the drilling of two exploration wells. Harvest will fund 100 percent of the first $17.2 million of expenditures to earn its 47 percent interest. The 2-D seismic acquisition commenced in February 2008, is over 70 percent complete and we expect its completion in the fourth quarter 2008. Processing of the seismic data already acquired has commenced and is on schedule to enable us to begin drilling on Budong-Budong in 2009. Remaining 2008 net expenditures on the Budong-Budong block are expected to be $2.3 million.

United States Operations

During the third quarter 2008, Harvest made significant progress on two projects within its Gulf Coast Area of Mutual Interest AMI which was announced in April of this year.

The first project is an exploration prospect being tested by the Harvest Hunter # 1 well in Calcasieu Parish, Louisiana. The AMI participants have secured a 6,800 acre leasehold on the prospect. We completed the drilling of the Harvest Hunter # 1 well and have set casing at a total depth of 12,292 feet. The drilling rig is being demobilized and Harvest will be testing the geopressured Vicksburg objective sands in the 4th quarter to determine commerciality.

The second project in the Gulf Coast AMI is Harvest's Bay Exploration project located near Galveston, Texas. On July 1, 2008, the AMI participants acquired 6,510 acres of offshore leases representing all or part of 12 separate tracts at the Texas General Land Office lease sale. This newly acquired acreage is generally contiguous to and complements the 5,418 acres previously held by the AMI participants in the area. Harvest is re-processing its proprietary 3-D seismic data set to finalize target bottomhole drilling locations for two wells. In addition, Harvest has also recently conducted a site survey and preliminary engineering work that will be incorporated into a US Army Corps of Engineers permit application for the project which is expected to be filed in fourth quarter 2008. Target date for drilling of the first Bay well is late 2009, pending receipt of requisite permits.

Remaining 2008 net expenditures on our currently identified US exploration programs are expected to be $10.0 million, inclusive of the costs associated with the drilling of the Harvest Hunter # 1 well.

Conference call

Harvest will hold an earnings conference call today at 10:00 a.m. CST (11:00 a.m. EST) to discuss 2008 third quarter results. To access the call, dial 785-424-1055, conference ID: 7Harvest, five to ten minutes prior to the start time. A recording of the conference call will also be available for replay at 402-220-1423 until November 14, 2008. The conference call will also be transmitted over the internet through the Harvest website at http://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 the United States, Indonesia, West Africa and China and business development offices in Singapore and the United Kingdom. For more information visit the Company's website at http://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 2007 Annual Report on Form 10-K and other public filings.

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

                                               September 30,      December 31,
                                                   2008              2007


      Cash and cash equivalents                   $118,285          $120,841
      Restricted cash                                  -               6,769
      Accounts and notes receivable, net             8,297             9,418
      Advances to equity affiliate                   3,236            16,352
      Prepaid expenses and other                     4,011             1,032
         Total current assets                      133,829           154,412

    OTHER ASSETS                                     2,542             4,301

    INVESTMENT IN EQUITY AFFILIATES                201,978           251,173

    PROPERTY AND EQUIPMENT, net                     24,504             3,583

           TOTAL ASSETS                           $362,853          $413,469


      Accounts payable, trade and other               $265            $5,949
      Accounts payable, related party                  -              10,093
      Accrued expenses                              10,676            11,895
      Accrued Interest                               4,716             5,136
      Income taxes payable                             177               503
      Short-term debt                                  -               9,302
         Total current liabilities                  15,834            42,878

    MINORITY INTEREST                               61,197            56,825

      Common stock and paid-in capital             207,038           202,323
      Retained earnings                            143,115           147,934
      Treasury stock                               (64,331)          (36,491)
         Total stockholders' equity                285,822           313,766

            STOCKHOLDERS' EQUITY                  $362,853          $413,469

                       HARVEST NATURAL RESOURCES, INC.
              (in thousands except per share amounts, unaudited)

                                       Three months Ended    Nine months Ended
                                           September 30,        September 30,
                                            2008    2007        2008     2007

      Depreciation                            49      44         141      342
      Exploration expense                  4,837     102       9,052      536
      General and administrative           6,700   5,857      19,334   19,452
      Taxes other than on income            (965)     66        (507)     488
                                          10,621   6,069      28,020   20,818
    LOSS FROM OPERATIONS                 (10,621) (6,069)    (28,020) (20,818)

      Gain on financing transactions         -    15,042       3,421   15,042
      Investment earnings and other        1,122   2,296       3,004    7,558
      Interest expense                       (22) (2,262)     (1,741)  (7,209)
                                           1,100  15,076       4,684   15,391
     TAXES AND MINORITY INTERESTS         (9,521)  9,007     (23,336)  (5,427)
      Income tax expense (benefit)           (20)    863          81    1,029
     INTERESTS                            (9,501)  8,144     (23,417)  (6,456)
      Minority interest in consolidated
       subsidiary companies                  890   2,524       4,737    1,151
     COMPANIES                           (10,391)  5,620     (28,154)  (7,607)
      Net income (loss) from
       unconsolidated equity affiliates    4,534    (235)     23,335     (411)
    NET INCOME (LOSS)                    ($5,857) $5,385     ($4,819) ($8,018)

      Basic                               ($0.17)  $0.15      ($0.14)  ($0.22)
      Diluted                             ($0.17)  $0.14      ($0.14)  ($0.22)
    Weighted average shares outstanding:
      Basic                                 33.6    36.3        34.5     37.1
      Diluted                               33.6    37.9        34.5     37.1

                       HARVEST NATURAL RESOURCES, INC.
                          (in thousands, unaudited)

                                        Three Months          Nine Months
                                     Ended September 30,  Ended September 30,
                                       2008      2007        2008      2007
    Cash Flows From Operating
      Net loss                      ($5,857)   $5,385     ($4,819)   (8,018)
      Adjustments to reconcile
       net loss to net cash
       provided by (used in)
       operating activities:
          depreciation and
          amortization                   49        44         141       342
         Gain on financing
          transactions                  -     (15,042)     (3,421)  (15,042)
         Net (income) loss from
          unconsolidated equity
          affiliate                  (4,534)      235     (23,335)      411
         Non-cash compensation
          related charges             1,483     1,486       4,061     4,384
         Minority interest in
          consolidated subsidiary
          companies                     890     2,524       4,737     1,151
      Dividends received from
       unconsolidated equity
       affiliate                        -         -        72,530       -
      Changes in operating
       assets and liabilities:
         Accounts and notes
          receivable                  1,399      (235)      1,121        94
         Advances to equity
          affiliate                    (659)    2,377      13,116     6,157
         Prepaid expenses and
          other                         194        66      (2,979)      228
         Accounts payable              (475)      608      (4,354)      254
         Accounts payable,
          related party             (10,278)      118     (10,093)      348
         Accrued expenses            (1,486)      916      (1,364)   (3,588)
         Accrued Interest              (367)   (1,514)       (420)   (1,827)
         Income taxes payable           (68)      813        (326)      852
         Net Cash Provided By
          (Used In) Operating
          Activities                (19,709)   (2,219)     44,595   (14,254)
    Cash Flows From Investing
       Additions of property
        and equipment                (6,022)      (59)    (17,239)     (346)
       Investment in equity
        affiliate                       -         -           -      (4,591)
       Decrease in restricted
        cash                          3,525    19,520       6,769    33,115
       Investment costs                  12         5      (1,141)      -
         Net Cash Provided By
         (Used In) Investing
         Activities                  (2,485)   19,466     (11,611)   28,178
    Cash Flows From Financing
       Net proceeds from
        issuances of common
        stock                            35       290       1,345       541
       Purchase of treasury
        stock                       (11,186)  (32,089)    (28,393)  (32,089)
       Payments on notes
        payable                      (4,651)  (13,331)     (7,211)  (22,633)
       Financing costs                 (923)      -          (923)      -
       Dividends paid to
        minority interest               -         -          (358)      -
          Net Cash Used In
           Financing Activities     (16,725)  (45,130)    (35,540)  (54,181)
          Net Decrease in Cash      (38,919)  (27,883)     (2,556)  (40,257)
    Cash and Cash Equivalents
     at Beginning of Period         157,204   135,705     120,841   148,079
    Cash and Cash Equivalents
     at End of Period               118,285   107,822     118,285   107,822

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

                                       Three Months Ended    Nine Months Ended
                                       September 30, 2008   September 30, 2008

    Barrels of oil sold                      1,496              3,943
    MCF of gas sold                          2,843              9,064
          Total BOE                          1,970              5,454
          Total BOE - Net of 30% Royalty     1,521              4,271

    Average price/barrel                    $85.21             $82.66
    Average price/mcf                        $1.54              $1.54

                                            $       $/BOE -    $       $/BOE -
                                                      net                net
      Oil sales                            127,489            325,921
      Gas sales                              4,378             13,992
      Royalty                              (55,765)          (132,888)
                                            76,102   50.03    207,025   48.48
      Operating expenses                    20,076   13.20     53,270   12.47
      Depletion, depreciation and
       amortization                          5,423    3.56     17,475    4.10
      General and administrative             2,693    1.77      6,427    1.50
      Taxes other than on income             3,541    2.33     10,629    2.49
                                            31,733   20.86     87,801   20.56
    INCOME FROM OPERATIONS                  44,369   29.17    119,224   27.92

    Investment earnings and other            7,397    4.86     12,405    2.90

    Income before income tax                51,766   34.03    131,629   30.82

      Current income tax expense            29,600   19.46     60,211   14.10
        Deferred income tax benefit        (10,495)  (6.90)   (25,471)  (5.96)
    NET INCOME                              32,661   21.47     96,889   22.68
    Adjustment to reconcile to reported
     Net Income from Unconsolidated
     Equity Affiliate:
              Deferred income tax benefit   10,495    6.90     25,471    5.96
              Net income equity affiliate   22,166   14.57     71,418   16.72
    Equity interest in unconsolidated
     equity affiliate                          40%                40%
    Income before amortization of excess
     basis in equity affiliate               8,866             28,567
        Amortization of excess basis in
         equity affiliate                     (313)              (865)
        Conform depletion expense to GAAP   (1,516)            (1,774)
        Reserve for interest receivable     (2,428)            (2,428)
    Net income from unconsolidated equity
     affiliate                               4,609             23,500

SOURCE Harvest Natural Resources