UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
| | |
þ | | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 2005March 31, 2006 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
| | |
o | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from________to__________
COMMISSION FILE NO.fromto
Commission File No. 1-10762
____________________________
HARVEST NATURAL RESOURCES, INC.
(Exact
Harvest Natural Resources, Inc.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0196707
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) No.)
1177 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
(Address of Principal Executive Offices) (Zip Code)
| | |
Delaware (State or Other Jurisdiction of Incorporation or Organization) | | 77-0196707 (IRS Employer Identification No.) |
| | |
1177 Enclave Parkway, Suite 300 Houston, Texas (Address of Principal Executive Offices) | | 77077 (Zip Code) |
(281) 899-5700
(Registrant's
(Registrant’s Telephone Number, Including Area Code)
NOT APPLICABLE
(Former
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]þ No [ ]o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| | | | | | | | |
| | Large Accelerated Filero | | Accelerated Filerþ | | Non-Accelerated Filero | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [X]o No [ ]þ
At
July 29, 2005, 37,664,214April 17, 2006, 37,142,595 shares of the
registrant's common stockRegistrant’s Common Stock were outstanding.
HARVEST NATURAL RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM
Item 1. FINANCIAL STATEMENTS
Financial Statements
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 109,592 $ 84,600
Restricted cash............................................................... 12 12
Accounts and notes receivable:
Accrued oil and gas sales................................................. 69,784 58,937
Joint interest and other, net............................................. 12,950 12,780
Put options................................................................... 315 14,209
Deferred income tax........................................................... 2,455 251
Prepaid expenses and other.................................................... 1,930 1,426
----------- ------------
TOTAL CURRENT ASSETS................................................. 197,038 172,215
RESTRICTED CASH.................................................................... 16 16
OTHER ASSETS ..................................................................... 1,923 2,072
DEFERRED INCOME TAXES.............................................................. 6,034 6,034
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method - costs of $2,900
excluded from amortization in 2005 and 2004, respectively)................ 642,638 631,082
Other administrative property................................................. 12,300 10,008
----------- ------------
654,938 641,090
Accumulated depletion, depreciation and amortization.......................... (475,794) (453,941)
----------- ------------
179,144 187,149
----------- ------------
$ 384,155 $ 367,486
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other............................................. $ 4,256 $ 8,428
Accounts payable, related party............................................... 9,111 11,063
Accrued expenses.............................................................. 21,090 29,426
Income taxes payable.......................................................... 18,419 22,475
Current portion of long-term debt............................................. 7,358 11,833
----------- ------------
TOTAL CURRENT LIABILITIES 60,234 83,225
LONG-TERM DEBT..................................................................... -- --
ASSET RETIREMENT LIABILITY......................................................... 1,991 1,941
COMMITMENTS AND CONTINGENCIES...................................................... -- --
MINORITY INTEREST.................................................................. 48,705 39,131
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 a share; authorized 5,000 shares;
outstanding, none......................................................... -- --
Common stock, par value $0.01 a share; authorized 80,000 shares; issued 37,663
shares at June 30, 2005 and 37,544 shares at December 31, 2004............ 377 375
Additional paid-in capital.................................................... 187,374 185,183
Retained earnings............................................................. 94,083 61,897
Accumulated other comprehensive loss.......................................... (4,765) (487)
Treasury stock, at cost, 770 shares June 30, 2005 and 764 shares at
December 31, 2004......................................................... (3,844) (3,779)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY........................................... 273,225 243,189
----------- ------------
$ 384,155 $ 367,486
=========== ============
| | | | | | | | |
| | March 31, | | | December 31, | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
ASSETS | | | | | | | | |
CURRENT ASSETS: | | | | | | | | |
Cash and cash equivalents | | $ | 185,704 | | | $ | 163,019 | |
Accounts and notes receivable: | | | | | | | | |
Accrued oil and gas sales | | | 59,195 | | | | 60,900 | |
Joint interest and other, net | | | 10,133 | | | | 10,750 | |
Deferred income tax | | | 3,052 | | | | 3,052 | |
Prepaid expenses and other | | | 1,813 | | | | 2,149 | |
| | | | | | |
TOTAL CURRENT ASSETS | | | 259,897 | | | | 239,870 | |
| | | | | | | | |
OTHER ASSETS | | | 1,695 | | | | 1,600 | |
PROPERTY AND EQUIPMENT: | | | | | | | | |
Oil and gas properties (full cost method – costs of $2,900 excluded from amortization in 2006 and 2005, respectively) | | | 643,126 | | | | 641,684 | |
Other administrative property | | | 9,584 | | | | 9,568 | |
| | | | | | |
| | | 652,710 | | | | 651,252 | |
Accumulated depletion, depreciation and amortization | | | (502,230 | ) | | | (491,924 | ) |
| | | | | | |
| | | 150,480 | | | | 159,328 | |
| | | | | | |
| | $ | 412,072 | | | $ | 400,798 | |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable, trade and other | | $ | 3,797 | | | $ | 408 | |
Accounts payable, related party | | | 9,297 | | | | 9,203 | |
Accrued expenses | | | 15,541 | | | | 21,081 | |
Deferred revenue | | | 8,976 | | | | 6,728 | |
Income taxes payable | | | 13,582 | | | | 18,909 | |
Current portion of long-term debt | | | 2,583 | | | | 5,467 | |
| | | | | | |
TOTAL CURRENT LIABILITIES | | | 53,776 | | | | 61,796 | |
ASSET RETIREMENT LIABILITY | | | 2,153 | | | | 2,129 | |
COMMITMENTS AND CONTINGENCIES | | | — | | | | — | |
MINORITY INTEREST | | | 43,700 | | | | 39,361 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | |
Preferred stock, par value $0.01 a share; authorized 5,000 shares; outstanding, none | | | | | | | — | |
Common stock, par value $0.01 a share; authorized 80,000 shares; issued 37,778 shares at March 31, 2006 and 37,757 shares at December 31, 2005 | | | 378 | | | | 378 | |
Additional paid-in capital | | | 189,305 | | | | 188,242 | |
Retained earnings | | | 126,604 | | | | 112,736 | |
Treasury stock, at cost, 770 shares at March 31, 2006 and December 31, 2005, respectively | | | (3,844 | ) | | | (3,844 | ) |
| | | | | | |
TOTAL STOCKHOLDERS’ EQUITY | | | 312,443 | | | | 297,512 | |
| | | | | | |
| | $ | 412,072 | | | $ | 400,798 | |
| | | | | | |
See accompanying notes to consolidated financial statements.
3
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(in thousands, except per share data)
REVENUES
Oil sales $ 49,662 $ 32,977 $ 103,163 $ 63,785
Gas sales 6,780 8,420 14,265 16,409
----------- ----------- ----------- -----------
56,442 41,397 117,428 80,194
----------- ----------- ----------- -----------
EXPENSES
Operating expenses 8,763 7,368 17,651 14,707
Depletion, depreciation and amortization 10,245 8,198 21,914 16,359
General and administrative 5,867 4,372 10,889 8,007
Gain on sale of long-lived assets -- (578) -- (578)
Taxes other than on income 1,332 1,118 3,053 2,312
----------- ----------- ----------- -----------
26,207 20,478 53,507 40,807
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 30,235 20,919 63,921 39,387
OTHER NON-OPERATING INCOME (EXPENSE)
Investment earnings and other 487 425 1,026 728
Interest expense (210) (2,448) (452) (4,937)
Net gain (loss) on exchange rates -- (8) 2,757 (617)
----------- ----------- ----------- -----------
277 (2,031) 3,331 (4,826)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES AND MINORITY INTERESTS 30,512 18,888 67,252 34,561
INCOME TAX EXPENSE 11,959 9,902 25,492 15,502
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS 18,553 8,986 41,760 19,059
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY COMPANIES 4,402 2,738 9,574 5,304
----------- ----------- ----------- -----------
NET INCOME $ 14,151 $ 6,248 $ 32,186 $ 13,755
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.38 $ 0.17 $ 0.87 $ 0.38
=========== =========== =========== ===========
Diluted $ 0.37 $ 0.16 $ 0.84 $ 0.36
=========== =========== =========== ===========
OTHER COMPREHENSIVE INCOME (LOSS):
UNREALIZED MARK TO MARKET INCOME
(LOSS) FROM CASH FLOW HEDGING
ACTIVITIES, NET OF TAX 1,770 -- (4,278) --
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 15,921 $ 6,248 $ 27,908 $ 13,755
=========== =========== =========== ===========
| | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands, except per share data) | |
REVENUES | | | | | | | | |
Oil sales | | $ | 54,531 | | | $ | 53,501 | |
Gas sales | | | 4,641 | | | | 7,485 | |
| | | | | | |
| | | 59,172 | | | | 60,986 | |
| | | | | | |
| | | | | | | | |
EXPENSES | | | | | | | | |
Operating expenses | | | 8,569 | | | | 8,888 | |
Depletion, depreciation and amortization | | | 10,306 | | | | 11,669 | |
General and administrative | | | 6,869 | | | | 5,022 | |
Taxes other than on income | | | 2,399 | | | | 1,721 | |
| | | | | | |
| | | 28,143 | | | | 27,300 | |
| | | | | | |
| | | | | | | | |
INCOME FROM OPERATIONS | | | 31,029 | | | | 33,686 | |
| | | | | | | | |
OTHER NON-OPERATING INCOME (EXPENSE) | | | | | | | | |
Investment earnings and other | | | 2,061 | | | | 539 | |
Interest expense | | | (119 | ) | | | (242 | ) |
Net gain (loss) on exchange rates | | | (2 | ) | | | 2,757 | |
| | | | | | |
| | | 1,940 | | | | 3,054 | |
| | | | | | |
| | | | | | | | |
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS | | | 32,969 | | | | 36,740 | |
INCOME TAX EXPENSE | | | 14,762 | | | | 13,533 | |
| | | | | | |
INCOME BEFORE MINORITY INTERESTS | | | 18,207 | | | | 23,207 | |
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY COMPANIES | | | 4,339 | | | | 5,172 | |
| | | | | | |
NET INCOME | | $ | 13,868 | | | $ | 18,035 | |
| | | | | | |
| | | | | | | | |
NET INCOME PER COMMON SHARE: | | | | | | | | |
Basic | | $ | 0.37 | | | $ | 0.49 | |
| | | | | | |
Diluted | | $ | 0.36 | | | $ | 0.47 | |
| | | | | | |
| | | | | | | | |
OTHER COMPREHENSIVE LOSS: UNREALIZED MARK TO MARKET LOSS FROM CASH FLOW HEDGING ACTIVITIES, NET OF TAX | | | — | | | | (6,048 | ) |
| | | | | | |
COMPREHENSIVE INCOME | | $ | 13,868 | | | $ | 11,987 | |
| | | | | | |
See accompanying notes to consolidated financial statements.
4
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
------------------------------
2005 2004
------------- -------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 32,186 $ 13,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization.......................... 21,914 16,359
Amortization of financing costs................................... -- 152
Gain on disposition of assets..................................... -- (578)
Deferred compensation expense..................................... (515) 261
Non-cash compensation-related charges............................. 1,826 263
Minority interest in consolidated subsidiary companies............ 9,574 5,304
Changes in operating assets and liabilities:
Accounts and notes receivable................................ (11,017) (7,642)
Prepaid expenses and other................................... (504) (579)
Commodity hedging contract................................... 7,412 --
Accounts payable............................................. (4,172) (3,537)
Accounts payable, related party.............................. (1,952) 252
Accrued expenses............................................. (7,821) 2,133
Asset retirement liability................................... 50 (709)
Income taxes payable......................................... (4,056) 3,480
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................ 42,925 28,914
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of long-lived assets........................... -- 578
Additions of property and equipment................................... (13,909) (9,394)
Investment costs...................................................... 149 (887)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES........................ (13,760) (9,703)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock........................... 302 2,303
Payments of notes payable............................................. (4,475) (3,183)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES........................ (4,173) (880)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 24,992 18,331
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................... 84,600 138,660
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 109,592 $ 156,991
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest expense...................... $ 446 $ 4,771
============= =============
Cash paid during the period for income taxes.......................... $ 2,782 $ 1,674
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 2005, Peter Hill, our Chief Executive
Officer, elected to pay withholding tax on a 2002 restricted stock grant on a
cashless basis. This resulted in 5,497 shares being held as treasury stock at
cost.
| | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
Net Income | | $ | 13,868 | | | $ | 18,035 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depletion, depreciation and amortization | | | 10,306 | | | | 11,669 | |
Deferred compensation expense | | | — | | | | (448 | ) |
Non-cash compensation-related charges | | | 1,048 | | | | 856 | |
Minority interest in consolidated subsidiary companies | | | 4,339 | | | | 5,172 | |
Changes in Operating Assets and Liabilities: | | | | | | | | |
Accounts and notes receivable | | | 2,322 | | | | (5,014 | ) |
Prepaid expenses and other | | | 336 | | | | (834 | ) |
Commodity hedging contract | | | — | | | | 3,686 | |
Accounts payable | | | 3,389 | | | | (3,703 | ) |
Accounts payable, related party | | | 94 | | | | (1,952 | ) |
Accrued expenses | | | (5,540 | ) | | | (7,969 | ) |
Deferred revenue | | | 2,248 | | | | — | |
Asset retirement liability | | | 24 | | | | 54 | |
Income taxes payable | | | (5,327 | ) | | | 7,573 | |
| | | | | | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | | | 27,107 | | | | 27,125 | |
| | | | | | |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Additions of property and equipment | | | (1,458 | ) | | | (6,515 | ) |
Investment costs | | | (95 | ) | | | (1,104 | ) |
| | | | | | |
NET CASH USED IN INVESTING ACTIVITIES | | | (1,553 | ) | | | (7,619 | ) |
| | | | | | |
|
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Net proceeds from issuances of common stock | | | 15 | | | | 358 | |
Payments of notes payable | | | (2,884 | ) | | | (1,291 | ) |
| | | | | | |
NET CASH USED IN FINANCING ACTIVITIES | | | (2,869 | ) | | | (933 | ) |
| | | | | | |
| | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 22,685 | | | | 18,573 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 163,019 | | | | 84,600 | |
| | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 185,704 | | | $ | 103,173 | |
| | | | | | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURES OR CASH FLOW INFORMATION | | | | | | | | |
Cash paid during the period for interest | | $ | 119 | | | $ | 239 | |
| | | | | | |
Cash paid during the period for income taxes | | $ | 247 | | | $ | 1,297 | |
| | | | | | |
See accompanying notes to consolidated financial statements.
5
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,
First Quarter 2006 and 2005 AND 2004 (UNAUDITED)
NOTE(unaudited)
Note 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM REPORTING— Organization and Summary of Significant Accounting Policies
Interim Reporting
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals only) necessary to present fairly the financial position as of June 30, 2005,March 31, 2006, and the results of operations and cash flows for the threefirst quarter 2006 and six month periods
ended June 30, 2005 and 2004.2005. The unaudited consolidated financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. Reference should be made to our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended 2004,2005, which include certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. The results of operations for anythe interim period are subject to the receipt of the first quarter 2006 payment under the Operating Service Agreement (“OSA”) which is due by the end of May. In addition, the results for this quarter are not necessarily indicative of the results of operations for the entire year.
ORGANIZATIONyear due to the uncertainty of the situation in Venezuela, including the possible conversion of the OSA to a mixed company (the “Mixed Company”) as described in Note 6.
Organization
Harvest Natural Resources, Inc. is engaged in the exploration, development, production and management of oil and natural gas properties. We conduct our business principally in Venezuela through our 80 percent owned subsidiary Harvest-Vinccler, C.A. (“Harvest Vinccler C.A.
("Harvest Vinccler"Vinccler”).
PRINCIPLES OF CONSOLIDATION
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated.
REPORTING AND FUNCTIONAL CURRENCY
Reporting and Functional Currency
The U.S. Dollar is our functional and reporting currency.
REVENUE RECOGNITION
Revenue Recognition
Oil and natural gas revenue is accrued monthly based on production and delivery. Each quarter, Harvest Vinccler invoices PDVSA Petroleo S.A., an affiliate of Petroleos de Venezuela S.A. ("PDVSA"(“PDVSA”), based on barrels of oil accepted by PDVSA during the quarter, using quarterly adjusted U.S. Dollar contract service fees per barrel. The Operating Service Agreement ("OSA")related OSA with PDVSA provides for Harvest Vinccler to receive an operating fee for each barrel of crude oil delivered and the right to receive a capital recovery fee for certain of its capital expenditures, provided that such operating fee and capital recovery fee cannot exceed the maximum total fee per barrel set forth in the agreement. In August 2005, Harvest Vinccler and PDVSA executed a Transitory Agreement (the “Transitory Agreement”) which provides that the maximum total fee per barrel paid under the OSA could not exceed 66.67 percent of the total value of the crude oil as determined under an Annex to the Transitory Agreement. This limitation was applied retroactively to January 1, 2005 and approximates 47 percent of West Texas Intermediate (“WTI”). The operating fee is subject to quarterly adjustments to reflect changes in the special energy index of the U.S. Consumer Price Index. The
maximum total fee is subject to quarterly adjustments to reflect changes in the
average of certain world crude oil prices. Each quarter, Harvest Vinccler also invoices PDVSA for natural gas sales based on a fixed price of $1.03 per Mcf. In addition, Harvest Vinccler agreed to sell to PDVSA 4.5 million barrels of oil stipulated as additional volumes resulting from the natural gas production ("(“Incremental Crude Oil"Oil”). A portion of the Incremental Crude Oil is invoiced to PDVSA quarterly at a fixed price of $7.00 per Bbl. The invoice isinvoices are prepared and submitted to PDVSA by the end of the first month following the end of each calendar quarter, and payment is due from PDVSA by the end of the second month following the end of each calendar quarter. Harvest Vinccler invoiced PDVSA for the first and second quarter of 2005 for the2006 delivery of its crude oil and natural gas in accordance with the terms described above and recognized itsTransitory Agreement. However, Harvest Vinccler
6
recorded deferred revenue
in a consistent manner with prior periods. For the first quarter
deliveries, PDVSA remitted the amount due less $9.8 million. PDVSA did not
provide an explanation to Harvest Vinccler for the underpayment, but we believe,
based on public commentary, that it is attributable to a unilateral imposition
of
a limit on service fees paid to all companies with operating service
agreements to two-thirds of the
6
market value of the crude delivered to PDVSA. This limit was announced by The
Ministry of Energy and Petroleum ("MEP") in April 2005. Regardless of the
appropriateness or legality of such a limitation, we also believe that PDVSA has
not properly calculated the unilateral limit it is placing on Harvest Vinccler's
fees because it is understating the actual market value of the crude oil. We
have notified PDVSA of this matter. Harvest Vinccler estimates that the second
quarter would be impacted by $9.0 million iffor 2005 deliveries pending clarification on the same limit were to be applied.
We believe at this time we will collect the entire amountcalculation of fees duecrude prices under the contractTransitory Agreement. Cash and accordingly, have not recorded any allowance for either the
collectibilityCash Equivalents
Cash equivalents include money market funds and short term certificates of the receivable or adjustment to reduce reported revenues.
CASH AND CASH EQUIVALENTSdeposit with original maturity dates of less than three months. At June 30, 2005,March 31, 2006, Harvest Vinccler had 58.017.0 billion Venezuela Bolivars ("Bolivars"(“Bolivars”) which are shown in the June 30, 2005March 31, 2006 financial statements as $27.2$7.9 million in cash and cash equivalents. Harvest Vinccler has a limited need for
Bolivars in the conduct of its business but expects to be able to utilize the Bolivars received to date. However, to the extent that Harvest Vinccler receives additional Bolivars in excess of its internal needs, itthere may not be possible, due
to currency control regulations,limited means to convert any future excess Bolivars into U.S. Dollars or other foreign currencies.
MINORITY INTERESTScurrencies, and there would be a loss on any conversion where the exchange rate is above the official rate of 2,150 Bolivars to the U.S. Dollar.
Minority Interests
We record a minority interest attributable to the minority shareholder of our Venezuela subsidiaries. The minority interest in net income and losses is subtracted or added to arrive at consolidated net income.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS 130") requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. We reflected
unrealized mark-to-market losses from cash flow hedging activities as other
comprehensive loss during the second quarter 2005
Derivatives and in accordance with SFAS
130, have provided a separate line in the unaudited consolidated statement of
operations to reflect such loss.
DERIVATIVES AND HEDGINGHedging
Statement of Financial Accounting Standards No. 133 ("(“SFAS 133"133”), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. All derivatives are recorded on the balance sheet at fair value. To the extent that the hedge is determined to be effective, changes in the fair value of derivatives for qualifying cash flow hedges are recorded each period in other comprehensive income. Our derivatives have been designated as cash flow hedge transactions in which we hedge the variability of cash flows related to future oil prices for some or all of our forecasted oil production. The changes in the fair value of these derivative instruments have been reported in other comprehensive income because the highly effective test was met, and have been reclassified to earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item.
In August 2004, Harvest Vinccler hedged a portion of its oil sales for calendar year 2005 by purchasing a West Texas Intermediate ("WTI")WTI crude oil put for 5,000 barrels of oil per day. The put cost was $4.24 per barrel, or $7.7 million, and has a strike price of $40.00 per barrel. In September 2004, Harvest Vinccler hedged an additional portion of its calendar year 2005 oil sales by purchasing a second WTI crude oil put for 5,000 barrels of oil per day. The put cost was $3.95 per barrel, or $7.2 million, and has a strike price of $44.40 per barrel. Due to the amended pricing structure as revised by the Transitory Agreement for our Venezuelan oil, these two puts have the economic effect of hedging approximately 20,80021,500 barrels of oil per day for an average of $18.29$17.72 per barrel. These puts qualify under the highly effective test and the mark-to-market loss at June 30,March 31, 2005 is included in other comprehensive loss.
Accumulated Other Comprehensive Loss consisted of
$7.2$9.9 million
and $0.7
million ($
4.8 million and $0.56.5 million net of tax) at
June 30,March 31, 2005,
and December
31, 2004, respectively, of unrealized losses on our crude oil puts. Oil sales for the
three and six month periodsquarter ended 2005 included
losses of $3.7 million
and $7.4 million, respectively,loss in
settlementamortization of the
hedges.put option cost. Deferred net losses recorded in Accumulated Other Comprehensive Loss at
June 30,March 31, 2005
and December
31, 2004, is expected to bewas reclassified to earnings during 2005.
7
We continue to assess production levels and commodity prices in
conjunction with our capital resources and liquidity requirements.
ASSET RETIREMENT LIABILITYhave not entered into any hedging activities for 2006.
Asset Retirement Liability
Effective January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143,
"Accounting“Accounting for Asset Retirement
Obligations" ("Obligations” (“SFAS
143"143”). SFAS 143 requires entities to record the fair value of a liability for a legal obligation to retire an asset in the period in which the liability is incurred if a reasonable estimate of fair value can be made. No wells were abandoned in the
six monthsquarter ended
June 30, 2005March 31, 2006, and
nineno wells were abandoned in
the year ended December 31,
2004.2005. Changes in asset retirement obligations during the
six months
ended June 30, 2005first quarter of 2006 and
the year ended December 31,
20042005 were as follows:
June 30, December, 31
2005 2004
----------- ------------
Asset retirement obligations beginning of period $ 1,941 $ 1,459
Liabilities recorded during the period -- 1,454
Liabilities settled during the period -- (540)
Revisions in estimated cash flows (4) (470)
Accretion expense 54 38
----------- ------------
Asset retirement obligations end of period $ 1,991 $ 1,941
=========== ============
EARNINGS PER SHARE7
| | | | | | | | |
| | March 31, | | | December 31, | |
| | 2006 | | | 2005 | |
Asset retirement obligations beginning of period | | $ | 2,129 | | | $ | 1,941 | |
Liabilities recorded during the period | | | — | | | | 96 | |
Liabilities settled during the period | | | — | | | | — | |
Revisions in estimated cash flows | | | (7 | ) | | | (17 | ) |
Accretion expense | | | 31 | | | | 109 | |
| | | | | | |
Asset retirement obligations end of period | | $ | 2,153 | | | $ | 2,129 | |
| | | | | | |
Earnings Per Share
Basic earnings per common share ("EPS"(“EPS”) are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 36.937.1 million and 36.8 million for the threefirst quarter 2006 and six
months ended 2005, respectively, and 35.9 million for the three and six months
ended 2004, respectively. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 38.5 million for the three and six months ended 2005, respectively, and 38.2
million and 38.038.6 million for the threefirst quarter 2006 and six months ended 2004,2005, respectively.
An aggregate of 2.02.1 million and 1.81.0 million options and warrants to
purchase common stock were excluded from the earnings per share calculations because their exercise price exceeded the average price for the threefirst quarter 2006 and six
months ended 2005, respectively. An aggregate of 1.0 million options and
warrants to purchase common stock were excluded from the earnings per share
calculations because their exercise price exceeded the average price for the
three and six months ended 2004.
STOCK-BASED COMPENSATION
Stock-Based Compensation
At June 30, 2005,March 31, 2006, we had several stock-based employee compensation plans, which are more fully described in Note 5 to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended 2004.2005. Prior to 2003, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board ("APB"(“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS Statement
of Financial Accounting Standards No. 123 ("(“SFAS 123"123”), Accounting for Stock-Based Compensation, as amended by Statement of Financial Accountingaccounting Standards No. 148 ("(“SFAS 148"), Accounting for Stock-Based Compensation -
Transition and Disclosure and Statement of Financial Accounting Standard 123
(revised 2004) Share-Based Payment ("SFAS 123R"148”), prospectively to all employee awards granted, modified, or settled after January 1, 2003. Effective January 1, 2005, we adopted Statement of Financial Accounting Standard 123 (revised 2004) Share-Based Payment (“SFAS 123R”) to all employee awards granted, modified, or settled after October 1, 2005. Awards under our plans vest in periodic installments beginningafter one year afterof their grant and expire ten years from the grant date. Therefore, the cost related to stock-based employee compensation included in the determination of net income in the threefirst quarter 2006 and six months ended 2005 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123R.123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.
8
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(in thousands, except per share data)
Net income, as reported $ 14,151 $ 6,248 $ 32,186 $ 13,755
Add: Stock based employee compensation
cost, net of tax 759 167 1,158 263
Less: Total stock-based employee
compensation cost determined
under fair value based method, net of tax (691) (317) (1,217) (568)
----------- ----------- ----------- -----------
Net income - proforma $ 14,219 $ 6,098 $ 32,127 $ 13,450
=========== =========== =========== ===========
Earnings per share:
Basic - as reported $ 0.38 $ 0.17 $ 0.87 $ 0.38
=========== =========== =========== ===========
Basic - proforma $ 0.39 $ 0.17 $ 0.87 $ 0.38
=========== =========== =========== ===========
Diluted - as reported $ 0.37 $ 0.16 $ 0.84 $ 0.36
=========== =========== =========== ===========
Diluted - proforma $ 0.37 $ 0.16 $ 0.83 $ 0.35
=========== =========== =========== ===========
| | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Net income, as reported | | $ | 13,868 | | | $ | 18,035 | |
Add: Stock-based employee compensation cost, net of tax | | | 869 | | | | 399 | |
Less: Total stock-based employee compensation cost determined under fair value based method, net of tax | | | (883 | ) | | | (526 | ) |
| | | | | | |
Net income – proforma | | $ | 13,854 | | | $ | 17,908 | |
| | | | | | |
| | | | | | | | |
Net income per common share: | | | | | | | | |
Basic — as reported | | $ | 0.37 | | | $ | 0.49 | |
| | | | | | |
Basic — proforma | | $ | 0.37 | | | $ | 0.49 | |
| | | | | | |
| | | | | | | | |
Diluted — as reported | | $ | 0.36 | | | $ | 0.47 | |
| | | | | | |
Diluted — proforma | | $ | 0.36 | | | $ | 0.46 | |
| | | | | | |
Stock options of 0.1 million and 0.4 million were exercised in the six
monthsquarter ended 2005 and 2004 with cash proceeds of $0.4 million and $2.3
million, respectively.
NEW ACCOUNTING PRONOUNCEMENTSmillion.
New Accounting Pronouncements
In June 2005,February 2006, the Financial Accounting Standards Board ("FASB'(“FASB”) issued Statement of Financial Accounting Standard 154 -155 – Accounting Changes and Error
Corrections ("for Certain Hybrid Financial Instruments (“SFAS 154"155”), which changeseliminates the requirementsexemption from applying SFAS 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the accounting for
and reportingform of the instruments. SFAS 155 also allows the election of fair value measurement at acquisition, at issuance, or when a change in accounting principle. It also appliespreviously recognized financial instrument is subject to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. Applicationa remeasurement event. Adoption is effective for accounting changes and correctionall financial instruments acquired or issued after the beginning of errors made inthe first fiscal years
beginningyear that begins after DecemberSeptember 15, 2005.2006. Early adoption is permitted. The adoption of SFAS 154155 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain items in 2004
In March 2006, the FASB issued Statement of Financial Accounting Standard 156 – Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Adoption is required as of the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156 is not expected to have been reclassified to conform to the 2005a material effect on our consolidated financial statement presentation.
NOTEposition, results of operations or cash flows.
Note 2 - LONG-TERM DEBT
LONG-TERM DEBT— Long-Term Debt
Long-Term Debt
Long-term debt consists of the following:
JUNE 30, DECEMBER 31,
2005 2004
------------- -------------
(in thousands)
Note payable with interest at 8.1%................................ $ 900 $ 1,500
Note payable with interest at 9.1%................................ 6,458 10,333
------------- -------------
7,358 11,833
Less current portion.............................................. 7,358 11,833
------------- -------------
$ -- $ --
============= =============
| | | | | | | | |
| | March 31, | | | December 31, | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Note payable with interest at 9.0% | | $ | — | | | $ | 300 | |
Note payable with interest at 10.1% | | | 2,583 | | | | 5,167 | |
| | | | | | |
| | | 2,583 | | | | 5,467 | |
|
Less current portion | | | 2,583 | | | | 5,467 | |
| | | | | | |
| | $ | — | | | $ | — | |
| | | | | | |
9
Our 9.375 percent senior unsecured notes due November 1, 2007 ("2007
Notes")Notes were redeemed on November 1, 2004. We2004, and we were released from all obligations
related to the 2007 Notes.obligations. The redemption of the 2007 Notes triggered an obligation under the terms of Harvest Vinccler'sVinccler’s U.S. Dollar loans from a Venezuelan commercial bank to renegotiate the terms of those loans or, if agreement on renegotiated terms could not be reached within 30 days after November 1, 2004, the loans could be declared due and payable. As a result, the entire amount has beenwas reclassified from long term to current debt. It is possible that agreement will not be reached in negotiated terms and Harvest Vinccler will be required to repayprepay the remaining March 31, 2006 balance of $7.4$2.6 million.
We have classified all
All of our outstanding debt asis current at June 30,
2005.
NOTEMarch 31, 2006.
Note 3 - COMMITMENTS AND CONTINGENCIES
— Commitments and Contingencies
Excel Enterprises L.L.C. vs. Benton Oil & Gas Company, now known as Harvest Natural Resources, Inc., Chemex, Inc., Benton-Vinccler,Harvest Vinccler, C.A., Gale Campbell and Sheila Campbell in the District Court for Harris County, Texas.Texas. This suit was brought in May 2003 by Excel and alleges,alleging, among other things, breach of a consulting agreement between Excel and us, misappropriation of proprietary information and trade secrets, and fraud. Excel seeks actual and exemplary damages, injunctive relief and attorneys'attorneys’ fees. TheIn October 2003, the Court has abated the suit pending final judgment of a case pending in Louisiana to which we are not a party. We dispute Excel'sExcel’s claims and plan to vigorously defend against them. We are unable to estimate the amount or range of any possible loss.
Uracoa Municipality Tax Assessments.Assessments. In July 2004, Harvest Vinccler received three tax assessments from a tax inspector for the Uracoa municipality in which part of the South Monagas Unit is located. A protest to the assessments was filed with the municipality, and in September 2004 the tax inspector responded in part by affirming one of the assessments and issuing a payment order. Harvest Vinccler has filed a motion with the tax court in Barcelona, Venezuela, seeking to enjoin the payment order and dismiss the assessment. We dispute all of the tax assessments and believe we have a substantial basis for our positions. We are unable to estimate the amount or range of any possible loss.
Libertador Municipality Tax Assessment. In April 2005, Harvest Vinccler received a tax assessment from a tax inspector for the Libertador municipality in which part of the South Monagas Unit is located. Harvest Vinccler has submitted a protest to the assessment at the Mayor'sMayor’s Office, and if no favorable resolution is obtained, it will file a motion with the tax court seeking to enjoin the payment order and dismiss the assessment. We dispute the allegations set forth in the assessment and believe we have a substantial basis for our position. We are unable to estimate the amount or range of any possible loss.
The SENIAT Tax Assessment.Assessment. On July 22, 2005, the SENIAT, the Venezuelan income tax authority, issued a preliminary tax assessment to Harvest Vinccler of 184 billion Venezuelan Bolivars related to fiscal years 2001 through 2004. At the official exchange rate of 2,150 Bolivars per U.S. Dollar, the dollar equivalent of the preliminary tax assessment is approximately $85 million. In addition, the SENIAT imposed penalties equal to 10 percent of the preliminary tax assessment claim for a total claim of 202 billion Bolivars, or approximately $94 million. We areUpon review of the preliminary tax assessment, we determined not to contest two elements of the claim and made payments totaling 11.3 billion Bolivars or $5.3 million in August and September, 2005. In September and October 2005, we filed a response and evidentiary support with the processSENIAT contesting all other claims. While the SENIAT has not notified Harvest Vinccler of reviewingany tax assessment for the 2005 tax year, it will likely do so on the common elements of the tax assessment, butincluding the applicable tax rate. We believe Harvest Vinccler has met its tax obligations in all material respects. The SENIAT and Harvest Vinccler have formed a working group to review the tax assessment for possible resolution of these claims. We intend to take all measures necessary to protect our rights, and will vigorously challenge all elements of the tax assessment that are not supported by Venezuelan law.
International Arbitration. In July 2005, asArbitration. As a result of the actions taken by PDVSA, MEPthe Ministry of Energy and Petroleum (“MEP”) and the SENIAT, in July 2005, we delivered formal notices to Venezuelan government officials of an investment dispute under Venezuelan law and bilateral investment treaties entered into by the government of Venezuela. The bilateral investment treaties and Venezuelan law provide for international arbitration of investment disputes conducted underthrough the auspicesInternational Centre for Settlement of Investment Disputes of the World Bank.
10
We are a defendant in or otherwise involved in other litigation incidental to our business. In the opinion of management, there is no such litigation which will have a material adverse impact on our financial condition, results of operations and cash flows.
10
NOTENote 4 - TAXES
TAXES OTHER THAN ON INCOME— Taxes
Taxes Other Than on Income
Harvest Vinccler pays municipal taxes on operating fee revenues it receives
under the OSA for
productiondeliveries from the South Monagas Unit. The components of taxes other than on income were (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Venezuelan Municipal Taxes $ 1,405 $ 869 $ 2,904 $ 1,757
Franchise Taxes (130) 120 (82) 249
Payroll and Other Taxes 57 129 231 306
----------- ----------- ----------- -----------
$ 1,332 $ 1,118 $ 3,053 $ 2,312
=========== =========== =========== ===========
NOTE | | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Venezuelan Municipal Taxes | | $ | 2,143 | | | $ | 1,499 | |
Franchise Taxes | | | 38 | | | | 48 | |
Payroll and Other Taxes | | | 218 | | | | 174 | |
| | | | | | |
| | $ | 2,399 | | | $ | 1,721 | |
| | | | | | |
Note 5 - OPERATING SEGMENTS— Operating Segments
We regularly allocate resources to and assess the performance of our operations by segments that are organized by unique geographic and operating characteristics. The segments are organized in order to manage regional business, currency and tax related risks and opportunities.
RevenuesRevenue from Venezuela is derived primarily from the
Venezuela operating segment are derived from the productiondelivery and sale of oil and natural gas. Operations included under the heading
"Russia"“Russia” include project evaluation costs and other costs to maintain an office in Russia. Operations included under the heading
"United“United States and
other"Other” include corporate management, cash management and financing activities performed in the United States and other countries which do not meet the requirements for separate disclosure. All intersegment revenues,
other income and equity earnings, expenses and receivables are eliminated in order to reconcile to consolidated totals. Corporate general and administrative and interest expenses are included in the United States and
otherOther segment and are not allocated to other operating segments:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
SEGMENT REVENUES
Oil and gas sales:
Venezuela oil and gas sales $ 56,442 $ 41,397 $ 117,428 $ 80,194
----------- ----------- ----------- -----------
SEGMENT INCOME (LOSS)
Venezuela $ 17,607 $ 10,950 $ 38,292 $ 21,213
Russia (731) (654) (1,493) (1,191)
United States and other (2,725) (4,048) (4,613) (6,267)
----------- ----------- ----------- -----------
Net income $ 14,151 $ 6,248 $ 32,186 $ 13,755
=========== =========== =========== ===========
JUNE 30, DECEMBER 31,
2005 2004
------------- -------------
OPERATING SEGMENT ASSETS
Venezuela............................................................. $ 333,381 $ 309,794
Russia ............................................................. 407 385
United States and other............................................... 104,106 108,408
------------- -------------
437,894 418,587
Intersegment eliminations............................................. (53,739) (51,101)
------------- -------------
$ 384,155 $ 367,486
============= =============
| | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Operating Segment Revenues | | | | | | | | |
Oil and gas sales: | | | | | | | | |
Venezuela | | $ | 59,172 | | | $ | 60,986 | |
| | | | | | |
Total oil and gas sales | | | 59,172 | | | | 60,986 | |
| | | | | | |
| | | | | | | | |
Operating Segment Income (Loss) | | | | | | | | |
Venezuela | | | 17,356 | | | | 20,685 | |
Russia | | | (557 | ) | | | (762 | ) |
United States and other | | | (2,931 | ) | | | (1,888 | ) |
| | | | | | |
Net income | | $ | 13,868 | | | $ | 18,035 | |
| | | | | | |
11
NOTE
| | | | | | | | |
| | March 31, | | | December 31, | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Operating Segment Assets | | | | | | | | |
Venezuela | | $ | 262,985 | | | $ | 258,268 | |
Russia | | | 279 | | | | 317 | |
United States and other | | | 158,301 | | | | 161,011 | |
| | | | | | |
| | | 421,565 | | | | 419,596 | |
Intersegment eliminations | | | (9,493 | ) | | | (18,798 | ) |
| | | | | | |
| | $ | 412,072 | | | $ | 400,798 | |
| | | | | | |
Note 6 - VENEZUELA— Venezuela Operations
Under the terms of ourthe OSA with PDVSA related to the reactivation and further development of the Uracoa, Tucupita and Bombal fields in Venezuela, a service fee payment to Harvest Vinccler is due by the end of the second month after the end of each calendar quarter. PDVSA didIn August 2005, Harvest Vinccler entered into the Transitory Agreement with PDVSA. The Transitory Agreement provides that effective January 1, 2005, the total amounts paid under the OSA could not make its first quarter
payment for $64.8 million by the May 31, 2005 due date. By letter dated June 23,
2005, PDVSA stated that 50exceed 66.67 percent of the amounts due would be paidtotal value of the crude oil as determined under an Annex to the Transitory Agreement. Under the fee limit in Bolivars,the Transitory Agreement, the new fee has historically averaged approximately 47 percent of the price of WTI. Quarterly payments for oil and that this amount would be subject to further adjustment based upon the
amount of paymentsnatural gas revenues have been received 75 percent in foreign currency that Harvest Vinccler is required to
make. The letter added that the OSA would be amended to fix the future
percentage of payments that would be madeU.S. Dollars and 25 percent in Bolivars. On June 28, 2005, Harvest
Vinccler receivedThe OSA stipulates payment of 59 billion Bolivars from PDVSA. On June 29, 2005,
Harvest Vinccler received $27.5 million in U.S. Dollars. From our calculations,
assuming (solely for explanatory purposes) that the Bolivar could be used to
purchase United States Dollars at the official exchange rate (approximately
2,150 Bolivars per each U.S. Dollar), the amounts disbursed by PDVSA and
deposited in Harvest Vinccler's accounts are approximately $9.8 million less
than the total amount due. Harvest Vinccler has notified PDVSA in writing that
the underpayment and reported payment in Bolivars is contrary to the terms of
the OSA and demanded full and proper payment. Harvest Vinccler has a limited
need for Bolivars in the conduct of its business but expects to be able to
utilize the Bolivars received to date. However, to the extent that Harvest
Vinccler receives additional Bolivars in excess of its internal needs, it may
not be possible, due to currency control regulations, to convert any future
excess Bolivars into U.S. Dollars or other foreign currencies.
NOTE 7 - RELATED PARTY TRANSACTIONS
Ina currency selected by Harvest Vinccler.
On March
2002, we entered into construction service agreements31, 2006, Harvest Vinccler signed a Memorandum of Understanding with
PDVSA Petroleo, S.A. and Corporación Venezolana
International,del Petroleo S.A.
("Vinsa"(“CVP”)
. Vinsa is an affiliate to convert its OSA to the Mixed Company subject to certain conditions. Upon completion of
Venezolana de
Inversiones y Construcciones Clerico, C.A., which owns 20 percent of Harvest
Vinccler. This agreement was terminated on September 19, 2004. Vinsa provided
$0.2 million and $0.6 million in construction services for our Venezuelan field
operations for the
three and six months ended 2004, respectively.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSconversion, a Harvest Natural Resources, Inc. ("Harvest"affiliate (“Harvest”) will own 40 percent of the shares of the Mixed Company (32 percent net to Harvest) and CVP will own the remaining 60 percent. Conversion of the OSA to the Mixed Company is subject to 1) completion of definitive agreements, 2) finalization of agreement on additional consideration, 3) approval by the board of directors of the entities which control Harvest Vinccler, 4) approval by the shareholders of Harvest and 5) approval by the Venezuelan MEP and the Venezuelan National Assembly. Upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006. The impact, timing and likelihood of the conversion to the Mixed Company cannot be fully ascertained at this time. The 40 percent ownership in the Mixed Company will likely be accounted for under the equity method of accounting with a minority interest to reflect our net 32 percent interest. We will no longer be allowed to consolidate our Venezuelan interest as of April 1, 2006.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harvest Natural Resources, Inc. (“Harvest” or the "Company"“Company”) cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. When used in this report, the words "budget"“budget”, "guidance"“guidance”, "forecast"“forecast”, "anticipate"“anticipate”, "expect"“expect”, "believes"“believes”, "goals"“goals”, "projects"“projects”, "plans"“plans”, "anticipates"“anticipates”, "estimates"“estimates”, "should"“should”, "could"“could”, "assume"“assume” and similar expressions are intended to identify forward-looking statements. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, we caution you that important factors could cause actual results to differ materially from those in the forward-looking statements. Such factors include our concentration of operations in Venezuela, the political and economic risks associated with international operations (particularly those in Venezuela), the anticipated future development costs for our undeveloped proved
reserves, successful conversion of Venezuelan assets to the Mixed Company and relationship with a majority owner, the risk that actual results may vary considerably from reserve estimates, the dependence upon the abilities and continued participation of certain of our key employees, the risks normally incident to the operation and development of oil and natural gas properties, the permitting and drilling of oil and natural gas wells, the availability of materials and supplies necessary to projects and operations, the price for oil and natural gas and related financial derivatives, changes in interest rates, basis risk and counterparty credit risk in executing commodity price risk management activities, the Company'sCompany’s ability to acquire oil and natural gas properties that meet its objectives, changes in operating costs, overall economic conditions, political stability,instability, civil unrest, acts of terrorism, currency and exchange risks, currency controls, changes in existing or potential tariffs, duties or quotas, changes in taxes, changes in governmental policy, availability of sufficient financing, changes in weather conditions, and ability to hire, retain and train management and personnel. A discussion of these factors is included in our Annual Report on Form 10-K for the year ended 2004,2005, which includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report.
VENEZUELA
Venezuela
In our Annual Report on Form 10-K for the year ended 2004, and our
Quarterly Report on Form 10-Q for the period ended March 31, 2005, we described the events in Venezuela affectingthat have and may continue to adversely affect our oil and gas production and profitability. In
January 2005, we announced that our 80 percent owned Venezuelan subsidiary,
Harvest Vinccler, C.A. ("Harvest Vinccler"), was suspending its drilling
program. We have stated thatoperations. These events were part of a continuation inseries of actions initiated by the delaygovernment of our drilling program
or a curtailment of our oil and gas deliveries could have a material adverse
effect on our financial condition, results of operations and cash flows. We also
reported that the Ministry of Energy and Petroleum ("MEP") stated that Petroleos
de Venezuela S.A. ("PDVSA") wanted to renegotiate the terms of the active
operating service agreements in Venezuela, including the South Monagas Unit
Operating Service Agreement ("OSA") held by Harvest Vinccler. In April 2005, MEP
declared that the operating service agreements lack legal validity and that
within the next six months all such agreements are to be converted into mixed
companies under the 2001 Venezuelan Organic Hydrocarbon Law ("OHL") in which the
State will have a majority ownership. MEP also imposed a cap on the service fees
paid under the operating services agreements equal to two-thirds of the market
value of the crude we deliver to PDVSA. At the time of this announcement, and
based upon an indirect confirmation by government officials, we did not think
the fee cap would have a significant impact on us (but see below). We also
reported that the Venezuelan income tax authority, the SENIAT, announced that
the income tax rate paid bycompel companies with operating service agreements would be
increased from 34 percent to 50 percent and thatconvert those agreements into new companies in which Petroleos de Venezuela, S.A. (“PDVSA”) has a majority interest. In our Annual Report on Form 10-K, we also described the SENIAT had started a tax
audit of Harvest Vinccler forrisk factors created by the tax years beginning with 2001. situation in Venezuela, including:
| • | | Our interests in Venezuela may be unlawfully expropriated by the Venezuelan government. |
|
| • | | Our only source of production may be reduced further by actions of the Venezuelan government. |
|
| • | | Future payments to Harvest Vinccler may be adversely affected by actions of the Venezuelan government. |
|
| • | | Actions by the SENIAT to collect claimed back taxes could threaten the viability of our Venezuelan operations. |
|
| • | | The actions of the Venezuelan government may cause us to file for international arbitration. |
|
| • | | Harvest Vinccler may not be able to reach agreement on the terms of the Mixed Company and there is a risk any agreement will not receive the necessary approvals. |
SeeItem 1-1 Business, Item 1A Risk FactorsandItem 7 - Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operation Operationsin our Annual Report on Form 10-K for the year ended 2004 and Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operation, in our Form 10-Q Quarterly Report for the
period ended March 31, 2005 for a complete description of these matters.
Following the filing of our Quarterly Report on Form 10-Q for the quarter
ended
On March 31, 2005,2006, Harvest Vinccler signed a Memorandum of Understanding (“MOU”) with PDVSA Petroleo, S.A. and Corporación Venezolana del Petroleo S.A. (“CVP”) to convert its Operating Service Agreement (“OSA”) to a mixed company (the “Mixed Company”) subject to certain conditions. Upon completion of the SENIAT announcedconversion, a Harvest Natural Resources, Inc. affiliate (“Harvest”) will own 40 percent of the tax increase would be made
retroactiveshares of the Mixed
13
Company (32 percent net to 2001 at a 67 percent rateHarvest) and at a rateCVP will own the remaining 60 percent. Conversion of 50 percent for all
years after 2001. The SENIAT has completed its auditthe OSA to the Mixed Company is subject to 1) completion of definitive agreements, 2) finalization of agreement on additional consideration, 3) approval by the board of directors of the entities which control Harvest Vinccler, 4) approval by the shareholders of Harvest Vinccler, and on
July 22, 2005,5) approval by the SENIAT issued a preliminary tax assessmentVenezuelan Ministry of 184 billionEnergy and Petroleum (“MEP”) and the Venezuelan Bolivars ("Bolivars") related to fiscal years 2001 through 2004. At
the official exchange rate of 2,150 Bolivars per U.S. Dollar as of March 3,
2005, the dollar equivalentNational Assembly. Upon completion of the preliminaryconversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006.
Under the MOU, the terms and conditions of the migration to the Mixed Company shall be in substantial conformity with the form of Conversion Contract attached to the MOU. Significant elements of the draft Conversion Contract include:
| • | | Exploration and production activities may be conducted for a maximum period of 20 years. |
|
| • | | Operations will be conducted in accordance with a business plan attached to the contract. In addition, the Mixed Company will adopt policies and procedures governing its operations. |
|
| • | | The OSA will be cancelled upon completion of the conversion process. |
|
| • | | Harvest Vinccler will be paid for the first quarter 2006 deliveries under the terms of the OSA as amended by the Transitory Agreement. |
|
| • | | Except under very limited circumstances, shares held in the Mixed Company may not be directly or indirectly transferred without the consent of the MEP and, under certain circumstances, subject to a right of first refusal by CVP. |
|
| • | | Matters requiring shareholder approval may be approved by a simple majority with the exception of certain specified matters which require approval by at least 75 percent of the shares. |
|
| • | | The board of directors of the Mixed Company shall consist of five directors, three of whom are appointed by CVP and two of whom are appointed by Harvest. The board may act by a simple majority of directors. |
|
| • | | Each shareholder has the right to nominate a percentage of management personnel equal to its share ownership. CVP has the right to nominate the General Manager for the Mixed Company and Harvest has the right to nominate the Technical and Operations Manager. |
|
| • | | All crude oil production shall be sold to a PDVSA affiliate under a reference price intended to reflect the export value to the market for the type of crude delivered. Payment is in U.S. Dollars. |
|
| • | | Associated natural gas is sold to PDVSA at a price equivalent to that in the OSA adjusted for royalties. Payment is in Venezuelan Bolivars (“Bolivars”). |
Under current tax
assessment is approximately
$85 million.and royalty legislation, the Mixed Company will pay a 33.3 percent royalty and the income tax rate will be 50 percent. In addition, the
SENIAT imposed penalties equalMixed Company will be subject to
10 percent of
the preliminary tax assessment for a
total claim of 202 billion Bolivars, or
13
approximately $94 million. The 10 percent penalty would be payable if we pay the
preliminary tax assessment. We are in the process of reviewing the assessment,
but believe Harvest Vinccler has met its tax obligations in all material
respects. We intend to take all measures necessary to protect our rights, and
will vigorously challenge all elements of the assessment that are not supported
by Venezuelan law. Harvest Vinccler has the right to challenge the assessment
from the SENIAT by filing an answer. After filing the answer, the SENIAT is
required to issue the final assessment within one year. A final assessment by
the SENIAT may also include additional penalties between 25 percent and 200
percent of the unpaid tax. The average penalty imposed by the SENIAT is 112.5
percent of the unpaid tax unless extenuating or aggravating circumstances apply.
If a final assessment is issued, Harvest Vinccler can file an administrative
appeal with the SENIAT. During the period of review by the SENIAT, any“special advantage” payment obligation is suspended. After exhausting administrative appeals, Harvest
Vinccler may either pay the tax or file a judicial appeal. If a judicial appeal
is filed, the payment obligation is suspended at the discretion of the court.
While there are no set rules on suspending payment, often times it is permitted
only if the taxpayer posts a bond or other security equalcalculated to 210 percent of the
assessment. At the current level of assessment, and considering possible
penalties, a requirement to pay the taxes or post security will have a material
adverse affect on our financial condition, and may exceed our cash balance. In
addition, the implementation of a 50 percent tax rate in the future or other
changes in the interpretation or application of the tax laws, without
compensating values, will have a material adverse effect on our financial
position, results of operations or cash flows.
In June 2005, we announcedassure that PDVSA failed to make payment when due of
an invoice in the amount of $64.8 million for first quarter deliveries. The
payment was due on May 31, 2005. By letter dated June 23, 2005, PDVSA stated
thatVenezuela never receives less than 50 percent of the amounts due would be paid in Bolivars, and that this
amount would be subjectvalue of the hydrocarbons produced. In addition to further adjustment based upon the amount of payments
in foreign currency that Harvest Vinccler, is requiredsixteen other oil companies each signed a memorandum of understanding for the conversion of their operating service agreements to make.mixed companies. The letter addedpercentage ownership in the mixed companies varied among the signing companies, but no company received more than 40 percent. The general guidelines for these mixed companies were approved by the Venezuelan National Assembly on March 30, 2006. The Minister of the MEP had previously stated that after March 31, 2006, all operating services agreements would cease to exist, and on April 1, 2006, the Minister announced that the OSA wouldgovernment had taken control of fields operated by two companies who declined to sign a memorandum of understanding. On April 5, 2006, the National Assembly passed legislation declaring all operating services agreements illegal.
The financial reporting impact of the conversion to the Mixed Company cannot be amended to fixfully ascertained at this time. Upon conversion, the future percentage of payments that
would be made in Bolivars. On June 28, 2005, Harvest Vinccler received payment
of 59 billion Bolivars from PDVSA. On June 29, 2005, Harvest Vinccler received
$27.5 million in U.S. Dollars. Harvest Vinccler has a limited need for Bolivars40 percent ownership in the conductMixed Company will likely be accounted for under the
14
equity method of its business but expectsaccounting with a minority interest to reflect our net 32 percent interest. We will no longer be able to utilizeconsolidate our Venezuelan interest as of April 1, 2006 and will be required to reflect the Bolivars
received to date. However,equity income (or loss) as a separate line in the future Consolidated Statements of Operations.
Execution of the MOU represents an important milestone in the successful conversion of our interests in Venezuela to the extentMixed Company. However, the timing and outcome of the process remains uncertain and significant risks remain. The MOU contains a number of conditions to completing the conversion to the Mixed Company, some of which are largely beyond our control. There are also conditions that depend upon successfully reaching agreement with the government of Venezuela on matters that affect the value to us of the Mixed Company. We remain hopeful of reaching a mutually acceptable agreement with the MEP, the SENIAT and PDVSA on the final terms of the Mixed Company while preserving the value of our investment in Harvest Vinccler receives
additional BolivarsVinccler. However, no assurance can be given that we will satisfy all of the conditions to conversion, and until there is clarity and resolution, uncertainty over the future of our investment in excess of its internal needs, it may not be possible, dueVenezuela will continue to currency control regulations, to convert any future excess Bolivars into U.S.
Dollars or other foreign currencies. Continued substantial payment by PDVSA in
Bolivars or the inability to convert the Bolivars into U.S. dollars could have a
material adverse effect onaffect our financial position,performance. The results offrom operations or cash
flows.
From our calculations, PDVSA's June 2005 paymentfor this interim period are subject to Harvest Vinccler is
approximately $9.8 million less thanbeing paid for the total amount due. We believe this
shortfall is attributable tofirst quarter 2006 deliveries under the unilateral impositionterms of the limit on service
fees previously announced by MEP. However, we also believe that PDVSA has not
properly calculatedOSA. We continue to consider alternatives to unlocking the unilateral limit it is placing on Harvest Vinccler's
fees because it is understating the actual marketunderlying value of the crude oil we
deliver to PDVSA. We have notified PDVSAour Venezuelan assets for our shareholders. This may include a sale or exchange of this matter. A continuation of the
limit on fees as presently calculated by PDVSA would represent a significant
reduction in the fees received by Harvest Vinccler. Harvest Vinccler has
formally notified PDVSA that the underpayment and partial payment in Bolivars is
contrary to the OSA and demanded contract compliance.
Harvest Vinccler began the year with average oil production of 29,000
barrels of oil per day, and is currently averaging about 21,000 per day. This
decline is due to PDVSA's curtailmentall or part of our oil deliveries and the fact that
Harvest Vinccler has not been allowed to carry out its drilling program. Due to
these factors, in June 2005 we announced that we were withdrawing operational
and financial guidance for 2005. Production will continue to decline until
drilling is resumed and PDVSA lifts restrictions on deliveries.
Collectively, the actions by PDVSA, MEP and the SENIAT, both actual and
threatened, are having a material adverse effect on our financial condition,
results of operations and cash flows. The situation in Venezuela is also
increasing the risk that we will be unable to fund and obtain financing for
current operations, as well as growth opportunities. The situation in Venezuela
also may have a material adverse effect on our oil and gas reserves. The income
tax increase and limit on fees paid to Harvest Vinccler could cause some of the
planned future investments to become uneconomic.Venezuelan interests.
In
addition, there is
uncertainty as to our ability to carry out our development program. These
factors create a risk of a downward revision to our proved undeveloped reserves.
As reported in our Annual Report on Form 10-K for the year ended
2004,
approximately 42 percent2005, we discussed the preliminary income tax assessment issued by the SENIAT against Harvest Vinccler for the tax years 2001 through 2004. While the SENIAT has not notified Harvest Vinccler of
oil reserves and 51 percent of gas reserves were
classified as proved undeveloped reserves. The situation in Venezuela also may
have a material adverse effectany tax assessment for the 2005 tax year, it will likely do so on
our proved oil and gas reserves.
14
In July 2005, as a resultthe common elements of the actions taken by PDVSA, MEP andtax assessment, including the SENIAT, we delivered formal notices to Venezuelan government officials of an
investment dispute under Venezuelan law and investment treaties entered into by
the government of Venezuela. The bilateral investment treaties and Venezuelan
law provide for international arbitration of investment disputes conducted
through the International Centre for Settlement of Investment Disputes ("ICSID")
under the auspices of the World Bank. While we remain committed to reaching
mutual agreement with the government of Venezuela to preserve the value of our
investment, it may be necessary to submit the matter to arbitration. If
initiated, an ICSID proceeding may take a number of years to conclude, and we
can provide no assurances as to the outcome.
Without waiver of its rights,tax rate. Harvest Vinccler has exchanged proposals and
continues discussionspaid income taxes for the 2005 tax year at a 34 percent tax rate, whereas in its preliminary tax assessment the SENIAT contends the rate is 50 percent for all years after 2001. At the 50 percent rate, Harvest Vinccler’s tax liability for 2005 would increase by an estimated $17.9 million. While we continue to contest the SENIAT assessment, including the 50 percent tax rate, we are actively working with PDVSA and MEP to establish a path forward for
converting the OSA to a mixed company under the OHL andSENIAT to resolve all claims, including any that would relate to 2005. SeeItem 1A Risk Factorsfor a discussion of the interim
drilling, oilrisks associated with the timing and gas deliveries, pricing and currency issues. It is not
possible to give any assurances asoutcome of completing the conversion to the timing or outcome of our discussions
with PDVSAMixed Company.
Capital Resources and MEP.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity
Debt Reduction.We have quarterly principal and interest obligations of $1.3 million and $0.3 million, respectively, on the Harvest Vinccler variable rate loans.loan. We have no other debt obligations.
Working Capital.The net funds raised and/or used in each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:
SIX MONTHS ENDED JUNE 30,
----------------------------
2005 2004
---------- -----------
(in thousands)
Net cash provided by operating activities $ 42,925 $ 28,914
Net cash used in investing activities (13,760) (9,703)
Net cash used in financing activities (4,173) (880)
---------- -----------
Net increase in cash $ 24,992 $ 18,331
========== ===========
| | | | | | | | |
| | First Quarter | |
| | 2006 | | | 2005 | |
| | (in thousands) | |
Net cash provided by operating activities | | $ | 27,107 | | | $ | 27,125 | |
Net cash used in investing activities | | | (1,553 | ) | | | (7,619 | ) |
Net cash used in financing activities | | | (2,869 | ) | | | (933 | ) |
| | | | | | |
Net increase in cash | | $ | 22,685 | | | $ | 18,573 | |
| | | | | | |
At June 30, 2005,March 31, 2006, we had current assets of $197.0$259.9 million and current liabilities of $60.2$53.8 million, resulting in working capital of $136.8$206.1 million and a current ratio of 3.3:4.8:1. This compares with a working capital of $89.0$178.1 million and a current ratio of 2.1:3.9:1 at December 31, 2004.2005. The increase in working capital of $47.8$28.0 million was primarily due to higher sales prices and volumes in
Venezuela. Accounts receivable includes $9.8 million for first quarter sales not
paid by PDVSA and records second quarter PDVSA accounts receivable in the full
amount due under the OSA.
a minimal capital expenditure program.
Cash Flow from Operating Activities.During the six months endedfirst quarter 2006 and 2005, and
2004, net cash provided by operating activities was approximately $42.9 million
and $28.9 million, respectively. The $14.0 million increase was primarily due to
the increase in oil sales volumes and oil prices.
$27.1 million.
Cash Flow from Investing Activities.During the six months endedfirst quarter 2006 and 2005, and
2004, we had drilling and production-related capital expenditures of approximately $13.9$1.5 million and $9.4$6.5 million, respectively. The increasedecrease in capital
15
expenditures is due to
completionthe continued suspension of
the drilling of a natural gas well
and the gathering system and facilities for the South Monagas Unit carried over
from 2004. Due to PDVSA's actions, no further drilling activity has been carried
out in 2005.
On a year to year basis, the timing and size of capital expenditures for
the South Monagas Unit are largely at our discretion, although recent actions by
PDVSA have greatly limited our ability to make our planned capital expenditures
in 2005 and could also limit us in the future. We suspended our drilling program
in January becauseas a result of
continuing delays inactions taken by the
receipt of permits to drill new
wells.Venezuelan government. We continue to expend funds for
workovers, maintenance, gathering systems and facility upgrades for the existing wells. Our remaining worldwide capital commitments support our search for new acquisitions, are relatively minimal and are substantially at our discretion.
We continue to assess production levels and
commodity prices in conjunction with our capital resources and liquidity
requirements.
15
Cash Flow from Financing Activities.During the six months ended 2005,first quarter 2006, Harvest Vinccler repaid $4.5$2.9 million of its U. S.U.S. Dollar denominated debt (two payments(one payment of $0.3 million and threetwo payments of $1.3 million on the variable rate loans). During the six months ended 2004,first quarter 2005, Harvest Vinccler repaid $3.2$1.3 million of its U.S. dollar debt.
RESULTS OF OPERATIONS
Results of Operations
You should read the following discussion of the results of operations for the threefirst quarter 2006 and six months ended 2005 and 2004 and the financial condition as of June 30, 2005March 31, 2006 and December 31, 20042005 in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended 2004.
THREE MONTHS ENDED JUNE 30,2005.
First Quarter 2006 Compared with First Quarter 2005 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2004
(IN MILLIONS)
We reported net income of
$14.2$13.9 million, or
$0.37$0.36 diluted earnings per share, in the
secondfirst quarter
20052006 compared with net income of
$6.2$18.0 million, or
$0.16$0.47 diluted earnings per share, in the
secondfirst quarter of
2004.2005. Below is a discussion of revenues, price and volume variances.
THREE MONTHS ENDED
JUNE 30, %
-------------------- INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE) INCREASE
------- ------- ---------- -------- --------
Revenues
Crude oil $ 49.6 $ 33.0 $ 16.6 50%
Natural gas 6.8 8.4 (1.6) (19)
------- ------- --------- --------
Total Revenues $ 56.4 $ 41.4 $ 15.0 36%
======= ======= ========= ========
Price and Volume Variances
Crude oil price Variance (per Bbl) $ 23.34 $ 17.66 $ 5.68 32% $ 10.5
Volume Variances
Crude oil volumes (MBbls) 2,127 1,867 260 14% $ 6.1
Natural gas volumes (MMcf) 6,582 8,175 (1,593) (19) (1.6)
--------
Total volume variances $ 4.5
========
| | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | | | | | | % | | | | |
| | March 31, | | | Increase | | | Increase | | | | |
| | 2006 | | | 2005 | | | (Decrease) | | | (Decrease) | | | Increase | |
Revenues | | | | | | | | | | | | | | | | | | | | |
Crude oil | | $ | 54.5 | | | $ | 53.5 | | | $ | 1.0 | | | | 2 | % | | | | |
Natural gas | | | 4.7 | | | | 7.5 | | | | (2.8 | ) | | | (37 | ) | | | | |
| | | | | | | | | | | | | | | | |
Total Revenues | | $ | 59.2 | | | $ | 61.0 | | | $ | (1.8 | ) | | | (3 | %) | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
The following table reconciles the net change in revenue: | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Price and Volume Variances | | | | | | | | | | | | | | | | | | | | |
Crude oil price Variance (per Bbl) | | $ | 28.79 | | | $ | 21.15 | | | $ | 7.64 | | | | 36 | % | | $ | 19.3 | |
Volume Variances | | | | | | | | | | | | | | | | | | | | |
Crude oil volumes (MBbls) | | | 1,894 | | | | 2,530 | | | | (636 | ) | | | (25 | %) | | $ | (18.3 | ) |
Natural gas volumes (MMcf) | | | 4,506 | | | | 7,267 | | | | (2,761 | ) | | | (38 | ) | | | (2.8 | ) |
| | | | | | | | | | | | | | | | | | | |
Total volume variances | | | | | | | | | | | | | | | | | | $ | (21.1 | ) |
| | | | | | | | | | | | | | | | | | | |
Revenue, Crude Oil Price Variance and Volume Variances
Revenues were higherlower in the secondfirst quarter 20052006 compared to 20042005 due to increases in world crude oil pricesthe continued suspension of the drilling program and volumes as a resultthe natural decline of our second half
2004 drilling program.the reservoir. Price variance is net ofincludes the $4.10 per barrel ("Bbl"(“Bbl”) cost of hedges in place during 2005. Gas delivery volumes have declined due to delays in
PDVSA permittingcontinued suspension of the drilling of new wellsprogram and the natural decline of associated gas from existing oil wells. Currently, all gas deliveries are associated with the Uracoa oil wells.
Total expenses and other non-operating (income) expense:
THREE MONTHS ENDED
JUNE 30, %
-------------------- INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE)
------ ------- --------- ----------
Operating expenses $ 8.8 $ 7.4 $ 1.4 19%
Depletion and amortization 9.6 7.8 1.8 23
Depreciation 0.6 0.4 0.2 50
General and administrative 5.9 4.4 1.5 34
Gain on sale of long-lived assets -- (0.6) 0.6 --
Taxes other than on income 1.3 1.1 0.2 18
Investment income and other (0.5) (0.4) (0.1) 25
Interest expense 0.2 2.4 (2.2) (9)
------ ------- --------- --
$ 25.9 $ 22.5 $ 3.4 15%
====== ======= ========= ==
16
| | | | | | | | | | | | | | | | |
| | Quarter Ended | | | | | | | % | |
| | March 31, | | | Increase | | | Increase | |
| | 2006 | | | 2005 | | | (Decrease) | | | (Decrease) | |
Operating expenses | | $ | 8.6 | | | $ | 8.9 | | | $ | (0.3 | ) | | | (3 | %) |
Depletion and amortization | | | 9.9 | | | | 11.2 | | | | (1.3 | ) | | | (12 | ) |
Depreciation | | | 0.4 | | | | 0.5 | | | | (0.1 | ) | | | (20 | ) |
General and administrative | | | 6.9 | | | | 5.0 | | | | 1.9 | | | | 38 | |
Taxes other than on income | | | 2.4 | | | | 1.7 | | | | 0.7 | | | | 41 | |
Investment income and other | | | (2.1 | ) | | | (0.5 | ) | | | (1.6 | ) | | | 320 | |
Interest expense | | | 0.1 | | | | 0.2 | | | | (0.1 | ) | | | (50 | ) |
Net gain (loss) on exchange rates | | | — | | | | (2.8 | ) | | | 2.8 | | | | — | |
| | | | | | | | | | | | |
| �� | | | | | | | | | | | | | | | |
| | $ | 26.2 | | | $ | 24.2 | | | $ | 2.0 | | | | 8 | % |
| | | | | | | | | | | | |
Operating expenses increased as a resultduring the first quarter 2006 were relatively consistent with that of higher oil volumes and
maintenance work while the drilling program is suspended.first quarter 2005. Depletion and amortization expense per Boe produced during the secondfirst quarter 20052006 was $2.98$3.74 versus $2.40$2.99 in the secondfirst quarter of 2004.2005. The increase was primarily due to increased future development costs.the reduction of proved undeveloped reserves because of the actions taken by the Venezuelan government in 2005 under our OSA. General and administrative expense increasedwas higher due the annual issuance of restricted stock, additional audit fees, consulting
and legal fees related to ourincreased business development activities. Taxes other than on income increasedwere higher due to increased Venezuelan municipal taxes which result
from higher oil revenues and an increase in the Venezuelan municipal tax rate.
Investment income and other increased due to higher interest rates earned on higher average cash balances. Interest expense decreased due to lower average outstanding debt balances in the first quarter 2006 compared to 2005. Net gain on exchange rates decreased due to no adjustment in the official exchange rate between the Bolivar and the U.S. Dollar in Uracoa.the first quarter 2006. Bolivar currency controls imposed in February 2003 fixed the exchange rate between the Bolivar and U.S. Dollar and restricts the ability to exchange Bolivars for U.S. Dollars and vice versa. On March 3, 2005, the official exchange rate was adjusted from 1,920 Bolivars for each U.S. Dollar to 2,150 Bolivars for each U.S. Dollar. There has been no change to the official exchange rate since that time.
The effective tax rate declinedincreased in the secondfirst quarter 20052006 to 3945 percent from 5237 percent in 2004 primarily due to2005 as a result of reporting a higher Venezuelan pre-tax revenuepercentage of income in the second quarter 2005 and the elimination of corporate interest expense due to
the November 1, 2004 redemption of our 9.375 percent senior unsecured notes due
November 1, 2007 ("2007 Notes").a higher tax jurisdiction. Our tax calculations do not include the tax increases recentlypreviously announced by the SENIAT (see Item 2. Venezuela).
SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2004 (IN
MILLIONS)
We reported net incomeSENIAT.
Effects of $32.2 million, or $0.84 diluted earnings per
share, in the six months ended 2005 compared with net income of $13.8 million,
or $0.36 diluted earnings per share, in the six months ended 2004. Below is a
discussion of revenues, priceChanging Prices, Foreign Exchange Rates and volume variances.
SIX MONTHS ENDED
JUNE 30, %
-------------------- INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE) INCREASE
------- ------- -------- -------- --------
Revenues
Crude oil $ 103.1 $ 63.8 $ 39.3 62%
Natural gas 14.3 16.4 (2.1) (13)
------- ------- --------- --
Total Revenues $ 117.4 $ 80.2 $ 37.2 49%
======= ======= ========= ==
Price and Volume Variances
Crude oil price Variance (per Bbl) $ 22.15 $ 16.87 $ 5.28 31% $ 19.9
Volume Variances
Crude oil volumes (MBbls) 4,658 3,781 877 24% $ 19.4
Natural gas volumes (MMcf) 13,850 15,931 (2,081) (13) (2.1)
--------
Total volume variances $ 17.3
========
Revenue, Crude Oil Price Variance and Volume Variances
Revenues were higher in the six months ended 2005 compared to 2004 due to
increases in world crude oil prices and volumes as a result of our second half
2004 drilling program. Price variance is net of the $4.10 per Bbl hedges in
place during 2005. Gas delivery volumes have declined due to delays in PDVSA
permitting the drilling of new wells and the natural decline of associated gas
from existing oil wells. All gas deliveries are associated with the Uracoa oil
wells.
Total expenses and other non-operating (income) expense:
SIX MONTHS ENDED
JUNE 30, %
-------------------- INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE)
------ ------- --------- ----------
Operating expenses $ 17.7 $ 14.7 $ 3.0 20%
Depletion and amortization 20.8 15.5 5.3 34
Depreciation 1.1 0.9 0.2 22
General and administrative 10.9 8.0 2.9 36
Gain on sale of long-lived assets -- (0.6) 0.6 --
Taxes other than on income 3.1 2.3 0.8 35
Investment income and other (1.0) (0.7) (0.3) 43
Interest expense 0.4 4.9 (4.5) (92)
Net (gain) loss on exchange rates (2.8) 0.6 (3.4) --
------ ------- --------- ---
$ 50.2 $ 45.6 $ 4.6 10%
====== ======= ========= ===
17
Operating expenses increased as a result of higher oil volumes and
maintenance work while the drilling program is suspended. Depletion and
amortization expense per Boe produced during the second quarter 2005 was $2.99
versus $2.41 in the second quarter of 2004. The increase was primarily due to
increased future development costs. General and administrative expense increased
due the annual issuance of restricted stock, additional audit fees, consulting
and legal fees related to our business development activities. Taxes other than
on income increased due to increased Venezuelan municipal taxes which result
from higher oil revenues and an increase in the municipal tax rate in Uracoa.
The effective tax rate declined in the second quarter 2005 to 38 percent
from 45 percent in 2004 primarily due to higher Venezuelan pre-tax revenue in
the second quarter 2005 and the elimination of corporate interest expense due to
the November 1, 2004 redemption of 2007 Notes. Our tax calculations do not
include the tax increases recently announced by the SENIAT (see Item 2.
Venezuela).
EFFECTS OF CHANGING PRICES, FOREIGN EXCHANGE RATES AND INFLATIONInflation Our results of operations and cash flow are affected by changing oil prices. Fluctuations in oil prices may affect our total planned development activities and capital expenditure program. In August and September 2004, Harvest Vinccler hedged a portion of its oil sales for calendar year 2005 by purchasing two West Texas Intermediate ("WTI") crude oil puts. SeeNote 1 -– Organization and Summary of Significant Account Policies, Derivatives and Hedging.Hedging.
Venezuela imposed currency exchange restrictions in February 2003 and adjusted the official exchange rate between Bolivars and U.S. Dollars in March 2005 from 1,920 Bolivars to 2,150 Bolivars to the U.S. Dollar. There has been no change in the official exchange rate since that time. There are many factors affecting foreign exchange rates and resulting exchange gains and losses, many of which are beyond our control. We have recognized significant exchange gains and losses in the past, resulting from fluctuations in the relationship of the Venezuelan currency to the U.S. Dollar. It is not possible for us to predict the extent to which we may be affected by future changes in exchange rates and exchange controls. PDVSA remitted 50is currently remitting 25 percent of the first quarterquarterly oil service fees in Bolivars. Due to currency control regulations, it may not be possible to convert excess Bolivars into U.S. Dollars or other foreign currencies. Continued substantial payment by PDVSA in Bolivars or the inability to convert the Bolivars into U.S. Dollars could have a material adverse effect on our financial condition.
Within the United States, inflation has had a minimal effect on us, but it is potentially an important factor in results of operations in Venezuela. With respect to Harvest Vinccler, a significant majority of the sources of funds, including the proceeds from oil sales, our contributions and credit financings, are denominated in U.S. Dollars, while many local transactions in Venezuela are conducted in local currency such as local salaries, municipal and income taxes. If the rate of increase in the value of the U.S. Dollar compared with the Bolivar continues to be less than the rate of inflation in Venezuela, then inflation could be expected to have an adverse effect on Harvest Vinccler.
CONCLUSION
The situation in Venezuela is adversely affecting our cash flow
17
Item 3. Quantitative and may
affect our ability to fund execution of our business plan. Our business plan is
based upon projections of prices, production levels, and our assumptions that we
will be allowed to carry out our program on acceptable terms, that there will be
no disruptions or limitations on our production, that PDVSA will pay our
invoices timely and in U.S. Dollars and that our cash reserves are adequate.
These expectations and assumptions are subject to significant current risk due
to the actual and threatened actions of the Venezuelan government (see Item 2.
Venezuela). Such actions could also negatively impact the carrying value of
certain assets on our balance sheet. In the normal course of our business, our
future cash flows are subject to a number of variables including, but not
limited to, the level of production, prices, as well as various economic and
political conditions that have historically affected the oil and natural gas
business. Prices for oil are subject to fluctuations in response to changes in
supply, market uncertainty and a variety of factors beyond our control.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQualitative Disclosures About Market Risk We are exposed to market risk from the adverse changes of the situation in Venezuela, and adverse changes in oil and natural gas prices, interest rates, foreign exchange and political risk, as discussed in our Annual Report on Form 10-K for the year ended 2004, and our Quarterly2005. The information about market risk for the first quarter 2006 does not differ materially from that discussed in the Annual Report on Form 10-Q10-K for the periodyear ended March 31, 2005, as well as in 2005.
Item 2. Venezuela.
ITEM 4. CONTROLS AND PROCEDURESControls and Procedures
The Securities and Exchange Commission, among other things, adopted rules requiring reporting companies to maintain disclosure controls and procedures to provide reasonable assurance that a registrant is able to record, process, summarize and report the information required in the registrant'sregistrant’s quarterly and annual reports under the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”). While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area. There have not been any changes in our internal control over financial reporting (as such term is defined in RulesRule 13a-15(f) andor 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Based on their evaluation as of
June 30, 2005,March 31, 2006, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in
RulesRule 13a-15(e)
andor 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
1) recorded, processed, summarized and reported within the time periods as specified in the Securities and Exchange
Commission'sCommission’s rules and
forms.
19
forms and 2) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.18
PART II. OTHER INFORMATION
ITEM
Item 1. LEGAL PROCEEDINGS
See our Annual Report on Form 10-K for the year ended 2004 for a
description of certain legal proceedings. There have been no
material developments in such legal proceedings since the filing of
such Annual Report.
Legal Proceedings
The SENIAT Tax Assessment.Assessment. On July 22, 2005, the SENIAT, the Venezuelan income tax authority, issued a preliminary tax assessment to Harvest Vinccler of 184 billion Venezuelan Bolivars related to fiscal years 2001 through 2004. At the official exchange rate of 2,150 Bolivars per U.S. Dollar, the dollar equivalent of the preliminary tax assessment is approximately $85 million. In addition, the SENIAT imposed penalties equal to 10 percent of the preliminary tax assessment claim for a total claim of 202 billion Bolivars, or approximately $94 million. We areUpon review of the preliminary tax assessment, we determined not to contest two elements of the claim and made payments totaling 11.3 billion Bolivars or $5.3 million in August and September, 2005. In September and October 2005, we filed a response and evidentiary support with the processSENIAT contesting all other claims. While the SENIAT has not notified Harvest Vinccler of reviewingany tax assessment for the 2005 tax year, it will likely do so on the common elements of the tax assessment, butincluding the applicable tax rate. We believe Harvest Vinccler has met its tax obligations in all material respects. The SENIAT and Harvest Vinccler have formed a working group to review the tax assessment for possible resolution of these claims. We intend to take all measures necessary to protect our rights, and will vigorously challenge all elements of the tax assessment that are not supported by Venezuelan law.
International Arbitration. As reported under Item 2 Venezuela above,
as a result of the actions taken by PDVSA, MEP and the SENIAT, in
July 2005, we delivered formal notices to Venezuelan government
officials of an investment dispute under Venezuelan law and
investment treaties entered into by the government of Venezuela. The
bilateral investment treaties and Venezuelan law provide for
international arbitration of investment disputes conducted under the
auspices of the World Bank.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At
See our Annual
Meeting of Stockholders heldReport on
May 19, 2005, the
following items were voted on by the Stockholders:
1. To approve the Election of Directors:
Votes in Favor Votes Against/Withheld
-------------- ----------------------
Stephen D. Chesebro' 34,472,255 582,648
John U. Clarke 34,465,630 589,273
Byron A. Dunn 34,481,173 573,730
James A. Edmiston 34,730,530 324,373
H. H. Hardee 34,490,853 564,050
Peter J. Hill 34,490,873 564,030
Patrick M. Murray 34,488,727 566,176
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent registered public accounting firmForm 10-K for the year ended
December2005 for a description of certain other legal proceedings. There have been no material developments in such legal proceedings since the filing of such Annual Report. Item 1A. Risk Factors
On March 31, 2005:
2006, Harvest Vinccler signed a MOU with PDVSA Petroleo, S.A. and CVP to convert its OSA to the Mixed Company subject to certain conditions. Upon completion of the conversion, a Harvest affiliate will own 40 percent of the shares of the Mixed Company (32 percent net to Harvest) and CVP will own the remaining 60 percent. Conversion of the OSA to the Mixed Company is subject to 1) completion of definitive agreements, 2) finalization of agreement on additional consideration, 3) approval by the board of directors of the entities which control Harvest Vinccler, 4) approval by the shareholders of Harvest and 5) approval by the Venezuelan MEP and the Venezuelan National Assembly. Upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006.
Some of the conditions to completing the conversion to the Mixed Company are largely beyond our control. There are also conditions that depend upon successfully reaching agreement with the government of Venezuela on matters that affect the value to us of the Mixed Company. In addition to the risks described in our Annual Report on Form 10-K for the year ended 2005, the timing and outcome risks associated with completing the conversion to the Mixed Company include:
After April 1, 2006, our operations in Venezuela are being conducted under an OSA the government no longer recognizes and which it claims is illegal. As such, our future ability to contractually recover our investments and be compensated for our services depends upon completing the process for the conversion of our interests to the Mixed Company.
Payment by PDVSA for first quarter 2006 deliveries, which represents virtually all of our revenues for the quarter, likely depends upon completing the process for the conversion of our interests to the Mixed Company.
19
Votes in Favor Against/Withheld Votes Abstentions/Broker Non-Votes
- -------------- ---------------------- ----------------------------
34,981,436 51,979 21,488
| • | | Harvest Vinccler remains subject to significant tax claims by the SENIAT, including the likely extension of some of those claims for the 2005 tax year. While Harvest Vinccler is actively working with the SENIAT to resolve all the claims, it may be unable to do so. If the claims are not resolved, this could impede or prevent conversion to the Mixed Company. The SENIAT could also seek to seize Harvest Vinccler assets, including the first quarter payment due from PDVSA. |
|
| • | | The resumption of any significant drilling operations is unlikely until conversion to the Mixed Company is completed. |
|
| • | | Upon conversion to the Mixed Company, we will be a minority interest owner and no longer have sole control over operations. Our control of the Mixed Company will be limited to our rights under the conversion agreement. |
|
| • | | If we are unable to successfully complete the conversion to the Mixed Company, it is likely that the Venezuelan government will take over Harvest Vinccler’s operations. In that event, we would pursue claims against the Venezuelan government. |
20
ITEMSee our Annual Report on Form 10-K for the year ended 2005 underItem 1A Risk Factorsfor a description of other risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. OTHER INFORMATION
Other Information
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors since our Schedule 14A filed on April 8, 2005.
ITEM11, 2006.
Item 6. EXHIBITS
Exhibits
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q
filed on August 13, 2002, File No. 1-10762.)
3.2 Amended and Restated Bylaws as of May 19, 2005. (Incorporated
by reference to Exhibit 3.2 to our Form 10-Q filed on April
29, 2005, File No. 1-10762.)
4.1 Form of Common Stock Certificate. (Incorporated by reference
to the exhibits to our Registration Statement Form S-1
(Registration No. 33-26333).)
4.2 Certificate of Designation, Rights and Preferences of the
Series B. Preferred Stock of Benton Oil and Gas Company, filed
May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our
Form 10-Q filed on May 13, 2002, File No. 1-10762.)
4.3 Second Amended and Restated Rights Agreement, dated as of
April 15, 2005, between Harvest Natural Resources, Inc. and
Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit
4.3 to our Form 10-Q filed on April 29, 2005, File No.
1-10762).
4.4 Harvest Natural Resources, Inc. Deferred Compensation Plan for
the Board of Directors, dated as of May 23, 2003, between
Harvest Natural Resources, Inc. and its Board of Directors.
4.5 Amendment, Freeze and Termination Agreement to the Harvest
Natural Resources, Inc. Deferred Compensation Plan for the
Board of Directors, dated as of May 31, 2005, between Harvest
Natural Resources, Inc. and its Board of Directors.
31.1 Certification of the principal executive officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the principal financial officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the principal executive officer accompanying
the quarter report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the principal financial officer accompanying
the quarter report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
| | | |
| 3.1 | | Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762.) |
| | | |
| 3.2 | | Amended and Restated Bylaws as of April 6, 2006. |
| | | |
| 4.1 | | Form of Common Stock Certificate. (Incorporated by reference to the exhibits to our Registration Statement Form S-1 (Registration No. 33-26333).) |
| | | |
| 4.2 | | Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.) |
| | | |
| 4.3 | | Second Amended and Restated Rights Agreement, dated as of April 15, 2005, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.3 to our Form 10-Q filed on April 29, 2005, File No. 1-10762.) |
| | | |
| 10.1 | | Employment agreement dated February 10, 2006, between Harvest Natural Resources, Inc. and Kurt A. Nelson. |
20
| | | |
| 10.2 | | Memorandum of Understanding dated March 31, 2006, between PDVSA Petroleo, S.A. and Harvest Vinccler, C.A. |
| | | |
| 31.1 | | Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 31.2 | | Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.1 | | Certification of the principal executive officer accompanying the quarterly report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | | Certification of the principal financial officer accompanying the quarterly report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HARVEST NATURAL RESOURCES, INC.
Dated: August 1, 2005 By: /S/Peter J. Hill
-------------------------------------
Peter J. Hill
President and Chief Executive Officer
Dated: August 1, 2005 By: /S/Steven W. Tholen
--------------------------------
Steven W. Tholen
Senior Vice President - Finance,
| | | | |
| HARVEST NATURAL RESOURCES, INC.
| |
Dated: April 20, 2006 | By: | /s/ James A. Edmiston | |
| | James A. Edmiston | |
| | President and Chief Executive Officer | |
|
| | |
Dated: April 20, 2006 | By: | /s/ Steven W. Tholen | |
| | Steven W. Tholen | |
| | Senior Vice President — Finance, Chief Financial Officer and Treasurer | |
22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation.
(Incorporated by reference to
Exhibit 3.1(i) to our Form 10-Q
filed on August 13, 2002, File No. 1-10762.)
3.2 Amended and Restated Bylaws as of May 19, 2005. (Incorporated
by reference to Exhibit 3.2 to our Form 10-Q filed on April
29, 2005, File No. 1-10762.)
4.1 Form of Common Stock Certificate. (Incorporated by reference
to the exhibits to our Registration Statement Form S-1
(Registration No. 33-26333).)
4.2 Index
| | |
Exhibit | | |
Number | | Description |
3.1 | | Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762). |
| | |
3.2 | | Amended and Restated Bylaws as of April 6, 2006. |
| | |
4.1 | | Form of Common Stock Certificate. (Incorporated by reference to the exhibits to our Registration Statement Form S-1 (Registration No. 33-26333).) |
| | |
4.2 | | Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed
May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our
Form 10-Q filed on May 13, 2002, File No. 1-10762.)
4.3 Second Amended and Restated Rights Agreement, dated as of
April 15, 2005, between Harvest Natural Resources, Inc. and
Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit
4.3 to our Form 10-Q filed on April 29, 2005, File No.
1-10762).
4.4 Harvest Natural Resources, Inc. Deferred Compensation Plan for
the Board of Directors, dated as of May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.) |
| | |
4.3 | | Second Amended and Restated Rights Agreement, dated as of April 15, 2005, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.3 to our Form 10-Q filed on April 29, 2005, File No. 1-10762.) |
| | |
10.1 | | Employment agreement dated February 10, 2006, between Harvest Natural Resources, Inc. and Kurt A. Nelson. |
| | |
10.2 | | Memorandum of Understanding dated March 31, 2006, between PDVSA Petroleo, S.A. and Harvest Vinccler, C.A. |
| | |
31.1 | | Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 | | Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32.1 | | Certification of the principal executive officer accompanying quarterly report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of the principal financial officer accompanying quarterly report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
23 2003, between
Harvest Natural Resources, Inc. and its Board of Directors.
4.5 Amendment, Freeze and Termination Agreement to the Harvest
Natural Resources, Inc. Deferred Compensation Plan for the
Board of Directors, dated as of May 31, 2005, between Harvest
Natural Resources, Inc. and its Board of Directors.
31.1 Certification of the principal executive officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the principal financial officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the principal executive officer accompanying
the quarter report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the principal financial officer accompanying
the quarter report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
23