FOR IMMEDIATE RELEASE
HARVEST NATURAL RESOURCES ANNOUNCES
SECOND QUARTER 2005 RESULTS
HOUSTON, Texas (August 1, 2005) – Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2005 second quarter earnings of $14.2 million, or $0.37 per diluted share. These results compare with a net income of $6.2 million, or $0.16 per diluted share, for the same period last year.
Net income for the six months ended June 30, 2005 was $32.2 million, or $0.84 per diluted share, compared with $13.8 million, or $0.36 per diluted share, for the same period last year.
Operating cash flow (defined as cash flows from operating activities before changes in operating assets and liabilities) was $29.7 million for the 2005 second quarter compared with $17.0 million for the 2004 second quarter. Operating cash flow for the six months ended June 30, 2005 was $65.0 million, compared with the $35.5 million for the same period last year. See reconciliation to Generally Accepted Accounting Principles in table below.
Production for the 2005 second quarter was 2.1 million barrels of oil and 6.6 billion cubic feet (Bcf) of natural gas for a combined total production of 3.2 million barrels of oil equivalent. Production for the first six months of 2005 was 7.0 million barrels of oil equivalent including 4.7 million barrels of oil and 13.8 Bcf of gas. Production totals for the same period in 2004 were 3.2 million and 6.4 million barrels of oil equivalent respectively.
Harvest President and Chief Executive Officer, Dr. Peter J. Hill, said, “While the results for the second quarter and the first half of the year are positive with over 100 percent increase in earnings and 9 percent increase in oil and gas deliveries to Petróleos de Venezuela S.A. (PDVSA), the situation in Venezuela is frustrating and limits our capability to optimize and grow our business to the benefit of both Venezuela and Harvest. We began the year with average oil production of 29,000 barrels of oil per day. Today, we are averaging about 21,000 per day. This decline is due to PDVSA’s curtailment of our oil deliveries and the fact that we have not been allowed to carry out our drilling program.”
Hill continued, “As a result of several unilateral actions taken by Ministry of Energy and Petroleum (MEP), PDVSA and the SENIAT, we have given formal notice 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 under the auspices of the World Bank. While we remain committed to reaching mutual agreement with MEP and PDVSA to preserve the value of our investment in Venezuela, the notices serve to protect shareholders’ interest if such agreement is not possible.”
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On July 25, 2005, Harvest Vinccler C.A. (HVCA), the Company’s 80 percent owned Venezuelan subsidiary, received a preliminary income tax assessment of approximately 184 billion Venezuelan Bolivars (“Bolivars”) from the SENIAT, the Venezuelan income tax authority, 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 for a total claim of 202 billion Bolivars, or approximately $94 million. The ten percent penalty is payable if the Company pays the preliminary tax assessment. However, if the Company challenges the preliminary tax assessment additional penalties may be assessed. The Company is in the process of reviewing the assessment, but believes HVCA has met its tax obligations in all material respects. HVCA and the Company intend to take all measures necessary to protect their rights and will vigorously challenge all elements of the assessment that are not supported by Venezuelan law.
Under the terms of the Operating Service Agreement, HVCA was to be paid $64.8 million on May 31, 2005 for deliveries of oil and gas to PDVSA during the first quarter. During the week of June 27th, HVCA received a partial payment of $27.5 million plus 59 billion Bolivars. At the official exchange rate of 2,150 Bolivars per U.S. Dollar, the payment received is $9.8 million less than the amount due. HVCA has presented PDVSA with a demand to receive full payment of the total amount due in U.S. Dollars as stipulated in the Operating Service Agreement. Due to currency exchange regulations and market conditions in Venezuela, it is not certain that HVCA will be able to convert the Bolivars in excess of its needs into U.S. Dollars. The $9.8 million payment shortfall is included in the accounts receivable amount on the Company’s balance sheet as of June 30, 2005. An invoice of $59.9 million for second quarter deliveries of oil and gas was submitted to PDVSA on July 25, 2005. Payment is due August 31, 2005.
Hill continued, “Without waiver of its rights, HVCA has exchanged proposals and continues discussions with PDVSA and the MEP to establish a path forward to contribute our Operating Service Agreement to a Mixed Company and to resolve the interim drilling, oil and gas delivery, pricing and currency issues. To date, we have not reached agreement on the resolution of these interim issues.”
The Company averaged $23.34 per barrel of oil for 2005 second quarter deliveries, an increase of $5.68 per barrel, compared with the $17.66 per barrel average for the same period last year. The average for the six months ended June 30, 2005 was $22.15 per barrel of oil, an increase of $5.28 per barrel, compared with the $16.87 per barrel average for the same period in 2004. The Company receives $1.03 per thousand cubic feet of natural gas delivered to PDVSA.
Operating expenses increased to $8.8 million, or $2.72 per barrel of oil equivalent (Boe), for 2005 second quarter compared with $7.4 million, or $2.28 per Boe, for last year’s second quarter. Operating expenses for the 2005 first six months was $17.7 million, or $2.53 per Boe, compared with $14.7 million, or $2.29 per Boe, for the same period in 2004.
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Reconciliation of Non-GAAP measures ($ Millions)
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net cash provided by operating activities | $ | 15.8 | $ | 18.7 | $ | 42.9 | $ | 28.9 | ||||||||
Add changes in operating assets & liabilities | 13.9 | (1.7 | ) | 22.1 | 6.6 | |||||||||||
Operating cash flow | $ | 29.7 | $ | 17.0 | $ | 65.0 | $ | 35.5 |
Harvest will hold an earnings conference call today at 9:00 a.m. Central Time to discuss 2005 second quarter results. To access the call, dial 785-832-1508 five to ten minutes prior to the start time. A recording of the conference call will also be available for replay at 402-220-2561. To listen to the live webcast of the call, please visit our website at www.harvestnr.com.
Harvest Natural Resources, Inc., headquartered in Houston, Texas, is an independent oil and gas development and production company with principal operations in Venezuela and an office in Russia. For more information visit the Company’s website atwww.harvestnr.com.
CONTACT:
Steven W. Tholen
Senior Vice President, Chief Financial Officer
(281) 899-5700
Amanda M. Koenig
Investor Relations
(281) 899-5700
This press release may contain “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this release may constitute forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from the Company’s expectations due to changes in operating performance, project schedules, oil and gas demands and prices, and other technical and economic factors.
HARVEST NATURAL RESOURCES, INC. | ||||||||||||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||
($ millions, unaudited) | ||||||||||||||||||||
June 30, 2005 | December 31, 2004 | |||||||||||||||||||
ASSETS: | ||||||||||||||||||||
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CURRENT ASSETS: | ||||||||||||||||||||
Cash and equivalents | $ | 109.6 | $ | 84.6 | ||||||||||||||||
Accounts receivable, net | 82.8 | 71.7 | ||||||||||||||||||
Put options | 0.3 | 14.2 | ||||||||||||||||||
Deferred income taxes | 2.5 | 0.3 | ||||||||||||||||||
Prepaid expenses and other | 2.0 | 1.4 | ||||||||||||||||||
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Total current assets | 197.2 | 172.2 | ||||||||||||||||||
OTHER ASSETS | 1.9 | 2.1 | ||||||||||||||||||
DEFERRED INCOME TAXES | 6.0 | 6.0 | ||||||||||||||||||
PROPERTY AND EQUIPMENT, net | 179.1 | 187.1 | ||||||||||||||||||
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TOTAL ASSETS | $ | 384.2 | $ | 367.4 | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||||||
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CURRENT LIABILITIES: | ||||||||||||||||||||
Accounts payable, trade and other | $ | 4.3 | $ | 8.4 | ||||||||||||||||
Accounts payable, related party | 9.1 | 11.1 | ||||||||||||||||||
Accrued expenses | 21.1 | 29.4 | ||||||||||||||||||
Income taxes payable | 18.4 | 22.5 | ||||||||||||||||||
Current portion of long-term debt | 7.4 | 11.8 | ||||||||||||||||||
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Total current liabilities | 60.3 | 83.2 | ||||||||||||||||||
LONG TERM DEBT | - | - | ||||||||||||||||||
ASSET RETIREMENT PROVISION | 2.0 | 1.9 | ||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | - | - | ||||||||||||||||||
MINORITY INTEREST | 48.7 | 39.1 | ||||||||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||||||||||
Common stock and paid-in capital | 187.7 | 185.6 | ||||||||||||||||||
Retained earnings | 94.1 | 61.9 | ||||||||||||||||||
Accumulated other comprehensive loss | (4.8 | ) | (0.5 | ) | ||||||||||||||||
Treasury stock | (3.8 | ) | (3.8 | ) | ||||||||||||||||
Total stockholders’ equity | 273.2 | 243.2 | ||||||||||||||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 384.2 | $ | 367.4 | ||||||||||||||||
HARVEST NATURAL RESOURCES, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands except per BOE and per share amounts, unaudited) | ||||||||||||||||
THREE MONTHS ENDED: | June 30, 2005 | June 30, 2004 | ||||||||||||||
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Barrels of oil sold | 2,127 | 1,867 | ||||||||||||||
MMCF of gas sold | 6,582 | 8,175 | ||||||||||||||
Total BOE | 3,225 | 3,230 | ||||||||||||||
Average price/barrel | $ | 23.34 | $ | 17.66 | ||||||||||||
Average price/mcf | $ | 1.03 | $ | 1.03 | ||||||||||||
$ | $/BOE | $ | $/BOE | |||||||||||||
REVENUES: | ||||||||||||||||
Oil sales | $ | 49,662 | $ | 32,977 | ||||||||||||
Gas sales | 6,780 | 8,420 | ||||||||||||||
56,442 | 17.50 | 41,397 | 12.82 | |||||||||||||
EXPENSES: | ||||||||||||||||
Operating expenses | 8,763 | 2.72 | 7,368 | 2.28 | ||||||||||||
Depletion and amortization | 9,624 | 2.98 | 7,756 | 2.40 | ||||||||||||
Depreciation | 621 | 0.19 | 442 | 0.14 | ||||||||||||
General and administrative | 5,867 | 1.82 | 4,372 | 1.35 | ||||||||||||
Gain on sale of long-lived assets | (578 | ) | (0.18 | ) | ||||||||||||
Taxes other than on income | 1,332 | 0.41 | 1,118 | 0.35 | ||||||||||||
26,207 | 8.12 | 20,478 | 6.34 | |||||||||||||
INCOME FROM OPERATIONS | 30,235 | 9.38 | 20,919 | 6.48 | ||||||||||||
OTHER NON-OPERATING INCOME (EXPENSE) | ||||||||||||||||
Investment income and other | 487 | 0.15 | 425 | 0.13 | ||||||||||||
Interest expense | (210 | ) | (0.07 | ) | (2,448 | ) | (0.76 | ) | ||||||||
Net loss on exchange rates | — | — | (8 | ) | — | |||||||||||
277 | 0.08 | (2,031 | ) | (0.63 | ) | |||||||||||
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS | 30,512 | 9.46 | 18,888 | 5.85 | ||||||||||||
Income tax expense | 11,959 | 3.71 | 9,902 | 3.07 | ||||||||||||
INCOME BEFORE MINORITY INTERESTS | 18,553 | 5.75 | 8,986 | 2.78 | ||||||||||||
Minority interest in consolidated subsidiary companies | 4,402 | 1.37 | 2,738 | 0.85 | ||||||||||||
NET INCOME | $ | 14,151 | $ | 4.38 | $ | 6,248 | $ | 1.93 | ||||||||
NET INCOME PER COMMON SHARE: | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.17 | ||||||||||||
Diluted | $ | 0.37 | $ | 0.16 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 36.9 | million | 35.9 | million | ||||||||||||
Diluted | 38.5 | million | 38.2 | million | ||||||||||||
HARVEST NATURAL RESOURCES, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands except per BOE and per share amounts, unaudited) | ||||||||||||||||
SIX MONTHS ENDED: | June 30, 2005 | June 30, 2004 | ||||||||||||||
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Barrels of oil sold | 4,658 | 3,781 | ||||||||||||||
MMCF of gas sold | 13,850 | 15,931 | ||||||||||||||
Total BOE | 6,966 | 6,436 | ||||||||||||||
Average price/barrel | $ | 22.15 | $ | 16.87 | ||||||||||||
Average price/mcf | $ | 1.03 | $ | 1.03 | ||||||||||||
$ | $/BOE | $ | $/BOE | |||||||||||||
REVENUES: | ||||||||||||||||
Oil sales | $ | 103,163 | $ | 63,785 | ||||||||||||
Gas sales | 14,265 | 16,409 | ||||||||||||||
117,428 | 16.86 | 80,194 | 12.46 | |||||||||||||
EXPENSES: | ||||||||||||||||
Operating expenses | 17,651 | 2.53 | 14,707 | 2.29 | ||||||||||||
Depletion and amortization | 20,795 | 2.99 | 15,480 | 2.41 | ||||||||||||
Depreciation | 1,119 | 0.16 | 879 | 0.14 | ||||||||||||
General and administrative | 10,889 | 1.56 | 8,007 | 1.24 | ||||||||||||
Gain on sale of long-lived assets | — | — | (578 | ) | (0.09 | ) | ||||||||||
Taxes other than on income | 3,053 | 0.44 | 2,312 | 0.36 | ||||||||||||
53,507 | 7.68 | 40,807 | 6.35 | |||||||||||||
INCOME FROM OPERATIONS | 63,921 | 9.18 | 39,387 | 6.11 | ||||||||||||
OTHER NON-OPERATING INCOME (EXPENSE) | ||||||||||||||||
Investment income and other | 1,026 | 0.15 | 728 | 0.11 | ||||||||||||
Interest expense | (452 | ) | (0.06 | ) | (4,937 | ) | (0.77 | ) | ||||||||
Net gain (loss) on exchange rates | 2,757 | 0.40 | (617 | ) | (0.10 | ) | ||||||||||
3,331 | 0.49 | (4,826 | ) | (0.76 | ) | |||||||||||
INCOME BEFORE INCOME TAXES AND MINORITY | ||||||||||||||||
INTERESTS | 67,252 | 9.67 | 34,561 | 5.35 | ||||||||||||
Income tax expense | 25,492 | 3.66 | 15,502 | 2.41 | ||||||||||||
INCOME BEFORE MINORITY INTERESTS | 41,760 | 6.01 | 19,059 | 2.94 | ||||||||||||
Minority interest in consolidated subsidiary companies | 9,574 | 1.37 | 5,304 | 0.82 | ||||||||||||
NET INCOME | $ | 32,186 | $ | 4.64 | $ | 13,755 | $ | 2.12 | ||||||||
NET INCOME PER COMMON SHARE: | ||||||||||||||||
Basic | $ | 0.87 | $ | 0.38 | ||||||||||||
Diluted | $ | 0.84 | $ | 0.36 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 36.9 | million | 35.9 | million | ||||||||||||
Diluted | 38.5 | million | 38.0 | million | ||||||||||||
HARVEST NATURAL RESOURCES, INC. | ||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||||||
(in thousands, unaudited) | ||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||
Cash Flows From Operating Activities: | ||||||||||||||||||||||||
Net income | $ | 14,151 | $ | 6,248 | $ | 32,186 | $ | 13,755 | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depletion, depreciation and amortization | 10,245 | 8,198 | 21,914 | 16,359 | ||||||||||||||||||||
Amortization of financing costs | — | 76 | — | 152 | ||||||||||||||||||||
Gain on disposition of assets | — | (578 | ) | — | (578 | ) | ||||||||||||||||||
Deferred compensation expense | (67 | ) | 130 | (515 | ) | 261 | ||||||||||||||||||
Non-cash compensation related charges | 970 | 167 | 1,826 | 263 | ||||||||||||||||||||
Minority interest in consolidated subsidiary companies | 4,402 | 2,739 | 9,574 | 5,304 | ||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Accounts and notes receivable | (6,003 | ) | (1,740 | ) | (11,017 | ) | (7,642 | ) | ||||||||||||||||
Prepaid expenses and other | 330 | 7 | (504 | ) | (579 | ) | ||||||||||||||||||
Commodity hedging contract | 3,726 | — | 7,412 | — | ||||||||||||||||||||
Accounts payable | (469 | ) | (898 | ) | (4,172 | ) | (3,537 | ) | ||||||||||||||||
Accounts payable, related party | — | (4 | ) | (1,952 | ) | 252 | ||||||||||||||||||
Accrued expenses | 148 | 3,144 | (7,821 | ) | 2,133 | |||||||||||||||||||
Provision for asset retirement liability | (4 | ) | (709 | ) | 50 | (709 | ) | |||||||||||||||||
Income taxes payable | (11,629 | ) | 1,903 | (4,056 | ) | 3,480 | ||||||||||||||||||
Net Cash Provided By Operating Activities | 15,800 | 18,683 | 42,925 | 28,914 | ||||||||||||||||||||
Cash Flows From Investing Activities: | ||||||||||||||||||||||||
Proceeds from sales of long-lived assets | — | 578 | — | 578 | ||||||||||||||||||||
Additions of property and equipment | (7,394 | ) | (8,651 | ) | (13,909 | ) | (9,394 | ) | ||||||||||||||||
Investment costs | 1,253 | (314 | ) | 149 | (887 | ) | ||||||||||||||||||
Net Cash Used In Investing Activities | (6,141 | ) | (8,387 | ) | (13,760 | ) | (9,703 | ) | ||||||||||||||||
Cash Flows From Financing Activities: | ||||||||||||||||||||||||
Net proceeds from issuances of common stock | (56 | ) | 1,047 | 302 | 2,303 | |||||||||||||||||||
Payments on long-term debt | (3,184 | ) | (1,591 | ) | (4,475 | ) | (3,183 | ) | ||||||||||||||||
Net Cash Used in Financing Activities | (3,240 | ) | (544 | ) | (4,173 | ) | (880 | ) | ||||||||||||||||
Net Increase in Cash | 6,419 | 9,752 | 24,992 | 18,331 | ||||||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 103,173 | 147,239 | 84,600 | 138,660 | ||||||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 109,592 | $ | 156,991 | $ | 109,592 | $ | 156,991 | ||||||||||||||||
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