HOUSTON, Texas (July 25, 2007) – Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2007 second quarter loss of $6.9 million, or $0.18 per diluted share, compared with a loss of $50.3 million, or $1.35 per diluted share, for the same period last year.
The Company has not been able to recognize the equity earnings for its producing operations in Venezuela since the 2006 second quarter. Equity earnings will be reported upon completion of the conversion to the mixed company, Petrodelta, S.A. (Petrodelta). The loss for the 2006 second quarter included a charge of $61 million for additional taxes and related interest primarily due to a retroactive tax rate increase imposed by the SENIAT, the Venezuelan income tax authority.
Harvest President and Chief Executive Officer, James A. Edmiston, said: “National Assembly approval of the formation of Petrodelta and the direct award by the Venezuelan government of the Isleño, Temblador and El Salto fields to Petrodelta in mid-June was a major milestone in the conversion process. Upon completion of the conversion, Petrodelta will invoice PDVSA for oil and gas delivered since April 1, 2006 and Harvest will be able to include its pro rata share of Petrodelta’s earnings in its financial results.”
Edmiston continued: “The business plan agreed between Harvest Vinccler and our partner, Corporación Venezolana del Petroleo S.A. (CVP) is designed to maximize the value of Petrodelta’s hydrocarbon resources by rapidly increasing oil and gas production, converting unproved reserves to proved reserves, and adding additional discovered reserves through exploration and capturing synergies and scale at all levels. We expect one workover rig and one drilling rig to be mobilized and begin in the Uracoa field early in the fourth quarter. An additional drilling rig is expected to start work later in the fourth quarter. A third drilling rig should begin appraisal drilling in the new fields in early 2008. We are very well positioned to benefit from the new structure with CVP and eagerly look forward to getting back to the work of producing the necessary oil that the global market demands.”
Production from the South Monagas Unit
For the six months ended June 30, 2007, operating statistics (on a 100% basis) for the existing South Monagas Unit (SMU) operated by the Company’s affiliate, Harvest Vinccler, S.C.A., are as follows:
•
Production of 2.8 million barrels of oil and 6.7 billion cubic feet (Bcf) of natural gas. Average daily production was 15,700 barrels and 37 million cubic feet of natural gas, or 21,900 barrels of oil equivalent per day.
•
Crude oil prices that would be paid if the conversion contract was in place cannot be calculated as one element of the pricing formula has not been set. Market prices for
1
crude oil of the type produced in SMU averaged approximately $49.08 per barrel for the six months. The price for natural gas that would be paid under the conversion contract is $1.54 per thousand cubic feet.
•
Taxes and royalties for Petrodelta will be 50 percent and 33 percent, respectively.
Authorization of Share Buyback Program
Edmiston said: “The Board of Directors recently authorized the purchase of up to $50 million of Harvest’s common stock through open market purchase from time to time. The purchases will be funded with cash on hand and dividends from Petrodelta. Our large unrestricted cash position of $135 million at June 30 is available to fund the stock buyback program and fund organic growth oriented development and exploration acquisitions. The Board and management believe Harvest’s stock is significantly undervalued and does not fully value the Petrodelta business prospects, the option value of our WAB-21 license in the South China Sea or our business development pipeline.”
Conference Call
Harvest will hold an earnings conference call today at 10:00 a.m. Central Time to discuss 2007 second quarter results. To access the call, dial 785-830-1916, conference ID: Harvest, five to ten minutes prior to the start time. A recording of the conference call will also be available for replay at 402-220-4971. To listen to the live webcast of the call, please visit our website at www.harvestnr.com.
About Harvest Natural Resources
Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent energy company with principal operations in Venezuela and business development offices in Russia and the United Kingdom. For more information visit the Company’s website atwww.harvestnr.com.
CONTACT: Steven W. Tholen Senior Vice President, Chief Financial Officer (281) 899-5714
“This press release may contain projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. They include estimates and timing of expected oil and gas production, oil and gas reserve projections of future oil pricing, future expenses, planned capital expenditures, anticipated cash flow and our business strategy. All statements other than statements of historical facts may constitute forward-looking statements. Although Harvest believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from Harvest’s expectations as a result of factors discussed in Harvest’s 2006 Annual Report on Form 10-K and other public filings.”
2
HARVEST NATURAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
($ thousands, unaudited)
June 30,
December 31,
2007
2006
ASSETS:
CURRENT ASSETS:
Cash and equivalents
$
135,705
$
148,079
Restricted cash
24,197
15,888
Accounts receivable, net
9,482
9,811
Advances to provisional equity affiliate
15,366
19,146
Deferred income taxes
5,608
5,608
Prepaid expenses and other
1,084
1,246
Total current assets
191,442
199,778
RESTRICTED CASH
51,097
73,001
OTHER ASSETS
181
176
INVESTMENT IN EQUITY AFFILIATE
4,415
-
INVESTMENT IN PROVISIONAL EQUITY AFFILIATE
146,436
146,436
PROPERTY AND EQUIPMENT, net
3,309
3,320
TOTAL ASSETS
$
396,880
$
422,711
LIABILITIES AND STOCKHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Accounts payable, trade and other
$
3,473
$
3,827
Accounts payable, related party
9,867
9,637
Accrued expenses
8,557
12,975
Accrued interest
6,537
6,850
Deferred revenue
11,217
11,217
Income taxes payable
73
34
Current portion of long-term debt
47,442
37,674
Total current liabilities
87,166
82,214
LONG TERM DEBT
47,907
66,977
COMMITMENTS AND CONTINGENCIES
-
-
MINORITY INTEREST
27,261
28,634
STOCKHOLDERS’ EQUITY:
Common stock and paid-in capital
197,424
194,556
Retained earnings
40,771
54,174
Treasury stock
(3,649
)
(3,844
)
Total stockholders’ equity
234,546
244,886
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
396,880
$
422,711
-
-
-
3
HARVEST NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per BOE and per share amounts, unaudited)
THREE MONTHS ENDED:
June 30, 2007
June 30, 2006
Barrels of oil sold
MMCF of gas sold
Total BOE
Average price/barrel
Average price/mcf
REVENUES:
Oil sales
$
327
Gas sales
7
334
EXPENSES:
Operating expenses
672
Depreciation
$
17
70
General and administrative
7,596
6,876
Taxes other than on income
185
178
7,798
7,796
LOSS FROM OPERATIONS
(7,798
)
(7,462
)
OTHER NON-OPERATING INCOME (EXPENSE)
Investment earnings and other
2,847
2,320
Interest expense
(2,466
)
(15,735
)
Net loss on exchange rates
(28
)
(4
)
353
(13,419
)
LOSS BEFORE INCOME TAXES AND
MINORITY INTERESTS
(7,445
)
(20,881
)
Income tax expense
52
40,810
LOSS BEFORE MINORITY INTERESTS
(7,497
)
(61,691
)
Minority interest in consolidated subsidiary companies
(736
)
(11,409
)
LOSS FROM CONSOLIDATED COMPANIES
(6,761
)
(50,282
)
Net loss from unconsolidated equity affiliate
(137
)
—
NET LOSS
($6,898
)
($50,282
)
NET LOSS PER COMMON SHARE:
Basic
($0.18
)
($1.35
)
Diluted
($0.18
)
($1.35
)
Weighted average shares outstanding:
Basic
37.6
37.2
Diluted
37.6
37.2
HARVEST NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per BOE and per share amounts, unaudited)
SIX MONTHS ENDED:
June 30, 2007
June 30, 2006
Barrels of oil sold
1,894
MMCF of gas sold
4,506
Total BOE
2,645
Average price/barrel
$
28.96
Average price/mcf
$
1.03
REVENUES:
Oil sales
$
54,858
Gas sales
4,648
59,506
EXPENSES:
Operating expenses
9,241
Depletion and amortization
9,918
Depreciation
$
298
458
General and administrative
14,029
13,745
Taxes other than on income
422
2,577
14,749
35,939
INCOME (LOSS) FROM OPERATIONS
(14,749
)
23,567
OTHER NON-OPERATING INCOME (EXPENSE)
Investment earnings and other
5,234
4,381
Interest expense
(4,947
)
(15,854
)
Net gain (loss) on exchange rates
28
(6
)
315
(11,479
)
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS
(14,434
)
12,088
Income tax expense
166
55,572
LOSS BEFORE MINORITY INTERESTS
(14,600
)
(43,484
)
Minority interest in consolidated subsidiary companies
(1,373
)
(7,070
)
LOSS FROM CONSOLIDATED COMPANIES
(13,227
)
(36,414
)
Equity in net losses of affiliated companies
(176
)
—
NET LOSS
($13,403
)
($36,414
)
NET LOSS PER COMMON SHARE:
Basic
($0.36
)
($0.98
)
Diluted
($0.36
)
($0.98
)
Weighted average shares outstanding:
Basic
37.5
37.1
Diluted
37.5
37.1
4
HARVEST NATURAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2007
2006
2007
2006
Cash Flows From Operating Activities:
Net loss
($6,898
)
($50,282
)
($13,403
)
($36,414
)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depletion, depreciation and amortization
17
70
298
10,376
Net loss from unconsolidated equity affiliate
137
–
176
—
Non-cash compensation-related charges
1,436
1,476
2,898
2,524
Minority interest in consolidated subsidiary
(736
)
(11,409
)
(1,373
)
(7,070
)
companies
Deferred income taxes
—
(2,557
)
—
(2,557
)
Changes in operating assets and liabilities:
Accounts and notes receivable
327
56,538
329
58,860
Advances to provisional equity affiliate
1,857
(9,186
)
3,780
(9,186
)
Prepaid expenses and other
(32
)
369
162
705
Accounts payable
1,353
(345
)
(354
)
3,044
Accounts payable, related party
116
139
230
233
Accrued expenses
423
(3,685
)
(4,504
)
(9,270
)
Accrued interest
602
15,583
(313
)
15,628
Deferred revenue
—
2,241
—
4,489
Asset retirement liability
—
—
—
24
Income taxes payable
13
40,955
39
35,628
Net Cash Provided By (Used In) Operating
Activities
(1,385
)
39,907
(12,035
)
67,014
Cash Flows From Investing Activities:
Additions of property and equipment
(16
)
(15
)
(287
)
(1,473
)
Investment in equity affiliated
—
—
(4,591
)
—
Investment in provisional equity affiliate
-
(347
)
-
(347
)
Decrease in restricted cash
453
—
13,595
—
Investment costs
21
634
(5
)
539
Net Cash Provided By (Used In) Investing Activities
458
272
8,712
(1,281
)
-
Cash Flows From Financing Activities:
Net proceeds from issuances of common stock
251
834
251
849
Payments of rates payable
(2,325
)
—
(9,302
)
(2,884
)
Net Cash Provided By (Used In) Financing Activities
(2,074
)
834
(9,051
)
(2,035
)
-
Net Increase (Decrease) in Cash
(3,001
)
41,013
(12,374
)
63,698
Cash and Cash Equivalents at Beginning of Period
138,706
185,704
148,079
163,019
Cash and Cash Equivalents at End of Period
$
135,705
$
226,717
$
135,705
$
226,717
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