UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 TO FORM 10-K
ON
FORM 10-K/A
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ............ TO ............
COMMISSION FILE NUMBER 1-10762
HARVEST NATURAL RESOURCES, INC.
(FORMERLY BENTON OIL AND GAS COMPANY)
(Exact name of registrant as specified in its charter)
DELAWARE 77-0196707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15835 PARK TEN PLACE DRIVE, SUITE 115
HOUSTON, TEXAS 77084
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(281) 579-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
none none
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
On March 25, 2002, the aggregate market value of shares of voting stock of
the Registrant held by non-affiliates was approximately $138,096,369 based on a
closing sales price on NYSE of $4.03.
As of March 25, 2002, 34,267,089 shares of the Registrant's common stock
were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission, no
later than 120 days after the close of its fiscal year, pursuant to Regulation
14A, are incorporated by reference into Items 10, 11, 12 and 13 of Part III of
this Annual Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Explanatory Note:
Harvest Natural Resources, Inc. (formerly Benton Oil and Gas Company, the
"Company") is filing Amendment No. 1 to its Annual Report on Form 10-K for the
year ended December 31, 2001 (the "2001 10-K") to include audited financial
statements (for the year ended September 30, 2001) and notes for LLC Geoilbent
("Geoilbent"), a Russian limited liability company of which the Company owned a
34% interest at December 31, 2001. These financial statements and notes are
included in Item 14(b)(2) -- Financial Statement Schedules -- and a consent of
ZAO PricewaterhouseCoopers, independent accountants, is included as Exhibit
23.4. This amendment does not otherwise update any exhibits as originally filed
and does not otherwise reflect events occurring after the original filing date
of the 2001 10-K.
Item 14 of the 2001 10-K is amended in its entirety as follows:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements:
PAGE
----
Reports of Independent Accountants..................................................... S-1
Consolidated Balance Sheets at December 31, 2001 and 2000.............................. S-2
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000, and 1999............................................. S-3
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000, and 1999....................................... S-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000, and 1999........................................... S-5
Notes to Consolidated Financial Statements............................................. S-7
2. Consolidated Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
Schedule III -- Financial Statements and Notes for LLC Geoilbent
3. Exhibits:
3.1 Certificate of Incorporation filed September 9, 1988
(Incorporated by reference to Exhibit 3.1 to our Registration
Statement (Registration No. 33-26333).
3.2 Amendment to Certificate of Incorporation filed June 7, 1991
(Previously filed as an exhibit to our S-1 Registration
Statement (Registration No. 33-39214)).
3.3 Restated Bylaws (Incorporated by reference to Exhibit 3.3 to
our Form 10-Q, filed August 13, 2001).
4.1 Form of Common Stock Certificate (Previously filed as an
exhibit to our S-1 Registration Statement (Registration No.
33-26333)).
10.1 Form of Employment Agreements (Exhibit 10.19) (Previously
filed as an exhibit to our S-1 Registration Statement
(Registration No. 33-26333)).
10.2 Benton Oil and Gas Company 1991-1992 Stock Option Plan
(Exhibit 10.14) (Previously filed as an exhibit to our S-1
Registration Statement (Registration No. 33-43662)).
10.3 Benton Oil and Gas Company Directors' Stock Option Plan
(Exhibit 10.15) (Previously filed as an exhibit to our S-1
Registration Statement (Registration No. 33-43662)).
10.4 Agreement dated October 16, 1991 among Benton Oil and Gas
Company, Puror State Geological Enterprises for Survey,
Exploration, Production and Refining of Oil and Gas; and Puror
Oil and Gas Production Association (Exhibit 10.14) (Previously
filed as an exhibit to our S-1 Registration Statement
(Registration No. 33-46077)).
10.5 Operating Service Agreement between Benton Oil and Gas Company
and Lagoven, S.A., which has been subsequently combined into
PDVSA Petroleo y Gas, S.A., dated July 31, 1992, (portions
have been omitted pursuant to Rule 406 promulgated under the
Securities Act of 1933 and filed separately with the
Securities and Exchange Commission -- Exhibit 10.25)
(Previously filed as an exhibit to our S-1 Registration
Statement (Registration No. 33-52436)).
10.6 Indenture dated May 2, 1996 between Benton Oil and Gas Company
and First Trust of New York, National Association, Trustee
related to $125,000,000, 11 5/8 percent Senior Notes Due 2003
(Incorporated by reference to Exhibit 4.1 to our S-4
Registration Statement filed June 17, 1996, SEC Registration
No. 333-06125).
10.7 Indenture dated November 1, 1997 between Benton Oil and Gas
Company and First Trust of New York, National Association,
Trustee related to an aggregate of $115,000,000 principal
amount of 9 3/8 percent Senior Notes due 2007 (Incorporated by
reference to Exhibit 10.1 to our Form 10-Q for the quarter
ended September 30, 1997).
10.8 Separation Agreement dated January 4, 2000 between Benton Oil
and Gas Company and Mr. A.E. Benton. (Incorporated by
reference to Exhibit 10.18 to our Form 10-K for the year ended
December 31, 1999).
10.9 Consulting Agreement dated January 4, 2000 between Benton Oil
and Gas Company and Mr. A.E. Benton. (Incorporated by
reference to Exhibit 10.19 to our Form 10-K for the year ended
December 31, 1999).
10.10 Employment Agreement dated July 10, 2000 between Benton Oil
and Gas Company and Peter J. Hill. (Incorporated by reference
to Exhibit 10.20 to our Form 8-K, filed June 6, 2000).
10.11 Benton Oil and Gas Company 1999 Employee Stock Option Plan
(Incorporated by reference to Exhibit 10.21 to our Form 10-K,
filed on April 2, 2001).
10.12 Benton Oil and Gas Company Non-Employee Director Stock
Purchase Plan (Incorporated by reference to Exhibit 10.21 to
our Form 10-K, filed on April 2, 2001).
10.13 Employment Agreement dated December 7, 2000 between Benton Oil
and Gas Company and Steven W. Tholen (Incorporated by
reference to Exhibit 10.21 to our Form 10-K, filed on April 2,
2001).
10.14 Note payable agreement dated March 8, 2001 between
Benton-Vinccler, C.A. and Banco Mercantil, C.A. related to a
note in the principal amount of $6,000,000 with interest at
LIBOR plus five percent, for financing of Tucupita Pipeline
(Incorporated by reference to Exhibit 10.24 to our Form 10-Q,
filed on May 15, 2001).
10.15 Note payable agreement dated March 8, 2001 between
Benton-Vinccler, C.A. and Banco Mercantil, C.A. related to a
note in the principal amount of 4,435,200,000 Venezuelan
Bolivars (approximately $6.3 million) at a floating interest
rate, for financing of Tucupita Pipeline (Incorporated by
reference to Exhibit 10.25 to our Form 10-Q, filed on May 15,
2001).
10.16 Change of Control Severance Agreement effective May 4, 2001
(Incorporated by reference to exhibit 10.26 to our Form 10-Q,
filed on August 13, 2001).
10.17 Alexander E. Benton Settlement and Release Agreement effective
May 11, 2001 (Incorporated by reference to Exhibit 10.27 to
our Form 10-Q, filed on August 13, 2001).
10.18 Michael B. Wray Termination Agreement effective May 7, 2001
(Incorporated by reference to Exhibit 10.28 to our Form 10-Q,
filed on August 13, 2001).
10.19 Michael B. Wray Consulting Agreement effective May 7, 2001
(Incorporated by reference to Exhibit 10.29 to our Form 10-Q,
filed on August 13, 2001).
10.20 Relocation/Reduction in Force Severance Plan effective June 5,
2001 (Incorporated by reference to Exhibit 10.30 to our Form
10-Q, filed on August 13, 2001).
10.21 First Amendment to Change of Control Severance Plan effective
June 5, 2001 (Incorporated by reference to Exhibit 10.31 to
our Form 10-Q, filed on August 13, 2001).
10.22 Amended Benton Oil and Gas Company Non-Employee Director Stock
Purchase Plan (Incorporated by reference to Exhibit 10.1 to
our Form 10-Q, filed on November 31, 2001).
10.23* Employment Agreement dated December 20, 2000 between Benton
Oil and Gas Company and Robert Stephen Molina.
10.24* Employment Agreement dated November 14, 2001, between Benton
Oil and Gas Company and Kurt A. Nelson.
10.25* Sale and Purchase Agreement dated February 27, 2002 between
Benton Oil and Gas Company and Sequential Holdings Russian
Investors Limited regarding the sale of Benton Oil and Gas
Company's 68 percent interest in Arctic Gas Company.
21.1* List of subsidiaries.
23.1* Consent of PricewaterhouseCoopers LLP (Financial Statements of
the Company).
23.2* Consent of Huddleston & Co., Inc.
23.3* Consent of Ryder Scott Company, L.P.
23.4 Consent of ZAO PricewaterhouseCoopers.
* Incorporated by reference to the original filing of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
(b) Reports on Form 8-K
None.
SCHEDULE III
HARVEST NATURAL RESOURCE, INC.
LLC GEOILBENT
FINANCIAL STATEMENTS
30 SEPTEMBER 2001
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Owners of Limited Liability Company Geoilbent
In our opinion, the accompanying balance sheets and the related statements of
income, cash flows and changes in stockholders' equity, present fairly, in all
material respects, the financial position of LLC Geoilbent (the "Company") at 30
September 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended 30 September 2001, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As more fully discussed in Note 18, as of 30 September 2002 the Company has a
long-term debt facility for which it will be unable to meet certain loan
covenants and therefore the lender may declare the loan to be in default and can
accelerate the maturity.
ZAO PricewaterhouseCoopers
Moscow, Russian Federation
29 March 2002,
except for Note 18 as to which the date is 28 February 2003
LLC GEOILBENT
BALANCE SHEETS
(expressed in thousand of US Dollars)
As at As at
Notes 30 September 2001 30 September 2000
----- ----------------- -----------------
ASSETS
Cash and cash equivalents 4,409 2,133
Restricted cash 5 10,208 12,361
Accounts receivable and advances to suppliers 7 7,265 7,620
Inventories 8 13,565 8,865
------- -------
TOTAL CURRENT ASSETS 35,447 30,979
Oil and gas producing properties, full cost method 9 186,688 161,924
Other long term assets 1,018 1,408
------- -------
TOTAL ASSETS 223,153 194,311
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings 10 3,000 3,865
Current portion of long-term debt 11 18,200 10,455
Accounts payable 20,673 9,452
Trade advances 8,753 5,110
Taxes payable 12 7,484 2,944
Other payables and accrued expenses 2,329 4,741
------- -------
TOTAL CURRENT LIABILITIES 60,439 36,567
Long-term debt 11 22,550 38,000
------- -------
TOTAL LIABILITIES 82,989 74,567
======= =======
COMMITMENTS AND CONTINGENT LIABILITIES 17 -- --
Contributed capital 82,518 82,518
Retained earnings 57,646 37,226
------- -------
TOTAL STOCKHOLDERS' EQUITY 13 140,164 119,744
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 223,153 194,311
======= =======
The accompanying notes are an integral part of these financial statements
LLC GEOILBENT
STATEMENTS OF INCOME
(expressed in thousand of US Dollars)
Year ended Year ended Year ended
Notes 30 September 2001 30 September 2000 30 September 1999
----- ----------------- ----------------- -----------------
TOTAL SALES AND OTHER OPERATING REVENUES 14 101,159 78,805 36,798
------- ------ ------
COSTS AND OTHER DEDUCTIONS
Operating expenses 11,415 8,959 6,441
Selling and distribution expenses 9,876 4,612 4,028
General and administrative expenses 5,650 3,407 2,655
Depletion expense 9 14,918 9,556 9,600
Taxes other than income tax 26,011 18,286 8,208
------- ------ ------
TOTAL COSTS AND OTHER DEDUCTIONS 67,870 44,820 30,932
------- ------ ------
OTHER INCOME AND EXPENSE
Exchange (gain)/ loss, net (781) 597 (5,152)
Interest expense, net 7,547 7,438 3,429
Other non-operating (income)/ loss, net (648) 724 (1,232)
------- ------ ------
TOTAL OTHER (INCOME) AND EXPENSE 6,118 8,759 (2,955)
------- ------ ------
INCOME BEFORE INCOME TAX 27,171 25,226 8,821
------- ------ ------
INCOME TAX EXPENSE
Current income tax expense 15 6,751 6,321 1,333
------- ------ ------
TOTAL INCOME TAX EXPENSE 6,751 6,321 1,333
------- ------ ------
NET INCOME 20,420 18,905 7,488
======= ====== ======
The accompanying notes are an integral part of these financial statements
LLC GEOILBENT
STATEMENTS OF CASHFLOWS
(expressed in thousand of US Dollars)
Year ended Year ended Year ended
30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 20,420 18,905 7,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion expense 14,918 9,556 9,600
Amortization of financing costs 520 520 520
Effect of foreign exchange on balance sheet
items (781) 597 (5,152)
Decrease/(increase) in accounts receivable and
advances 85 (1,081) (2,982)
Decrease/(increase) in inventories (4,700) (2,666) 1,995
Increase/(decrease) in accounts payable 11,902 6,624 (9,076)
Increase in trade advances 3,785 5,067 117
Increase in taxes payable 4,780 515 328
Increase/(decrease) in other payables and accrued
expenses (2,386) 608 1,942
------- ------- -------
Cash provided by operating activities 48,543 38,645 4,934
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas producing properties (39,683) (39,910) (20,628)
Purchase of investments (129) (27) (8)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (39,812) (39,937) (20,636)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings from founders -- -- 3,028
Payment of short-term borrowings from founders (717) (4,534) --
Payment of short-terms borrowings (3,845) -- (392)
Proceeds from short-term borrowings 6,446 2,602 --
Proceeds from long-term borrowings -- -- 27,287
Payments of long-term borrowings (10,455) (140) (2,492)
Proceeds from capital contributions -- -- 4,020
Decrease/(increase) in restricted cash 2,153 (2,889) (9,472)
------- ------- -------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES (6,418) (4,961) 21,979
------- ------- -------
Effect of foreign exchange on cash balances (37) (567) (114)
------- ------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,276 (6,820) 6,163
Cash and cash equivalents, beginning of year 2,133 8,953 2,792
------- ------- -------
Cash and cash equivalents, end of year 4,409 2,133 8,955
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 7,609 5,536 2,955
Income taxes paid 6,906 5,523 217
The accompanying notes are an integral part of these financial statements
LLC GEOILBENT
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(expressed in thousands of US Dollars except as indicated)
Total stockholders'
Contributed capital Retained earnings equity
------------------- ----------------- -------------------
BALANCE AT 30 SEPTEMBER 1998 78,498 10,833 89,331
====== ====== =======
Contribution of capital 4,020 -- 4,020
Net income and total comprehensive income -- 7,488 7,488
------ ------ -------
BALANCE AT 30 SEPTEMBER 1999 82,518 18,321 100,839
====== ====== =======
Net income and total comprehensive income -- 18,905 18,905
------ ------ -------
BALANCE AT 30 SEPTEMBER 2000 82,518 37,226 119,744
====== ====== =======
Net income and total comprehensive income -- 20,420 20,420
------ ------ -------
BALANCE AT 30 SEPTEMBER 2001 82,518 57,646 140,164
====== ====== =======
The accompanying notes are an integral part of these financial statements
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
NOTE 1: ORGANIZATION
LLC Geoilbent (the "Company") is engaged in the development and production of
oil and gas in the North Gubkinskoye and South Tarasovskoye fields. These fields
are located in the West Siberian region of the Russian Federation, approximately
2,000 miles northeast of Moscow. The Company was established in December 1991 by
two Russian oil companies, OAO Purneftegas ("PNG") and OAO Purneftegasgeologia
("PNGG"), and Benton Oil and Gas Company ("Benton") of the United States, which
contributed 33%, 33% and 34%, respectively, of the Company's charter capital, in
accordance with the Company's Foundation Document. In January 2002, PNG and PNGG
transferred their stakes in the Company to OAO Minley, an affiliated company.
NOTE 2: BASIS OF PRESENTATION
The Company maintains its accounting records and prepares its statutory
financial statements in accordance with the Regulations on Accounting and
Reporting of the Russian Federation ("RAR"). The accompanying financial
statements have been prepared from these accounting records and adjusted as
necessary to comply with accounting principles generally accepted in the United
States of America ("US GAAP"). The Company has a year ending of 30 September for
US GAAP reporting purposes.
In preparing the financial statements in conformity with US GAAP, management
makes estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities. Actual results could differ from such estimates.
Certain previously presented amounts have been reclassified to conform to the
presentation adopted during the current period. These reclassifications had no
impact on previously reported retained earnings.
REPORTING AND FUNCTIONAL CURRENCY. The Russian Rouble is the functional currency
(primary currency in which business is conducted) for the Company's operations
in the Russian Federation. The Company considers the US dollar as its reporting
currency as a significant portion of its business is conducted in US dollars and
management uses the US dollar to manage business risks and exposures, and to
measure performance of its business.
The measurement currency of the Company is either the Russian Rouble or the US
dollar depending on the nature of the activities. The transactions and balances
of the accompanying financial statements not already measured in US dollars have
been remeasured into US dollars in accordance with the relevant provisions of
SFAS No. 52 Foreign Currency Translation as applied to hyperinflationary
economies. Consequently, monetary assets and liabilities are translated at
closing exchange rates and non-monetary items are translated at historic
exchange rates and adjusted for any impairments. The statements of income and
cash flows have been translated using average exchange rates for the reporting
period. Translation differences resulting from the use of these exchange rates
have been included in the determination of net income and are included in
exchange gains/losses in the accompanying statements of income. The exchange
rates at 30 September 2001, and 30 September 2000, were 29.39 and 27.75,
respectively, Russian Roubles per US dollar.
1
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
Inflation, exchange restriction and controls. Exchange restrictions and controls
exist relating to converting Russian Roubles to other currencies. At present,
the Russian Rouble is not a convertible currency outside the Russian Federation.
Future movements in the exchange rates between the Russian Rouble and the US
dollar will affect the carrying value of the Company's Russian Rouble
denominated assets and liabilities. Such movements may also affect the Company's
ability to realise non-monetary assets represented in US dollars in the
accompanying financial statements. Accordingly, any translation of Russian
Rouble amounts to US dollars should not be construed as a representation that
such Russian Rouble amounts have been, could be, or will in the future be
converted into US dollars at the exchange rate shown or at any other exchange
rate.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all highly liquid
securities with original maturities of three months or less when acquired.
ACCOUNTS RECEIVABLE. Accounts receivable are presented at net realisable value
and include value-added and excise taxes which are payable to tax authorities
upon collection of such receivables.
INVENTORIES. Crude oil and petroleum products inventories are valued at the
lower of cost, using the first-in-first out method, or net realisable value.
Materials and supplies inventories are recorded at the lower of average cost or
net realisable value.
PROPERTY, PLANT AND EQUIPMENT. The Company follows the full cost method of
accounting for oil and gas properties. Under this method, all oil and gas
property acquisition, exploration, and development costs including internal
costs directly attributable to such activities are capitalized as incurred in
the Company's one cost center (full cost pool), which is the Russian Federation.
Payroll and other internal costs capitalized include salaries and related fringe
benefits paid to employees directly engaged in the acquisition, exploration and
development of oil and gas properties as well as all other directly identifiable
internal costs associated with these activities. Payroll and other internal
costs associated with production operations and general corporate activities are
expensed in the period incurred.
The full cost pool, including future development costs (including estimated
dismantlement, restoration and abandonment costs), net of prior accumulated
depletion, is depleted using the unit-of-production method based upon actual
production and estimates of proved oil and gas reserve quantities. Proceeds from
sales of oil and gas properties are credited to the full cost pool with no gain
or loss recognized unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves of oil and gas.
Pursuant to full cost accounting rules, capitalized costs less related
accumulated depletion and deferred income taxes may not exceed the sum of (1)
the present value of future net revenue from estimated production of proved oil
and gas reserves discounted at 10 percent; plus (2) the cost of properties not
being amortized, if any; plus (3) the lower of cost or estimated fair value of
unproved properties included in the costs being amortized, if any; less (4)
income tax effects related to differences in the book and tax basis of oil and
gas properties.
2
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
PENSION AND POST-EMPLOYMENT BENEFITS. The Company's mandatory contributions to
the governmental pension scheme are expensed when incurred.
REVENUE RECOGNITION. Revenue from the sale of crude oil is recognized when it is
dispatched to customers and title has transferred.
INCOME TAXES. Deferred income tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, in accordance with SFAS No. 109, Accounting for Income
Taxes. Deferred income tax assets and liabilities are measured using enacted tax
rates in the years in which these temporary differences are expected to reverse.
Valuation allowances are provided for deferred income tax assets when management
believes it is more likely than not that the assets will not be realized.
RECENT ACCOUNTING STANDARDS. In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivatives Instruments and Hedging Activities. SFAS No. 133
requires companies to recognise all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. The accounting
for changes in fair value depends on its intended use and designation and could
entail recording the gain or loss through net earnings of the current period, or
as part of comprehensive income and subsequently reclassifying into earnings
when the gain or loss is realised. The Company adopted SFAS No. 133 effective 1
October 2000. The adoption of SFAS No. 133 did not have a material effect on the
results of the Company's operations.
In September 2001, the FASB issued SFAS No. 143, Accounting for Assets
Retirement Obligations ("SFAS 143"). SFAS No. 143 requires entities to record
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred and a corresponding increase in the carrying amount of
the related long-lived asset. Subsequently, the asset retirement costs should be
allocated to expense using a systematic and rational method. SFAS No. 143 is
effective for fiscal years beginning after 15 June 2002. The Company has not yet
assessed the impact of SFAS No. 143 and therefore, at this time cannot
reasonably estimate the effect of this statement on its financial condition and
results of operations.
NOTE 4: LIQUIDITY
As at 30 September 2001 the current liabilities of the Company exceeded its
current assets by USD 24,992 thousand. This working capital deficit arose
primarily due to an increase in the portion of the Company's debt financing
falling due for repayment and the growth of current accounts payable as a result
of the Company's capital expenditure program.
As further discussed in Note 11, although the working capital deficit is in
violation of the Company's debt covenants, the lender has temporarily waived the
maintenance of this covenant, thus enabling the Company to continue to classify
its remaining USD 22,000 thousand of debt as long-term.
Management plans to address the Company's working capital deficit by reducing
certain capital expenditures, obtaining additional financing and restructuring
its long-term debt.
3
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
On 5 March 2002 the Company's lender waived the requirements of its loan
agreement and permitted the Company to temporarily use the restricted cash (Note
5) to pay its suppliers. The Company is also currently negotiating with the
lender to restructure repayments terms of its debt and increase its borrowing
capabilities. There can be no assurance that the Company will be successful in
its effort to restructure its loan agreement.
The owners of the Company have agreed to provide the Company with financial
support in the form of capital and/or subordinated borrowings in sufficient
amounts to enable the Company to continue to meet its current obligations and
continue to develop the Company's oil and gas reserves.
In order to maintain or increase proved oil and gas reserves, the Company must
make substantial capital expenditures in 2002 and subsequently. The Company's
cash flow from operations is dependent on the level of oil prices. The price
realized by the Company on its oil sales has historically been volatile and is
also dependent on the extent to which the Company is able to sell oil in the
export market as opposed to the Russian domestic market. Historically, the
Company has supplemented its cash flow from operations with additional
borrowings or equity capital and may continue to do so. Should oil prices
decline for a prolonged period and should the Company not have access to
additional capital, the Company would need to reduce its capital expenditures,
which could limit its ability to maintain or increase production and, in turn,
meet its debt service requirements.
NOTE 5: CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents as at 30 September 2001, and 2000,
respectively, are Russian Rouble denominated amounts totaling RR 129.4 million
(USD 4,402 thousand) and RR 5.1 million (USD 184 thousand).
Restricted cash consists of deposits with lending institutions to pay interest
and principal as discussed in Note 11. As at 30 September 2001, the amount of
restricted cash was USD 10,208 thousand (2000: USD 12,361 thousand). These
accounts are maintained in offshore US Dollar denominated accounts.
NOTE 6: FINANCIAL INSTRUMENTS
FAIR VALUES. The estimated fair values of financial instruments are determined
with reference to various market information and other valuation methodologies
as considered appropriate, however considerable judgment is required in
interpreting market data to develop these estimates. Accordingly, the estimates
are not necessarily indicative of the amounts that the Company could realize in
a current market transaction. The methods and assumptions used to estimate fair
value of each class of financial instrument are presented below.
Cash and cash equivalents, accounts receivable and accounts payable. The
carrying amount of these items are a reasonable approximation of their fair
value.
SHORT-TERM AND LONG-TERM DEBT. Loan arrangements have both fixed and variable
interest rates that reflect the currently available terms and conditions for
similar debt. The carrying value of this debt is a reasonable approximation of
its fair value.
4
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
CREDIT RISKS. A significant portion of the Company's accounts receivable are
from domestic and foreign customers, and advances are made to domestic
suppliers. Although collection of these amounts could be influenced by economic
factors affecting these entities, management believes there is no significant
risk of loss to the Company beyond the provisions already recorded, provided
that economic difficulties in the Russian Federation do not deteriorate (Note
17).
NOTE 7: ACCOUNTS RECEIVABLE AND ADVANCES TO SUPPLIERS
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
Trade accounts receivable 2,158 4,707
Recoverable value-added tax 3,640 490
Advances to suppliers 723 2,110
Advances to customs 597 165
Other receivables 147 148
----- -----
TOTAL ACCOUNTS RECEIVABLE AND ADVANCES TO SUPPLIERS 7,265 7,620
===== =====
NOTE 8: INVENTORIES
Thousands of US Dollars 30 September 2001 30 September 2000
----------------- -----------------
Materials and supplies 12,814 7,955
Crude oil 751 910
------ -----
TOTAL INVENTORIES 13,565 8,865
====== =====
NOTE 9: OIL AND GAS PRODUCING PROPERTIES
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
Oil and gas producing properties, cost 251,990 212,307
Accumulated depletion (65,302) (50,383)
------- -------
OIL AND GAS PRODUCING PROPERTIES, NET BOOK VALUE 186,688 161,924
======= =======
The Company's oil and gas fields are situated on land belonging to the
Government of the Russian Federation. The Company obtained licenses from the
local authorities and pays royalties taxes to explore and produce oil and gas
from these fields. Licenses will expire in September 2018 for the North
Gubkinskoye field, and in March 2023 for the South Tarasovskoye field. However,
under Paragraph 4 of the Russian Federal Law 20-FZ, dated 2 January 2000, the
licenses may be extended over the economic life of the lease at the Company's
option. Management intends to extend such licenses for properties that are
expected to produce subsequent to their expiry dates. Estimates of proved
reserves extending past 2018 represent approximately 5 percent of total proved
reserves.
NOTE 10: SHORT-TERM BORROWINGS
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
International Moscow Bank 3,000 --
JP Morgan -- 3,149
Benton Oil and Gas Company -- 716
----- -----
TOTAL SHORT-TERM BORROWINGS 3,000 3,865
===== =====
5
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
On 9 October 1995, the Company entered into agreement with JP Morgan to obtain
revolving short-term financing repayable every 175 days at an interest rate of
the one month LIBOR plus 0.75 percent. The JP Morgan loan was subordinated under
an agreement between Benton, JP Morgan, the European Bank of Reconstruction and
Development ("EBRD"), the International Moscow Bank ("IMB") and the Company. In
2001 the loan was replaced with two loans from IMB. On 13 March 2001, the
Company obtained a USD 3.0 million revolving line of credit from IMB, maturing
13 March 2002, bearing interest at LIBOR plus 6.5 percent. The line of credit is
collaterized by moveable property of the South Tarasovskoye field.
NOTE 11: LONG-TERM DEBT
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
EBRD 33,000 41,000
IMB 7,750 7,455
Less: current portion (18,200) (10,455)
------- -------
Total long-term debt 22,550 38,000
======= =======
EBRD AND IMB LOANS. The Company has credit facilities of USD 55 million with
EBRD and USD 10 million with IMB. At 30 September 2001 the outstanding balances
of the loans totaled USD 33 million and USD 5 million, respectively. Under the
loan agreements, the use of the loan proceeds from the EBRD and IMB loans are
restricted to the development of oil reserves. Furthermore, 10 percent of the
outstanding balance plus related interest must be held on deposit as restricted
cash throughout the remaining loan period. Principal amounts and interest are
due semi-annually with principal payments commencing on 27 January 2000. For the
EBRD loan, the interest rate was the 6 month LIBOR rate plus 4.75 percent until
the first repayment installment date at which time the rate changed to a flat
15%. For the IMB loan the interest rate was the 6 month LIBOR rate plus 8
percent until the Company failed to meet its production milestones and then the
rate changed to the 6 month LIBOR rate plus 9 percent. The LIBOR rates ranged
from 3.5 percent to 6.9375 percent in 2001 (2000: 6.063 percent to 7.064
percent, 1999: 5.036 percent to 5.974 percent). The annual weighted average
interest rates on these loans varied between 14.93 percent and 15.17 percent for
the year ended 30 September 2001 (2000: between 10.88 percent and 15.14 percent,
1999: between 10.84 and 11.04). The outstanding loan amounts to the EBRD and IMB
are collaterized by most significant immovable assets and crude oil export sales
of the Company in proportion to their lending.
On 14 May 2001, the Company obtained a USD 3.3 million loan from IMB payable by
six payments of USD 0.55 million, commencing 1 August 2001, ending 1 November
2002, bearing interest of LIBOR plus 6.5 percent. The loan is collaterized by
moveable property of the South Tarasovskoye field.
The EBRD loan agreement includes certain covenants which include, among other
things the maintenance of financial ratios. As of 30 September of 2001, the
Company is not in compliance with maintaining its current ratio requirement of
1.1. If the Company fails to meet this requirement for two consecutive quarters
it will result in an event of default whereby the EBRD may, at its option,
demand payment of the outstanding principle and interest. The EBRD has waived
the covenant requirement through 31 March 2002. Accordingly, the Company has
continued to classify the debt as long-term.
6
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
Aggregate maturities of long-term debt outstanding at 30 September 2001 are as
follows:
Thousands of US dollars
Year ended 30 September 2003 11,550
Year ended 30 September 2004 11,000
------
Total long-term debt 22,550
======
NOTE 12: TAXES PAYABLE
Taxes payable were as follows:
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
Value Added Tax 3,305 (891)
Income tax 1,826 1,891
Royalty 923 577
Mineral restoration tax 767 852
Road users tax 176 124
Property taxes 438 49
Other taxes 49 342
----- -----
TOTAL TAXES PAYABLE 7,484 2,944
===== =====
NOTE 13: STOCKHOLDERS' EQUITY
Capital contributions are as follows:
Thousands of US dollars 30 September 2001 30 September 2000
----------------- -----------------
Purneftegasgeologia 27,645 27,645
Purneftegas 27,088 27,088
Benton Oil and Gas Company 27,785 27,785
------ ------
TOTAL CONTRIBUTED CAPITAL 82,518 82,518
====== ======
All capital contributions have been made since inception in accordance with the
Company's Foundation Document.
Reserves available for distribution to shareholders are based on the statutory
accounting reports of the Company, which are prepared in accordance with
Regulations on Accounting and Reporting of the Russian Federation and which
differ from U.S. GAAP. Russian legislation identifies the basis of distribution
as net income. For 2000, the current year statutory net income for the Company
as reported in the annual statutory accounting reports was RR 744 million.
However, current legislation and other statutory laws and regulations dealing
with distribution rights are open to legal interpretation and, consequently,
actual distributable reserves may differ from the amount disclosed.
7
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
NOTE 14: REVENUES
Revenues for the years ended 30 September 2001, 2000, and 1999, consisted of the
following:
Thousand of US dollars 30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
Crude oil - export (Europe and CIS) 83,889 50,807 30,446
Crude oil - domestic 10,900 13,195 6,107
Refined products - domestic 6,231 14,733 --
Other operating revenues 139 70 245
------- ------ ------
TOTAL SALES AND OTHER OPERATING REVENUES 101,159 78,805 36,798
======= ====== ======
NOTE 15: TAXES
Presented below is a reconciliation between the provision for income taxes and
taxes determined by applying the statutory tax rate as applied in the Russian
Federation to income before income taxes.
Thousand of US dollars 30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
Income before income taxes 27,171 25,226 7,489
------ ------ ------
Theoretical income tax expense at statutory rate 9,509 7,568 2,247
(35% in 2001; 30% in 2000; 30% in 1999)
Increase (reduction) due to:
Change in valuation allowance 1,810 348 2,476
Non-deductible expenses 2,693 2,600 1,596
Investment tax credits (6,821) (5,142) (2,274)
Effect of non-deductible/(-taxable) foreign
exchange losses (gains) (207) 920 (3,278)
Change in statutory tax rate (750) -- 374
Tax penalties and interest 517 27 192
------ ------ ------
TOTAL INCOME TAX EXPENSE 6,751 6,321 1,333
====== ====== ======
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes and
such amounts recognized for statutory tax purposes. Net deferred tax assets are
comprised of the following, at 30 September 2001 and 2000:
Thousand of US dollars 30 September 2001 30 September 2000
----------------- -----------------
Inventories 137 25
Losses carried forward 2,403 2,181
Property, plant and equipment 2,971 1,495
------ ------
Total deferred tax assets 5,511 3,701
Less: Valuation allowance (5,511) (3,701)
------ ------
NET DEFERRED TAX ASSET -- --
====== ======
Losses carried forward represent those losses for tax purposes which, according
to legislation, the Company is allowed to offset against future taxable earnings
within the next two years and three months and is subject to limitations of no
more than 50% of the Company's tax liabilities for the tax reporting period. In
2001 and 2000 the Company was unable to use the benefit of its loss carried
forward as it had already reached the tax credit limitation through use of tax
credit allowances.
8
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
The Company has provided a 100 percent valuation allowance against the net
deferred income tax asset at 30 September 2001 and 2000. Management does not
believe that, in the current economic climate, it is more likely than not that
the Company will have sufficient taxable profits to utilize the deferred tax
asset in the periods in which the reversal of the temporary difference giving
rise to the tax asset are anticipated to occur.
EXPORT AND EXCISE TAXES. Included in total sales and other operating revenues
are taxes as follows:
Thousands of US dollars 30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
Export duties 10,922 4,332 399
Excise tax 1,548 813 929
------ ----- -----
EXPORT AND EXCISE TAXES INCLUDED IN TOTAL
SALES 12,470 5,145 1,328
====== ===== =====
NOTE 16: RELATED PARTY TRANSACTIONS
As of 30 September 2001 and 2000, the Company had the following balances with
its stockholders. These balances are included in the balance sheet within
accounts payable and long-term debt as appropriate.
Thousand of US Dollars 30 September 2001 30 September 2000
----------------- -----------------
Accounts payable
Purneftegasgeologia and affiliated entities 2,113 463
Purneftegas and affiliated entities 182 22
Short-term borrowings
Benton Oil and Gas Company -- 717
----- -----
TOTAL 2,295 1,202
===== =====
BENTON OIL AND GAS COMPANY. During 2001 and 2000 the Company paid to Benton USD
717 thousand and USD 2,000, respectively, for prepaid loan costs relating to the
creation of the EBRD/ IMB loans. During 1999 the Company paid USD 4,977 thousand
to a subsidiary of Benton, Energy Services and Supply Company LLC ("ESSC"), for
the prior purchase of casing and tubing.
PURNEFTEGAS. During 2001, 2000, and 1999, Purneftegas and affiliated entities
provided well maintenance services and supplies to the Company for a total value
of approximately USD 248 thousand, USD 188 thousand, and USD 111 thousand,
respectively.
PURNEFTEGASGEOLOGIA. During 2001, 2000, and 1999, Purneftegasgeologia and
affiliated entities provided services to the Company for a total value of
approximately USD 4,193 thousand, USD 2,156 thousand, and USD 1,169,
respectively. Services consisted of drilling, well maintenance and other related
work. The Company sold crude oil to PNGG and affiliated entities for a total
value of USD 56 thousand, USD 80 thousand, and USD 38 thousand, during 2001,
2000, and 1999, respectively. During December 1998, PNGG made a capital
contribution of USD 1,980 thousand in cash and the Company paid PNGG
approximately USD 2,436 thousand in payables. Also in December 1998, the Company
agreed to adjust for the devaluation of the Russian Rouble certain invoices and
issued a veksel in the amount of USD 678 thousand to PNGG.
9
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
NOTE 17: COMMITMENTS AND CONTINGENT LIABILITIES
ECONOMIC AND OPERATING ENVIRONMENT IN THE RUSSIAN FEDERATION. Whilst there have
been improvements in the economic situation in the Russian Federation in recent
years, the country continues to display some characteristics of an emerging
market. These characteristics include, but are not limited to, the existence of
a currency that is not freely convertible in most countries outside of the
Russian Federation, restrictive currency controls, and relatively high
inflation.
The prospects for future economic stability in the Russian Federation are
largely dependent upon the effectiveness of economic measures undertaken by the
government, together with legal, regulatory, and political developments.
TAXATION. Russian tax legislation is subject to varying interpretations and
changes occurring frequently, which may be retroactive. Further, the
interpretation of tax legislation by tax authorities as applied to the
transactions and activity of the Company may not coincide with that of
management. As a result, the tax authorities may challenge transactions and the
Company may be assessed additional taxes, penalties and interest, which may be
significant. The tax periods remain open to review by the tax and customs
authorities for three years. The Company cannot predict the ultimate amount of
additional assessments, if any, and the timing of their related settlements with
certainty, but expects that additional liabilities, if any, arising will not
have a significant effect on the accompanying financial statements.
ENVIRONMENTAL MATTERS. Environmental regulations and their enforcement are
continually being considered by governmental authorities, and the Company
periodically evaluates its obligations related thereto. As obligations are
determined, they are provided over the estimated remaining lives of the related
oil and gas reserves, or recognized immediately, depending on their nature. The
outcome of environmental liabilities under proposed or any future legislation,
or as a result of stricter enforcement of existing legislation, cannot
reasonably be estimated. Under existing legislation, management believes there
are no probable liabilities, which would have a materially adverse effect on the
financial position or the results of the Company.
LEGAL CONTINGENCIES. The Company is the named defendant in a number of lawsuits
as well as the named party in numerous other proceedings arising in the ordinary
course of business. While the outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, management believes that any
resulting liabilities will not have a materially adverse effect on the operating
results or the financial position of the Company.
INSURANCE. At 30 September 2001 and 2000, the Company held limited insurance
policies in relation to its assets and operations, or in respect of public
liability or other insurable risks. Since the absence of insurance alone does
not indicate that an asset has been impaired or a liability incurred, no
provision has been made in the financial statements for unspecified losses.
10
LLC GEOILBENT
NOTES TO THE FINANCIAL STATEMENTS
(expressed in US Dollars except as indicated)
NOTE 18: SUBSEQUENT EVENTS
At 30 September 2002, the Company has USD 22 million outstanding under a
long-term debt facility with the EBRD. This long-term debt facility requires the
Company to, among other things, maintain a minimum working capital ratio and to
implement a new management information system by 1 May 2003. The Company will
not be able to meet the long-term debt facility covenants and therefore the EBRD
may, in 2003, declare the loan to be in default and can accelerate the maturity.
11
LLC GEOILBENT
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
(expressed in US Dollars except as indicated)
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
In accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Producing Activities" ("SFAS 69"), this section
provides supplemental information on our oil and natural gas exploration and
production activities. Tables I through III provide historical cost information
pertaining to costs incurred in exploration, property acquisitions and
development; capitalized costs; and results of operations. Tables IV through VI
present information on our estimated proved reserve quantities, standardized
measure of estimated discounted future net cash flows related to proved
reserves, and changes in estimated discounted future net cash flows.
TABLE I - TOTAL COSTS INCURRED IN OIL AND NATURAL GAS ACQUISITION, EXPLORATION
AND DEVELOPMENT ACTIVITIES:
Year ended Year ended Year ended
Thousand of US Dollars 30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
Development costs 33,583 39,087 20,478
Exploration costs 6,100 823 150
------ ------ ------
TOTAL COSTS INCURRED IN OIL AND NATURAL GAS
ACQUISITION, EXPLORATION, AND DEVELOPMENT
ACTIVITIES 39,683 39,910 20,628
====== ====== ======
TABLE II - CAPITALIZED COSTS RELATED TO OIL AND NATURAL GAS PRODUCING
ACTIVITIES:
As at As at
Thousand of US Dollars 30 September 2001 30 September 2000
----------------- -----------------
Proved property costs 251,990 212,307
Oilfield inventories 12,814 7,955
Less accumulated depletion and impairment (65,302) (50,383)
------- -------
TOTAL CAPITALIZED COSTS RELATED TO OIL AND NATURAL GAS PRODUCING
ACTIVITIES 199,502 169,879
======= =======
12
LLC GEOILBENT
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
(expressed in US Dollars except as indicated)
TABLE III - RESULTS OF OPERATIONS FOR OIL AND NATURAL GAS PRODUCING ACTIVITIES:
In accordance with SFAS 69, results of operations for oil and natural gas
producing activities do not include general corporate overhead and monetary
effects, nor their associated tax effects. Income tax is based on statutory
rates for the year, adjusted for tax deductions, tax credits and allowances.
Year ended Year ended Year ended
Thousand of US Dollars 30 September 2001 30 September 2000 30 September 1999
----------------- ----------------- -----------------
Oil and natural gas sales 100,768 78,577 36,553
Expenses:
Operating, selling and distribution expenses
and taxes other than on income 47,302 31,856 18,677
Depletion 14,918 9,556 9,600
Income tax expense 11,006 9,722 2,715
------ ------ ------
Total expenses 73,226 51,136 30,992
------ ------ ------
RESULTS OF OPERATIONS FROM OIL AND NATURAL GAS
PRODUCING ACTIVITIES 27,542 27,441 5,561
====== ====== =====
TABLE IV - QUANTITIES OF OIL AND NATURAL GAS RESERVES
Proved reserves are estimated quantities of crude oil, natural gas, and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods.
The Company's oil and gas fields are situated on land belonging to the
Government of the Russian Federation. The Company obtained licenses from the
local authorities and pays royalties to explore and produce oil and gas from
these fields. Licenses will expire in September 2018 for the North Gubkinskoye
field, and in March 2023 for the South Tarasovskoye field. However, under
Paragraph 4 of the Russian Federal Law 20-FZ, dated 2 January 2000, the licenses
may be extended over the economic life of the lease at the Company's option.
Management intends to extend such licenses for properties that are expected to
produce subsequent to their expiry dates. Estimates of proved reserves extending
past 2018 represent approximately 5 percent of total proved reserves.
The Securities and Exchange Commission requires the reserve presentation to be
calculated using year-end prices and costs and assuming a continuation of
existing economic conditions. Proved reserves cannot be measured exactly, and
the estimation of reserves involves judgmental determinations. Reserve estimates
must be reviewed and adjusted periodically to reflect additional information
gained from reservoir performance, new geological and geophysical data and
economic changes. The estimates are based on current technology and economic
conditions, and we consider such estimates to be reasonable and consistent with
current knowledge of the
13
LLC GEOILBENT
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
(expressed in US Dollars except as indicated)
characteristics and extent of production. The estimates include only those
amounts considered to be proved reserves and do not include additional amounts
which may result from new discoveries in the future, or from application of
secondary and tertiary recovery processes where facilities are not in place or
for which transportation and/or marketing contracts are not in place.
Proved developed reserves are reserves which can be expected to be recovered
through existing wells with existing equipment and existing operating methods.
This classification includes: a) proved developed producing reserves which are
reserves expected to be recovered through existing completion intervals now open
for production in existing wells; and b) proved developed non producing reserves
which are reserves that exist behind the casing of existing wells which are
expected to be produced in the predictable future, where the cost of making such
oil and natural gas available for production should be relatively small compared
to the cost of a new well.
Any reserves expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing primary recovery methods
are included as proved developed reserves only after testing by a pilot project
or after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
Proved undeveloped reserves are proved reserves which are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage are limited to those drilling units offsetting productive units, which
are reasonably certain of production when drilled. Estimates of recoverable
reserves for proved undeveloped reserves may be subject to substantial variation
and actual recoveries may vary materially from estimates.
Proved reserves for other undrilled units are claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. No estimates for proved undeveloped reserves are
attributable to or included in this table for any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated unless proved effective by actual tests in the area and in the same
reservoir.
Changes in previous estimates of proved reserves result from new information
obtained from production history and changes in economic factors.
The evaluations of the oil and natural gas reserves were prepared by Ryder-Scott
Company, independent petroleum engineers, for 2001 and 2000, and by Huddleston &
Co., independent petroleum engineers, for 1999.
14
LLC GEOILBENT
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
(expressed in US Dollars except as indicated)
PROVED RESERVES-CRUDE OIL, CONDENSATE AND Year ended Year ended Year ended
NATURAL GAS LIQUIDS (MBBLS) 30 September 2001 30 September 2000 30 September 1999
- ----------------------------------------- ----------------- ----------------- -----------------
PROVED RESERVES BEGINNING OF YEAR 95,924 107,100 91,332
Revisions of previous estimates (16,454) (20,306) (1,564)
Extensions, discoveries and improved recovery 12,974 13,376 21,600
Production (5,185) (4,247) (4,268)
------- ------- -------
PROVED RESERVES, END OF YEAR 87,259 95,924 107,100
------- ------- -------
PROVED DEVELOPED RESERVES 46,052 43,861 39,982
======= ======= =======
TABLE V - STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO
PROVED OIL AND NATURAL GAS RESERVE QUANTITIES
The standardized measure of discounted future net cash flows is presented in
accordance with the provisions of SFAS 69. In preparing this data, assumptions
and estimates have been used, and we caution against viewing this information as
a forecast of future economic conditions.
Future cash inflows were estimated by applying year-end prices, adjusted for
fixed and determinable escalations provided by contract, to the estimated future
production of year-end proved reserves. Future cash inflows were reduced by
estimated future production and development costs to determine pre-tax cash
inflows. Future income taxes were estimated by applying the year-end statutory
tax rates to the future pre-tax cash inflows, less the tax basis of the
properties involved, and adjusted for permanent differences and tax credits and
allowances. The resultant future net cash inflows are discounted using a ten
percent discount rate.
YEAR ENDED YEAR ENDED YEAR ENDED
THOUSAND OF US DOLLARS 30 SEPTEMBER 2001 30 SEPTEMBER 2000 30 SEPTEMBER 1999
----------------- ----------------- -----------------
Future cash inflow 1,277,494 2,026,415 1,546,544
Future production costs (739,221) (1,224,824) (386,821)
Future development costs (108,882) (100,103) (88,388)
--------- --------- ---------
Future net revenue before income taxes 429,391 701,488 1,071,335
10% annual discount for estimated timing of cash
flows (190,788) (289,253) (437,959)
--------- --------- ---------
Discounted future net cash flows before income taxes 238,603 412,235 633,376
Future income taxes, discounted at 10% per annum (30,815) (74,809) (136,091)
--------- --------- ---------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS 207,788 337,426 497,285
========= ========= =========
15
LLC GEOILBENT
SUPPLEMENTAL INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES (UNAUDITED)
(expressed in US Dollars except as indicated)
TABLE VI - CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED RESERVES
YEAR ENDED YEAR ENDED YEAR ENDED
THOUSAND OF US DOLLARS 30 SEPTEMBER 2001 30 SEPTEMBER 2000 30 SEPTEMBER 1999
----------------- ----------------- -----------------
PRESENT VALUE AT BEGINNING OF PERIOD 337,426 497,285 127,200
Sales of oil and natural gas, net of related costs (54,015) (59,344) (9,524)
Revisions to estimates of proved reserves:
Net changes in prices, development and
production costs (107,356) (148,965) 355,124
Quantities (71,709) 57,424 135,544
Extensions, discoveries and improved recovery,
net of future costs 55,197 (92,559) (8,406)
Accretion of discount 41,224 63,338 14,574
Net change of income taxes 43,994 61,282 (117,568)
Development costs incurred 37,953 22,391 12,853
Changes in timing and other (74,926) (63,426) (12,512)
-------- -------- --------
PRESENT VALUE AT END OF PERIOD 207,788 337,426 497,285
======== ======== ========
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Peter J. Hill
-----------------------------------------
Peter J. Hill
President and Chief Executive Officer
By: /s/ Steven W. Tholen
-----------------------------------------
Steven W. Tholen
Senior Vice President and
Chief Financial Officer
Dated: March 28, 2003
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Peter J. Hill, certify that:
1. I have reviewed this report of Harvest Natural Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
Date: March 28, 2003 /s/ Peter J. Hill
-------------------------------------
Peter J. Hill
Principal Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Steven W. Tholen, certify that:
1. I have reviewed this report of Harvest Natural Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report.
Date: March 28, 2003 /s/ Steven W. Tholen
-------------------------------------
Steven W. Tholen
Principal Financial Officer
EXHIBIT INDEX
3.1 Certificate of Incorporation filed September 9, 1988
(Incorporated by reference to Exhibit 3.1 to our Registration
Statement (Registration No. 33-26333).
3.2 Amendment to Certificate of Incorporation filed June 7, 1991
(Previously filed as an exhibit to our S-1 Registration
Statement (Registration No. 33-39214)).
3.3 Restated Bylaws (Incorporated by reference to Exhibit 3.3 to
our Form 10-Q, filed August 13, 2001).
4.1 Form of Common Stock Certificate (Previously filed as an
exhibit to our S-1 Registration Statement (Registration No.
33-26333)).
10.1 Form of Employment Agreements (Exhibit 10.19) (Previously
filed as an exhibit to our S-1 Registration Statement
(Registration No. 33-26333)).
10.2 Benton Oil and Gas Company 1991-1992 Stock Option Plan
(Exhibit 10.14) (Previously filed as an exhibit to our S-1
Registration Statement (Registration No. 33-43662)).
10.3 Benton Oil and Gas Company Directors' Stock Option Plan
(Exhibit 10.15) (Previously filed as an exhibit to our S-1
Registration Statement (Registration No. 33-43662)).
10.4 Agreement dated October 16, 1991 among Benton Oil and Gas
Company, Puror State Geological Enterprises for Survey,
Exploration, Production and Refining of Oil and Gas; and Puror
Oil and Gas Production Association (Exhibit 10.14) (Previously
filed as an exhibit to our S-1 Registration Statement
(Registration No. 33-46077)).
10.5 Operating Service Agreement between Benton Oil and Gas Company
and Lagoven, S.A., which has been subsequently combined into
PDVSA Petroleo y Gas, S.A., dated July 31, 1992, (portions
have been omitted pursuant to Rule 406 promulgated under the
Securities Act of 1933 and filed separately with the
Securities and Exchange Commission -- Exhibit 10.25)
(Previously filed as an exhibit to our S-1 Registration
Statement (Registration No. 33-52436)).
10.6 Indenture dated May 2, 1996 between Benton Oil and Gas Company
and First Trust of New York, National Association, Trustee
related to $125,000,000, 11 5/8 percent Senior Notes Due 2003
(Incorporated by reference to Exhibit 4.1 to our S-4
Registration Statement filed June 17, 1996, SEC Registration
No. 333-06125).
10.7 Indenture dated November 1, 1997 between Benton Oil and Gas
Company and First Trust of New York, National Association,
Trustee related to an aggregate of $115,000,000 principal
amount of 9 3/8 percent Senior Notes due 2007 (Incorporated by
reference to Exhibit 10.1 to our Form 10-Q for the quarter
ended September 30, 1997).
10.8 Separation Agreement dated January 4, 2000 between Benton Oil
and Gas Company and Mr. A.E. Benton. (Incorporated by
reference to Exhibit 10.18 to our Form 10-K for the year ended
December 31, 1999).
10.9 Consulting Agreement dated January 4, 2000 between Benton Oil
and Gas Company and Mr. A.E. Benton. (Incorporated by
reference to Exhibit 10.19 to our Form 10-K for the year ended
December 31, 1999).
10.10 Employment Agreement dated July 10, 2000 between Benton Oil
and Gas Company and Peter J. Hill. (Incorporated by reference
to Exhibit 10.20 to our Form 8-K, filed June 6, 2000).
10.11 Benton Oil and Gas Company 1999 Employee Stock Option Plan
(Incorporated by reference to Exhibit 10.21 to our Form 10-K,
filed on April 2, 2001).
10.12 Benton Oil and Gas Company Non-Employee Director Stock
Purchase Plan (Incorporated by reference to Exhibit 10.21 to
our Form 10-K, filed on April 2, 2001).
10.13 Employment Agreement dated December 7, 2000 between Benton Oil
and Gas Company and Steven W. Tholen (Incorporated by
reference to Exhibit 10.21 to our Form 10-K, filed on April 2,
2001).
10.14 Note payable agreement dated March 8, 2001 between
Benton-Vinccler, C.A. and Banco Mercantil, C.A. related to a
note in the principal amount of $6,000,000 with interest at
LIBOR plus five percent, for financing of Tucupita Pipeline
(Incorporated by reference to Exhibit 10.24 to our Form 10-Q,
filed on May 15, 2001).
10.15 Note payable agreement dated March 8, 2001 between
Benton-Vinccler, C.A. and Banco Mercantil, C.A. related to a
note in the principal amount of 4,435,200,000 Venezuelan
Bolivars (approximately $6.3 million) at a floating interest
rate, for financing of Tucupita Pipeline (Incorporated by
reference to Exhibit 10.25 to our Form 10-Q, filed on May 15,
2001).
10.16 Change of Control Severance Agreement effective May 4, 2001
(Incorporated by reference to exhibit 10.26 to our Form 10-Q,
filed on August 13, 2001).
10.17 Alexander E. Benton Settlement and Release Agreement effective
May 11, 2001 (Incorporated by reference to Exhibit 10.27 to
our Form 10-Q, filed on August 13, 2001).
10.18 Michael B. Wray Termination Agreement effective May 7, 2001
(Incorporated by reference to Exhibit 10.28 to our Form 10-Q,
filed on August 13, 2001).
10.19 Michael B. Wray Consulting Agreement effective May 7, 2001
(Incorporated by reference to Exhibit 10.29 to our Form 10-Q,
filed on August 13, 2001).
10.20 Relocation/Reduction in Force Severance Plan effective June 5,
2001 (Incorporated by reference to Exhibit 10.30 to our Form
10-Q, filed on August 13, 2001).
10.21 First Amendment to Change of Control Severance Plan effective
June 5, 2001 (Incorporated by reference to Exhibit 10.31 to
our Form 10-Q, filed on August 13, 2001).
10.22 Amended Benton Oil and Gas Company Non-Employee Director Stock
Purchase Plan (Incorporated by reference to Exhibit 10.1 to
our Form 10-Q, filed on November 31, 2001).
10.23* Employment Agreement dated December 20, 2000 between Benton
Oil and Gas Company and Robert Stephen Molina.
10.24* Employment Agreement dated November 14, 2001, between Benton
Oil and Gas Company and Kurt A. Nelson.
10.25* Sale and Purchase Agreement dated February 27, 2002 between
Benton Oil and Gas Company and Sequential Holdings Russian
Investors Limited regarding the sale of Benton Oil and Gas
Company's 68 percent interest in Arctic Gas Company.
21.1* List of subsidiaries.
23.1* Consent of PricewaterhouseCoopers LLP (Financial Statements of
the Company).
23.2* Consent of Huddleston & Co., Inc.
23.3* Consent of Ryder Scott Company, L.P.
23.4 Consent of ZAO PricewaterhouseCoopers.
99.1 Accompanying Certificates
* Incorporated by reference to the original filing of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.