OilVoice - Harvest Natural Resources Announces 2009 Results

Harvest Natural Resources Announces 2009 Results

Tuesday, March 16, 2010

Harvest posted fourth quarter net income of $5.1 million, or $0.15 per diluted share, compared to a net loss of $16.8 million, or $0.51 per share, for the 2008 fourth quarter. For the year ending December 31, 2009, Harvest's net loss was $3.1 million, or $0.09 per share, compared with a net loss of $21.5 million, or $0.63 per share, for 2008.

The fourth quarter results include exploration charges of $2.5 million, or $0.07 per diluted share. For the year, Harvest incurred exploration charges of $7.8 million, or $0.24 per share. Petrodelta, S.A. (Petrodelta), Harvest's Venezuelan affiliate, reported fourth quarter earnings of $48.8 million, $15.6 million net to Harvest's 32 percent equity interest, under International Financial Reporting Standards (IFRS). After adjustments to Petrodelta's IFRS earnings, primarily to conform to U.S. GAAP, Harvest's 32 percent share of Petrodelta's earnings was $13.0 million, a 56 percent increase over the prior quarter. For the year ending December 31, 2009, Petrodelta reported earnings of $143.3 million, or $45.9 million net to Harvest's 32 percent equity interest, under IFRS. After adjustments to Petrodelta's IFRS, primarily to conform to U.S. GAAP, Harvest's 32 percent share of Petrodelta's earnings was $32.6 million, a 14 percent increase over 2008.

Highlights for 2009 include:
• Petrodelta's self-funded drilling program drilled and completed 14 successful development wells and one new appraisal well, which increased oil production to 7.8 million barrels of oil, a 42 percent increase from the prior year and a 10 percent increase from mid-year. Petrodelta's average production rate during 2009 was 21,464 barrels of oil per day (BOPD);
• Drilled two new appraisal wells in the El Salto Field in Venezuela, of which one is producing and the other is waiting on permits for testing and production, proving-up new reserves and increasing recovery estimates, which increased total proved, probable and possible reserves to 224.3 MMBOE net to HNR, a 69 percent increase from the prior year;
• Drilled the Bar F exploration test well on the Antelope project in Utah and commenced an extensive testing program on the well. Currently, a potentially commercial oil discovery in the Lower Green River and Wasatch formations is being tested;
• In December, Harvest commenced production from the eight-well Monument Butte Extension appraisal and development drilling program in the Green River formation in the southern portion of Harvest's Antelope land position. Six wells are currently on production and produced at a combined average gross production rate of 1,959 BOPD and approximately 2 million cubic feet of gas per day (MMCFD) for the first thirteen days of March 2010. Cumulative gross oil production from the project from commencement through March 13, 2010 is approximately 101,000 barrels;
• Began site preparation for the two new exploratory wells at our Indonesian Budong-Budong oil prospect for a projected spud date that has been delayed to the second quarter of 2010;
• Progressed our technical evaluation of the company's Dussafu oil prospect in Gabon to identify a number of prospective targets in the sub-salt section for drilling later this year;
• In February 2010, raised net proceeds of $30 million from a Senior Convertible Notes offering; and
• Reduced general and administrative expenses to $23.5 million, a 16 percent reduction from the prior year and 19 percent lower than 2007.

Harvest President and Chief Executive Officer, James A. Edmiston, said:
"Despite one of the most challenging business environments in recent memory, Harvest achieved several key milestones in the Company's growth strategy. The success of Petrodelta's development and appraisal drilling program demonstrates the robust economics and potential of our Venezuelan business and the El Salto and Temblador fields, in particular. We expect to continue growing production over the next several years with internally generated cash flow."

Edmiston continued, "Our Antelope land position in Utah is the source of several exciting opportunities. In late 2009 and early 2010, we completed drilling in our first joint venture to develop shallow oil wells in the Monument Butte Extension project. This eight-well project with Newfield Exploration as operator extended the known limits of the established Monument Butte oil field located adjacent to the southern end of our land position. The production results of this program have significantly exceeded our pre-drill expectations, and the wells in the program represent some of the best wells in the entire Monument Butte field. The oil and gas production and cash flow from this project improves our operating cash flow and we plan to pursue additional drilling opportunities in the area this year. We also completed drilling and commenced an extensive testing program on our Bar F exploration well in the Antelope project. Overall, drilling, logging and testing results to date have confirmed our technical view that the deep Mesaverde section contains significant natural gas resources and the Green River and Upper Wasatch sections may hold significant volumes of oil and gas correlative to the Greater Altamont and Bluebell fields immediately to the north."

Edmiston added, "Outside of the United States and Venezuela, we are poised to advance the development of two of our exploration projects this year. The operator in Indonesia, after numerous delays, is now preparing two drilling sites at our Budong-Budong oil prospect and plans to begin drilling our first well in the second quarter of this year. Further, we expect to drill our first exploratory well in our Dussafu block in Gabon late this year. In 2009, we grew reserves and production through the drill bit and as a result, emerged from a challenging year as a stronger company. Our successful capital raise in February gives us additional financial resources for executing our growth and diversification plan in 2010."

EXPLORATION AND PRODUCTION PROGRAMS

Venezuela
During 2009, Petrodelta drilled and completed 14 development wells and one appraisal well. The company drilled an additional appraisal well which is waiting on permits for testing and production. Petrodelta produced approximately 7.8 million barrels of oil, an increase of 42 percent over the previous year. Petrodelta also sold 4.4 billion cubic feet of natural gas, a decrease of 59 percent from 2008. The average sales price for Petrodelta's crude oil production was $57.62 per barrel, 31 percent lower than 2008, and the average sales price received for natural gas remains contractually fixed at $1.54 per thousand cubic feet. Petrodelta's average production rate during 2009 was 21,464 BOPD.
Petrodelta's shareholders have approved a $205 million capital budget for 2010, which is intended to be self-funding, to expand the company's drilling program and install infrastructure for increasing production. The drilling program has experienced a temporary delay.

Highlights of the Ryder Scott Reserve Report as of December 31, 2009 (Venezuela) include:
• Combined proved, probable and possible reserves net to Harvest increased by approximately 69 percent to 224.3 MMBOE at December 31, 2009 from 132.4 MMBOE at December 31, 2008. By category and net to Harvest, proved, probable and possible reserves increased by approximately 7 percent, 38 percent and 126 percent, respectively.
• Proved reserves volumes net to Harvest increased approximately 7 percent to 46.3 MMBOE at December 31, 2009 from 43.3 MMBOE at December 31, 2008. Proved reserves of the El Salto Field alone increased 43 percent. Approximately 82 percent of the proved reserves are oil and condensate with 25 percent being developed.
• The after tax present value of proved reserves net to Harvest and discounted at 10 percent increased by approximately 260 percent to $400 million at December 31, 2009.

United States - Antelope
Operations activities in the company's Antelope prospect in Duchesne County, Utah are focused on two projects, the Monument Butte Extension shallow oil drilling and the Bar F exploration drilling project targeted at assessment of both deep Mesaverde gas and shallower Green River and Wasatch oil potential.

Monument Butte Extension Appraisal and Development Drilling Project
Harvest's Monument Butte Extension project consisted of an eight-well appraisal and development drilling program targeting oil production from the Green River formation on the southern portion of our Antelope land position, adjacent to the established Monument Butte oil field. The Monument Butte Extension project is operated by Newfield Exploration with Harvest holding a 43 percent working interest. As of March 13, 2010, eight wells have been drilled. Six wells are currently on production. The remaining two wells have been completed and are expected to be placed on production in the very near future. The average combined gross production rate for the six wells for the first thirteen days of March 2010 is 1,959 BOPD and approximately 2 MMCFD. Results of the program to date have significantly exceeded our initial expectations for production rates and gross drilling and completion costs of approximately $800,000 to $900,000 per well are generally in line with pre-drilling estimates. We are working with our partner to assess the potential for expanding this project in 2010. Our 2010 budget for this project is $1.1 million and could be increased to $4.6 million contingent on the outcome of our evaluation of results and negotiations with our partners.

As of December 31, 2009, five wells had been drilled and two wells were producing. Proved reserves attributable to this development, net to Harvest are approximately 0.4 MMBOE at December 31, 2009. The after tax present value of proved reserves net to Harvest and discounted at 10 percent is approximately $4.7 million at December 31, 2009. Drilling and production performance of the project in the period after December 31, 2009 indicate the likelihood that the reported December 31, 2009 reserve numbers significantly understate the potential of the eight well project.

Bar F Exploration Drilling Project
During 2009 with Harvest as operator, the Bar F # 1-20-3-2 deep test well was drilled to a total depth of 17,566 feet and a production testing program is in progress. The well was targeted to explore for and develop oil and natural gas from multiple reservoir horizons in the Uintah Basin, Utah. Initial testing was focused on the evaluation of the productive potential of the Mesaverde tight gas reservoir over a prospective interval from 14,000 to 17,400 feet. Eight separate zones have been hydraulically fractured and multiple extended flow tests have been performed. We have tested flow rates of 1.5 to 2 MMCFD from selected intervals in the well. These tests have not conclusively determined the commercial potential of stand-alone Mesaverde development in the current gas price environment.

Harvest have also initiated testing of multiple oil bearing intervals at depths from 8,200 feet to 9,500 feet in the Lower Green River and Upper Wasatch formations in the Bar F well. The company have hydraulically fractured six zones, and flow testing is currently in progress. The objective of the oil testing program is to determine whether the oil bearing zones will demonstrate flow rates capable of commercial production in stand-alone vertical wells targeted to develop these reservoirs.

Results to date indicate a potential oil discovery in the Green River and Wasatch formations. Harvest have tested 41 degree API crude oil from the uppermost horizon in the well at an average rate of 300 BOPD for an approximately 24 hour flow period with a flowing surface pressure in excess of 2200 psi. After drilling out plugs installed to isolate the remaining fractured zones, additional testing will be conducted over the entire oil bearing interval over the next few weeks.

Harvest are currently evaluating our plans for follow-up drilling to the Bar F. We anticipate the likelihood of conducting an active appraisal and development drilling program in the second half of 2010. Our 2010 budget for the Antelope Bar F program is $5.7 million, although that budget could increase to $33.0 million contingent on the final test results and the magnitude of the 2010 appraisal and development drilling program.

Indonesia - Budong-Budong
In 2009, Harvest completed interpretation of 2-D seismic data and began the process of preparing two locations for test wells. After numerous delays, the operator is close to mobilizing the drilling rig and associated equipment to the first location and plans to commence drilling operations in the second quarter of 2010. Harvest will fund 100 percent of the well expenditures up to a cap $10.7 million to earn our 47 percent working interest. Costs above that threshold will be shared proportionately with our partner. Our 2010 budget for the Budong-Budong project is $14.9 million, although that budget could increase to include appraisal drilling, depending on the well results.

Gabon - Dussafu Marin
The focus of operations in 2009 was reprocessing and interpretation of 2-D seismic data and pre-stack depth reprocessing of 3-D seismic data, which resulted in improved imaging and target identification. As a result of the improved imaging, we have matured the prospect inventory and identified several prospective targets in the sub-salt section in the Gamba and Syn-rift plays. These plays are commercially productive in the nearby Etame, Lucina and M'Bya fields. Subject to rig availability, we plan to drill an exploration well in the Dussafu prospect in the fourth quarter of 2010. The 2010 budget for the Dussafu PSC is $2.2 million, although this budget could be increased to $20.1 million contingent on rig availability and drilling results.

Oman - Block 64
Harvest secured an Exploration, Production and Sharing Agreement (EPSA) with Oman for the Al Ghubar/Qarn Alam license (Block 64). The block covers 955,600 acres located in the gas and condensate rich Ghaba Salt Basin located near the established Barik, Saih Rawl and Saih Nihayda gas and condensate fields. We have a 100 percent working interest in the block during the exploration phase with an obligation to drill two wells over a three-year period with a funding commitment of $22.0 million. If natural gas is discovered, then our partner, Oman Oil Company, has the option to back-in to a 20 percent interest. Harvest are currently compiling and analyzing existing data to identify drillable prospects. In 2010, the company expect to complete well planning in preparation of drilling the first well in 2011. The 2010 budget for this project is $2.8 million with additional contingent funds of $1.9 million.