• Mixed Company Conversion Continues to Affect Venezuela Financial Reporting
• Shareholders Approve Conversion
• 2006 Operating Advances Reimbursed by PDVSA
Harvest Natural Resources, Inc. has announced a 2006 fourth quarter loss of $8.6 million, or $0.23 per diluted share, compared with net income of $10.5 million, or $0.27 per diluted share, for the 2005 fourth quarter.
Like the second and third quarters, the Company did not recognize the equity earnings for its producing operations in Venezuela for the fourth quarter. The equity earnings for the three quarters starting April 1, 2006 will be reported upon completion of the conversion to the mixed company (Petrodelta).
The Company had a loss of $58.6 million, or $1.57 per diluted share, for the twelve months ended December 31, 2006 compared with earnings of $50.8 million, or $1.32 per diluted share, for 2005. The loss for 2006 is due to the inability to recognize equity earnings for the producing operations in Venezuela beginning with the second quarter and charges of $73.8 million, or $59.0 million net to the Company's 80 percent interest, for additional taxes and related interest in Venezuela for 2001 through 2006.
Harvest Vinccler, S.C.A. (HVSCA), the Company's 80 percent owned affiliate, has resolved and substantially paid all of the tax claims made by the SENIAT, the Venezuelan income tax authority. The additional taxes were primarily due to the SENIAT's retroactive tax rate increase for 2001 through 2004. Resolution of the tax claims was a necessary step in the transition of HVSCA's operations to Petrodelta.
Harvest President and Chief Executive Officer, James A. Edmiston, said, "During the fourth quarter, we received approval from our shareholders to execute the conversion contract, cancel our operating services agreement and transfer all of our tangible assets, contracts and rights related to the South Monagas Unit (SMU) fields in Venezuela to Petrodelta after receiving government approvals. In addition, Petrodelta would operate the Isleno, Temblador and El Salto fields upon their award by the Venezuelan government. The conversion contract is expected to be signed and Petrodelta is expected to be formed after receipt of Venezuelan government approvals. The Company will own a 32 percent net interest in Petrodelta."
Edmiston continued, "Although we made progress towards the completion of the conversion during 2006, the complexity of the issues involved has increased the amount of time we and the Venezuelan government believed would be needed to complete the process. However, a number of other companies have now signed their conversion contracts and formed their mixed companies. Moreover, we understand three companies have completed the entire conversion process and are now ready to invoice PDVSA for the oil and gas delivered since April 1, 2006. With the precedents established and issues resolved by the companies more advanced in the conversion process, we expect to be able to expedite the conversion process and issuance of invoices for payment once we receive the government approvals."
HVSCA continues to operate the SMU fields in Venezuela and advanced $36.3 million to fund operations for the last three quarters of 2006 of which $21.2 million, representing the second and third quarter advances, have been reimbursed by Petroleos de Venezuela, S.A. (PDVSA). The fourth quarter advances of $15.1 million were invoiced to PDVSA in February 2007. A Memorandum of Understanding between Company affiliates and Corporacion Venezolana del Petroleo S.A. and PDVSA Petroleo S.A. provides that upon conversion to Petrodelta, there will be an economic adjustment as if the conversion had been completed on April 1, 2006.
For the nine months ended December 31, 2006, operating statistics (on a 100% basis) for the SMU fields operated by HVSCA are as follows:
• Production of 5.2 million barrels of oil and 11.5 billion cubic feet (Bcf) of natural gas. Average daily production for the last three quarters was 25,900 barrels of oil equivalent. Oil production for the fourth quarter was 1.6 million barrels and 3.6 Bcf, or average daily production of 23,900 barrels of oil equivalent.
• Crude oil prices that would be paid for the oil production if the conversion contract were in place cannot be calculated as two elements of the pricing formula have not been set. Market prices for crude oil of the type produced in SMU averaged approximately $47 per barrel for the nine months ended December 31, 2006 and $41 per barrel for the three months ended December 31, 2006. 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.