Harvest Natural Resources Announces 2014 Second Quarter Results

HOUSTON, Aug. 11, 2014 /PRNewswire/ -- Harvest Natural Resources, Inc. HNR (Harvest or the Company) today announced 2014 second quarter earnings and provided an operational update.

Harvest reported a second quarter net loss of approximately $1.7 million, compared with a net loss of $4.5 million for the same period last year. The second quarter results included exploration charges of $1.6 million and non-recurring charges of $3.2 million in impairment costs related to the Budong Budong block. Adjusted for exploration charges and non-recurring items, Harvest would have posted second quarter net income of approximately $3.1 million, or $0.07 per diluted share, before any adjustment for income taxes.

Petrodelta, S.A. (Petrodelta), Harvest's Venezuelan affiliate, reported second quarter operating income, before taxes and non-operating items, of $35.0 million ($7.14 million net to Harvest's equity, under IFRS). Petrodelta reported net income for the second quarter of $42.3 million ($8.63 million net to Harvest's equity interest, under IFRS). After adjustments to Petrodelta's IFRS earnings, primarily to conform to US GAAP, Harvest's equity interest in Petrodelta's earnings was $8.2 million, compared to $6.1 million for the same period during 2013.

Highlights for the second quarter of 2014 include:

Venezuela

During the second quarter of 2014, Petrodelta drilled and completed four development wells and sold approximately 4.1 million barrels of oil (MMBO) for a daily average of approximately 45,073 barrels of oil per day (BOPD), an increase of 18 percent over the same period in 2013;
Petrodelta's current production rate is approximately 40,840 BOPD and the 2014 expected average production rate is 45,000 BOPD with capital expenditures projected at $350 million;

Gabon

On March 26, 2014, the joint venture partners resolved that the four discovered fields in the Ruche cluster are commercial;
On June 3, 2014, the Director General of Hydrocarbons (DGH) of Gabon and the joint venture partners signed a Declaration of Commerciality (DOC);
On July 17, 2014, Gabon awarded an 850.5 square kilometer Exclusive Exploitation Authorization (EEA) for the development and exploitation of certain oil discoveries on the Dussafu Block;
On July 18, 2014, the Ruche cluster Field Development Plan was submitted to the DGH;
Continued processing the 3D survey acquired in the fourth quarter of 2013, which provides the first 3D coverage over the outboard portion of the block. The new 3D seismic data should also enhance the placement of future development wells in the Ruche and Tortue development program;

Indonesia

In June of 2014, the joint interest partners decided to relinquish their interest in Budong;

China

On July 3, 2014, the Company sold its entire interest in the WAB-21 block in the South China Sea for $3 million in cash.

VENEZUELA

During the second quarter ended June 30, 2014, Petrodelta sold approximately 4.1 MMBO for a daily average of 45,073 BOPD, an increase of 18 percent over the same period in 2013. Petrodelta also sold 0.68 billion cubic feet (BCF) of natural gas for a daily average of 7.5 million cubic feet per day (MMCFD). Petrodelta's current production rate is approximately 40,840 BOPD.

During the second quarter ended June 30, 2014, Petrodelta drilled and completed one development well in the Isleno Field, two development wells in the Temblador Field and one development well in the El Salto Field. Currently, Petrodelta is operating six drilling rigs and one workover rig and is continuing with infrastructure enhancement projects in the El Salto and Temblador Fields.

Petrodelta's production for 2014 is projected to be approximately 45,000 BOPD. The 2014 Petrodelta capital expenditures are expected to be approximately $350 million. Petrodelta expects to drill 19 oil wells during 2014.

The average sales price for crude oil produced during the quarter was approximately $88.77 per barrel.

EXPLORATION AND OTHER ACTIVITIES

Dussafu Project - Gabon (Dussafu PSC)

Operational activities during the six months ended June 30, 2014 included continuation of planning for development of the Ruche cluster and preparation of a field development plan. Field development options have been evaluated and key and long-lead equipment has been identified. Geoscience, reservoir engineering and economic studies have progressed, and the joint venture partners resolved that the four discovered fields (Ruche, Tortue, Moubenga and Walt Whitman) are commercial at an operating committee meeting on March 26, 2014. A DOC was signed with the Gabonese Republic (Gabon) pertaining to these four oil discoveries on the Dussafu Block on June 3, 2014. Furthermore, on July 17, 2014, Gabon awarded an EEA for the development and exploitation of the oil resources within the EEA area which covers 850.5 square kilometers.

The Company began reviewing the first high quality seismic data from the 1,260 square kilometer of 3D seismic survey during the fourth quarter of 2013. The survey provides the first 3D coverage over the outboard portion of the block where significant pre-salt prospectivity has been already recognized on 2D seismic data. The pre-salt is currently the focus of deep water exploration activity offshore Gabon, and seven new exploration licenses close to Dussafu were awarded by Gabon on August 8, 2014. The new 3D seismic data should also enhance the placement of development wells in the Ruche and Tortue development program and the development of numerous undrilled structures identified within the EEA.

Budong Budong PSC - Indonesia

In June 2014, we and our joint interest partner decided to relinquish our interest in Budong. We are working with the Indonesian government to complete the relinquishment which may take several months. As a result of these actions, the Company recognized a further charge of $3.2 million during the three months ended June 30, 2014, related to drilling obligations incurred in connection with the December 2012 acquisition of an additional 7.1 percent interest from our joint interest partner.

Conference Call

Harvest will hold a conference call at 10:00 a.m. CDT on Monday, August 11, 2014, during which management will discuss Harvest's 2014 second quarter results. The conference leader will be James A. Edmiston, President and Chief Executive Officer. To access the conference call, dial 719-325-2491 or 888-481-2844, five to ten minutes prior to the start time. At that time you will be asked to provide the conference number, which is 5523692. A recording of the conference call will also be available for replay at 719-457-0820 or 888-203-1112, passcode 5523692, through August 18, 2014.

The conference call will also be transmitted over the internet through the Company's website at www.harvestnr.com. To listen to the live webcast, enter the website fifteen minutes before the call to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay of the webcast will be available beginning shortly after the call and will remain on the website for approximately 90 days.

About Harvest Natural Resources:

Harvest Natural Resources, Inc., headquartered in Houston, Texas, is an independent energy company with principal operations in Venezuela and Gabon, and a business development office in Singapore. For more information visit the Company's website at www.harvestnr.com.

CONTACT:

Stephen C. Haynes

Vice President, Chief Financial Officer

(281) 899-5716

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 2013 Annual Report on Form 10-K and other public filings.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)




	June 30,		December 31,
	2014		2013
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,111	$	120,897
Restricted cash		25		148
Accounts receivable, net		524		1,962
Deferred income taxes		81		81
Prepaid expenses and other		1,000		2,030
TOTAL CURRENT ASSETS		9,741		125,118
LONG-TERM RECEIVABLE – EQUITY AFFILIATE		13,891		15,097
INVESTMENT IN EQUITY AFFILIATE		520,350		485,401
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)		103,873		108,013
Other administrative property, net		255		378
TOTAL PROPERTY AND EQUIPMENT, NET		104,128		108,391
OTHER ASSETS		881		873
TOTAL ASSETS	$	648,991	$	734,880
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other	$	1,402	$	4,398
Accrued expenses		12,647		22,659
Accrued interest		74		380
Income taxes payable		45		2,178
Current deferred tax liability		38,282		43,162
Current portion – long term debt		—		77,480
Note payable to noncontrolling interest owner		6,109		6,109
Warrant derivative liability		1,953		—
Other current liabilities		158		419
TOTAL CURRENT LIABILITIES		60,670		156,785
LONG-TERM DEFERRED TAX LIABILITY		33,597		29,787
WARRANT DERIVATIVE LIABILITY		—		1,953
OTHER LONG-TERM LIABILITIES		108		558
COMMITMENTS AND CONTINGENCIES
EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 a share; authorized 5,000 shares; outstanding, none		—		—
Common stock, par value $0.01 a share; authorized 80,000 shares at June 30, 2014 (December 31, 2013: 80,000 shares); issued 48,666 shares at June 30, 2014 (December 31, 2013: 48,666 shares)		487		487
Additional paid-in capital		277,672		276,083
Retained earnings		82,623		92,282
Treasury stock, at cost, 6,572 shares at June 30, 2014 (December 31, 2013: 6,551 shares)		(66,316)		(66,222)
TOTAL HARVEST STOCKHOLDERS' EQUITY		294,466		302,630
NONCONTROLLING INTERESTS		260,150		243,167
TOTAL EQUITY		554,616		545,797
TOTAL LIABILITIES AND EQUITY	$	648,991	$	734,880

		—		—

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
EXPENSES:
Depreciation and amortization	$	58	$	87	$	134	$	174
Exploration expense		1,648		2,007		3,481		3,737
Impairment expense		3,150		—		7,610		—
General and administrative		4,903		7,559		11,204		10,913
		9,759		9,653		22,429		14,824
LOSS FROM OPERATIONS		(9,759)		(9,653)		(22,429)		(14,824)
OTHER NON-OPERATING INCOME (EXPENSE):
Investment earnings and other		—		118		4		164
Loss on sale of interest in Harvest Holding		(391)		—		(1,357)		—
Unrealized gain on derivatives		—		—		—		3,785
Interest expense		(15)		(1,067)		(62)		(2,265)
Loss on extinguishment of debt		—		—		(4,749)		—
Foreign currency transaction gains (losses)		259		(183)		(210)		(91)
Other non-operating expenses		—		(141)		(220)		(613)
		(147)		(1,273)		(6,594)		980
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(9,906)		(10,926)		(29,023)		(13,844)
INCOME TAX BENEFIT		(88)		(1,415)		(1,042)		(1,376)
LOSS FROM CONTINUING OPERATIONS BEFORE EARNINGS FROM EQUITY AFFILIATE		(9,818)		(9,511)		(27,981)		(12,468)
EARNINGS FROM EQUITY AFFILIATE		16,062		7,602		34,949		57,073
INCOME (LOSS) FROM CONTINUING OPERATIONS		6,244		(1,909)		6,968		44,605
DISCONTINUED OPERATIONS		(230)		(1,006)		(361)		(1,491)
NET INCOME (LOSS)		6,014		(2,915)		6,607		43,114
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		7,665		1,551		16,266		11,483
NET INCOME (LOSS) ATTRIBUTABLE TO HARVEST [COMPREHENSIVE INCOME (LOSS)]	$	(1,651)	$	(4,466)	$	(9,659)	$	31,631
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations	$	(0.03)	$	(0.09)	$	(0.22)	$	0.85
Discontinued operations		(0.01)		(0.03)		(0.01)		(0.04)
Basic earnings (loss) per share	$	(0.04)	$	(0.12)	$	(0.23)	$	0.81
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations	$	(0.03)	$	(0.09)	$	(0.22)	$	0.84
Discontinued operations		(0.01)		(0.03)		(0.01)		(0.04)
Diluted earnings (loss) per share	$	(0.04)	$	(0.12)	$	(0.23)	$	0.80



WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		41,861		39,238		41,854		39,238
Diluted		41,861		39,238		41,854		39,349

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)



	Six Months Ended June 30,
	2014		2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,607	$	43,114
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		134		188
Impairment expense		7,610		—
Amortization of debt financing costs		—		724
Amortization of discount on debt		—		1,285
Loss on sale of interest in Harvest Holding		1,357		—
Foreign currency transaction loss		1,468		436
Loss on extinguishment of debt		4,749		—
Earnings from equity affiliate		(34,949)		(57,073)
Share-based compensation-related charges		1,589		1,269
Unrealized gain on derivatives		—		(3,785)
Changes in operating assets and liabilities:
Accounts and notes receivable		1,438		(374)
Prepaid expenses and other		(249)		355
Other assets		(8)		397
Accounts payable		(2,996)		(1,279)
Accrued expenses		(11,229)		(7,175)
Accrued interest		(306)		(253)
Income taxes payable		(2,133)		(3)
Deferred tax asset and liabilities		(1,070)		—
Other current liabilities		(261)		(1,560)
Other long-term liabilities		(450)		(705)
NET CASH USED IN OPERATING ACTIVITIES		(28,699)		(24,439)
CASH FLOWS FROM INVESTING ACTIVITIES:
Transaction costs from sale of interest in Harvest Holding		(3,540)		—
Additions of property and equipment		(521)		(37,888)
Advances to equity affiliate		(262)		(248)
(Increase) decrease in restricted cash		123		(212)
NET CASH USED IN INVESTING ACTIVITIES		(4,200)		(38,348)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment		(79,750)		—
Debt extinguishment costs		(760)		—
Contributions from noncontrolling interest owners		717		—
Net proceeds from issuances of common stock		—		122
Treasury stock purchases		(94)		—
Financing costs		—		(195)
NET CASH USED IN FINANCING ACTIVITIES		(79,887)		(73)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(112,786)		(62,860)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		120,897		72,627
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	8,111	$	9,767

PETRODELTA, S. A.
STATEMENTS OF OPERATIONS
(in thousands except per BOE and price amounts)



	Three Months Ended June 30,
	2014				2013
			$/BOE - net				$/BOE - net
Barrels of oil sold		4,102				3,477
MCF of gas sold		682				597
Total BOE		4,216				3,577
Total BOE - Net of 33% Royalty		2,811				2,384
Average price/barrel	$	88.77			$	90.33
Average price/mcf	$	1.54			$	1.54
REVENUES:
Oil sales	$	364,144			$	314,088
Gas sales		1,050				922
Royalty		(121,421)				(104,229)
		243,773	$	86.72		210,781	$	88.42
EXPENSES:
Operating expenses		60,542		21.54		36,136		15.16
Workovers		5,454		1.94		5,389		2.26
Depletion, depreciation and amortization		32,364		11.51		20,869		8.75
General and administrative		3,080		1.10		4,703		1.97
Windfall profits tax		52,123		18.54		51,928		21.78
Windfall profits credit reversal		55,168		19.63		—		—
		208,731		74.26		119,025		49.92
INCOME FROM OPERATIONS		35,042		12.46		91,756		38.50

Gain (loss) on exchange rate		223		0.08		(5,335)		(2.24)
Investment earnings and other		301		0.11		2		—
Interest expense		(8,295)		(2.95)		(3,175)		(1.33)
Income before income tax		27,271		9.70		83,248		34.93
Current income tax expense (benefit)		(5,558)		(1.98)		62,925		26.39
Deferred income tax benefit		(9,460)		(3.37)		(44,488)		(18.66)
NET INCOME UNDER IFRS		42,289	$	15.05		64,811	$	27.20
Adjustments to increase (decrease) net income under IFRS:
Deferred income tax expense		(30,359)				(33,973)
Depletion expense		(5,026)				(7,948)
Windfall profits tax credit reversal		55,168				—
Sports law over (under) accrual		689				(1,463)
Net income under U.S. GAAP		62,761				21,427
Equity interest in equity affiliate		40%				40%
Income before amortization of excess basis in equity affiliate		25,104				8,571
Amortization of excess basis in equity affiliate		(1,163)				(969)
Earnings from equity affiliate excluded from results of operations		(7,879)				—
Earnings from equity affiliate included in income	$	16,062			$	7,602

PETRODELTA, S. A.
STATEMENTS OF OPERATIONS
(in thousands except per BOE and price amounts)
(unaudited)


	Six Months Ended June 30,
	2014				2013
			$/BOE - net				$/BOE - net
Barrels of oil sold		7,980				6,838
MCF of gas sold		1,244				1,375
Total BOE		8,187				7,067
Total BOE - Net of 33% Royalty		5,458				4,712
Average price/barrel	$	86.44			$	92.34
Average price/mcf	$	1.54			$	1.54
REVENUES:
Oil sales	$	689,798			$	631,412
Gas sales		1,916				2,123
Royalty		(230,505)				(209,762)
		461,209	$	84.50		423,773	$	89.94
EXPENSES:
Operating expenses		105,606		19.35		62,669		13.30
Workovers		13,806		2.53		8,453		1.79
Depletion, depreciation and amortization		58,676		10.75		41,334		8.78
General and administrative		9,645		1.77		13,483		2.86
Windfall profits tax		98,425		18.03		117,974		25.04
Windfall profits tax (credit) and reversal of credit		55,168		10.11		(55,168)		(11.71)
		341,326		62.54		188,745		40.06
INCOME FROM OPERATIONS		119,883		21.96		235,028		49.88

Gain on exchange rate		168		0.03		181,386		38.49
Investment earnings and other		614		0.11		1,402		0.30
Interest expense		(15,851)		(2.90)		(5,925)		(1.25)
Income before income tax		104,814		19.20		411,891		87.42
Current income tax expense		46,760		8.57		200,534		42.56
Deferred income tax benefit		(32,698)		(5.99)		(41,110)		(8.72)
NET INCOME UNDER IFRS		90,752		16.62		252,467		53.58
Adjustments to increase (decrease) net income under IFRS:
Deferred income tax expense		(24,048)				(38,823)
Depletion expense		(9,897)				(12,178)
Windfall profits tax credit and (reversal) of credit		55,168				(55,168)
Sports law over accrual		740				188
Net income under U.S. GAAP		112,715				146,486
Equity interest in equity affiliate		40%				40%
Income before amortization of excess basis in equity affiliate		45,086				58,595
Amortization of excess basis in equity affiliate		(2,258)				(1,522)
Earnings from equity affiliate excluded from results of operations		(7,879)				—
Earnings from equity affiliate included in income	$	34,949			$	57,073

SOURCE Harvest Natural Resources, Inc.

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