Market Overview

Harvest Natural Soars on Venezuela Asset Sale


Pertamina, Indonesia's state-owned oil company, is buying Havest Natural Resources' (NYSE: HNR) oil assets in Venezuela for $725 million in cash. The news has sent shares of Harvest Natural soaring on Friday, with the stock jumping more than 78% to $8.70. The stock is now up about 18% year-to-date. Harvest is selling its 32 percent stake in Petrodelta SA, a joint venture with Petroleos de Venezuela SA. According to Harvest Natural's website, Petrodelta's six fields hold gross proved reserves of 195 million barrels of oil and 235 billion cubic feet of gas.

Some market observers had speculated that Chinese companies such as China National Offshore Oil Corp. or China Petroleum & Chemical Corp. might be interested in purchasing the Venezuelan assets, but according to an analyst quoted by Bloomberg, the Chinese didn't want to pay a "good price."

Just this month, Venezuela surpassed Saudi Arabia in terms of proven oil reserves, making it the most oil-rich nation in the world. According to Zach Prensky of words you want to show up, it is extremely likely that the deal, which will result in net proceeds to Harvest of around $525 million after “deductions for transaction related costs and taxes," will get done. “This deal is going to close 100 percent,” said Prensky. “It's an enormous amount of money that will accrue to the Venezuelan treasury. They've got 200 million reasons to get this done.”

Prensky wrote a fascinating and very detailed research piece on Harvest April 4. In the article, he pointed to the potential sale of the company's stake in Petrodelta and said that "Harvest's stock could easily double in a short period of time as a possible sale moves forward." He added, "As someone who focuses most of my time seeking out binary events where the payoff is skewed, I cannot find too many opportunities better than Harvest Natural Resources." For anyone who is interested in this stock, Prensky's analysis is a must-read.

Benzinga also had the opportunity to speak with Prensky after the deal was announced. He said that Harvest is his biggest holding and that he only sold around 10% of his position on the huge gap up after the deal was announced on Thursday afternoon. Prensky thinks Harvest could go to $13-$15 as the deal gets closer to closing. He also said that he thinks this deal will change how investors look at Venezuela's oil assets.

Prensky told Bloomberg, “This gets to the heart of the fact that outside of the U.S. everyone else is clamoring to get in,” he said. “People are trying to use the next year or so to get in there at an advantageous time. There's no other country outside of Saudi Arabia where you can have a lower drilling risk profile.”

Another analyst that believes Harvest is still significantly undervalued, even after today's near 80% jump, is Patrick Goff, senior analyst at First Capital Alliance LLC. He told Bloomberg that the deal is worth $14 per share by itself, irrespective of HNR's cash and other operations, which includes assets in Gabon in western Africa. He values Harvest's non-Petrodelta assets at $5 per share. “If you do the simple math of the net proceeds to the company after they pay taxes and transaction costs, the deal is worth approximately $14 a share, and the company still has assets in Gabon in western Africa which are worth $5 a share or more,” Goff told Bloomberg yesterday in a telephone interview.

Posted-In: News Hedge Funds Commodities Asset Sales M&A Intraday Update Markets Movers Best of Benzinga


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