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EX-31.2 - EX-31.2 - HARVEST NATURAL RESOURCES, INC. | h85387xexv31w2.htm |
EX-32.2 - EX-32.2 - HARVEST NATURAL RESOURCES, INC. | h85387xexv32w2.htm |
EX-32.1 - EX-32.1 - HARVEST NATURAL RESOURCES, INC. | h85387xexv32w1.htm |
EX-31.1 - EX-31.1 - HARVEST NATURAL RESOURCES, INC. | h85387xexv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - HARVEST NATURAL RESOURCES, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2011
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to |
Commission File No. 1-10762
Harvest Natural Resources, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 77-0196707 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |
1177 Enclave Parkway, Suite 300 Houston, Texas (Address of Principal Executive Offices) |
77077 (Zip Code) |
(281) 899-5700
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
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 the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer þ | Non-Accelerated Filer o | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
At October 28, 2011, 34,317,087 shares of the Registrants Common Stock were outstanding.
HARVEST NATURAL RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 98,044 | $ | 58,703 | ||||
Accounts and note receivable, net: |
||||||||
Oil and gas revenue receivable |
| 1,907 | ||||||
Dividend receivable equity affiliate |
12,200 | | ||||||
Joint interest and other |
10,288 | 2,325 | ||||||
Note receivable |
3,335 | 3,420 | ||||||
Advances to equity affiliate |
2,288 | 1,706 | ||||||
Assets held for sale (See Note 3) |
| 88,774 | ||||||
Prepaid expenses and other |
2,463 | 4,793 | ||||||
TOTAL CURRENT ASSETS |
128,618 | 161,628 | ||||||
OTHER ASSETS |
2,336 | 2,477 | ||||||
INVESTMENT IN EQUITY AFFILIATES |
329,964 | 287,933 | ||||||
PROPERTY AND EQUIPMENT: |
||||||||
Oil and gas properties (successful efforts method) |
90,501 | 34,679 | ||||||
Other administrative property |
3,167 | 3,209 | ||||||
TOTAL PROPERTY AND EQUIPMENT |
93,668 | 37,888 | ||||||
Accumulated depletion, depreciation and amortization |
(1,938 | ) | (1,682 | ) | ||||
TOTAL PROPERTY AND EQUIPMENT, NET |
91,730 | 36,206 | ||||||
TOTAL ASSETS |
$ | 552,648 | $ | 488,244 | ||||
LIABILITIES AND EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable, trade and other |
$ | 9,763 | $ | 3,205 | ||||
Accounts payable, carry obligation |
3,596 | 8,395 | ||||||
Accrued expenses |
15,436 | 15,087 | ||||||
Liabilities held for sale (See Note 3) |
| 663 | ||||||
Accrued interest |
220 | 896 | ||||||
Income taxes payable |
5,858 | 72 | ||||||
TOTAL CURRENT LIABILITIES |
34,873 | 28,318 | ||||||
OTHER LONG-TERM LIABILITIES |
958 | 1,834 | ||||||
LONG-TERM DEBT |
32,000 | 81,237 | ||||||
COMMITMENTS AND CONTINGENCIES (See Note 5) |
| | ||||||
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
September 30, 2011 and December 31, 2010, respectively; issued
40,555 shares and 40,103 shares at September 30, 2011 and
December 31, 2010, respectively |
406 | 401 | ||||||
Additional paid-in capital |
232,209 | 230,362 | ||||||
Retained earnings |
237,525 | 141,584 | ||||||
Treasury stock, at cost, 6,521 shares and 6,475 shares at September 30, 2011
and December 31, 2010, respectively |
(66,104 | ) | (65,543 | ) | ||||
TOTAL HARVEST STOCKHOLDERS EQUITY |
404,036 | 306,804 | ||||||
NONCONTROLLING INTEREST |
80,781 | 70,051 | ||||||
TOTAL EQUITY |
484,817 | 376,855 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 552,648 | $ | 488,244 | ||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
EXPENSES |
||||||||||||||||
Depreciation and amortization |
$ | 111 | $ | 119 | $ | 354 | $ | 362 | ||||||||
Exploration expense |
1,575 | 2,592 | 7,414 | 5,329 | ||||||||||||
General and administrative |
4,041 | 6,620 | 17,109 | 17,466 | ||||||||||||
Taxes other than on income |
250 | 218 | 906 | 716 | ||||||||||||
5,977 | 9,549 | 25,783 | 23,873 | |||||||||||||
LOSS FROM OPERATIONS |
(5,977 | ) | (9,549 | ) | (25,783 | ) | (23,873 | ) | ||||||||
OTHER NON-OPERATING INCOME (EXPENSE) |
||||||||||||||||
Investment earnings and other |
159 | 123 | 544 | 394 | ||||||||||||
Interest expense |
(806 | ) | (217 | ) | (4,722 | ) | (1,321 | ) | ||||||||
Loss on extinguishment of debt |
| | (9,682 | ) | | |||||||||||
Other non-operating expenses |
(316 | ) | | (991 | ) | | ||||||||||
Foreign currency transaction loss |
(43 | ) | 2 | (86 | ) | (1,549 | ) | |||||||||
(1,006 | ) | (92 | ) | (14,937 | ) | (2,476 | ) | |||||||||
LOSS FROM CONSOLIDATED COMPANIES
CONTINUING OPERATIONS BEFORE INCOME
TAXES |
(6,983 | ) | (9,641 | ) | (40,720 | ) | (26,349 | ) | ||||||||
INCOME TAX EXPENSE |
226 | 699 | 708 | 832 | ||||||||||||
LOSS FROM CONSOLIDATED COMPANIES
CONTINUING OPERATIONS |
(7,209 | ) | (10,340 | ) | (41,428 | ) | (27,181 | ) | ||||||||
NET INCOME FROM UNCONSOLIDATED
EQUITY AFFILIATES |
19,613 | 6,148 | 55,616 | 53,430 | ||||||||||||
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS |
12,404 | (4,192 | ) | 14,188 | 26,249 | |||||||||||
DISCONTINUED OPERATIONS: |
||||||||||||||||
Income (loss) from discontinued operations |
| 390 | (2,786 | ) | 3,208 | |||||||||||
Gain on sale of assets |
36 | | 103,969 | | ||||||||||||
Income tax expense on gain |
(3,500 | ) | | (8,700 | ) | | ||||||||||
Income (loss) from discontinued operations |
(3,464 | ) | 390 | 92,483 | 3,208 | |||||||||||
NET INCOME (LOSS) |
8,940 | (3,802 | ) | 106,671 | 29,457 | |||||||||||
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST |
3,819 | 1,189 | 10,730 | 10,154 | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE
TO HARVEST |
$ | 5,121 | $ | (4,991 | ) | $ | 95,941 | $ | 19,303 | |||||||
NET INCOME (LOSS) ATTRIBUTABLE TO
HARVEST PER COMMON SHARE: (See Note 2 Summary of Significant Accounting Policies, Earnings Per Share): |
||||||||||||||||
Basic |
$ | 0.15 | $ | (0.15 | ) | $ | 2.82 | $ | 0.58 | |||||||
Diluted |
$ | 0.14 | $ | (0.15 | ) | $ | 2.42 | $ | 0.53 | |||||||
See accompanying notes to consolidated financial statements.
4
Table of Contents
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 106,671 | $ | 29,457 | ||||
Adjustments to reconcile net income to net cash
used in operating activities: |
||||||||
Depletion, depreciation and amortization |
1,164 | 2,566 | ||||||
Impairment of long-lived assets |
4,707 | | ||||||
Amortization of debt financing costs |
753 | 552 | ||||||
Amortization of discount on debt |
816 | | ||||||
Gain on sale of assets |
(103,969 | ) | | |||||
Loss on early extinguishment of debt |
7,533 | | ||||||
Net income from unconsolidated equity affiliate |
(55,616 | ) | (53,430 | ) | ||||
Share-based compensation-related charges |
3,659 | 3,037 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts and notes receivable |
(5,971 | ) | 4,365 | |||||
Advances to equity affiliate |
(582 | ) | 2,952 | |||||
Prepaid expenses and other |
2,330 | (267 | ) | |||||
Accounts payable |
6,558 | 301 | ||||||
Accrued expenses |
(1,533 | ) | 3,168 | |||||
Accrued interest |
(1,269 | ) | (5,345 | ) | ||||
Other long-term liabilities |
(877 | ) | | |||||
Income taxes payable |
5,786 | (213 | ) | |||||
NET CASH USED IN OPERATING ACTIVITIES |
(29,840 | ) | (12,857 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Proceeds from sale of assets |
217,833 | | ||||||
Additions of property and equipment |
(58,474 | ) | (10,041 | ) | ||||
Additions to assets held for sale |
(31,422 | ) | (24,578 | ) | ||||
Proceeds from sale of equity affiliate |
1,385 | | ||||||
Increase in restricted cash |
| (1,000 | ) | |||||
Investment costs |
(876 | ) | (203 | ) | ||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
128,446 | (35,822 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net proceeds from issuances of common stock |
924 | 494 | ||||||
Proceeds from issuance of long-term debt |
| 32,000 | ||||||
Payments of long-term debt |
(60,000 | ) | | |||||
Financing costs |
(189 | ) | (2,822 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
(59,265 | ) | 29,672 | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
39,341 | (19,007 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
58,703 | 32,317 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 98,044 | $ | 13,310 | ||||
Supplemental Schedule of Noncash Investing and Financing Activities:
During the nine months ended September 30, 2011, we issued 0.2 million shares of restricted
stock valued at $2.0 million. Also, some of our employees elected to pay withholding tax on
restricted stock grants on a cashless basis which resulted in 45,532 shares being added to treasury
stock at cost.
During the nine months ended September 30, 2010, we issued 0.3 million shares of restricted
stock valued at $1.8 million. Also, some of our employees elected to pay withholding tax on
restricted stock grants on a cashless basis, which resulted in 26,260 shares being added to
treasury stock at cost; and 1,000 shares held in treasury that had been reissued as restricted
stock were forfeited and returned to treasury.
See accompanying notes to consolidated financial statements.
5
Table of Contents
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)
Note 1 Organization
Interim Reporting
The accompanying unaudited consolidated financial statements contain all adjustments necessary
for a fair statement of our financial position as of September 30, 2011, and the results of
operations for the three and nine months ended September 30, 2011 and 2010, and cash flows for the
nine months ended September 30, 2011 and 2010. The unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and do not include all disclosures
normally required by accounting principles generally accepted in the United States of America
(GAAP). Reference should be made to our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2010, which include
certain definitions and a summary of significant accounting policies and should be read in
conjunction with this Quarterly Report on Form 10-Q. The results of operations for any interim
period are not necessarily indicative of the results of operations for the entire year.
Organization
Harvest Natural Resources, Inc. (Harvest) is an independent energy company engaged in the
acquisition, exploration, development, production and disposition of oil and natural gas properties
since 1989, when it was incorporated under Delaware law.
We have significant interests in the Bolivarian Republic of Venezuela (Venezuela). Our
Venezuelan interests are owned through HNR Finance, B.V. (HNR Finance). Our ownership of HNR
Finance is through several corporations in all of which we have direct controlling interests.
Through these corporations, we indirectly own 80 percent of HNR Finance and our partner, Oil & Gas
Technology Consultants (Netherlands) Coöperatie U.A., a controlled affiliate of Venezolana de
Inversiones y Construcciones Clerico, C.A. (Vinccler), indirectly owns the remaining 20 percent
interest in HNR Finance. HNR Finance owns 40 percent of Petrodelta, S.A. (Petrodelta). As we
indirectly own 80 percent of HNR Finance, we indirectly own a net 32 percent interest in
Petrodelta, and Vinccler indirectly owns eight percent. Corporación Venezolana del Petroleo S.A.
(CVP) owns the remaining 60 percent of Petrodelta. HNR Finance also has a direct controlling
interest in Harvest Vinccler S.C.A. (Harvest Vinccler). Harvest Vincclers main business
purposes are to assist us in the management of Petrodelta and in negotiations with Petroleos de
Venezuela S.A. (PDVSA). We do not have a business relationship with Vinccler outside of
Venezuela.
In addition to our interests in Venezuela, we have exploration acreage mainly onshore in West
Sulawesi in the Republic of Indonesia (Indonesia), offshore of the Republic of Gabon (Gabon),
onshore in the Sultanate of Oman (Oman), and offshore of the Peoples Republic of China
(China). See Note 10 Indonesia, Note 11 Gabon and Note 12 Oman.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned and
majority-owned subsidiaries. All intercompany profits, transactions and balances have been
eliminated.
Reporting and Functional Currency
The United States Dollar (U.S. Dollar) is the reporting and functional currency for all of
our controlled subsidiaries and Petrodelta. Amounts denominated in non-U.S. Dollar currencies are
re-measured in U.S. Dollars, and all currency gains or losses are recorded in the consolidated
statement of operations. We attempt to manage our operations in such a manner as to reduce our
exposure to foreign exchange losses. However, there are many factors that affect foreign exchange
rates and resulting exchange gains and losses, many of which are beyond our influence.
6
Table of Contents
Harvest Vinccler does not have currency exchange risk other than the official prevailing
exchange rate that applies to their operating costs denominated in Venezuela Bolivars (Bolivars)
(4.30 Bolivars per U.S. Dollar). However, during the three and nine months ended September 30,
2011, Harvest Vinccler exchanged approximately $0.3 million and $0.7 million, respectively, through
Sistema de Transacciones con Títulos en Moneda Extranjera (SITME) and received an average
exchange rate of 5.15 Bolivars and 5.17 Bolivars, respectively, per U.S. Dollar. During the three
and nine months ended September 30, 2010, no such exchanges took place. Harvest Vinccler currently
does not have any U.S. Dollars pending government approval for settlement for Bolivars at the
official exchange rate or the SITME exchange rate.
The monetary assets that are exposed to exchange rate fluctuations are cash, accounts
receivable, prepaid expenses and other current assets. The monetary liabilities that are exposed
to exchange rate fluctuations are accounts payable, accruals and other current liabilities. All
monetary assets and liabilities incurred at the official Bolivar exchange rate are settled at the
official Bolivar exchange rate. At September 30, 2011, the balances in Harvest Vincclers Bolivar
denominated monetary assets and liabilities accounts that are exposed to exchange rate changes are
3.7 million Bolivars and 6.3 million Bolivars, respectively.
See Note 8 Investment in Equity Affiliates Petrodelta for a discussion of currency
exchange risk on Petrodeltas business.
Cash and Cash Equivalents
Cash equivalents include money market funds with original maturity dates of less than three
months.
Financial Instruments
Our financial instruments that are exposed to concentrations of credit risk consist primarily
of cash and cash equivalents, accounts receivable, and notes payable. Cash and cash equivalents
are placed with commercial banks with high credit ratings. This diversified investment policy
limits our exposure both to credit risk and to concentrations of credit risk.
Total long-term debt at September 30, 2011 consisted of $32 million of fixed-rate unsecured
senior convertible notes maturing in 2013 unless earlier redeemed, purchased or converted. At
December 31, 2010, total long-term debt consisted of $32 million of fixed-rate unsecured senior
convertible notes maturing in 2013 unless earlier redeemed, purchased or converted and $60 million
of fixed-rate unsecured term loan facility maturing in 2012. See Note 4 Long-Term Debt.
Accounts and Notes Receivable
Notes receivable bear interest and can have due dates that are less than one year or more than
one year. Amounts outstanding under the notes bear interest at a rate based on the current prime
rate and are recorded at face value. Interest is recognized over the life of the note. We may or
may not require collateral for the notes.
Each note is analyzed to determine if it is impaired pursuant to Accounting Standards Updates
(ASU) 2010-20. A note is impaired if it is probable that we will not collect all principal and
interest contractually due. We do not accrue interest when a note is considered impaired. All
cash receipts on impaired notes are applied to reduce the accrued interest on the note until the
interest is made current and, thereafter, applied to reduce the principal amount of such notes.
At September 30, 2011 and December 31, 2010, our note receivable relates to a prospect leasing
cost financing arrangement. The note receivable plus accrued interest was approximately $3.3
million and $3.4 million, respectively, and was secured by a portion of the production from the Bar
F #1-20-3-2 in Utah. With the sale of our oil and gas assets in Utahs Uinta Basin (Antelope
Project) effective March 1, 2011, the note receivable plus accrued interest will be settled upon
finalization of certain terms of the Joint Exploration and Development Agreement (JEDA) which
defined the participating parties obligations over our Antelope Project. See Note 3
Dispositions and Note 5 Commitments and Contingencies.
7
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Other Assets
At September 30, 2011, other assets consist of investigative costs associated with new
business development projects of $0.4 million and deferred financing costs of $1.2 million. The
investigative costs are reclassified to oil and gas properties or expensed depending on
managements assessment of the likely outcome of the project. During the nine months ended
September 30, 2011, $0.1 million of investigative costs associated with new business development
projects were reclassified to expense. At December 31, 2010, other assets consisted of
investigative costs associated with new business development projects of $0.3 million and deferred
financing costs of $2.2 million.
Deferred financing costs relate to specific financing and are amortized over the life of the
financing to which the costs relate. See Note 4 Long-Term Debt.
Other Assets at September 30, 2011 also includes a blocked payment of $0.7 million net to our
66.667 percent interest related to our drilling operations in Gabon in accordance with the U.S.
sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011, and
administered by the United States Treasury Departments Office of Foreign Assets Control (OFAC).
See Note 5 Commitments and Contingencies.
Investment in Equity Affiliates
Investments in unconsolidated companies in which we have less than a 50 percent interest and
have significant influence are accounted for under the equity method of accounting (Accounting
Standards Codification [ASC] 323). Investment in Equity Affiliates is increased by additional
investments and earnings and decreased by dividends and losses. We review our Investment in Equity
Affiliates for impairment whenever events and circumstances indicate a decline in the
recoverability of its carrying value. There are many factors to consider when evaluating an equity
investment for possible impairment. Currency devaluations, inflationary economies and cash flow
analysis are some of the factors we consider in our evaluation for possible impairment. At
September 30, 2011 and December 31, 2010, there were no events that caused us to evaluate our
investment in equity affiliates for impairment.
Property and Equipment
We use the successful efforts method of accounting for oil and gas properties.
Suspended Exploratory Drilling Costs
Budong PSC
At September 30, 2011, oil and gas properties include capitalized suspended exploratory
drilling costs of $14.0 million related to drilling in the Budong-Budong Production Sharing
Contract (Budong PSC) of the Lariang-1 (LG-1). The LG-1 targeted the Miocene and Eocene
reservoirs to a planned depth of approximately 7,200 feet. The LG-1 was drilled to a total depth
of 5,311 feet and encountered multiple oil and gas shows within the secondary Miocene objective.
At a depth of 5,300 feet, losses of heavy drilling mud into the formation were encountered which,
when coupled with the very high formation pressures, led the partners to the decision to
discontinue drilling and plug and abandon the well for safety reasons on April 8, 2011. The
primary Eocene targets had not been reached. While the results to date have not definitively
determined the commerciality of development of the LG-1, we believe that the well results confirm
that the Miocene formation exhibits sufficient quantities of hydrocarbons to justify potential
development pending further appraisal.
Capitalized Interest
We capitalize interest costs for qualifying oil and gas properties. The capitalization period
begins when expenditures are incurred on qualified properties, activities begin which are necessary
to prepare the property for production and interest costs have been incurred. The capitalization
period continues as long as these events occur. The average additions for the period are used in
the interest capitalization calculation. During the three and nine months ended September 30,
2011, we capitalized interest costs of $0.6 million and $1.6 million, respectively, for qualifying
oil and gas property additions. During the three and nine months ended September 30, 2010, we
capitalized interest costs of $0.7 million and $0.9 million, respectively, for qualifying oil and
gas property additions.
8
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Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
At September 30, 2011 and December 31, 2010, cash and cash equivalents include $89.4 million
and $51.0 million, respectively, in a money market fund comprised of high quality, short term
investments with minimal credit risk which are reported at fair value. The fair value measurement
of these securities is based on quoted prices in active markets (level 1 input) for identical
assets. The estimated fair value of our senior convertible notes based on observable market
information (level 2 input) as of September 30, 2011 and December 31, 2010 was $62.4 million and
$61.7 million, respectively. The estimated fair value of our term loan facility based on
internally developed discounted cash flow model and inputs based on managements best estimates
(level 3 input) for identical liabilities as of December 31, 2010 was $49.2 million.
Our current assets and liabilities accounts include financial instruments, the most
significant of which are accounts receivables and trade payables. We believe the carrying values
of our current assets and liabilities approximate fair value, with the exception of the note
receivable. Because this note receivable is not publicly-traded and not easily transferable, the
estimated fair value of our note receivable is based on the market approach and time value of money
which approximates the note receivable book value of $3.3 million and $3.4 million at September 30,
2011 and December 31, 2010, respectively. The majority of inputs used in the fair value
calculation of the note receivable are Level 3 inputs and are consistent with the information used
in determining impairment of the note receivable.
The following is a reconciliation of the net beginning and ending balances recorded for
financial assets and liabilities classified as Level 3 in the fair value hierarchy.
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Financial assets: |
||||||||
Beginning balance |
$ | 3,420 | $ | 3,265 | ||||
Issuances |
| 200 | ||||||
Accrued interest |
200 | 398 | ||||||
Payments |
(285 | ) | (443 | ) | ||||
Ending balance |
$ | 3,335 | $ | 3,420 | ||||
Financial liabilities: |
||||||||
Beginning balance |
$ | 49,237 | $ | | ||||
Debt issuance |
| 60,000 | ||||||
Discount on debt |
| (11,122 | ) | |||||
Amortization of discount on debt |
10,763 | 359 | ||||||
Payments |
(60,000 | ) | | |||||
Ending balance |
$ | | $ | 49,237 | ||||
Asset Retirement Liability
ASC 410, Asset Retirement and Environmental Obligations (ASC 410) requires entities to
record the fair value of a liability for a legal obligation to retire an asset in the period in
which the liability is incurred if a reasonable estimate of fair value can be made. No wells were
abandoned during the nine months ended September 30, 2011 or the year ended December 31, 2010.
Changes in asset retirement obligations during the nine months ended September 30, 2011 and the
year ended December 31, 2010 were as follows:
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September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Asset retirement obligations beginning of period |
$ | 663 | $ | 50 | ||||
Liabilities recorded during the period |
52 | 382 | ||||||
Liabilities settled during the period |
| | ||||||
Revisions in estimated cash flows |
(120 | ) | 197 | |||||
Accretion expense |
4 | 34 | ||||||
Reclassify to gain on sale of assets |
(599 | ) | | |||||
Asset retirement obligations end of period |
$ | | $ | 663 | ||||
Noncontrolling Interests
Changes in noncontrolling interest during the nine months ended September 30, 2011 and 2010,
were as follows:
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Balance at beginning of period
|
$ | 70,051 | $ | 57,406 | ||||
Net income attributable to noncontrolling interest
|
10,730 | 10,154 | ||||||
Balance at end of period
|
$ | 80,781 | $ | 67,560 | ||||
Earnings Per Share
Basic earnings per common share (EPS) are computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
Three Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Income (loss) from continuing operations(a) |
$ | 8,585 | $ | 8,585 | $ | (5,381 | ) | $ | (5,381 | ) | ||||||
Discontinued operations |
(3,464 | ) | (3,464 | ) | 390 | 390 | ||||||||||
Net income (loss) attributable to Harvest |
$ | 5,121 | $ | 5,121 | $ | (4,991 | ) | $ | (4,991 | ) | ||||||
Weighted average common shares outstanding |
34,174 | 34,174 | 33,596 | 33,596 | ||||||||||||
Effect of dilutive securities |
| 2,403 | | | ||||||||||||
Weighted average common shares,
including dilutive effect |
34,174 | 36,577 | 33,596 | 33,596 | ||||||||||||
Per share: |
||||||||||||||||
Income (loss) from continuing operations(a) |
$ | 0.25 | $ | 0.23 | $ | (0.16 | ) | $ | (0.16 | ) | ||||||
Discontinued operations |
$ | (0.10 | ) | $ | (0.09 | ) | $ | 0.01 | $ | 0.01 | ||||||
Net income (loss) attributable to
Harvest |
$ | 0.15 | $ | 0.14 | $ | (0.15 | ) | $ | (0.15 | ) |
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Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Income from continuing operations(a) |
$ | 3,458 | $ | 3,458 | $ | 16,095 | $ | 16,095 | ||||||||
Discontinued operations |
92,483 | 92,483 | 3,208 | 3,208 | ||||||||||||
Net income attributable to Harvest |
$ | 95,941 | $ | 95,941 | $ | 19,303 | $ | 19,303 | ||||||||
Weighted average common shares outstanding |
34,053 | 34,053 | 33,424 | 33,424 | ||||||||||||
Effect of dilutive securities |
| 5,592 | | 2,997 | ||||||||||||
Weighted average common shares,
including dilutive effect |
34,053 | 39,645 | 33,424 | 36,421 | ||||||||||||
Per share: |
||||||||||||||||
Income from continuing operations(a) |
$ | 0.10 | $ | 0.09 | $ | 0.48 | $ | 0.44 | ||||||||
Discontinued operations |
$ | 2.72 | $ | 2.33 | $ | 0.10 | $ | 0.09 | ||||||||
Net income attributable to Harvest |
$ | 2.82 | $ | 2.42 | $ | 0.58 | $ | 0.53 |
(a) | Excludes net income attributable to noncontrolling interest. |
The three months ended September 30, 2011 per share calculations above exclude 0.7 million
options and 1.6 million warrants because they were anti-dilutive.
The three months ended September 30, 2010 per share calculations above exclude 3.7 million options
because they were anti-dilutive. We did not have any warrants
outstanding during the three months ended September 30, 2010.
The nine months ended September 30, 2011 per share calculations above exclude 0.7 million
options and 1.6 million warrants because they were anti-dilutive.
The nine months ended September 30, 2010 per share calculations above exclude 3.0 million options
because they were anti-dilutive. We did not have any warrants
outstanding during the nine months ended September 30, 2010.
Stock options for 0.2 million shares were exercised in the nine months ended September 30,
2011 resulting in cash proceeds of $0.9 million. Stock options for 0.3 million shares were
exercised in the nine months ended September 30, 2010 resulting in cash proceeds of $0.5 million.
New Accounting Pronouncements
In September 2011, the Financial Accounting Standard Board (FASB) issued ASU No. 2011-08,
which is included in ASC 350, Intangibles Goodwill and Other (ASC 350). The objective of
this update is to simplify how entities, both public and nonpublic, test goodwill for impairment.
This update permits an entity to first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount as a basis
for determining whether it is necessary to perform the two-step goodwill impairment test described
in ASC 350. ASU No. 2011-08 is effective for annual and interim fiscal years beginning after
December 15, 2011. Early adoption is permitted. The adoption of ASU No. 2011-08 is not expected
to have a material impact on our consolidated financial position, results of operation or cash
flows.
Reclassifications
Certain items in 2010 have been reclassified to conform to the 2011 financial statement
presentation.
Note 3 Dispositions
Assets Held for Sale
On May 17, 2011, we closed the transaction to sell all of our interest in the oil and gas
assets located in our Antelope Project area in the Uinta Basin of Utah which consisted of
approximately 69,000 gross acres (47,600 net acres), and the related contracts, reserves,
production, wells, pipelines production facilities and other rights, title and interests located in
the Uintah Basin in Duchesne and Uintah Counties, Utah. The transaction included the Mesaverde Gas
Exploration and Appraisal Project (Mesaverde), the Lower Green River/Upper Wasatch Oil
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Delineation and Development Project (Lower Green River/Upper Wasatch) and the Monument Butte
Extension Appraisal and Development Project (Monument Butte Extension). We owned an approximate
working interest of 70 percent in the Mesaverde and Lower Green River/Upper Wasatch, an approximate
60 percent working interest in one well in the Monument Butte Extension, an approximate 43 percent
working interest in the initial eight well program in the Monument Butte Extension, and 37 percent
working interest in the follow-up six well program in the Monument Butte Extension. The initial
eight well program and follow-up six well program in the Monument Butte Extension were
non-operated. The sale had an effective date of March 1, 2011. We received cash proceeds of
approximately $217.8 million which reflects increases to the purchase price for customary
adjustments and deductions for transaction related costs. All activities associated with the
Antelope Project, as well as the related gain on sale of $104.0 million, have been reflected as
discontinued operations on the consolidated statement of operations. We do not have any continuing
involvement with the Antelope Project.
The Antelope Project has been classified as discontinued operations. The Antelope Project
assets and liabilities held for sale as of December 31, 2010, are reported in the consolidated
balance sheet as follows:
December 31, | ||||
2010 | ||||
(in thousands) | ||||
Proved oil and gas properties |
$ | 31,037 | ||
Unproved oil and gas properties |
57,737 | |||
Total assets held for sale |
$ | 88,774 | ||
Asset retirement liabilities |
$ | 663 | ||
Total liabilities held for sale |
$ | 663 | ||
Discontinued Operations
Revenue and net income on these dispositions are shown in the table below:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue applicable to discontinued operations |
$ | | $ | 1,919 | $ | 6,488 | $ | 7,957 | ||||||||
Net income (loss) from discontinued operations |
$ | (3,464 | ) | $ | 390 | $ | 92,483 | $ | 3,208 |
Net loss from discontinued operations for the three months ended September 30, 2011
includes a $3.5 million increase in U.S. income tax related to the sale of the Antelope Project.
Net income from discontinued operations for the nine months ended September 30, 2011 includes $1.4
million for impairment of inventory from cost to market, $3.6 million for employee severance and
special accomplishment bonuses, and $8.7 million of U.S. income tax related to the sale of our
Antelope Project.
Special accomplishment bonuses of $1.2 million directly related to the sale of the Antelope
Project were paid at the closing of the sale. Employee severance costs of $0.1 million were paid
in the three months ended June 30, 2011, and $1.3 million is expected to be paid in January 2012.
Severance costs for key employees include $0.5 million of restricted stock units which was paid in
July 2011. Severance costs for key employees also include 58,000 stock appreciation rights (SAR)
granted at an exercise price of $4.595 per SAR. These SARs are exercisable by the key employee for
up to one year after termination.
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Note 4 Long-Term Debt
Long-Term Debt
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Senior convertible notes, unsecured, with interest at 8.25%
See description below |
$ | 32,000 | $ | 32,000 | ||||
Term loan facility with interest at 10%
See description below |
| 60,000 | ||||||
32,000 | 92,000 | |||||||
Discount on term loan facility
See description below |
| (10,763 | ) | |||||
$ | 32,000 | $ | 81,237 | |||||
On February 17, 2010, we closed an offering of $32.0 million in aggregate principal amount of
our 8.25 percent senior convertible notes. Under the terms of the notes, interest is payable
semi-annually in arrears on March 1 and September 1 of each year, beginning September 1, 2010. The
senior convertible notes will mature on March 1, 2013, unless earlier redeemed, repurchased or
converted. The notes are convertible into shares of our common stock at a conversion rate of
175.2234 shares of common stock per $1,000 principal amount of senior convertible notes, equivalent
to a conversion price of approximately $5.71 per share of common stock. The senior convertible
notes are general unsecured obligations, ranking equally with all of our other unsecured senior
indebtedness, if any, and senior in right of payment to any of our subordinated indebtedness, if
any. The senior convertible notes are also redeemable in certain circumstances at our option and
may be repurchased by us at the purchasers option in connection with occurrence of certain events.
Financing costs associated with the senior convertible notes offering are being amortized over the
remaining life of the notes and are recorded in other assets. The balance for financing costs was
$1.2 million and $1.9 million at September 30, 2011 and December 31, 2010, respectively.
On October 29, 2010, we closed a $60.0 million term loan facility with MSD Energy Investments
Private II, LLC (MSD Energy), an affiliate of MSD Capital, L.P., as the sole lender under the
term loan facility. The term loan facility was repaid on May 17, 2011 with proceeds from the sale
of our Antelope Project. As disclosed in previous filings, we issued 6.0 million warrants in three
separate tranches to MSD Energy in connection with the term loan facility. The value of the
warrants was recorded as discount on debt with a corresponding credit to additional paid in
capital. On May 17, 2011, in connection with the payment of the term loan facility, the balance of
the discount on debt for the two tranches which were vested was expensed to loss on extinguishment
of debt in the nine months ended September 30, 2011. The balance of the discount on debt for the
third tranche was reversed out of additional paid in capital as the warrants associated with the
third tranche were unvested. The two vested tranches, 1.6 million warrants at $14.78 per warrant,
remain outstanding at September 30, 2011.
Note 5 Commitments and Contingencies
We have various contractual commitments pertaining to exploration, development and production
activities. Currently, we have a work commitment of $22.0 million which is a minimum amount to be
spent on the Al Ghubar / Qarn Alam license (Block 64 EPSA) in Oman for the drilling of two wells
over a three-year period which expires in May 2013 (see Note 12 Oman). Through September 30,
2011, we have incurred $5.2 million of this work commitment. We do not have any remaining work
commitments for the current exploration phase of the Dussafu PSC, but as of May 28, 2012, the Dussafu
PSC enters the third exploration phase. If the partners elect to enter the third exploration
phase, there will be a $7.0 million ($4.7 million net to our 66.667 percent interest) work
commitment over a two year period. The remaining work commitment for the current exploration phase
on the Budong PSC is for geological and geophysical work to be completed in the year 2012 at a
minimum of $0.5 million ($0.3 million net to our 64.51 percent cost sharing interest [see Note 10 Indonesia]).
In October 2007, we entered into a JEDA with a private third party with respect to the
Antelope Project. In connection with the sale of each partys interests in the Antelope Project
(see Note 3 Dispositions), on January 11,
2011, we entered into a letter agreement with the private third party wherein the private
third party agreed to reimburse us for certain expenses related to the sale of the two parties
interests in the Antelope Project. The private third party disputes our calculation of the amount
owed to us pursuant to the January 11, 2011 letter agreement. On
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March 11, 2011, we entered into a
letter agreement with the private third party regarding certain obligations between the parties
related to the JEDA. The private third party disputes our calculation of the amount due pursuant
to one of the items in the March 11, 2011 letter agreement. At September 30, 2011, we have a note
receivable outstanding from the private third party of $3.3 million (see Note 2 Summary of
Significant Accounting Policies, Accounts and Note Receivable) and an account payable outstanding
to the private third party of $3.6 million related to the purchase in July 2010 of an incremental
10 percent interest in the Antelope Project. At this time, we cannot predict the outcome of this
dispute with the private third party.
On May 31, 2011, the United Kingdom branch of our subsidiary, Harvest Natural Resources, Inc.
(UK), initiated a wire transfer of approximately $1.1 million ($0.7 million net to our 66.667
percent interest) intending to pay Libya Oil Gabon S.A. (LOGSA) for fuel that LOGSA supplied to
our subsidiary in the Netherlands, Harvest Dussafu, B.V., for the companys drilling operations in
Gabon. On June 1, 2011, our bank notified us that it had been required to block the payment in
accordance with the U.S. sanctions against Libya as set forth in Executive Order 13566 of February
25, 2011, and administered by the United States Treasury Departments OFAC, because the payee,
LOGSA, may be a blocked party under the sanctions. The bank further advised us that it could not
release the funds to the payee or return the funds to us unless we obtain authorization from OFAC.
On June 30, 2011, we filed a voluntary self-disclosure with OFAC to report that we had
possibly violated the U.S. sanctions by attempting to remit funds to LOGSA. On September 20, 2011,
we received a response from OFAC which stated that OFAC had decided to address the matter by
issuing us a cautionary letter instead of pursuing a civil penalty. The cautionary letter
represents OFACs final response to the apparent violation, but does not constitute a final agency
determination as to whether a violation occurred.
Concurrently with the filing of the voluntary self-disclosure, we applied for a license with
OFAC that would authorize us to pay LOGSA for the fuel provided. In addition to the blocked funds,
we owe this supplier approximately $0.7 million ($0.5 million net to our 66.667 percent interest)
in additional payments that we are unable to remit unless we are authorized to do so. We are
waiting on a response and are unable, at this time, to predict when a license may be granted, if at
all. On October 26, 2011, we filed an application with OFAC for return of the blocked funds to us.
Unless that application is approved, the funds will remain in the blocked account, and we can give
no assurance when, or if, OFAC will permit the funds to be released.
Robert C. Bonnet and Bobby Bonnet Land Services vs. Harvest (US) Holdings, Inc., Branta
Exploration & Production, LLC, Ute Energy LLC, Cameron Cuch, Paula Black, Johnna Blackhair, and
Elton Blackhair in the United States District Court for the District of Utah. This suit was
served in April 2010 on Harvest and Elton Blackhair, a Harvest employee, alleging that the
defendants, among other things, intentionally interfered with Plaintiffs employment agreement with
the Ute Indian Tribe Energy & Minerals Department and intentionally interfered with Plaintiffs
prospective economic relationships. Plaintiffs seek actual damages, punitive damages, costs and
attorneys fees. We dispute Plaintiffs claims and plan to vigorously defend against them. We are
unable to estimate the amount or range of any possible loss.
Uracoa Municipality Tax Assessments. Our Venezuelan subsidiary, Harvest Vinccler, has
received nine assessments from a tax inspector for the Uracoa municipality in which part of the
Uracoa, Tucupita and Bombal fields are located as follows:
| Three claims were filed in July 2004 and allege a failure to withhold for technical service payments and a failure to pay taxes on the capital fee reimbursement and related interest paid by Petroleos de Venezuela S.A. (PDVSA) under the Operating Service Agreement (OSA). Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss one of the claims and has protested with the municipality the remaining claims. |
| Two claims were filed in July 2006 alleging a failure to pay taxes at a new rate set by the municipality. Harvest Vinccler has filed a protest with the Tax Court in Barcelona, Venezuela, on these claims. |
| Two claims were filed in August 2006 alleging a failure to pay taxes on estimated revenues for the second quarter of 2006 and a withholding error with respect to certain vendor payments. Harvest Vinccler has filed a protest with the Tax Court in Barcelona, Venezuela, on one claim and filed a protest with the municipality on the other claim. |
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| Two claims were filed in March 2007 alleging a failure to pay taxes on estimated revenues for the third and fourth quarters of 2006. Harvest Vinccler has filed a protest with the municipality on these claims. |
Harvest Vinccler disputes the Uracoa tax assessments and believes it has a substantial basis for
its positions. Harvest Vinccler is unable to estimate the amount or range of any possible loss.
As a result of the SENIATs, the Venezuelan income tax authority, interpretation of the tax code as
it applies to operating service agreements, Harvest Vinccler has filed claims in the Tax Court in
Caracas against the Uracoa Municipality for the refund of all municipal taxes paid since 1997.
Libertador Municipality Tax Assessments. Harvest Vinccler has received five
assessments from a tax inspector for the Libertador municipality in which part of the Uracoa,
Tucupita and Bombal fields are located as follows:
| One claim was filed in April 2005 alleging a failure to pay taxes at a new rate set by the municipality. Harvest Vinccler has filed a protest with the Mayors Office and a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claim. On April 10, 2008, the Tax Court suspended the case pending a response from the Mayors Office to the protest. If the municipalitys response is to confirm the assessment, Harvest Vinccler will defer to the competent Tax Court to enjoin and dismiss the claim. |
| Two claims were filed in June 2007. One claim relates to the period 2003 through 2006 and seeks to impose a tax on interest paid by PDVSA under the OSA. The second claim alleges a failure to pay taxes on estimated revenues for the third and fourth quarters of 2006. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss both claims. |
| Two claims were filed in July 2007 seeking to impose penalties on tax assessments filed and settled in 2004. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss both claims. |
Harvest Vinccler disputes the Libertador allegations set forth in the assessments and believes it
has a substantial basis for its position. Harvest Vinccler is unable to estimate the amount or
range of any possible loss. As a result of the SENIATs interpretation of the tax code as it
applies to operating service agreements, Harvest Vinccler has filed claims in the Tax Court in
Caracas against the Libertador Municipality for the refund of all municipal taxes paid since 2002.
We are a defendant in or otherwise involved in other litigation incidental to our business.
In the opinion of management, there is no such litigation that will have a material adverse impact
on our consolidated financial condition, results of operations and cash flows.
Note 6 Taxes
Taxes Other Than on Income
The components of taxes other than on income were:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Franchise Taxes |
$ | 45 | $ | 45 | $ | 136 | $ | 151 | ||||||||
Payroll and Other Taxes |
205 | 173 | 770 | 565 | ||||||||||||
$ | 250 | $ | 218 | $ | 906 | $ | 716 | |||||||||
Note 7 Operating Segments
We regularly allocate resources to and assess the performance of our operations by segments
that are organized by unique geographic and operating characteristics. The segments are organized
in order to manage
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regional business, currency and tax related risks and opportunities. Operations
included under the heading United States and other include corporate management, cash management,
business development and financing activities performed in the United States and other countries,
which do not meet the requirements for separate disclosure. All intersegment revenues, other
income and equity earnings, expenses and receivables are eliminated in order to reconcile to
consolidated totals. Corporate general and administrative and interest expenses are included in
the United States and other segment and are not allocated to other operating segments:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Segment Income (Loss)
|
||||||||||||||||
Venezuela |
$ | 18,652 | $ | 5,654 | $ | 52,314 | $ | 49,930 | ||||||||
Indonesia |
(685 | ) | (2,622 | ) | (3,562 | ) | (5,415 | ) | ||||||||
Gabon |
(149 | ) | (639 | ) | (699 | ) | (1,062 | ) | ||||||||
United States and other |
(9,233 | ) | (7,774 | ) | (44,595 | ) | (27,358 | ) | ||||||||
Discontinued operations
(Antelope Project) |
(3,464 | ) | 390 | 92,483 | 3,208 | |||||||||||
Net income (loss) attributable
to Harvest |
$ | 5,121 | $ | (4,991 | ) | $ | 95,941 | $ | 19,303 | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Operating Segment Assets |
||||||||
Venezuela |
$ | 333,373 | $ | 292,023 | ||||
Indonesia |
75,770 | 16,254 | ||||||
Gabon |
103,259 | 25,335 | ||||||
United States and other |
169,982 | 130,626 | ||||||
Net assets held for sale (Antelope Project) |
| 88,774 | ||||||
682,384 | 553,012 | |||||||
Intersegment eliminations |
(129,736 | ) | (64,768 | ) | ||||
$ | 552,648 | $ | 488,244 | |||||
Note 8 Investment in Equity Affiliates
Petrodelta
Petrodelta is governed by its own charter and bylaws and operates a portfolio of properties in
eastern Venezuela including large proven oil fields as well as properties with substantial
opportunities for both development and exploration. Petrodelta is to undertake its operations in
accordance with Petrodeltas business plan as set forth in its conversion contract. Under its
conversion contract, work programs and annual budgets adopted by Petrodelta must be consistent with
Petrodeltas business plan. Petrodeltas business plan may be modified by a favorable decision of
the shareholders owning at least 75 percent of the shares of Petrodelta. Petrodeltas 2011 capital
expenditures are expected to be approximately $200 million. As of September 30, 2011, Petrodelta
had incurred only $97.9 million in capital expenditures of its expected 2011 budget primarily due
to lack of funding by PDVSA.
As disclosed in previous filings, PDVSA has failed to pay on a timely basis certain amounts
owed to contractors that PDVSA has contracted to do work for Petrodelta. PDVSA purchases all of
Petrodeltas oil production. PDVSA and its affiliates have reported shortfalls in meeting their
cash requirements for operations and planned capital expenditures, and PDVSA has fallen behind in
certain of its payment obligations to its contractors, including contractors engaged by PDVSA to
provide services to Petrodelta. In addition, PDVSA has fallen behind in certain of its payment
obligations to Petrodelta, which payments Petrodelta would otherwise use to pay its contractors.
As a result, Petrodelta is continuing to experience difficulty in retaining contractors who provide
services for Petrodeltas operations. We cannot provide any assurance as to whether or when PDVSA
will become
current on its payment obligations. Inability to retain contractors or to pay them on a
timely basis is having an adverse effect on Petrodeltas operations and on Petrodeltas ability to
carry out its business plan.
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We have advanced certain costs on behalf of Petrodelta. These costs include consultants in
engineering, drilling, operations and seismic interpretation, and employee salaries and related
benefits for Harvest employees seconded into Petrodelta. Currently, we have five employees
seconded into Petrodelta. Costs advanced are invoiced on a monthly basis to Petrodelta. We are
considered a contractor to Petrodelta, and as such, we are also experiencing the slow payment of
invoices. During the nine months ended September 30, 2011, we advanced Petrodelta $0.7 million for
continuing operations costs, and Petrodelta repaid $0.1 million of the advances. Advances to
equity affiliate has increased $0.6 million in the nine months ended September 30, 2011. Although
payment is slow, payments continue to be received.
In April 2011, the Venezuelan government published in the Official Gazette the Law Creating a
Special Contribution on Extraordinary Prices and Exorbitant Prices in the International
Hydrocarbons Market (the amended Windfall Profits Tax). The amended Windfall Profits Tax
establishes a special contribution for extraordinary prices to the Venezuelan government of 20
percent to be applied to the difference between the price fixed by the Venezuela budget for the
relevant fiscal year (set at $40 per barrel for 2011) and $70 per barrel. The amended Windfall
Profits Tax also establishes a special contribution for exorbitant prices to the Venezuelan
government of (1) 80 percent when the average price of the VEB exceeds $70 per barrel but is less
than $90 per barrel; (2) 90 percent when the average price of the VEB exceeds $90 per barrel but is
less that $100 per barrel; and (3) 95 percent when the average price of the VEB exceeds $100 per
barrel. The amended Windfall Profits Tax caps the cash royalty paid on production at $70 per
barrel. By placing a cap on the royalty barrels, the amended Windfall Profits Tax reduces the
royalties paid to the government and increases payments to the National Development Fund
(FONDEN).
The Windfall Profits Tax is deductible for Venezuelan income tax purposes. Petrodelta
recorded $69.4 million and $161.9 million for Windfall Profits Tax during the three and nine months
ended September 30, 2011, respectively. During the three months ended September 30, 2010, no
expense was recorded for the Windfall Profits Tax. Petrodelta recorded $2.9 million of expense for
the Windfall Profits Tax during the nine months ended September 30, 2010.
There are many sections of the amended Windfall Profits Tax which have yet to be clarified.
One section for which Petrodelta is waiting for clarity is how the $70 cap on royalty barrels will
be applied to royalties paid in-kind. Petrodelta pays royalties on production of 30 percent in-kind and 3.33
percent in cash. For the six months ended June 30, 2011, Petrodelta applied the current oil price
to total barrels produced and to total royalty barrels. In October 2011, Petrodelta received
preliminary instructions from PDVSA that royalties, whether paid in cash or in-kind, should be
reported at $70 per barrel (royalty barrels x $70). The difference between the $70 royalty cap and
the current oil price is to be reflected on the income statement as a reduction in oil sales.
PDVSA also instructed Petrodelta to make the reporting change retroactive to April 18, 2011, the
date of enactment of the amended Windfall Profits Tax. From April 18, 2011 to September 30, 2011,
the reduction to oil sales due to the $70 cap applied to all royalty barrels was $52.7 million
($16.9 million net to our 32 percent interest). Net oil sales (oil sales less royalties) are the
same under the method advised by PDVSA and the method of applying the current oil price to total
barrels produced and to total royalty barrels; however, the method advised by PDVSA understates
gross oil sales.
Per our interpretation of the amended Windfall Profits Tax, the $70 cap on royalty barrels
should only be applied to the 3.33 percent royalty which Petrodelta pays in cash. Pending receipt
of final guidance from the Venezuelan government, we have applied the $70 cap to only the 3.33
percent royalty barrels paid in cash and the current oil sales price to the 30 percent royalty
barrels paid in-kind. With the assistance of Petrodelta, we have recalculated Petrodeltas oil
sales and royalties to apply the current oil price to its total barrels produced and to the 30
percent royalty paid in-kind and applied the $70 cap to the 3.33 percent royalty paid in
cash for the nine months ended September 30, 2011. From April 18, 2011 to September 30, 2011, net
oil sales (oil sales less royalties) are slightly higher, $5.3 million ($1.7 million net to our 32
percent interest), under this method than the method advised by PDVSA and the method of applying
the current oil price to total barrels produced and to total royalty barrels.
Another section of the amended Windfall Profits Tax for which Petrodelta is waiting for
clarity relates to an exemption of this tax that can be granted by the Ministry of the Peoples
Power for Energy and Petroleum (MENPET) for the incremental production of projects and grass root
developments until the specific investments are recovered. This exemption has to be considered and
approved in a case by case basis by MENPET. We believe
several of the fields operated by Petrodelta may qualify for the exemption from the amended
Windfall Profits Tax. We are waiting for clarification from MENPET on the definitions of
incremental production and grass roots developments, as well as guidance on the process for
applying for the exemption.
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The Science and Technology Law (referred to as LOCTI in Venezuela) requires major
corporations engaged in activities covered by the Hydrocarbon and Gaseous Hydrocarbon Law (OHL)
to contribute two percent of their gross revenue generated in Venezuela from activities specified
in the OHL on projects to promote inventions or investigate technology in areas deemed critical to
Venezuela. LOCTI requires that each company file a separate declaration stating how much has been
contributed; however, waivers have been granted in the past to allow PDVSA to file a declaration on
a consolidated basis covering all of its and its consolidating entities liabilities. Since
Petrodelta expected PDVSA to continue requesting and receiving waivers, Petrodelta did not accrue a
liability to LOCTI for the year ended December 31, 2009. PDVSA has stated that a waiver was
granted for filing year 2009; however, LOCTI has not yet issued the acceptance letter to PDVSA for
the 2009 filing year. The potential exposure to LOCTI for the year ended December 31, 2009 after
devaluation is $4.8 million, $2.4 million net of tax ($0.8 million net to our 32 percent interest).
In December 2010, LOCTI was modified to reduce the amount of contributions beginning January
2011 to one percent of gross revenues for companies owned by individuals or corporations and 0.5
percent for companies owned by Venezuela. Petrodeltas rate of contribution starting in 2011 will
be 0.5 percent. The contribution is based on the previous years gross revenue and is due the
following year. LOCTI was also modified to require all contributions to be paid in cash directly
to the National Fund for Science, Technology and Innovation (FONDACIT), the entity responsible
for the administration of LOCTI contributions. Self-funded programs and direct contributions to
projects performed by other institutions are no longer allowed. Petrodelta is accruing the 2011
liability to LOCTI on a current basis.
In November 2010, Petrodeltas board of directors declared a dividend of $30.6 million, $12.2
million net to HNR Finance ($9.8 million net to our 32 percent interest). Petrodelta shareholder
approval of the dividend was received on March 14, 2011. As of November 2, 2011, this dividend has
not been received, and the timing of the receipt of this dividend is uncertain.
Petrodelta does not have currency exchange risk other than the official prevailing exchange
rate that applies to its operating costs denominated in Bolivars (4.30 Bolivars per U.S. Dollar).
Petrodelta does not have, and has not had, any Bolivars pending government approval for settlement
for U.S. Dollars at the official exchange rate or the SITME rate. The monetary assets that are
exposed to exchange rate fluctuations are cash, accounts receivable, prepaid expenses and other
current assets. The monetary liabilities that are exposed to exchange rate fluctuations are
accounts payable, accruals and other current liabilities. All monetary assets and liabilities
incurred at the official Bolivar exchange rate are settled at the official Bolivar exchange rate.
At September 30, 2011, the balances in Petrodeltas Bolivar denominated monetary assets and
liabilities accounts that are exposed to exchange rate changes are 811.3 million Bolivars and
3,382.8 million Bolivars, respectively.
For the six months ended June 30, 2011, Petrodelta reported income tax expense under
International Accounting Standards (IAS) 12 Income Taxes (IAS 12) and IAS 34 Interim
Financial Reporting (IAS 34). However, in the third quarter of 2011, PDVSA made certain
interpretations of IAS 12 and IAS 34 that we do not believe to be in accordance with the guidance.
Per PDVSAs interpretations, taxable income is projected through the end of the tax year and is to
include only permanent book-to-tax adjustments and the inflation adjustment. All temporary
book-to-tax timing adjustments are excluded. Deferred taxes are to be calculated from the current
balance sheet date. No projections are to be considered for the deferred tax calculation. Since
we do not believe PDVSAs interpretations to be in accordance with IAS 12 and IAS 34, with the
assistance of Petrodelta, we have recalculated Petrodeltas income tax under our understanding of the guidance in IAS 12 and IAS
34 which is that taxable income is projected through the end of the tax year and
includes permanent and temporary book-to-tax differences. With this adjustment, Petrodeltas current income tax rate for the three and nine
months ended September 30, 2011 approximates the expected Venezuela statutory income tax rate for
oil companies.
Petrodeltas reporting and functional currency is the U.S. Dollar. Petrodeltas financial
information is prepared in accordance with International Financial Reporting Standards (IFRS)
which we have adjusted to conform to GAAP. All amounts through Net Income Equity Affiliate
represent 100 percent of Petrodelta. Summary
financial information has been presented below at September 30, 2011 and December 31, 2010 and
for the three and nine months ended September 30, 2011 and 2010:
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Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
(in thousands) | ||||||||||||||||||
Revenues: |
||||||||||||||||||
Oil sales |
$ | 304,969 | $ | 144,917 | $ | 814,557 | $ | 422,383 | ||||||||||
Gas sales |
917 | 705 | 2,322 | 2,745 | ||||||||||||||
Royalty |
(98,013 | ) | (49,519 | ) | (271,542 | ) | (143,896 | ) | ||||||||||
207,873 | 96,103 | 545,337 | 281,232 | |||||||||||||||
Expenses: |
||||||||||||||||||
Operating expenses |
20,027 | 7,274 | 52,993 | 27,949 | ||||||||||||||
Workovers |
4,856 | 1,637 | 18,352 | 1,637 | ||||||||||||||
Depletion, depreciation and amortization |
15,687 | 11,146 | 41,405 | 29,522 | ||||||||||||||
General and administrative |
3,310 | 2,064 | 6,162 | 8,123 | ||||||||||||||
Windfall profits tax |
69,424 | | 161,895 | 2,915 | ||||||||||||||
113,304 | 22,121 | 280,807 | 70,146 | |||||||||||||||
Income from operations |
94,569 | 73,982 | 264,530 | 211,086 | ||||||||||||||
Gain (loss) on exchange rate |
| (136 | ) | | 120,518 | |||||||||||||
Investment earnings and other |
161 | 5 | 513 | 2,886 | ||||||||||||||
Interest expense |
(2,107 | ) | (1,302 | ) | (6,525 | ) | (3,525 | ) | ||||||||||
Income before income tax |
92,623 | 72,549 | 258,518 | 330,965 | ||||||||||||||
Current income tax expense |
52,319 | 56,660 | 137,280 | 194,736 | ||||||||||||||
Deferred income tax (benefit) expense |
(16,709 | ) | 18,785 | (44,984 | ) | 66,367 | ||||||||||||
Net income (loss) |
57,013 | (2,896 | ) | 166,222 | 69,862 | |||||||||||||
Adjustment to reconcile to reported net income (loss)
from unconsolidated equity affiliate: |
||||||||||||||||||
Deferred income tax (benefit) expense |
7,096 | (18,953 | ) | 26,835 | (66,441 | ) | ||||||||||||
Net income equity affiliate |
49,917 | 16,057 | 139,387 | 136,303 | ||||||||||||||
Equity interest in unconsolidated equity affiliate |
40 | % | 40 | % | 40 | % | 40 | % | ||||||||||
Income before amortization of excess basis
in equity affiliate |
19,967 | 6,423 | 55,755 | 54,521 | ||||||||||||||
Amortization of excess basis in equity affiliate |
(496 | ) | (364 | ) | (1,369 | ) | (1,020 | ) | ||||||||||
Conform depletion expense to GAAP |
142 | 89 | (155 | ) | (71 | ) | ||||||||||||
Net income from unconsolidated equity affiliate |
$ | 19,613 | $ | 6,148 | $ | 54,231 | $ | 53,430 | ||||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Current assets |
$ | 1,131,393 | $ | 535,225 | ||||
Property and equipment |
382,407 | 321,816 | ||||||
Other assets |
123,083 | 67,755 | ||||||
Current liabilities |
976,809 | 406,339 | ||||||
Other liabilities |
45,169 | 39,224 | ||||||
Net equity |
614,905 | 479,233 |
Fusion Geophysical, LLC (Fusion)
On January 28, 2011, Fusion Geophysical, LLCs (Fusion) 69 percent owned subsidiary,
FusionGeo, Inc., was acquired by a private purchaser pursuant to an Agreement and Plan of Merger.
We received $1.4 million for our equity investment and $0.7 million for the repayment in full of
the outstanding balance of the prepaid service agreement, short term loan and accrued interest.
The Agreement and Plan of Merger includes an Earn Out provision wherein we would receive an
additional payment of up to a maximum of $2.7 million if FusionGeo, Inc.s 2011
gross profit exceeds $5.6 million. The Earn Out payment will not be determined until early in
2012. We can give no assurance that we will receive any Earn Out payment.
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At December 31, 2009, we fully impaired the carrying value of our equity investment in Fusion.
Accordingly, we did not record net losses incurred by Fusion of $0.1 million and $1.1 million in
the nine months ended September 30, 2011 and 2010, respectively, as doing so would have caused our
equity investment to go into a negative position. However, we have recognized a $1.4 million gain
on the sale of Fusion in the nine months ended September 30, 2011.
Note 9 United States Operations
Gulf Coast
West Bay Project
We held exploration acreage in the Gulf Coast Region of the United States through an Area of
Mutual Interest (AMI) agreement with two private third parties. As of June 30, 2011, we and our
partners in the West Bay project agreed to relinquish the exploration acreage we held to the
farmor. The relinquishment has been completed with an effective date of October 31, 2011.
Neither we nor our partners intend to continue any activity in West
Bay. Based on the decision in the second quarter 2011 to relinquish the exploration acreage, the
carrying value of West Bay of $3.3 million was impaired as of June 30, 2011. The West Bay project
represented $3.3 million of unproved oil and gas properties on our December 31, 2010 balance sheet.
Note 10 Indonesia
In January 2011, we acquired an additional 10 percent equity interest in the Budong PSC for
$3.7 million through the exercising of our first refusal right to a proposed transfer of interest
by the operator to a third party. The $3.7 million was paid on April 18, 2011. On August 11,
2011, we received notice from the Government of Indonesia and BPMIGAS, Indonesias oil and gas
regulatory authority, that the transfer of the additional interest has been approved. Closing of
this acquisition increased our participating ownership interest in the Budong PSC to 64.4 percent with our cost sharing interest becoming 64.51 percent until first commercial production.
The Karama-1 (KD-1), the second exploratory well on the Budong PSC, spud June 20, 2011. The
KD-1 is located approximately 50 miles south of the LG-1.
Operational activities during the three months ended September 30, 2011 focused on the drilling of
the KD-1. As of September 30, 2011, we have incurred $13.8 million for the drilling of the KD-1.
See Note 2 Summary of Significant Accounting Policies Suspended Exploratory Drilling
Costs, Budong PSC for a status of the LG-1 exploratory drilling costs. The Budong PSC represents
$33.9 million and $10.9 million of unproved oil and gas properties on our September 30, 2011 and
December 31, 2010 balance sheets, respectively.
Note 11 Gabon
Two Standby Letters of Credit were issued in April 2011 for a semi-submersible drilling unit
and a remote operated vehicle. We took possession of the drilling unit mid-April 2011 on a one
well contract. The drilling rig was released on August 15, 2011. As of September 30, 2011, both
Standby Letters of Credit have been cancelled, and the restricted cash securing the Standby Letters
of Credit has been returned to us.
See Note 5 Commitments and Contingencies for a discussion of legal matters related to our
Gabon operations.
The Dussafu PSC represents $47.6 million and $9.2 million of unproved oil and gas properties
on our September 30, 2011 and December 31, 2010 balance sheets, respectively.
Note 12 Oman
In April 2009, we signed an Exploration and Production Sharing Agreement (EPSA) with Oman
for the Block 64 EPSA. We have a 100 percent working interest in Block 64 EPSA during the
exploration phase. Oman Oil Company has the option to back-in to up to a 20 percent interest in
Block 64 EPSA after the discovery of gas.
We have a work commitment of $22.0 million which is a minimum amount to be spent on the Block 64
EPSA for the drilling of two wells over a three-year period which expires in May 2012. In order to
complete drilling activities of the two exploratory wells, on August 24, 2011, Omans Ministry of
Oil and Gas approved a one-year extension to
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May 23, 2013 of the first exploration phase. Through
September 30, 2011, we have incurred $5.2 million of this work commitment.
The Block 64 EPSA represents $5.8 million and $4.2 million of unproved oil and gas properties
on our September 30, 2011 and December 31, 2010 balance sheets, respectively.
Note 13 Related Party Transactions
Dividends declared and paid by Petrodelta are paid to HNR Finance. HNR Finance must declare a
dividend in order for the partners, Harvest and Vinccler, to receive their respective shares of
Petrodeltas dividend. Petrodelta has declared two dividends, totaling $33.0 million, which have
been received by HNR Finance and one dividend, totaling $12.2 million, which has not yet been
received by HNR Finance. HNR Finance has not distributed these dividends to the partners. At
September 30, 2011, Vincclers share of the undistributed dividends is $9.0 million.
Note 14 Subsequent Event
On October 12, 2011, $0.5 million of our 8.25 percent senior convertible notes were converted
into 81,478 shares of common stock at a conversion rate of $5.71 per share. See Note 4
Long-Term Debt for a discussion of the conversion ratio.
On October 21, 2011, a Standby Letter of Credit in the amount of $1.2 million was issued as a
payment guarantee for electric wireline services to be provided during the drilling of the two
exploratory wells on the Block 64 EPSA. The Standby Letter of Credit is fully cash collateralized
by a certificate of deposit held in a U.S. bank.
We conducted our subsequent events review up through the date of the issuance of this
Quarterly Report on Form 10-Q.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Harvest Natural Resources, Inc. (Harvest or the Company) cautions that any forward-looking
statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, as
amended [the PSLRA]) contained in this report or made by management of the Company involve risks
and uncertainties and are subject to change based on various important factors. When used in this
report, the words budget, guidance, forecast, expect, believes, goals, projects,
plans, anticipates, estimates, should, could, assume and similar expressions are
intended to identify forward-looking statements. In accordance with the provisions of the PSLRA,
we caution you that important factors could cause actual results to differ materially from those in
the forward-looking statements. Such factors include our concentration of operations in Venezuela,
the political and economic risks associated with international operations (particularly those in
Venezuela), the anticipated future development costs for undeveloped reserves, drilling risks, the
risk that actual results may vary considerably from reserve estimates, the dependence upon the
abilities and continued participation of certain of our key employees, the risks normally incident
to the exploration, operation and development of oil and natural gas properties, risks incumbent to
being a noncontrolling interest shareholder in a corporation, the permitting and the drilling of
oil and natural gas wells, the availability of materials and supplies necessary to projects and
operations, the price for oil and natural gas and related financial derivatives, changes in
interest rates, the Companys ability to acquire oil and natural gas properties that meet its
objectives, availability and cost of drilling rigs, seismic crews, overall economic conditions,
political stability, civil unrest, acts of terrorism, currency and exchange risks, currency
controls, changes in existing or potential tariffs, duties or quotas, changes in taxes, changes in
governmental policy, availability of sufficient financing, changes in weather conditions, and
ability to hire, retain and train management and personnel. A discussion of these factors is
included in our Annual Report on Form 10-K for the year ended December 31, 2010, which includes
certain definitions and a summary of significant accounting policies and should be read in
conjunction with this Quarterly Report on Form 10-Q.
Executive Summary
Harvest Natural Resources, Inc. is a petroleum exploration and production company
incorporated under Delaware law in 1989. Our focus is on acquiring exploration, development and
producing properties in geological basins with proven active hydrocarbon systems. Our experienced
technical, business development and operating personnel have identified low entry cost exploration
opportunities in areas with large hydrocarbon resource potential. We operate from our Houston,
Texas headquarters. We also have regional/technical offices in the United Kingdom and Singapore,
and small field offices in Jakarta, Republic of Indonesia (Indonesia); Muscat, Sultanate of Oman
(Oman); and Port Gentil, Republic of Gabon (Gabon) to support field operations in those areas.
We have acquired and developed significant interests in the Bolivarian Republic of Venezuela
(Venezuela). Our Venezuelan interests are owned through HNR Finance, B.V. (HNR Finance). Our
ownership of HNR Finance is through several corporations in all of which we have direct controlling
interests. Through these corporations, we indirectly own 80 percent of HNR Finance and our
partner, Oil & Gas Technology Consultants (Netherlands) Coöperatie U.A., a controlled affiliate of
Venezolana de Inversiones y Construcciones Clerico, C.A. (Vinccler), indirectly owns the
remaining 20 percent interest of HNR Finance. HNR Finance owns 40 percent of Petrodelta, S.A.
(Petrodelta). As we indirectly own 80 percent of HNR Finance, we indirectly own a net 32 percent
interest in Petrodelta, and Vinccler indirectly owns eight percent. Corporación Venezolana del
Petroleo S.A. (CVP) owns the remaining 60 percent of Petrodelta. HNR Finance has a direct
controlling interest in Harvest Vinccler S.C.A. (Harvest Vinccler). Harvest Vincclers main
business purposes are to assist us in the management of Petrodelta and in negotiations with
Petroleos de Venezuela S.A. (PDVSA). We do not have a business relationship with Vinccler
outside of Venezuela.
Through the pursuit of technically-based strategies guided by conservative investment
philosophies, we are building a portfolio of exploration prospects to complement the low-risk
production, development and exploration prospects we hold in Venezuela. In addition to our
interests in Venezuela, we hold exploration acreage mainly onshore West Sulawesi in Indonesia;
offshore of Gabon; onshore in Oman; and offshore of the Peoples Republic of China (China).
From time to time we learn of possible third party interests in acquiring ownership in certain
assets within our property portfolio. We evaluate these potential opportunities taking into
consideration our overall property mix, our operational and liquidity requirements, our strategic
focus and our commitment to long-term shareholder value. For example, we have received such expressions
of interest in acquiring some of our international exploration
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assets, and we are currently evaluating these potential
opportunities. There can be no assurances that our discussions will continue or that any
transaction may ultimately result from our discussions.
On May 17, 2011, we closed the transaction to sell all of our interest in the oil and gas
assets in Utahs Uinta Basin (Antelope Project). The transaction included the Mesaverde Gas
Exploration and Appraisal Project, the Lower Green River/Upper Wasatch Oil Delineation and
Development Project and the Monument Butte Extension Appraisal and Development Project. The sale
had an effective date of March 1, 2011. We received cash proceeds of approximately $217.8 million
which reflects increases to the purchase price for customary adjustments and deductions for
transaction related costs (see Notes to Consolidated Financial Statements, Note 3 Dispositions).
This transaction is part of our ongoing process of exploring strategic alternatives announced in
September 2010.
On October 12, 2011, $0.5 million of our 8.25 percent senior convertible notes were converted
into 81,478 shares of common stock at a conversion rate of $5.71 per share. See Notes to
Consolidated Financial Statements, Note 4 Long-Term Debt for a discussion of the conversion
ratio.
On October 21, 2011, a Standby Letter of Credit in the amount of $1.2 million was issued as a
payment guarantee for electric wireline services to be provided during the drilling of the two
exploratory wells on the Al Ghubar / Qarn Alam license (Block 64 EPSA). The Standby Letter of
Credit is fully cash collateralized by a certificate of deposit held in a U.S. bank.
On October 29, 2011, we spud the first of the two exploratory wells on the Block-64 EPSA in
Oman, the Mafraq South-A (MFS-A).
Venezuela
Harvest Vinccler and Petrodelta do not have currency exchange risk other than the official
prevailing exchange rate that applies to their operating costs denominated in Venezuela Bolivars
(Bolivars) (4.30 Bolivars per U.S. Dollar). However, during the three and nine months ended
September 30, 2011, Harvest Vinccler exchanged approximately $0.3 million and $0.7 million,
respectively, through Sistema de Transacciones con Títulos en Moneda Extranjera (SITME) and
received an average exchange rate of 5.15 Bolivars and 5.17 Bolivars, respectively, per U.S.
Dollar. During the three and nine months ended September 30, 2010, no such exchanges took place.
Petrodelta does not have, and has not had, any U.S. Dollars pending government approval for
settlement for Bolivars at the official exchange rate or the SITME exchange rate. Harvest Vinccler
currently does not have any U.S. Dollars pending government approval for settlement for Bolivars at
the official exchange rate or the SITME exchange rate.
The monetary assets that are exposed to exchange rate fluctuations are cash, accounts
receivable, prepaid expenses and other current assets. The monetary liabilities that are exposed
to exchange rate fluctuations are accounts payable, accruals and other current liabilities. All
monetary assets and liabilities incurred at the official Bolivar exchange rate are settled at the
official Bolivar exchange rate. At September 30, 2011, the balances in Harvest Vincclers Bolivar
denominated monetary assets and liabilities accounts that are exposed to exchange rate changes are
3.7 million Bolivars and 6.3 million Bolivars, respectively. At September 30, 2011, the balances
in Petrodeltas Bolivar denominated monetary assets and liabilities accounts that are exposed to
exchange rate changes are 811.3 million Bolivars and 3,382.8 million Bolivars, respectively.
Petrodelta
Petrodelta is governed by its own charter and bylaws and operates a portfolio of properties in
eastern Venezuela including large proven oil fields as well as properties with very substantial
opportunities for both development and exploration. We have seconded key technical and managerial
personnel into Petrodelta and participate on Petrodeltas board of directors.
Petrodeltas shareholders intend that the company be self-funding and rely on
internally-generated cash flow to fund operations. Petrodeltas 2011 capital expenditures are
expected to be approximately $200 million. Petrodeltas 2011 proposed business plan includes a
planned drilling program to utilize two rigs to drill both development and appraisal wells for
maintaining production capacity, the continued appraisal of the substantial resource base in the El
Salto field and further drilling in the Isleño field. It also includes engineering work for
production facilities required for the full development of the El Salto and Temblador fields.
Since Petrodelta only executed approximately 50 percent of its 2010 budget primarily due to lack of funding by
PDVSA, we do not
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believe that PDVSA will be able to provide the support required to execute
Petrodeltas proposed 2011 budget. During the nine months ended September 30, 2011, Petrodelta has
incurred only $97.9 million in capital expenditures.
As disclosed in previous filings, PDVSA has failed to pay on a timely basis certain amounts
owed to contractors that PDVSA has contracted to do work for Petrodelta. PDVSA purchases all of
Petrodeltas oil production. PDVSA and its affiliates have reported shortfalls in meeting their
cash requirements for operations and planned capital expenditures, and PDVSA has fallen behind in
certain of its payment obligations to its contractors, including contractors engaged by PDVSA to
provide services to Petrodelta. In addition, PDVSA has fallen behind in certain of its payment
obligations to Petrodelta, which payments Petrodelta would otherwise use to pay its contractors.
As a result, Petrodelta is continuing to experience difficulty in retaining contractors who provide
services for Petrodeltas operations. We cannot provide any assurance as to whether or when PDVSA
will become current on its payment obligations. Inability to retain contractors or to pay them on
a timely basis is continuing to have an adverse effect on Petrodeltas operations and on
Petrodeltas ability to carry out its business plan.
We have advanced certain costs on behalf of Petrodelta. These costs include consultants in
engineering, drilling, operations and seismic interpretation, and employee salaries and related
benefits for Harvest employees seconded into Petrodelta. Currently, we have five employees
seconded into Petrodelta. Costs advanced are invoiced on a monthly basis to Petrodelta. We are
considered a contractor to Petrodelta, and as such, we are also experiencing the slow payment of
invoices. During the nine months ended September 30, 2011, we advanced Petrodelta $0.7 million for
continuing operations costs, and Petrodelta repaid $0.1 million of the advances. Advances to
equity affiliate has increased $0.6 million in the nine months ended September 30, 2011. During
the nine months ended September 30, 2010, we advanced Petrodelta $1.8 million for continuing
operations costs, and Petrodelta repaid $4.5 million of the advances. Although payment is slow,
payments continue to be received.
In April 2011, the Venezuelan government published in the Official Gazette the Law Creating a
Special Contribution on Extraordinary Prices and Exorbitant Prices in the International
Hydrocarbons Market (the amended Windfall Profits Tax). The amended Windfall Profits Tax
establishes a special contribution for extraordinary prices to the Venezuelan government of 20
percent to be applied to the difference between the price fixed by the Venezuela budget for the
relevant fiscal year (set at $40 per barrel for 2011) and $70 per barrel. The amended Windfall
Profits Tax also establishes a special contribution for exorbitant prices to the Venezuelan
government of (1) 80 percent when the average price of the VEB exceeds $70 per barrel but is less
than $90 per barrel; (2) 90 percent when the average price of the VEB exceeds $90 per barrel but is
less that $100 per barrel; and (3) 95 percent when the average price of the VEB exceeds $100 per
barrel. The amended Windfall Profits Tax caps the cash royalty paid on production at $70 per
barrel. By placing a cap on the royalty barrels, the amended Windfall Profits Tax reduces the
royalties paid to the government and increases payments to the National Development Fund
(FONDEN).
The Windfall Profits Tax is deductible for Venezuelan income tax purposes. Petrodelta
recorded $69.4 million and $161.9 million for Windfall Profits Tax during the three and nine months
ended September 30, 2011, respectively. During the three months ended September 30, 2010, no
expense was recorded for the Windfall Profits Tax. Petrodelta recorded $2.9 million of expense for
the Windfall Profits Tax during the nine months ended September 30, 2010.
There are many sections of the amended Windfall Profits Tax which have yet to be clarified.
One section for which Petrodelta is waiting for clarity is how the $70 cap on royalty barrels will
be applied to royalties paid in-kind. Petrodelta pays royalties on production of 30 percent in-kind and 3.33
percent in cash. For the six months ended June 30, 2011, Petrodelta applied the current oil price
to total barrels produced and to total royalty barrels. In October 2011, Petrodelta received
preliminary instructions from PDVSA that royalties, whether paid in cash or in-kind, should be
reported at $70 per barrel (royalty barrels x $70). The difference between the $70 royalty cap and
the current oil price is to be reflected on the income statement as a reduction in oil sales.
PDVSA also instructed Petrodelta to make the reporting change retroactive to April 18, 2011, the
date of enactment of the amended Windfall Profits Tax. From April 18, 2011 to September 30, 2011,
the reduction to oil sales due to the $70 cap applied to all royalty barrels was $52.7 million
($16.9 million net to our 32 percent interest). Net oil sales (oil sales less royalties) are the
same under the method advised by PDVSA and the method of applying the current oil price to total
barrels produced and to total royalty barrels; however, the method advised by PDVSA understates
gross oil sales.
Per our interpretation of the amended Windfall Profits Tax, the $70 cap on royalty barrels
should only be applied to the 3.33 percent royalty which Petrodelta pays in cash. Pending receipt
of final guidance from the
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Venezuelan government, we have applied the $70 cap to only the 3.33
percent royalty barrels paid in cash and the current oil sales price to the 30 percent royalty
barrels paid in-kind. With the assistance of Petrodelta, we have recalculated Petrodeltas oil
sales and royalties to apply the current oil price to its total barrels produced and to the 30
percent royalty paid in-kind and applied the $70 cap to the 3.33 percent royalty paid in
cash for the nine months ended September 30, 2011. From April 18, 2011 to September 30, 2011, net
oil sales (oil sales less royalties) are slightly higher, $5.3 million ($1.7 million net to our 32
percent interest), under this method than the method advised by PDVSA and the method of applying
the current oil price to total barrels produced and to total royalty barrels.
Another section of the amended Windfall Profits Tax for which Petrodelta is waiting for
clarity relates to an exemption of this tax that can be granted by the Ministry of the Peoples
Power for Energy and Petroleum (MENPET) for the incremental production of projects and grass root
developments until the specific investments are recovered. This exemption has to be considered and
approved in a case by case basis by MENPET. We believe several of the fields operated by
Petrodelta may qualify for the exemption from the amended Windfall Profits Tax. We are waiting for
clarification from MENPET on the definitions of incremental production and grass roots
developments, as well as guidance on the process for applying for the exemption.
The Science and Technology Law (referred to as LOCTI in Venezuela) requires major
corporations engaged in activities covered by the Hydrocarbon and Gaseous Hydrocarbon Law (OHL)
to contribute two percent of their gross revenue generated in Venezuela from activities specified
in the OHL on projects to promote inventions or investigate technology in areas deemed critical to
Venezuela. LOCTI requires that each company file a separate declaration stating how much has been
contributed; however, waivers have been granted in the past to allow PDVSA to file a declaration on
a consolidated basis covering all of its and its consolidating entities liabilities. Since
Petrodelta expected PDVSA to continue requesting and receiving waivers, Petrodelta did not accrue a
liability to LOCTI for the year ended December 31, 2009. PDVSA has stated that a waiver was
granted for filing year 2009; however, LOCTI has not yet issued the acceptance letter to PDVSA for
the 2009 filing year. The potential exposure to LOCTI for the year ended December 31, 2009 after
devaluation is $4.8 million, $2.4 million net of tax ($0.8 million net to our 32 percent interest).
In December 2010, LOCTI was modified to reduce the amount of contributions beginning January
2011 to one percent of gross revenues for companies owned by individuals or corporations and 0.5
percent for companies owned by Venezuela. Petrodeltas rate of contribution starting in 2011 will
be 0.5 percent. The contribution is based on the previous years gross revenue and is due the
following year. LOCTI was also modified to require all contributions to be paid in cash directly
to the National Fund for Science, Technology and Innovation (FONDACIT), the entity responsible
for the administration of LOCTI contributions. Self-funded programs and direct contributions to
projects performed by other institutions are no longer allowed. Petrodelta is accruing the 2011
liability to LOCTI on a current basis.
For the six months ended June 30, 2011, Petrodelta reported income tax expense under
International Accounting Standards (IAS) 12 Income Taxes (IAS 12) and IAS 34 Interim
Financial Reporting (IAS 34). However, in the third quarter of 2011, PDVSA made certain
interpretations of IAS 12 and IAS 34 that we do not believe to be in accordance with the guidance.
Per PDVSAs interpretations, taxable income is projected through the end of the tax year and is to
include only permanent book-to-tax adjustments and the inflation adjustment. All temporary
book-to-tax timing adjustments are excluded. Deferred taxes are to be calculated from the current
balance sheet date. No projections are to be considered for the deferred tax calculation. Since
we do not believe PDVSAs interpretations to be in accordance with IAS 12 and IAS 34, with the
assistance of Petrodelta, we have recalculated Petrodeltas income tax under our understanding of the guidance in IAS 12 and
IAS 34 which is that taxable income is projected through the end of the tax year and
includes permanent and temporary book-to-tax differences. With this adjustment, Petrodeltas current income tax rate for the three and nine
months ended September 30, 2011 approximates the expected Venezuela statutory income tax rate for
oil companies.
During the nine months ended September 30, 2011, Petrodelta drilled and completed nine
development wells, one successful appraisal well and two water injector wells compared to 13
development wells in the nine
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months ended September 30, 2010. Petrodelta delivered approximately 8.4 million barrels
(MBls) of oil and 1.5 billion cubic feet (Bcf) of natural gas, averaging 31,671 barrels of oil
equivalent (BOE) per day during the nine months ended September 30, 2011 compared to deliveries
of 6.1 MBls of oil and 1.8 Bcf of gas, averaging 23,583 BOE per day during the nine months ended
September 30, 2010.
During the nine months ended September 30, 2011, Petrodelta completed facilities at EPM
transfer point for El Salto field. Completion of the facilities has enabled Petrodelta to increase
production from the El Salto field. Petrodelta is continuing additional infrastructure enhancement
projects in El Salto and Temblador. Petrodelta took possession of a third drilling rig at the end
of September 2011. Currently, one drilling rig is operating in the El Salto field, and two
drilling rigs are operating in the Temblador field. A workover rig is operating in the Tucupita
field.
Certain operating statistics for the three and nine months ended September 30, 2011 and 2010
for the Petrodelta fields operated by Petrodelta are set forth below. This information is provided
at 100 percent. This information may not be representative of future results.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Thousand barrels of oil sold |
3,031 | 2,219 | 8,396 | 6,142 | ||||||||||||
Million cubic feet of gas sold |
594 | 457 | 1,504 | 1,780 | ||||||||||||
Total thousand barrels of oil equivalent |
3,130 | 2,295 | 8,647 | 6,439 | ||||||||||||
Average price per barrel |
$ | 100.62 | $ | 65.31 | $ | 97.02 | $ | 68.77 | ||||||||
Average price per thousand cubic feet |
$ | 1.54 | $ | 1.54 | $ | 1.54 | $ | 1.54 | ||||||||
Cash operating costs ($millions) |
$ | 20.0 | $ | 8.9 | $ | 52.9 | $ | 29.6 | ||||||||
Capital expenditures ($millions) |
$ | 31.4 | $ | 21.4 | $ | 97.9 | $ | 46.9 |
Crude oil delivered from the Petrodelta fields to PDVSA Petroleo S.A. (PPSA) is priced with
reference to Merey 16 published prices, weighted for different markets and adjusted for variations
in gravity and sulphur content, commercialization costs and distortions that may occur given the
reference price and prevailing market conditions. Merey 16 published prices are quoted and sold in
U.S. Dollars. Natural gas delivered from the Petrodelta Fields to PPSA is priced at $1.54 per
thousand cubic feet. PPSA is obligated to make payment to Petrodelta in U.S. Dollars in the case
of payment for crude oil and natural gas liquids delivered. Natural gas deliveries are paid in
Bolivars, but the pricing for natural gas is referenced to the U.S. Dollar.
United States
Gulf Coast West Bay
We held exploration acreage in the Gulf Coast Region of the United States through an Area of
Mutual Interest (AMI) agreement with two private third parties. As of June 30, 2011, we and our
partners in the West Bay project agreed to relinquish the exploration acreage we held to the
farmor.
The relinquishment has been completed with an effective date of October 31, 2011.
Neither we nor our partners intend to continue any activity in West
Bay. Based on the decision in the second quarter 2011 to relinquish the exploration acreage, the
carrying value of West Bay of $3.3 million was impaired as of June 30, 2011.
Budong-Budong Project, Indonesia (Budong PSC)
In January 2011, we acquired an additional 10 percent equity interest in the Budong PSC for
$3.7 million through the exercising of our first refusal right to a proposed transfer of interest
by the operator to a third party. The $3.7 million was paid on April 18, 2011. On August 11,
2011, we received notice from the Government of Indonesia and BPMIGAS, Indonesias oil and gas
regulatory authority, that the transfer of the additional interest has been approved. Closing of
this acquisition increased our participating ownership interest in the Budong PSC to 64.4 percent with our cost sharing interest becoming 64.51 percent until first commercial production.
Operational activities during the three months ended September 30, 2011 included the continued
drilling of the second exploratory well on the Budong PSC, the Karama-1 (KD-1), which spud on
June 20, 2011. The KD-1 is located approximately 50 miles south of the LG-1. The KD-1 is being
drilled to test a thrusted anticline feature with both Miocene and Eocene targets. With the
current well design, the KD-1 could be drilled to a total depth of approximately 14,400 feet.
Drilling was temporarily suspended in late July in order to remediate settling of the
drilling pad. Drilling recommenced on August 11, 2011. The current total depth of the well is at 11,800 feet with
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evaluation
on-going of a potential gross 200 foot Early Miocene sand package
which is believed to be non-commercial. After setting
casing, Harvest plans to drill ahead, as our exclusive operation, to a final total
depth of approximately 14,400 feet to explore for the main Eocene objective which still has
not yet been encountered in the well.
The remaining work commitment for the current exploration phase on the Budong PSC is for
geological and geophysical work to be completed in the year 2012 at a minimum of $0.5 million ($0.3
million net to our 64.51 percent cost sharing interest).
During the nine months ended September 30, 2011, we had cash capital expenditures of $16.7
million for drilling and construction costs and $3.7 million for the purchase of the additional 10
percent equity interest.
Dussafu Project Gabon
Two Standby Letters of Credit were issued in April 2011 for a semi-submersible drilling unit
and a remote operated vehicle. We took possession of the drilling unit mid-April 2011 on a one
well contract. The drilling rig was released on August 15, 2011. As of September 30, 2011, both
Standby Letters of Credit have been cancelled, and the collateral securing the Standby Letters of
Credit has been returned to us.
Operation activities during the three months ended September 30, 2011 included completion of
drilling activities of the Dussafu Ruche Marin-1 (DRM-1) and appraisal sidetracks. The DRM-1 has been
suspended as an oil discovery in both the Gamba and Dentale reserviors pending further exploration and development activities. The DRM-1 information is being
used to refine the 3-D seismic depth model and improve our understanding for predicting the Gamba
structure under the salt to define potential resources in the nearby satellite structures for
future drilling targets. Reservoir characterization and concept engineering studies have started with the aim of
evaluating the commerciality of the discovered oil.
The partners in the Dussafu PSC began a 3-D seismic acquisition in a joint program with a
third party. The program is operated by the third party and commenced on October 23, 2011. The
program is expected to be completed by mid-November 2011. It is expected that up to 540 square
kilometers of seismic could be acquired within the Dussafu license area if environmental conditions permit.
We do not have any remaining work commitments for the current exploration phase of the Dussafu
PSC, but as of May 28, 2012, the Dussafu PSC enters the third exploration phase. If the partners
elect to enter the third exploration phase, there will be a $7.0 million ($4.7 million net to our
66.667 percent interest) work commitment over a two year period.
During the nine months ended September 30, 2011, we had cash capital expenditures of $36.5
million for well planning and drilling.
See Notes to Consolidated Financial Statements, Note 5 Commitments and Contingencies for a
discussion of legal matters related to our Gabon operations.
Block 64 EPSA Project Oman
We have a work commitment of $22.0 million which is a minimum amount to be spent on the Block
64 EPSA for the drilling of two wells over a three-year period which expires in May 2012. In order
to complete drilling activities of the two exploratory wells, on August 24, 2011, Omans Ministry
of Oil and Gas approved a one-year extension to May 23, 2013 of the first exploration phase.
Through September 30, 2011, we have incurred $5.2 million of this work commitment.
Operational activities during the three months ended September 30, 2011 included well planning
and procurement of long lead items. The tendering process to contract a drilling rig and oil field
services and materials is nearing completion with several letters of intent being issued and some
contracts executed. On October 21, 2011, a Standby Letter of Credit in the amount of $1.2 million
was issued as a payment guarantee for electric wireline services to be provided during the drilling
of the two exploratory wells on the Block 64 EPSA. The first of the two exploratory wells, the
MFS-A, was spud October 29, 2011. The MFS-A will test the Mafraq
South fault block and will be drilled to a total vertical depth of approximately 12,000 feet.
During the nine months ended September 30, 2011, we had capital expenditures of $1.4 million
related to leasehold costs and well planning and $0.6 million for seismic interpretation.
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Capital Resources and Liquidity
The oil and gas industry is a highly capital intensive and cyclical business with unique
operating and financial risks. In Item 1A Risk Factors in our Annual Report on Form 10-K for
the year ended December 31, 2010, we discuss a number of variables and risks related to our
exploration projects and our minority equity investment in Petrodelta that could significantly
utilize our cash balances, affect our capital resources and liquidity. We also point out that the
total capital required to develop the fields in Venezuela may exceed Petrodeltas available cash
and financing capabilities, and that there may be operational or contractual consequences due to
this inability.
Our cash is being used to fund oil and gas exploration projects and to a lesser extent general
and administrative costs. We require capital principally to fund the exploration and development
of new oil and gas properties. We are concentrating a substantial portion of our 2011 budget on
the development of the Budong PSC and the Dussafu PSC. As is common in the oil and gas industry,
we have various contractual commitments pertaining to exploration, development and production
activities. Currently, we have a work commitment of $22.0 million which is a minimum amount to be
spent on the Block 64 EPSA in Oman for the drilling of two wells over a three-year period which
expires in May 2013. Through September 30, 2011, we have incurred $5.2 million of this work
commitment. We do not have any remaining work commitments for the current exploration phase of the
Dussafu PSC, but as of May 28, 2012, the Dussafu PSC enters the third exploration phase. If the
partners elect to enter the third exploration phase, there will be a $7.0 million ($4.7 million net
to our 66.667 percent interest) work commitment over a two year period. The remaining work
commitment for the current exploration phase on the Budong PSC is for geological and geophysical
work to be completed in the year 2012 at a minimum of $0.5 million ($0.3 million net to our 64.51
percent cost sharing interest).
Our primary ongoing source of cash is still dividends from Petrodelta. In November 2010,
Petrodeltas board of directors declared a dividend of $30.6 million, $12.2 million net to HNR
Finance ($9.8 million net to our 32 percent interest). As of November 2, 2011, this dividend has
not been received, and the timing of the receipt of this dividend is uncertain. We expect to
receive future dividends from Petrodelta; however, we expect that in the near term Petrodelta will
reinvest most of its earnings into the company in support of its drilling and appraisal activities.
Therefore, there is uncertainty that Petrodelta will pay additional dividends in 2011 or 2012.
Additionally, any dividend received from Petrodelta carries a liability to our non-controlling
interest holder, Vinccler, for its 20 percent share. Dividends declared and paid by Petrodelta are
paid to HNR Finance, our consolidated subsidiary. HNR Finance must declare a dividend in order for
us and our non-controlling interest holder, Vinccler, to receive our respective shares of
Petrodeltas dividends. A dividend from HNR Finance is due upon demand. As of March 31, 2011,
Vincclers share of the undistributed dividends is $9.0 million inclusive of the unpaid November
2010 dividend. See Notes to Consolidated Financial Statements, Note 13 Related Party
Transactions.
Working Capital. The net funds raised and/or used in each of the operating, investing and
financing activities are summarized in the following table and discussed in further detail below:
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Net cash used in operating activities |
$ | (29,840 | ) | $ | (12,857 | ) | ||
Net cash provided by (used in) investing activities |
128,446 | (35,822 | ) | |||||
Net cash provided by (used in) financing activities |
(59,265 | ) | 29,672 | |||||
Net increase (decrease) in cash |
$ | 39,341 | $ | (19,007 | ) | |||
At September 30, 2011, we had current assets of $128.6 million and current liabilities of
$34.9 million, resulting in working capital of $93.7 million and a current ratio of 3.7:1. This
compares with a working capital of $133.3 million and a current ratio of 5.7:1 at December 31,
2010. The decrease in working capital of $39.6 million was primarily due to an increase in
accounts receivable related to the sale of the Antelope Project, the completion of the sale of the
Antelope Project offset by an increase in capital expenditures and accounts payable due to drilling
activities and income taxes related to the sale of the Antelope Project.
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Cash Flow used in Operating Activities. During the nine months ended September 30, 2011 and
2010, net cash used in operating activities was approximately $29.8 million and $12.9 million,
respectively. The $16.9 million increase in use of cash was primarily due to drilling activities and the sale of
the Antelope Project.
Cash Flow from Investing Activities. Our cash capital expenditures for property and equipment
are summarized in the following table:
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Budong PSC |
$ | 20.4 | $ | 6.4 | ||||
Dussafu PSC |
36.5 | 2.2 | ||||||
Block 64 EPSA |
1.4 | 0.4 | ||||||
Other projects |
0.2 | 1.0 | ||||||
Total additions of property and equipment
continuing operations |
58.5 | 10.0 | ||||||
Assets Held for Sale Antelope Project(1) |
31.4 | 24.6 | ||||||
Total additions of property and equipment |
$ | 89.9 | $ | 34.6 | ||||
(1) | See Notes to Consolidated Financial Statements, Note 3 Dispositions. |
During the nine months ended September 30, 2011, we received $217.8 million for the sale of our Antelope Project (see Notes to Consolidated Financial Statements, Note 3 Dispositions) and $1.4 million from the sale of our
equity investment in Fusion. During the nine months ended September 30, 2010, we deposited with a
U.S. bank $1.0 million as collateral for a standby letter of credit issued in support of a bank
guarantee required as a performance guarantee for a joint study. During the nine months ended
September 30, 2011 and 2010, we incurred $0.9 million and $0.2 million, respectively, of
investigatory costs related to various international and domestic exploration studies.
Petrodeltas capital commitments will be determined by its business plan. Petrodeltas capital
commitments are expected to be funded by internally generated cash flow. Our budgeted capital
expenditures for 2011 will be funded through sales proceeds, our existing cash balances, accessing
equity and debt markets, and cost reductions, as warranted.
Cash Flow from Financing Activities. During the nine months ended September 30, 2011, we
repaid $60.0 million of our term loan facility. During the nine months ended September 30, 2011,
we incurred $0.2 million in legal fees associated with financings. During the nine months ended
September 30, 2010, we closed an offering of $32.0 million in aggregate principal amount of our
8.25 percent senior convertible notes. We also incurred $2.7 million in deferred financings costs
related to the $32.0 million convertible debt offering that are being amortized over the life of
the financial instrument and $0.1 million in legal fees associated with a prospective financing.
Results of Operations
You should read the following discussion of the results of operations for the three and nine
months ended September 30, 2011 and 2010 and the financial condition as of September 30, 2011 and
December 31, 2010 in conjunction with our consolidated financial statements and related notes
included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Three Months Ended September 30, 2011 Compared with Three Months Ended September 30, 2010
We reported net income attributable to Harvest of $5.1 million, or $0.14 diluted earnings per
share, for the three months ended September 30, 2011, compared with a net loss attributable to
Harvest of $5.0 million, or $(0.15) diluted earnings per share, for the three months ended
September 30, 2010.
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Total expenses and other non-operating (income) expense from continuing operations (in
millions):
Three Months Ended | ||||||||||||
September 30, | Increase | |||||||||||
2011 | 2010 | (Decrease) | ||||||||||
Depreciation and amortization |
$ | 0.1 | $ | 0.1 | $ | | ||||||
Exploration expense |
1.6 | 2.6 | (1.0 | ) | ||||||||
General and administrative |
4.0 | 6.6 | (2.6 | ) | ||||||||
Taxes other than on income |
0.3 | 0.2 | 0.1 | |||||||||
Investment earnings and other |
(0.2 | ) | (0.1 | ) | (0.1 | ) | ||||||
Interest expense |
0.8 | 0.2 | 0.6 | |||||||||
Other non-operating expense |
0.3 | | 0.3 | |||||||||
Income tax expense |
0.2 | 0.7 | (0.5 | ) |
During the three months ended September 30, 2011, we incurred $1.5 million of exploration
costs related to the processing and reprocessing of seismic data related to ongoing operations and
$0.1 million related to other general business development activities. During the three months
ended September 30, 2010, we incurred $2.6 million of exploration costs related to seismic,
geological and geophysical, and exploration support costs. Included in the $2.6 million of
exploration costs is the one-time charge of $1.2 million for acquisition of seismic data for the
Budong PSC related to our partner in the Budong PSC exercising their option to increase the carry
obligation.
General and administrative costs were lower in the three months ended September 30, 2011
compared to the three months ended September 30, 2010 primarily due to lower employee benefit costs
($1.1 million), general office costs and overhead ($2.1 million) offset by higher employee salaries
($0.4 million), travel costs ($0.1 million) and contract services ($0.1 million). Taxes other than
on income were higher in the three months ended June 30, 2011 compared to the three months ended
September 30, 2010 primarily due to payroll taxes and other.
Investment earnings and other increased in the three months ended September 30, 2011 compared
to the three months ended September 30, 2010 due to income earned on transition services provided
on the Antelope Project after closing of the sale. Interest expense for the three months ended
September 30, 2011 was higher compared to the three months ended September 30, 2010, primarily due
to an interest and penalty levy received from the SENIAT, the Venezuelan income tax authority, in September 2011 on a 2007
tax levy that was settled in September 2010.
Other non-operating expense was higher in the three months ended September 30, 2011 compared
to the three months ended September 30, 2010 due to costs incurred related to our on-going
strategic alternative process and evaluation. For the three months ended September 30, 2011,
income tax expense was lower compared with that of the three months ended September 30, 2010 due to
lower income tax assessed in 2011 in the Netherlands.
For the three months ended September 30, 2011, net income from unconsolidated equity
affiliates reflects an increase in Petrodeltas revenue from oil sales due to higher sales volumes
and prices which was partially offset by the amended Windfall Profits Tax. Operating expense and
workovers increased in the three months ended September 30, 2011 compared to the three months ended
September 30, 2010 due to increased oil production and having a workover rig on location
for all three months ending September 30, 2011. Petrodelta took possession of the workover rig in September 2010 and operated it for only one month in the period ending September 30, 2010.
Gain on
exchange rates decreased in the three months ended September 30, 2011 compared to the three months
ended September 30, 2010 due to there not being any Bolivar/U.S. Dollar currency exchange rate
devaluations during the current period. There was a Bolivar/U.S. Dollar currency exchange rate
devaluation announced on January 8, 2010. Petrodeltas effective tax rate (inclusive of the
adjustments to reconcile to reported net income from unconsolidated equity affiliate) for the three
months ended September 30, 2011 decreased compared to the effective tax rate (inclusive of the
adjustments to reconcile to reported net income from unconsolidated equity affiliate) for the three
months ended September 30, 2010 due to the tax effects of the currency devaluation in the three
months ended September 30, 2010 partially offset by an increase in current tax on increased
earnings (see Executive Summary Petrodelta above for a discussion of Petrodeltas income tax
calculations).
Discontinued Operations
On May 17, 2011, we closed the transaction to sell our Antelope Project. (See Notes to
Consolidated Financial Statements, Note 3 Dispositions.) The sale had an effective date of
March 1, 2011. We received cash proceeds of approximately $217.8 million which reflects increases
to the purchase price for customary adjustments and deductions for transaction related costs. We
do not have any continuing involvement with the Antelope Project.
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Revenue and net income on discontinued operations for the three months ended September 30,
2011 and 2010 are shown in the table below:
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Revenue applicable to discontinued operations |
$ | | $ | 1,919 | ||||
Net income (loss) from discontinued operations |
$ | (3,464 | ) | $ | 390 |
Net income from discontinued operations for the three months ended September 30, 2011 includes
a $3.5 million increase in U.S. income tax related to the sale of our Antelope Project.
Nine Months Ended September 30, 2011 Compared with Nine Months Ended September 30, 2010
We reported net income attributable to Harvest of $95.9 million, or $2.42 diluted earnings per
share, for the nine months ended September 30, 2011, compared with net income attributable to
Harvest of $19.3 million, or $0.53 diluted earnings per share, for the nine months ended September
30, 2010.
Total expenses and other non-operating (income) expense from continuing operations (in
millions):
Nine Months Ended | ||||||||||||
September 30, | Increase | |||||||||||
2011 | 2010 | (Decrease) | ||||||||||
Depreciation and amortization |
$ | 0.4 | $ | 0.4 | $ | | ||||||
Exploration expense |
7.4 | 5.3 | 2.1 | |||||||||
General and administrative |
17.1 | 17.5 | (0.4 | ) | ||||||||
Taxes other than on income |
0.9 | 0.7 | 0.2 | |||||||||
Investment earnings and other |
(0.5 | ) | (0.4 | ) | (0.1 | ) | ||||||
Interest expense |
4.7 | 1.3 | 3.4 | |||||||||
Loss on extinguishment of debt |
9.7 | | 9.7 | |||||||||
Other non-operating expense |
1.0 | | 1.0 | |||||||||
Loss on exchange rates |
0.1 | 1.5 | (1.4 | ) | ||||||||
Income tax expense |
0.7 | 0.8 | (0.1 | ) |
During the nine months ended September 30, 2011, we incurred $3.8 million of exploration
costs related to the processing and reprocessing of seismic data related to ongoing operations,
$0.3 million related to other general business development activities, and $3.3 million of
impairment for the carrying value of West Bay (see Notes to Consolidated Financial Statements, Note
10- United States Operations, Gulf Coast). During the nine months ended September 30, 2010, we
incurred $4.8 million of exploration costs related to the processing and reprocessing of seismic
data related to ongoing operations and $0.5 million related to other general business development
activities. Included in the $4.8 million of exploration costs is the one-time charge of $1.2
million for acquisition of seismic data for the Budong PSC related to our partner in the Budong PSC
exercising their option to increase the carry obligation.
General and administrative costs were lower in the nine months ended September 30, 2011
compared to the nine months ended September 30, 2010 primarily due to lower general office expense
and overhead ($1.8 million) and public relations ($0.3 million) offset by higher employee related
costs ($1.6 million) and contract services ($0.1 million). The employee related cost increase
includes $0.4 million of special consideration bonuses related to the sale of our Antelope Project.
Taxes other than on income for the nine months ended September 30, 2011 were higher compared to
the nine months ended September 30, 2010 primarily due to higher payroll and other taxes.
Investment earnings and other were higher in the nine months ended September 30, 2011 compared
to the nine months ended September 30, 2011 due to income earned on transition services provided on
the Antelope Project after closing of the sale. Interest expense was higher for the nine months
ended September 30, 2011 compared to the nine months ended September 30, 2010 due to the interest
associated with our $32 million convertible debt offering in February 2010, our $60 million term
loan facility occurring in October 2010 and amortization of discount on the term loan facility
related to the warrants issued in connection with the $60 million term loan facility offset by
interest capitalized to oil and gas properties of $1.6 million. During the nine months ended
September 30, 2011, we
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incurred a loss on extinguishment of debt related to early payment of our
$60 million term loan facility. The loss on
extinguishment of debt includes the write off of the discount on debt ($7.2 million), prepayment
premium of 3.5 percent of the amount outstanding ($2.1 million), expensing of financing costs
related to the term loan facility ($0.3 million), and the cost to repurchase 4.4 million unvested
warrants issued in connection with the term loan facility.
Loss on exchange rates is lower for the nine months ended September 30, 2011 compared to the
nine months ended September 30, 2010 due to the Bolivar/U.S. Dollar currency exchange rate
devaluation announced on January 8, 2010. There was no Bolivar/U.S. Dollar exchange rate
devaluations in the nine months ended September 30, 2011. Other non-operating expense was higher
in the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010
due to costs incurred related to our on-going strategic alternative process and evaluation. For
the nine months ended September 30, 2011, income tax expense was lower compared with that of the
nine months ended September 30, 2010 due to lower income tax assessed in 2011 in the Netherlands
offset by a U.S. tax refund received in the nine months ended September 30, 2010.
For the nine months ended September 30, 2011, net income from unconsolidated equity affiliates
reflects an increase in Petrodeltas revenue from oil sales due to higher sales volumes and prices
which was partially offset by the amended Windfall Profits Tax. Operating expense and workovers
increased in the nine months ended September 30, 2011 compared to the nine months ended September
30, 2010 due to increased oil production and having a workover rig on location for all nine months ending September 30, 2011. Petrodelta took possession of the workover rig in September 2010 and operated it for only one month in the period ending September 30, 2010. Gain on exchange rates
decreased in the nine months ended September 30, 2011 compared to the nine months ended September
30, 2010 due to there not being any Bolivar/U.S. Dollar currency exchange rate devaluations during
the current period. There was a Bolivar/U.S. Dollar currency exchange rate devaluation announced
on January 8, 2010. Petrodeltas effective tax rate (inclusive of the adjustments to reconcile to
reported net income from unconsolidated equity affiliate) for the nine months ended September 30,
2011 decreased compared to the effective tax rate (inclusive of the adjustments to reconcile to
reported net income from unconsolidated equity affiliate) for the nine months ended September 30,
2010 due to the tax effects of the currency devaluation in the nine months ended September 30, 2010
partially offset by an increase in current tax on increased earnings (see Executive Summary
Petrodelta above for a discussion of Petrodeltas income tax calculations).
We recorded a $1.4 million gain on the sale of our equity affiliate, Fusion, during the nine
months ended September 30, 2011.
Discontinued Operations
On May 17, 2011, we closed the transaction to sell our Antelope Project. (See Notes to
Consolidated Financial Statements, Note 3 Dispositions.) The sale had an effective date of
March 1, 2011. We received cash proceeds of approximately $217.8 million which reflects increases
to the purchase price for customary adjustments and deductions for transaction related costs. We
do not have any continuing involvement with the Antelope Project. The related gain on the sale of
$104.0 million is reported in the second quarter of 2011.
Revenue and net income on discontinued operations for the six months ended June 30, 2011 and
2010 are shown in the table below:
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Revenue applicable to discontinued operations |
$ | 6,488 | $ | 7,957 | ||||
Net income from discontinued operations |
$ | 92,483 | $ | 3,208 |
Net income from discontinued operations for the nine months ended September 30, 2011 includes
$104.0 million gain on the sale of our Antelope Project, $1.4 million for impairment of inventory
from cost to market, $3.6 million for employee severance and special accomplishment bonuses, and
$8.7 million of U.S. income tax related to the sale of our Antelope Project. Severance costs for
key employees include $0.5 million of restricted stock units which was paid in July 2011.
Severance costs for key employees also include 58,000 stock appreciation rights (SAR) granted at
an exercise price of $4.595 per SAR. These SARs are exercisable by the key employee for up to one
year after termination.
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Effects of Changing Prices, Foreign Exchange Rates and Inflation
Our results of operations and cash flow are affected by changing oil prices. Fluctuations in
oil prices may affect our total planned development activities and capital expenditure program.
Our net foreign exchange losses attributable to our international operations were minimal for
the nine months ended September 30, 2011 and $1.6 million for the nine months ended September 30,
2010. There are many factors affecting foreign exchange rates and resulting exchange gains and
losses, most of which are beyond our control. It is not possible for us to predict the extent to
which we may be affected by future changes in exchange rates and exchange controls.
Venezuela imposed currency exchange restrictions in February 2003, and adjusted the official
exchange rate in February 2004, March 2005, January 2010 and again in January 2011. On January 4,
2011, the Venezuelan government published in the Official Gazette the Exchange Agreement which
eliminated the 2.60 Bolivars per U.S. Dollar exchange rate with an effective date of January 1,
2011.
Harvest Vinccler and Petrodelta do not have currency exchange risk other than the official
prevailing exchange rate that applies to their operating costs denominated in Bolivars (4.30
Bolivars per U.S. Dollar). However, during the nine months ended September 30, 2011, Harvest
Vinccler exchanged approximately $0.7 million through SITME and received an average exchange rate
of 5.17 Bolivars per U.S. Dollar. The monetary assets that are exposed to exchange rate
fluctuations are cash, accounts receivable, prepaid expenses and other current assets. The
monetary liabilities that are exposed to exchange rate fluctuations are accounts payable, accruals
and other current liabilities. All monetary assets and liabilities incurred at the official
Bolivar exchange rate are settled at the official Bolivar exchange rate. Petrodelta does not have,
and has not had, any U.S. Dollars pending government approval for settlement for Bolivars at the
official exchange rate or the SITME exchange rate. Harvest Vinccler currently does not have any
U.S. Dollars pending government approval for settlement for Bolivars at the official exchange rate
or the SITME exchange rate.
Within the United States and other countries in which we conduct business, inflation has had a
minimal effect on us, but it is potentially an important factor with respect to results of
operations in Venezuela.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from adverse changes of the situation in Venezuela, our
recently initiated exploration program and adverse changes in oil prices, interest rates, foreign
exchange and political risk, as discussed in our Annual Report on Form 10-K for the year ended
December 31, 2010. The information about market risk for the nine months ended September 30, 2011
does not differ materially from that discussed in the Annual Report on Form 10-K for the year ended
December 31, 2010.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We have established disclosure
controls and procedures that are designed to ensure the information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
Based on their evaluation as of September 30, 2011, our principal executive officer and
principal financial officer have concluded that our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control over Financial Reporting. There have been no changes in our
internal control over financial reporting during our most recent quarter ended September 30, 2011,
that have materially affected, or are reasonably likely to affect, our internal control over
financial reporting.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
On May 31, 2011, the United Kingdom branch of our subsidiary, Harvest Natural
Resources, Inc. (UK), initiated a wire transfer of approximately $1.1 million ($0.7
million net to our 66.667 percent interest) intending to pay Libya Oil Gabon S.A.
(LOGSA) for fuel that LOGSA supplied to our subsidiary in the Netherlands, Harvest
Dussafu, B.V., for the companys drilling operations in Gabon. On June 1, 2011, our
bank notified us that it had been required to block the payment in accordance with the
U.S. sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011,
and administered by the United States Treasury Departments OFAC, because the payee,
LOGSA, may be a blocked party under the sanctions. The bank further advised us that it
could not release the funds to the payee or return the funds to us unless we obtain
authorization from OFAC.
On June 30, 2011, we filed a voluntary self-disclosure with OFAC to report that we
had possibly violated the U.S. sanctions by attempting to remit funds to LOGSA. On
September 20, 2011, we received a response from OFAC which stated that OFAC had decided
to address the matter by issuing us a cautionary letter instead of pursuing a civil
penalty. The cautionary letter represents OFACs final response to the apparent
violation, but does not constitute a final agency determination as to whether a
violation occurred.
Concurrently with the filing of the voluntary self-disclosure, we applied for a
license with OFAC that would authorize us to pay LOGSA for the fuel provided. In
addition to the blocked funds, we owe this supplier approximately $0.7 million ($0.5
million net to our 66.667 percent interest) in additional payments that we are unable to
remit unless we are authorized to do so. We are waiting on a response and are unable,
at this time, to predict when a license may be granted, if at all. On October 26, 2011,
we filed an application with OFAC for return of the blocked funds to us. Unless that
application is approved, the funds will remain in the blocked account, and we can give
no assurance when, or if, OFAC will permit the funds to be released.
See our Annual Report on Form 10-K for the year ended December 31, 2010 for a
description of certain other legal proceedings. There have been no material
developments in such legal proceedings since the filing of such Annual Report.
Item 1A. | Risk Factors |
See our Annual Report on Form 10-K for the year ended December 31, 2010 under
Item 1A Risk Factors for a description of risk factors. There have been no material
developments in such risk factors since the filing of such Annual Report.
Item 6. | Exhibits |
(a) | Exhibits |
3.1 | Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762.) | ||
3.2 | Restated Bylaws as of May 17, 2007. (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on April 23, 2007, File No. 1-10762.) | ||
4.1 | Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to our Form 10-K filed on March 17, 2008, File No. 1-10762.) | ||
4.2 | Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.) |
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4.3 | Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 99.3 to our Form 8-A filed on October 23, 2007, File No. 1-10762.) | ||
4.4 | Amendment to Third Amended and Restated Rights Agreement, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 29, 2010, File No. 1-10762.) | ||
31.1 | Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 executed by James A. Edmiston, President and Chief Executive Officer. | ||
32.2 | Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 executed by Stephen C. Haynes, Vice President, Chief Financial Officer and Treasurer. |
101. INS XBRL Instance Document | |||
101. SCH XBRL Schema Document | |||
101. CAL XBRL Calculation Linkbase Document | |||
101. LAB XBRL Label Linkbase Document | |||
101. PRE XBRL Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements 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. |
||||
Dated: November 9, 2011 | By: | /s/ James A. Edmiston | ||
James A. Edmiston | ||||
President and Chief Executive Officer | ||||
Dated: November 9, 2011 | By: | /s/ Stephen C. Haynes | ||
Stephen C. Haynes | ||||
Vice President Finance, Chief Financial Officer and Treasurer |
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Exhibit Index
Exhibit | ||
Number | Description | |
3.1
|
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762). | |
3.2
|
Restated Bylaws as of May 17, 2007. (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on April 23, 2007, File No. 1-10762.) | |
4.1
|
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to our Form 10-K filed on March 17, 2008. File No. 1-10762.) | |
4.2
|
Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.) | |
4.3
|
Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 99.3 to our Form 8-A filed on October 23, 2007, File No. 1-10762.) | |
4.4
|
Amendment to Third Amended and Restated Rights Agreement, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 29, 2010, File No. 1-10762.) | |
31.1
|
Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 executed by James A. Edmiston, President and Chief Executive Officer. | |
32.2
|
Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 executed by Stephen C. Haynes, Vice President, Chief Financial Officer and Treasurer. | |
101. INS
|
XBRL Instance Document | |
101. SCH
|
XBRL Schema Document | |
101. CAL
|
XBRL Calculation Linkbase Document | |
101. LAB
|
XBRL Label Linkbase Document | |
101. PRE
|
XBRL Presentation Linkbase Document |
38