On July 21, 2011 Harvest Natural Resources (ticker: HNR) provided an update on the progress of its exploration program offshore Gabon.
With efforts to test deeper zones at its Ruche discovery announced in June 2011 offshore Gabon, Harvest announced that the Dussafu Ruche Marin-1 (DRM-1) well, deepened to 11,355 feet, was successful in logging 35 feet of oil pay within the secondary objective in the Middle Dentale Formation.
Previously, the DRM-1 well was drilled to 9,953 feet in which the company reported discovering 55 feet of oil pay in the Gamba formation. A sidetrack appraisal well, the DRMST1, has been drilled 0.75 miles to the southwest to a depth of 11,562 feet to test the structural elevation of the Gamba reservoir. HNR reported 19 feet of oil pay has been found in the Gamba reservoir.
Click here for the previous write-up on the DRM-1 well.
Harvest will now sidetrack the DRM-1 well to the northwest of the original DRM-1 wellbore to further appraise the extent and structural elevation of the Gamba and the commerciality of the Ruche discovery.
In May 2011, Harvest sold a package of oil-prone producing U.S. assets in Utah to Newfield Exploration (ticker: NFX) for $215 million in cash. The company used the net proceeds of $205 million to pay off an outstanding term loan of $60 million and the balance available to fund the company’s exploration projects. During 2011, the company took several steps forward to de-risk its exploration projects around the world and diversify its operations outside of Venezuela.
Click here for the write-up on the Utah sale.
Gabon: Harvest holds a 66.7% WI in the Dussafu PSC offshore Gabon, West Africa. The company spud the DRM-1 well on April 28, 2011 and is being drilled to test the potential of the pre-salt Gamba and Dentale formations . On June 13, 2011 Harvest announced that oil had been encountered in the Gamba formation in a 90 foot oil column with 55 feet of pay and was drilling ahead to the deeper Upper and Lower Dentale formations.
The company’s reports of an oil discovery are encouraging, although it is too early to tell what it means for investors. We will wait for more information and results from the second side-track well to the northwest to judge the extent of the Ruche discovery, and the impact it will have on Harvest’s valuation. The second side-track well will provide greater detail in the commerciality of the discovery in Gabon.
Indonesia: Recently, HNR de-risked its Budong-Budong exploration project in Indonesia when the Lariang LG-1 exploration well encountered multiple hydrocarbon shows and high pressures in the Miocene formation. The well was plugged and abandoned due to high pressures; however, this test well confirmed the presence of hydrocarbons and an effective trap and seal. The rig is moving to test the larger of the two targeted structures in the Budong-Budong prospect.
Click here for the previous write-up on Indonesia that includes maps of HNR’s prospect.
Oman: Expected in the second half of 2011, HNR plans to spud two exploratory wells in Oman. Currently, HNR is evaluating recent 3-D seismic data to high-grade future drilling locations.
Venezuela: Through its 32% net equity ownership in the Venezuelan company Petrodelta, Harvest has exposure to highly prolific oil producing assets in Venezuela. Petrodelta has proven it can operate effectively in Venezuela and has been a source of cash dividends to Harvest in past years. These dividends have been, and we expect will continue to be, reinvested back into Harvest’s exploration portfolio. Through its equity interest, Harvest has proved reserves of 50 million barrels of oil equivalent (MMBOE) net and exposure to 171 MMBOE net probable and possible reserves. In the first half of 2011, Petrodelta produced at the rate of 29,700 barrels of oil per day (BOPD) and the company expects to add a third rig to its drilling program in August, which it anticipates will drive oil production for calendar year 2011 up to an average of 33,300 BOPD. Rising production improves the opportunity to repatriate dividends. In 2010, Harvest received a net dividend of $12.2 million from its affiliate in Venezuela.
All in all, successful discoveries and commercial wells on Harvest’s exploration projects will significantly improve the company’s visible growth complexion, and allow the company to diversify its cash flow generating assets.
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