Harvest Natural Resources, Inc., (ticker: HNR) headquartered in Houston, Texas, is an independent energy company with primary assets in Venezuela, exploration assets in Indonesia, West Africa and China.
On December 16, 2013, Harvest Natural Resources confirmed it had closed the first phase of a two-phase process to sell its assets in Venezuela and received $125 million ($122 million net), as part of the total sale at an aggregate of $400 million ($330 million net) in cash.
The second transaction, dependent on approval from company shareholders and the Venezuelan government, is expected to close in mid-2014. The sale is approximately 7% higher than HNR’s previous sale target price of $373 million.
Per the agreement, Petroandina will purchase HNR Energia’s 32% interest in Petrodelta, S.A. Petrodelta drilled four development wells on the property in Q3’13 and has a current overall production rate of approximately 44,000 BOPD. The company sold 3.8 MMBO (41,700 BOPD) in the quarter, an increase of 9% compared to Q3’12.
Proceeds from the first transaction will be used to pay down Harvest’s long-term debt with the remaining proceeds used for working capital. Initial proceeds will be used to redeem approximately 11% of senior notes totaling roughly $80 million by January 11, 2014. HNR management said it will file the proxy statement for the second transaction before the end of Q1’14.
First Step In Sell-Off
The company announced intentions to sell off its assets on September 11, 2013. Including the Venezuela deal, Harvest is also marketing its interests in Gabon, Indonesia, Colombia and China. The remaining assets will be spun off to a new company (SpinCo) and will be managed by HNR’s current team.
The company recently terminated exclusive negotiations with Vitol to sell its offshore Gabon properties for approximately $137 million ($123 million net). A 3D seismic survey covering the 1,130 square kilometer property was recently completed. The country of Gabon awarded 13 oil and gas blocks to 11 companies as part of its recent deepwater bid on October 29, 2013, and anticipates the assets will produce 500,000 BOPD once the blocks become operational. Total S.A. (ticker: TOT) announced an oil discovery in the nearby deepwater presalt play on August 19, 2013.
Venezuela Operations Generally Risky
Venezuela is navigating through uncertain times due to a new president aiming to reshape the country’s image. President Nicolas Maduro, the successor to Hugo Chavez, is also trying to open the doors for private investors. Potential buyers, however, are wary of the government’s cooperation with operations due to a tumultuous history of issuing capricious regulations affecting oil and gas companies. The Venezuelan government has twice made headlines since October 2013 for forceful actions, including seizing rigs operated by Superior Energy Services (ticker: SPN) and detaining an Anadarko-run (ticker: APC) surveying ship. SPN also stated it is owed millions by the Venezuela government dating back to December 2012 and relations have been terse since July 2013.
Although Venezuela is the fourth largest importer of crude to the United States (outside of OPEC), its net export total has declined in six of the past eight years. The U.S. has scaled back on imports every year during the stated period, and total exports have declined 35% since 2004.
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