Harvest Natural Resources (ticker: HNR) announced on March 16, 2010 that it had made an oil discovery in its Antelope land position in Utah’s Uintah Basin. Harvest drilled the Bar F exploration well on the northern portion of its Antelope prospect, which is located between two established oil fields, the Monument Butte field to the south and the Altamont Bluebell field to the north.
The Bar F was drilled to test the deep gas potential of the Mesaverde, as well as the shallow oil potential of the Upper Wasatch and Lower Green River zones. The company fracture stimulated six separate intervals in the Upper Wasatch and Lower Green River zones. The upper-most zone alone flowed 300 barrels per day of 41 degree API oil during a 24-hour period with pressures exceeding 2,200 pounds per square inch. The flow rate was measured through 9-5/8 inch casing.
On March 30, 2010, Harvest provided an update on the Bar F testing program. In a flow test of the commingled six intervals between 8,200 and 9,600 feet in the Lower Green River and Upper Wasatch formations, the well produced 4,000 barrels of 42 API degree oil since March 24, 2010. The well, as of the announcement date, was producing at a stable rate of approximately 900 barrels of oil per day and 650 thousand cubic feet of natural gas with a surface flowing pressure of approximately 1,400 psi. Harvest expects the test to continue for another one to two weeks.
Importantly, the oil discovery is located six to eight miles away from the nearest oil production to the north in the Altamont-Bluebell field. Harvest’s Antelope land position consists of approximately 65,000 gross acres and (39,000 net) and continues to expand its leasehold in the area.
Harvest President and CEO James Edmiston said, “We believe that the results achieved in the Bar F testing program to date indicate a high likelihood that we have made a commercial oil discovery in the Bar F well, and we are excited about the potential growth opportunity that this brings to Harvest in the Uintah Basin.”
Harvest also completed an eight-well appraisal and development program with Newfield Exploration (NYSE: NFX) as operator in the Monument Butte field. The program extends the known limits of the existing field, located near the southern end of Harvest’s Antelope land position. Harvest and its partners are working to expand the Monument Butte drilling program in 2010.
Venezuela
Harvest has a net 32% interest in its Venezuelan equity affiliate, Petrodelta, as the result of holding an 80% in Harvest Vinccler, which in turn owns 40% of Petrodelta.
For 2010, Petrodelta’s shareholders have approved a $205 million self-funded capital budget with approximately $105 million targeted to infrastructure. The remaining funds will be allocated to drilling projects. The company’s 2010 growth plan is targeting an increase production to an average of 30,000 barrels of oil per day (BOPD), a 40% increase over the 2009 average rate of 21,464 BOPD. The plan is based on running two rigs in Venezuela. Petrodelta had approximately $70 million of cash at year-end 2009 and the balance of the capital budget would be self-funded by cash flow from operations. At this time, Petrodelta is producing about 1,000 BOPD less than the company’s growth plan for increasing production to the average 30,000 BOPD. Vendor payment problems still impact availability of service contractors and if the company cannot secure a second rig, then it is expected that Petrodelta will generate a cash surplus.
“The assets are extremely underdeveloped. 2010 is just the beginning,”said Edmiston on the March 26, 2010 earnings conference call. “We expect very strong cash from operations, especially given where commodity prices are. But, if we continue to have delays, especially on infrastructure, then we would expect Petrodelta to pay out dividends. My preference is to grow production.”
In 2009, Petrodelta drilled and completed 14 successful development wells and one new appraisal well, which increased oil production to 7.8 million barrels of oil, a 42%increase from the prior year and a 10%increase from mid-year. Based on the results of two appraisal wells drilled in the El Salto Field, Petrodelta’s proved, probable and possible reserves net to Harvest increased to 224.3 MMBOE, a 69% increase from the prior year. Edmiston said, “Petrodelta’s reserves-to-production ratio is 26 years. We would like it in the eight to 12 year range, but have to invest to increase production.”
International Operations – Exploration
A near-term catalyst is Harvest’s Budong-Budong prospect in West Sulawesi, Indonesia. Minor delays have been experience; however, the operator believes the first well is expected to be spud in the second quarter of 2010. The two test wells are designed to test the Eocene source rock.
In Gabon, Harvest expects to drill its first exploration well on its Dussafu prospect sometime in the fourth quarter of 2010 to test the Gamba and Syn-Rift plays that are producing in nearby Etame, Lucina and M’Baya fields.
In Oman, Harvest continues to progress its technical work to high-grade drilling locations on its Qarn Alam prospect (Block 64 EPSA). Drilling on the block is likely to occur in 2011.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.
