On November 5, 2010, Harvest Natural Resources (ticker:HNR) provided an operational update for its U.S. and international assets. The company also announced it closed a $60.0 million term loan facility on October 28, 2010, providing sufficient liquidity to execute its current development and exploration programs.
Harvest received a $9.8 million dividend payment, net to Harvest’s 32% interest from Petrodelta, the company’s Venezuelan affiliate. Petrodelta is currently producing 25,000 barrels of oil per day (BOPD) and reported production from the first nine months of 2010 of approximately 6.1 MMBO. The company has completed 13 wells over the last nine months at a 100% success rate. By focusing drilling operations in the Temblador Field, Petrodelta has increased total proved reserves net to Harvest to 50.4 MMBOE from 46.3 MMBOE at year-end 2009. Low operational and geologic risk combined with relatively shallow declines make Petrodelta’s oil assets ideal for generating long-term visible growth rate.
In the U.S., Harvest continues to drill in its onshore oil projects in Utah, including its Antelope, Monument Butte, and Lower Green River/Upper Wasatch targets. In its Antelope project, HNR produced 587 BOEPD in October 2010 and produced a total of 146,000 BOE for the nine months ended September 30, 2010.
The company’s five-well delineation program in the Lower Green River/Upper Wasatch is progressing with two of the five planned wells in completion and testing stages. The two wells are eight miles east of the Bar F discovery well.
Click here for the previous write up on the Bar F discovery.
The results of Kettle #1-10-3-1 well was drilled to 12,000 feet and fractured with nine stages. The well flowed 4,440 barrels of oil and 17.6 MMcf during a nine-day flowback. The second well, the O.N. Moon 1-27-3-2 was drilled to 10,169 feet and will be completed in November.
In addition, its Monument extension drilling program is on pace, having drilled four of the six planned wells that are currently producing at 400 gross BOPD and 1.1 gross MMcf/d. The results of the four Stewart wells give the company optimism that the plays extends to the north, west, and east onto a significant portion of Harvest’s 10,000 to 15,000 acre lease position in the area.
Overseas in Indonesia, the Budong Budong exploration project (two planned wells) offers a high-impact catalyst, if successful. The company reported that rig equipment and materials have arrived at the Lariang LG-1 drill site and mobilization is approximately 95% complete. The planned spud date of its first of two wells in Budong Budong is November 2010. The second exploration well, the Karama KD-1, is scheduled to spud during the first quarter of 2011.
Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Harvest following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
Lazard Capital Markets-November 5, 2010
Venezuela ramping slower. Petrodelta’s gross 3Q oil production was 23,880 b/d (+11% QoQ) vs. our estimate of 24,921 b/d. The company had delays securing its second rig, which pushed out the ramp in production growth. Current gross oil production is ~25,000 b/d (5% over 3Q) vs. our prior 4Q estimate of 27,662 b/d.
Lower U.S. production; ramping to year-end. 3Q production was 426 Boe/d (- 23% QoQ) vs. our estimate of 588 Boe/d. With several wells completing before year-end, we expect a significant ramp in production to 1,233 Boe/d in 4Q.
Latest Utah results impress. In Harvest’s Lower Green River project in Utah (near Bar-F well), its 2nd well IP’d at 820 Boe/d (9-day avg., 60% oil) vs. the Bar-F well at 1,008 Boe/d. While these results look strong, we need to see evidence of sustained production to accurately value the prospect.
Indonesia well nearing spud. At its first well of the Budong-Budong prospect in Indonesia, the majority of equipment is on site, and Harvest plans to spud the well this month. We estimate the prospect has unrisked potential of $7/share.
Loan addresses near-term liquidity issues; upside in a takeout. In October, the company closed a $60 million loan facility, which will provide adequate liquidity to execute its capital program and evaluate strategic alternatives. We estimate year-end 2010 liquidity of $49 million. As a going concern, we think shares are fairly valued, but in a takeout scenario, we see upside potential of $4+/share.
Lowering estimates. Based on 3Q production and additional interest expense on its new loan facility, we are lowering our 3Q and 2010 EPS/CFPS estimates to $0.16/$0.22 and $0.69/-$0.09 from $0.17/$0.23 and $0.73/-$0.07.
Maintaining HOLD. At 9.4x 2011E EBITDA vs. the group at 8.0x, Harvest receives fair credit for its strong exploration portfolio and high cash flow Venezuelan assets, in our view. Therefore, we maintain our HOLD rating.
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