On March 2, 2011, Harvest Natural Resources (ticker: HNR) announced an increase in reserves for both its U.S. and Venezuela operations and provided an operations update.
HNR’s total proved reserves for 2010 increased 17% to 54.6 million barrels of oil equivalent (MMBOE), and its 2P reserves increased 42% to 118.9 MMBOE.
Uintah Basin, Utah Reserves Highlights (Reserves numbers below are net to Harvest):
- 1P reserves increased to 4.6 MMBOE, compared to 0.4 MMBOE at year end 2009.
- 2P reserves increased to 15.3 MMBOE, compared to 0.4 MMBOE at year end 2009.
- 3P reserves in Utah increased to 86.4 MMBOE, compared to 0.4 MMBOE at year end 2009.
- Pre-tax PV-10 of 2P and 3P reserves increased to approximately $109 million and $617 million, respectively.
- 75% of 3P reserves in Utah are oil.
Venezuela Reserves Update (Reserves numbers below are net to Harvest):
- 1P reserves in Venezuela increased to 50.0 MMBOE, an 8% increase over year end 2009.
- 2P reserves in Venezuela have increased to 103.6 MMBOE, a 24% increase over year-end 2009.
- 3P reserves stand at 220.6 MMBOE, unchanged from 2009.
- Pre-tax PV-10 of the net Petrodelta reserves was $2.3 billion, an increase of 68% from 2009.
Harvest produced at a rate of 650 BOEPD net from its U.S. oil assets in the Uintah Basin of Utah during January and February 2011. The company has 14 producing wells (13 non-operated) in the Monument Butte Extension project, and five producing wells in the Lower Green River/Upper Wasatch development project. A sixth well has been drilled and is expected to be hydraulically fractured and completed in March and a seventh well is currently drilling. Harvest expects to achieve production rates in excess of 1,000 BOPD in April 2011 after the seventh well is completed on the Lower Green River/Upper Wasatch project.
To date, the Bar F discovery well (the first of the seven wells mentioned) in the Lower Green River/Upper Wasatch project area has produced 56,000 gross barrels of oil and 42 gross million cubic feet of gas (MMcf) in the 10 months since being placed on production.
The 13 non-operated wells in the Monument Butte Extension project have now produced approximately 350,000 gross barrels of oil and 1.3 gross billion cubic feet of gas (Bcf) since inception of production in December 2009. HNR identified 50 Harvest-operated drilling locations for the next phase of Monument Butte Extension drilling when it is initiated.
The company attributes its U.S. reserves additions to Harvest’s successful Antelope Project delineation drilling program conducted during 2010.
In 2010, Petrodelta drilled and completed 16 development wells and produced a total of 8.6 MMBOE. Petrodelta’s average production rate during 2010 was 23,455 BOPD, 9% higher than 2009. The 2011 capital budget of $220 million includes provisions to drill 28 wells, two water injector wells, one gas injector well and construction costs for pipeline and related facilities. Petrodelta’s production output for Q1’11 is projected to be approximately 29,000 BOPD.
The reserve additions are the result of the extension of Block 5 at the El Salto field and recent development drilling success in other fields in Venezuela.
Harvest’s Lariang LG-1 Well, the first of two planned exploration wells was spud on January 6, 2011 in the Budong Budong Block, West Sulawesi. The well is to be drilled to a depth of approximately 7,200 feet and has currently reached 4,536 feet.
HNR purchased lead items required for drilling which are both on site and on route to Port Gentil. A projected spud date for the Ruche Marin-A well is expected in Q2’11.
In 2010, Harvest executed on several important elements of its worldwide diversification and exploration strategy and has recently made advancements on two of its key exploration prospects. The company has been very clear about its propensity to assume greater political risk in exchange for lower geologic risk. The company found ways to successfully operate in Venezuela and grow oil production at its Petrodelta affiliate, which has been a steady source of dividends that have been reinvested back into the U.S. and other prospects in Harvest’s exploration portfolio.
Continued development generated strong increases in U.S. reserves at the company’s Antelope project in the Uintah Basin. In only a year, Harvest increased proved reserves in Utah up to 4.6 MMBOE from virtually nothing the year before. With 3P reserves at 86.4 MMBOE in Utah, Harvest has a strong visible growth path.
Harvest also announced the commencement of drilling operations at the much-awaited Budong-Budong prospect in Indonesia. The first two exploration wells will test multiple stacked targets in the Eocene and Miocene clastics, each having potential for 50 to 180 MMBOE.
Also, Harvest announced it had contracted for a semisubmersible drilling rig and ordered drill pipe and long-lead items in anticipation of spudding its first exploration well at the company’s Dussafu project located offshore Gabon. The Ruche Marine 1 prospect is targeting pre-salt formations with the potential for 26 MMBO. The company expects to spud the first exploration well at Dussafu in April 2011.
Bottom line – 2011 could prove to be a transformational year for Harvest. Continued execution at the company’s Antelope project in Utah is likely to further increase U.S. oil production and reserves. Venezuela stands to provide additional cash dividends for reinvestment into the company’s portfolio of projects outside that nation. And, if successful, the company’s exploration prospects in Gabon and Indonesia have the potential to be company makers.
The company continues to pursue the exploration of strategic alternatives, first announced in September 2010. HNR reported it received interest from multiple parties in both of its producing assets as well as its exploration portfolio. The company’s near-term focus lies with its exploration projects and the evaluation of its strategic alternatives.
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 – March 2, 2011
Evaluating strategic alternatives. In an operations update published this morning, management noted that it has received interest in both its developed and exploratory assets. It is evaluating these options.
Budong drilling ahead. Drilling got off to a slow start due to greater than expected reservoir pressures. The well has been drilled and cased to a depth of 4,536 feet. The primary target is the Eocene at a depth of 7,200 feet. Drilling will continue over the next few weeks. We estimate unrisked potential of 83 MMBoe and $10+/share for this initial test well.
Utah on track. YTD production in Utah of 650 Boe/d is slightly ahead of our prior estimate of 550 Boe/d. In its Lower Green River area (northern Antelope), Harvest has 5 wells producing and will complete its next 2 wells by early April.
Monument Butte highly economic. Harvest has identified 50 drilling locations on its operated Monument Butte extension area in Utah. These wells have lower costs than its northern Antelope wells and are highly economic, by our estimate. Given Harvest’s capital constraints and the superior returns of Monument Butte program, this area should be the focus of the company’s onshore program.
Exciting exploration opportunity, but liquidity challenged. Harvest’s exploration portfolio offers exposure to significant upside potential. However, the company has minimal cash flow and funding its exploration program remains an issue. By our estimate, Harvest will have to raise capital by the summer unless it reaches an agreement to sell part or all of the company by then.
Increasing estimates. We are increasing our estimates for higher Q1 US production. Our 2011 EPS/CFPS estimates go to $0.79/ $0.70 from $0.76/ $0.74.
Shares fairly valued. At 11.5x 2011E EBITDA vs. the group at 9.1x, Harvest receives fair credit for its exploration portfolio and high cash flow Venezuelan assets, in our view. We remain on the sidelines pending the resolution of its strategic alternatives and maintain our HOLD rating.
Global Hunter Securities – March 2, 2011
Harvest Natural Resources, Inc. (NYSE: HNR; $14.74; Buy; $19.00 PT) Harvest Natural Resources wows us with a better than expected reserve report in Utah.
2P reserves net to Harvest in Utah have increased to 15.3 Mmboe (203 locations), compared to 0.4 Mmboe a year ago with proved reserves at 4.6 Mmboe (43 locations) net compared to 0.4 Mmboe at year end 2009. 3P reserves net to Harvest in Utah blew us away as they equated to 86.4 Mmboe (75% oil) with 70% in the Antelope Project with the remaining 30% in the Monument Butte area and totaled some 1,207 drilling locations.
The Utah 2P and 3P reserves pre-tax PV-10% increased to approximately $109 million and $617 million, respectively.
Harvest’s 32% in Petrodelta saw net 2P reserves in Venezuela increase to 103.6 Mmboe, up 24% YOY with proved reserves equating to 50 Mmboe, up 8% YOY. 3P reserves stand at 220.6 Mmboe at December 31, 2010, virtually unchanged from last year.
The pre-tax PV-10% of the net Petrodelta reserves was $2.3 billion.
In total, year-end proved reserves totaled 54.6 Mmboe and 2P reserves were 118.9 Mmboe reflecting increases of 17% and 42%, respectively.
We had been forecasting year-end proved reserves of 52.3 Mmboe but due to the lack of production history, we only had 1.5 Mmboe of proved reserves allocated to Utah.
Net production for January and February 2011 was approximately 650 Boepd, 67% of what we had forecasted for 1Q11 as the new wells are expected on line for most of the quarter but infrastructure needs and the installation of ESPs has pushed some of these volumes toward the end of the quarter. Production is coming from 14 Monument Butte wells and five Antelope wells with a 6th well completing in March and a 7th well currently drilling.
In Indonesia, the Lariang LG-1 well has reached 4,536 feet in the Miocene, the secondary objective, and has logged and wireline tested several oil and gas sands from 1,509 to 1,689 feet and 2,362 feet to 2,411 feet. The well is to be drilled to a depth of approximately 7,200 feet;
In Gabon, HNR has purchased all long lead items required for drilling and they are either on site or on route to Port Gentil. Projected spud date of the exploration well expected to occur at the beginning of the second quarter of 2011.
Important disclosures: Any views expressed herein do not reflect the views of EnerCom, Inc. 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.