On January 11, 2011, Harvest Natural Resources (ticker: HNR) issued an operations update on its international operations following the previous announcement made in September 2010 that the company is exploring strategic alternatives. With its $60.0 million credit facility and cash flow from existing operations, the company has ample capital liquidity to pursue its drilling program in Venezuela, Utah and Indonesia, and future development in Gabon.
As of January 7, 2011, HNR trades at an enterprise value to proved reserves of $1.73 per Mcfe and an enterprise value to trailing twelve months production of $11,940 per Mcfe/d. The average of the 97 companies in EnerCom’s E&P database is $5.46 per Mcfe and $21,938 per Mcfe/d, respectively.
International Operations
While Harvest has global operations, the company is perhaps best known for its assets located in Venezuela. In the recent operations update, Harvest reported its receipt of $9.8 million in Petrodelta dividends, net to Harvest’s 32% interest on October 22, 2010.
Operational highlights in Venezuela for the twelve months ended December 31, 2010 include:
- Petrodelta drilled and completed 16 wells.
- Produced approximately 8.6 million barrels of oil (MMBO).
- Reported daily average production of approximately 23,600 barrels per day (BOPD); Increase production 9% over the same period in 2009.
- Temblador and El Salto fields’ 2P reserves net to Harvest increased to 103.0 million barrels of oil equivalent (MMBOE) at September 30, 2010, a 26% increase over year-end 2009. The company’s third party engineer is Ryder Scott.
The news release reported Harvest spent approximately $97.0 million in 2010 on its Venezuela operations. Petrodelta expects its 2011 capital budget to be approximately $224 million. The capital will be allocated to drill 28 oil wells, two water injection wells, one injector well and pipeline and facility construction in Venezuela. Harvest reported Petrodelta will run a two rig program to accomplish the 2011 plan. Harvest continues to fund the entirety of its Venezuela operations within cash flow from existing Venezuela operations.
Currently, Petrodelta’s production rate is 28,000 BOPD. Harvest announced a production target for 2011 of 36,000 BOPD, an increase of 29%. Harvest commented that current production levels have not been seen since 2005, showcasing the company’s ability to execute and drill successful wells in Venezuela.
In addition to Venezuela, Harvest has international projects in Indonesia and Gabon. Located at its Budong Budong Block in Indonesia, Harvest spud its much-anticipated Lariang LG-1 well and exercised its first right of refusal to acquire an additional 10% equity position in the project. Upon closing, HNR will have a 64.4% interest in the PCS Block. A second well is expected to spud in Q1’11.
In Gabon, the company has issued purchase orders for long lead items required for drilling. Also, other related drilling contracts are being tendered in preparation to spud the exploration well in the second quarter of 2011.
North America
Moving to its North American operations in the U.S., Harvest provided an update on its drilling projects located in Utah. At its Antelope project, the company continues to successfully build out the play and reported for the twelve months ended December 31, 2010, the company produced an average of 529 BOEPD and 540 BOEPD in December.
At Lower Green River/Upper Wasatch (70% WI) where the company made its Bar F #1-20-3-2 well in Q1’10, the company increased its operated five-well delineation and development program to add an additional sixth operated well. In the operations update Harvest reported:
- Total 2010 net production of 28,900 BOE.
- Four wells of a six-well delineation and development drilling program have been successfully drilled; two are on production and two expected to be hydraulically fractured in January and February, respectively.
- The fifth well is currently drilling and is expected to be completed during the first quarter of 2011.
- On December 21, 2010, Harvest and its partner in the Antelope project entered into a contract with El Paso Midstream Group, Inc. (EPMG) whereby EPMG will provide the capital to build and operate a 25-mile, low-pressure gas gathering pipeline which will provide capacity for the Company’s current and future production from the project.
Due to the successful first eight-well program that commenced in 2009 in the Monument Butte Field where the company is partnering with Newfield Exploration (ticker: NFX) and targeting the Green River formation, Harvest reported an increase to the current six-well Monument extension project, to add a seventh well operated by Harvest. In a previous OAG360 write-up, we reported the results of the first four Stewart wells provided evidence 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.
Click here for the previous write up.
- At the Monument Butte Field Extension Project, the January 11, 2011 news release reported:
- Five of the seven wells related to the second phase of the Monument Butte Field Extension project have been drilled and are producing at a restricted combined rate of approximately 170 gross BOPD and 2.0 gross million cubic feet per day of gas.
- The sixth well is currently drilling, and the seventh well of the second phase drilling program is expected to be drilled by the end of February 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.
Pritchard Capital Partners – January 11, 2011
HNR ($11.71-B-$16) – Operations update positive
Antelope, Venezuela and Indonesia activities updated
Indonesia exploration underway
Results ahead of expectations at Antelope
HNR – Operations Update Positive – Harvest trading at less than half of South American 2010 M&A median price based on 100 mmbbls of 2P reserves in Venezuela. Think Antelope assets in Uinta likely worth $200 mm minimum based on latest results. Indonesia, where have 13 prospects, could be a significant near-term driver (results likely within 45 days). Fundraising of some sort likely to meet $220 mm plus 2011 budget commitment.
Global Hunter Securities – January 11, 2011
Harvest Natural Resources provides operational update
In Venezuela, Harvest Natural Resources (HNR; $11.71; Buy; $19 PT; Disc. 1) drilled and completed 16 wells and produced approximately 8.6 Mmbo (23,455 Bopd versus our estimate of 23,880 Bopd), up 9% compared to 2009 and spent $97.0 million in 2010.
Petrodelta’s current production rate is approximately 28,000 Bopd with a 2011 target of 36,000 Bopd (31,670 GHS estimate) and a 1Q11 average of 29,000 Bopd (29,378 GHS estimate).
The 2011 capital budget is approximately $224 million, which includes provisions to drill 28 oil wells, two water injector wells, one gas injector well and construction costs for pipeline and related facilities. The program is self funding at $70 WTI oil but HNR’s portion of Petrodelta free cash flow could be as much as $50 million in 2011 based on the forward strip.
In the United States, Harvest’s net production to Harvest during the month of December 2010 was 540 Bopd, generally in line with our estimates. We are forecasting 708 Boepd in 1Q11.
Four wells of a six-well Lower Green River/Upper Wasatch delineation and development drilling program have been successfully drilled with two on production and two expected to be hydraulically fractured in January and February, respectively. Drilling is in progress on the fifth well.
In addition, five of the seven wells in the second phase of the Monument Butte Field Extension project have been drilled to total depth and are producing at a restricted combined rate of approximately 170 gross Bopd and 2.0 gross Mmcfed. The sixth well is currently drilling, and the seventh well of the second phase drilling program is expected to be drilled by the end of February 2011.
In Indonesia, the Lariang LG-1 Well was spud on January 6, 2011, in the Budong Budong Block, West Sulawesi. On January 5, 2011, Harvest exercised its first refusal right to acquire an additional 10 percent equity in the Budong Budong Block PSC moving HNR’s interest to 64.4%.
Pritchard Capital Partners – January 11, 2011
Harvest Natural Resources, Inc. (HNR-$11.71) today provided an operational update for its 32-percent-owned Venezuelan affiliate, Petrodelta, S.A. (Petrodelta) as well as for Harvest’s domestic and international exploration and development activity. Harvest received payment of Petrodelta dividends in the amount of $9.8 million, net to Harvest’s 32 percent interest on October 22, 2010; In the twelve months ended December 31, 2010, Petrodelta drilled and completed 16 wells and produced approximately 8.6 million barrels of oil (MMBO) for a daily average of approximately 23,600 barrels per day, an increase of 9 percent over the same period in 2009; Capital expenditures were estimated to be $97.0 million in 2010; Petrodelta’s current production rate is approximately 28,000 barrels of oil per day (BOPD); Production target for 2011 is 36,000 BOPD with a first quarter average of 29,000 BOPD; The 2011 capital budget is approximately $224 million, which includes provisions to drill 28 oil wells, two water injector wells, one gas injector well and construction costs for pipeline and related facilities. United States: Harvest’s net share of production from the Antelope project in Utah totaled approximately 193,100 barrels of oil equivalent (BOE) for the twelve months ended December 31, 2010. Net production to Harvest during the month of December 2010 was 540 barrels of oil equivalent per day (BOEPD). Four wells of a six-well Lower Green River/Upper Wasatch delineation and development drilling program have been successfully drilled with two on production and two expected to be hydraulically fractured in January and February, respectively. Drilling is in progress on the fifth well. The remaining well will be drilled and completed during the first quarter of 2011. Five of the seven wells related to the second phase of the Monument Butte Field Extension project have been drilled to total depth (TD) and are producing at a restricted combined rate of approximately 170 gross BOPD and 2.0 gross million cubic feet per day (MMCFD) of gas. The sixth well is currently drilling, and the seventh well of the second phase drilling program is expected to be drilled by the end of February 2011.
Lazard Capital Markets – January 12, 2011
High potential Budong spud. Harvest began drilling its first exploration well (Lariang LG-1) in Indonesia on Jan. 6, the first of 2 to test its Budong-Budong prospect. Site preparation is underway on the second exploration well. The Lariang LG-1 prospect has 53 MMBbl in net potential reserves, which translates into $6/share in unrisked potential, by our estimate. We estimate the unrisked potential for the entire Budong project is 310 MMBoe, or over $20/share. Based on our net asset value work, we estimate the current share price reflects minimal value for Harvest’s Indonesian prospects.
Q4 production light; 2011 production guidance ambitious. Petrodelta’s 2010 production of 23,455 B/d (+9% YoY) was below our estimate of 23,727 (+11% YoY) and guidance of 24,000 (+12% YoY). Utah production of 529 Boe/d was below our estimate of 614 Boe/d. 2011 oil production guidance of 36,000 B/d in Venezuela looks aggressive at over 50% growth YoY following 9% growth in 2010. This target could be a stretch as Petrodelta needs to drill 75% more wells in 2011 than 2010 on a similar rig count. Capex guidance of $224 million was in line with our estimate.
Jury still out on Utah, in our view. Harvest did not provide any details on its strategic alternatives process. In either case, we believe the company’s Antelope prospect is critical to transitioning the company to cash flow independence and diversifying away from Venezuela. The first three wells in its northern Antelope project posted impressive initial test rates but also exhibited high initial decline rates, leaving the ultimate reserve potential in doubt. Results in the next three wells should be the key to establishing economic viability.
Shares fairly valued. At 10.1x 2011e EBITDA vs. the group at 9.0x, Harvest receives fair credit for its exploration portfolio and high cash flow Venezuelan assets, in our view. Therefore, we maintain our HOLD rating.
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