Harvest Natural Resources' (HNR) CEO James Edmiston on Q1 2016 Results - Earnings Call Transcript

| About: Harvest Natural (HNR)

Harvest Natural Resources, Inc. (NYSE:HNR)

Q1 2016 Earnings Conference Call

May 17, 2016, 11:00 AM ET

Executives

Keith Head – Vice President and General Counsel

James Edmiston – President and Chief Executive Officer

Steve Haynes – Vice President, Chief Financial Officer and Treasurer

Analysts

Operator

Good morning, and welcome to the Harvest Natural Resources' Earnings Conference Call to discuss First Quarter 2016 Results. As a reminder, this conference is being recorded.

I would now like to turn the call over to Harvest’s Vice President and General Counsel, Keith Head. Please go ahead, sir.

Keith Head

Thank you. Good morning, and welcome to Harvest Natural Resources 2016 first quarter results conference call. This morning, our press release was broadcast to the company's fax and email list. If you would like to be on one of those lists, or you did not receive yours due to a technical difficulty, please call our office at 281-899-5700. In a few hours, a replay of today's call will be available in the Investor Relations portion of our website at www.harvestnr.com. Additionally, a telephonic replay will be available this afternoon by dialing 719-457-0820, passcode 8354093.

This conference call will contain various forward-looking statements and information, including managements' expectations regarding financial, operating, and other results. These statements are based on management's beliefs as well as assumptions made by and information currently available to management. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurances that such expectations will prove to have been correct. Actual results may differ materially from the company's expectations due to changes in operating performance, project or drilling schedules, oil and gas prices, as well as other technical, political, and economic factors.

Additional detailed information concerning a number of factors that could cause actual results to differ materially from today's information is readily available in the company's SEC filings, under the heading Risk Factors and disclosure regarding our reserves. Investors are urged to consider closely the disclosure in our Form 10-K, which is available from the SEC or on our website. In addition, we will discuss potential transactions involving company assets. We can give no assurances that those transactions will be completed.

At this time, I would like to turn the call over to James Edmiston, Harvest Natural Resources' President and Chief Executive Officer.

James Edmiston

Thanks Keith and thanks for joining us today. Hopefully, you’ve had a chance to take a look at the earnings release this morning, I'm going to go through a very brief summary of the operations, and then Steve will walk you through the financials for the quarter.

Starting with Petrodelta, Petrodelta delivered about 3.96 million barrels of oil, or 43,507 barrels of oil per day in the first quarter 2016. That's up about 9% from the same quarter in 2015, and down 3% from the fourth quarter of 2015. Current production is running about 41,445 barrels of oil a day. Production is currently somewhat constrained due to lack of processing capacity in El Salto and drilling performance overall. During the quarter, Petrodelta six wells, five in the El Salto field and one in Temblador.

As we discussed during the last call, Petrodelta reduced the rig count from six to the current level of four during the quarter and all four of those rigs are currently working in El Salto. And above we have no significant updates since the last call, we continue to involved in sections with multiple parties regarding forming to our interest in the block with a focus on commencing drilling on prospect these sometime this year.

With that let me turn it over to Steve to discuss the financials and after Steve, I’ll make closing comment and we’ll open for Q&A.

Steve Haynes

Thanks James. Good morning everyone. Our Form 10-Q was filed yesterday and it was posted on our website at www.harvestinr.com. Harvest recorded a first quarter net loss of approximately $14.1 million or $0.27 per diluted share compared to a net loss of $5.6 million or $0.13 per diluted share for the same period last year. The first quarter results include exploration charges of $700,000 and nonrecurring non-cash items related to loss on the change in their fair value of warrant liabilities of $4.1 million and $5.2 million to closer our potential loss on note receivable for CT in a year.

Adjusted for exploration charges and nonrecurring items, Harvest would have posted a first quarter net loss of approximately $4.1 million or $0.08 per diluted share or for new adjustment for taxes. General and administrative costs for the first quarter of 2016 were $5.9 million compared to $4.2 million for the same period last year. The majority of increase is a result of noncash increase and stock-based compensation which is affected by the increase in the stock price during the first quarter 2016 over the same quarter for 2015.

On January 4, 2016 HNR Finance provided a loan to CT Energia in the amount of $5.2 million under an 11% promissory note due 2019. The purpose of the loan was to provide CT Energia with collateral to obtain funds in boulevards [ph] for one or more loans to Petrodelta that is 40% owned by HNR Finance and through which Harvest's Venezuelan oil and natural gas interests are held. The loans to Petrodelta are to assist Petrodelta in satisfying its working capital needs and discharging its obligations. Interest on the CT Energia Note is due and payable on the first of each January and July, commencing July 1, 2016. The full amount outstanding, including any unpaid accrued interest, is due on January 4, 2019; however, HNR Finance's sole recourse for payment of the principal amount of the loan is the payments of principal and interest from loans that CT Energia has made to Petrodelta. If and when CT Energia receives payments of principal or interest from loans it has made to Petrodelta, then those proceeds must be used to pay unpaid interest and principal under the CT Energia Note and note back HNR Finance. All payments made by CT Energia to HNR Finance under the CT Energia Note must be made in U.S. dollars.

The source of funds for HNR Finance's $5.2 million loan to CT Energia was a capital contribution from Harvest Holding, which in return, received the same aggregate amount of capital contributions from its other shareholders, pro rata according to their equity interests in Harvest Holdings. Of that aggregate amount of capital contributions, HNR Energia contributed $2.6 million, which was a capital contribution from Harvest. During the three months ended March 31, 2016 Harvest incurred a $5.2 million to fully reserve retention loss on the note receivable from CT Energia due to the concerns related to the continuing deteriorating economic conditions in Venezuela.

On April 1, 2016, the Company and CT Energy executed a Second Amendment to the 15% Note. The second amendment rolled the interest due on April 1st into the principle of the note, note holding to tax in the interest of the period. The amount outstanding as April 1st on the 15% non-convertible note was $27 million.

On May 3, 2016, CT Energy advanced Harvest an additional $3 million was from general corporate expenses. Furthermore it was agreed under the new Third Amendment to the 15% note, the $1.1 million interest payment that have been due and payable on July 1, less applicable withholding tax, will as to the into additional principal. The new principal amount of 15% Note will be $31 million effective as of July 1, 2016.

On April 25, 2016, the Company received a notice from the NYSE stating that the Company is not in compliance with a second NYSE continued listing requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders' equity is less than $50 million. As required by NYSE rules, the Company notified the NYSE that, within 45 days of receipt of the notice, the Company will submit a business plan that demonstrates its ability to regain compliance within 18 months. The NYSE will either accept the business plan, at which time the Company will be subject to quarterly monitoring for the compliance with the plan, or will not accept the plan. If the Company fails to comply with the business plan or the NYSE does not accept the plan, the NYSE may commence suspension and delisting procedures.

This is where I complete my remarks; I’ll turn it over to James Edmiston.

James Edmiston

Thanks. As always Steve will be available if you need to follow-up or you may follow on the financial certification. So as mostly you read in the news the situation in Venezuela is very difficult and in spite of that, that results in going some key things running and advancing albeit at a pace less than anyone desires.

In the meantime our partnership with CT Energy continues its work with our partners and Petrodelta core restructuring that business. As those efforts take on greater definition we’re going to update you on that progress as it comes.

With that, I’ll take questions.

Question-and-Answer Session

Operator

James Edmiston

Thanks for your time today and as I said before, if you need to follow-up with any questions from the Q or the press release or any other questions, feel free to do so, you can call the office, I’m going to answer it myself or Steve. Thank you very much.

Operator

This concludes today’s call. Thank you for your participation.

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