Harvest Natural Resources' (HNR) CEO James Edmiston on Q2 2016 Results - Earnings Call Transcript

| About: Harvest Natural (HNR)

Harvest Natural Resources, Inc. (NYSE:HNR)

Q2 2016 Earnings Conference Call

August 09, 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

Operator

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

I will now turn the call over to Vice President and General Counsel for Harvest Natural Resources, Mr. Keith Head. Please go ahead, sir.

Keith Head

Thank you. Good morning and welcome to Harvest Natural Resources 2016 second 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, pass code 7919504.

This conference call will contain various forward-looking statements and information, including management’s 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.

On August 2, 2016, Harvest filed a definitive proxy statement with the SEC to solicit stockholder approval of proposals relating to the transaction with CT Energy and other matters of the company’s 2016 Annual Meeting. Stockholders are urged to read the proxy statement and relevant documents we filed with the SEC because those documents contain important information.

A free copy of the definitive proxy statement and other relevant documents may be obtained at the SEC’s website at www.sec.gov. Copies of the definitive proxy statement may also be obtained without charge either by directing a request to Harvest Natural Resources’ Investor Relations, 1177 Enclave Parkway, Suite 300. Houston, Texas 77077, or by going to the Investor Relations portion of our website at www.harvestnr.com. Harvest and its directors and officers as well as CT Energy Holding SRL and its principals and employees may be deemed to be participants in the solicitation of proxies in connection with the Annual Meeting.

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 on the call today. Hopefully, you’ve had a chance to review the earnings release this morning. I'll go through a very brief summary of the operations, and then Steve will walk you through the financials for the first quarter and quick summary of Venezuelan transaction that was announced during the quarter.

Starting with Petrodelta. Petrodelta delivered about 3.6 million barrels of oil, or 39,763 barrels of oil per day in the second quarter of 2016. This is up 5% from the same quarter in 2015, but down 9% from the first quarter this year. Lower rate this quarter is due to both excessive downtime and a lack of new wells coming on stream during the quarter. Petrodelta drilled and completed only one well during the quarter in El Salto field despite operating four rigs. Current production is running at about 39,000 barrels of oil a day.

In Gabon, we’re fine-tuning the plan of develop the area surrounding our discovery starting with the area around the Ruche well, while at the same time continue to be involved in discussions with multiple parties regarding a farm-out or an outright sale of our interest in the block.

With that, I’ll turn it over to Steve to discuss the financials. And after Steve, I’ll make some closing comments and we’ll take questions.

Steve Haynes

Thanks, James, and good morning, everyone. Our second quarter Form 10-Q was filed today and posted on our website at www.harvestnr.com.

Harvest reported a second quarter net loss of approximately $12.9 million or $0.25 per diluted share compared to a net loss of $25.4 million or $0.60 per diluted share for the same period last year. The second quarter results include exploration charges of $400,000 and non-recurring items related to expense on the share and fair value - change in fair value of a warrant derivative liability of $6.9 million. Second, income on the change in fair value of embedded derivative assets of $1.7 million. And third, transaction costs related to the sale of Harvest Holding of $1.6 million. Adjusted for exploration charges and non-recurring items, Harvest would have posted a second quarter net loss of approximately $5.7 million, or $0.11 per diluted share, before any adjustment for income taxes.

General and administrative costs for the second quarter of 2016 were $4.6 million compared to $5.5 million for the same period last year. This is a 16% decrease in the same period last year.

Next, I’ll give an overview of the recent transaction with CT Energy. On June 29, 2016, Harvest and its wholly-owned subsidiary, HNR Energia, entered into a Share Purchase Agreement with CT Energy to sell all of the company’s interest in Venezuela. Upon the terms of the SPA, CT Energy will acquire HNR Energy at 51% interest in Harvest Holdings through which all of Harvest's Venezuelan interests are owned, and CT Energy or an affiliate will deliver to Harvest $80 million in cash, subject to certain adjustments, and a $12 million six-month 11% note payable by CT Energy to Harvest.

At the closing, Harvest will receive cancellation of the following: first $30 million of outstanding debt held by CT Energy; second, CT Energy will surrender approximately 8.7 million shares of Harvest common stock, and warrants held by CT Energy to purchase 34.1 million shares of Harvest common stock, which is exercisable under certain circumstances. To fund the company's transaction expenses and operations until the closing, CT Energy committed to loan the company $2 million per month for up to five months beginning on July 19, 2016 until the earlier closing or the termination of the SPA dated June 29, 2016.

CT Energy funded $2 million to Harvest on June 20, 2016, and again on July 19, 2016. After giving effect to the transaction, Harvest would cease to have a presence in Venezuela, and the existing relationship between Harvest and CT Energy, which currently owns 16.8% of Harvest's outstanding common stock, would terminate.

In addition, at the closing, the two CT Energy non-independent directors appointed in connection with CT Energy's initial investment in Harvest would resign from the Board of Directors. Going forward, Harvest's primary assets would be in the oil and gas interests in Gabon and cash.

In addition to approval by the stockholders representing a majority of outstanding shares of Harvest common stock, the closing of the transaction is subject to, among other things, approval by the majority of outstanding shares held by non-CT Energy affiliated stockholders and the approvals by the Government of Venezuela.

Now I’d like to talk about the NYSE listing requirements for Harvest. On July 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 the 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 the 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 period. Harvest submitted the business plan and the NYSE accepted our plan on July 14, 2016, and we are now subject to quarterly monitoring for compliance with the plan. If the company fails to comply with the business plan, the NYSE may commence suspension and delisting procedures.

That concludes my remarks. I’ll turn it back over to James.

James Edmiston

Thanks Steve. As always, Steve will be available to call upon any questions you have about the financials.

As regard to the proposed sale of our Venezuelan interest, CT Energy, the process continue to pace with the beginning of the mailing of the proxies yesterday. As press release stated, we expect shareholder vote to occur at the annual stockholders meeting scheduled for September 8. Upon receiving your proxies, you are free to call us with any questions you may have. We’ll be around to answer those questions.

So with that, I’ll take any questions you have now.

Question-and-Answer Session

Operator

James Edmiston

All right. Well, thank you. Again, we’re available to answer any questions you may have. Call here at the office and then till next time, thanks for joining us.

Operator

And that does conclude today’s program. We’d like to thank you for your participation. Have a wonderful day and you may disconnect at any time.

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