Harvest Natural Resources, Inc. (NYSE:HNR) Q3 2016 Earnings Conference Call November 9, 2016 11:00 AM ET
Keith Head - VP & General Counsel
James Edmiston - President & CEO
Steve Haynes - VP, CFO and Treasurer
Welcome to the Harvest Natural Resources' Earnings Conference Call for the 2016 Third Quarter Results. As a reminder, this conference is being recorded.
I will now turn the call over to the Vice President and General Counsel for Harvest Natural Resources, Mr. Keith Head. Please go ahead, sir.
Thank you. Good morning and welcome to Harvest Natural Resources 2016 third 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.
At this time, I would like to turn the call over to James Edmiston, Harvest Natural Resources' President and Chief Executive Officer.
Thanks Pete good morning thanks for joining us today. I'm pretty sure we're not the top news item on this today. So thanks for being here. Hopefully you got a chance to review the earnings release this morning and as you're all aware by now we closed the sale of our Venezuelan assets on October 7th so you won't be getting an on operations update or really anything for me regarding the assets in Venezuela.
In Gabon we’re in sales negotiation with a couple of firms while at the same time we're progressing the development projects according to schedule. In that regard we alluded to -- we have sent out a tender for the FPSO, we hope to have news for you in the near future concerning the Gabon assets and our negotiations and our forward plans there. Steve is going to walk you through a summary of the Venezuela sale and financials for the third quarter and then we are going to into a few questions.
Thanks Jamie. Good morning everyone. Our third quarter Form 10Q we filed today and posted on our website at www.harvestnr.com. Harvest reported a third quarter net loss of approximately 7.1 million or $0.55 per share diluted share compared with net income of 5.7 million or $0.52 per diluted share for the same period last year. A third quarter results include exploration charges of $600,000 or $0.05 per diluted share and transaction cost related to Harvest Holding transaction of $1.8 million or $0.14 per diluted share. Adjusted for exploration charges transaction cost posted a third quarter net loss of approximately $4.7 million, or $0.36 per diluted share, before any adjustment for income taxes.
General and administrative costs for the third quarter of 2016 were $3.6 million compared to $4.7 million for the same period last year. This is a 23% decrease for the same period last year.
Next, I’ll provide an overview of the recent transaction with CT Energy Delta Petrol [ph]. On October 7, 2016, the company and it's wholly-owned subsidiary at HNR Energia, completed the sale of all HNR Energia 51% interest in Harvest Holdings to Delta Petroleum [indiscernible] an affiliate of CT Energy. At the closing the company received considerations consisting of the following. 69.4 million cash paid at or various closing adjustments, a 11% non-convertible senior promissory note payable by Delta Petroleum to HNR Energia, six months from the closing date in the [indiscernible] of 12 million. The note becomes payable in April 2017.
Also the return of all the company's common stock owned by CT Energy consisting of approximately 8.7 million shares which is approximately 16.8% of the outstanding shares preclosing to be held at a company as treasury shares. Also the cancellation of 30 million in outstanding principle under the 15% note and the cancellation of the CT Warrant which represented approximately 34 million shares at the vessel.
With the return of the 8.6 million in common stock, the share count was reduced from approximately 52.9 million shares staying to approximately 44.2 million shares outstanding. The share count or before taking consideration of 1 to 4 preferred stocks. At closing the outstanding principle and the crude interest totaled 38.9 million and 1.4 million respectively under the developed 50% note and additional draw note were repaid net of totaling tax as a closing adjusting the cash and the 15% note and additional draw note were terminated. With the net proceeds from the Venezuelan transaction plus cash on hand the company had 71.9 million after closing.
The relationship between the company and CT Energy effectively terminated upon the closing of the share purchase agreement. In addition to termination and [indiscernible] of all the companies securities held by CT Energy as [indiscernible] in Alberta [indiscernible] designed to CT Energy's non-independent designees to the company's Board of Directors. The company decreased it's number of board members from 7.7 to 5 members at nearly after resignation. Now I will discuss the results of the reverse stock split and Harvest NYSE listing issues.
On October 25th, 2016 the Company announced that it would deduct for 1 for 4 reverse stock split and it's authorized and outstanding stock. The 1 for 4 reverse stock split became effective at the market close on November 3, 2016 and the company stock began trading on the split adjusted basis at March opened on November 4, 2016. The reverse stock split did not impact any stockholders ownership percentage of the company or boarding power except for the minimal effects of resulting from the fractioanl shares. Following the reverse stock split the number of outstanding shares the company's common stocks reduced approximately 44.2 million shares to approximately 11 million shares. Additionally the number of authorized shares of company's common stock decreased some 150 million to approximately 37.5 million.
As of November 4, 2016 the closing price of the company's common stock had increased to $4.45 per share. Given the increase in the company's share price the company expects that it will have regained compliance for the pricing standard of the NYSE by December 19, 2016. On April 25, 2016 the company received a notice from the NYSE stating the company was not in compliance with a second NYSE continued listed requirement which provides that the company is not in compliance if the average global market capitalization over 30 consecutive trading periods less than 50 million and at the same time the stockholders equity is less than 50 million. The company believes that the sale of it's Venezuelan interest on October 7, 2016 ultimately will allow the company to regain compliance with the financial standard of the NYSE by increasing it's stockholders equity. However the company must demonstrate compliance for two consecutive financial quarters before the efficiency can be cured.
That concludes my remarks. I will turn the call back over to James.
Thanks Steve. As always Steve will be available to follow up as you may need on a financial, so feel free to give him a call after the conclusion of our conference call. With that I will open it up for questions.
[Operator Instructions]. And we will take our first question from Matt Miller [ph]. Please go ahead. Your line is open.
I wonder if you could comment on the process with Gabon given some of the decisions that presumably need to continue to be made here over the fairly short term. Do you’ve a timeline on a sale that needs to occur given those decisions?
Let me put it this way, the Gabon asset, the value of the Gabon asset obviously depends in a great way in terms of executing the development plan we have for the discovered resources there. So as we said in our press releases we said prior there are a couple of firms that we’re negotiating with this point in time. Both of those firms know full well and understand full well the development plan and in fact that that is the asset is the development plan.
So for instance that's going forward with an FPSO tender is basically based on the development schedule that is set out in our agreements with Gabon etcetera and both of those parties understand and understand the development plan and factor in sync with that development plan. So at that point or should we be able to finalize the transaction with either of those parties, they will basically fall right in with the developmental plan and continue on with the process to schedule towards development in summer towards first production in summer of 2018. So as far as timing on whether or not transactions conducted. I think the best thing I can tell you is certainly by year-end we will be pretty clear directionally whether or not we'll be able to able to consummate a sale and that's not all I can tell you for now. I do think some news will be forthcoming here certainly for year-end.
And are both proposals I don't know if you can comment on this but are both proposals out right sales of the asset for cash?
I'm not going to comment on that, but I think we have made clear that our -- what we would like to see happen is a clean seal but I'm not going to talk about specific proposals right now.
And just a couple questions on the financials if I might, I wonder if you might be able to comment on where the U.S. NOL position stood at the end of September and your ability to utilize that upon repatriation of any cash from the sale of the Venezuelan assets?
We have some NOLs that evolve in terms of G&A expenses that we are incurring. We haven't given specific big numbers to the public and we're not ready to do so. We will be able to utilize all those NOLs as the solution becomes the obvious answer but that's all I can say at this time.
Could you comment maybe provide a bridge, the 62 million figure that you gave about a months ago on October 7th. I think as you articulated you closed the transaction had approximately 72 million of cash after that. Can you walk through the math and how you get to that 62 million figure?
Sure. We actually netted about 59 million from the transaction. There's a series of thing that we stayed in a press release that we backed out which is a change in control obligations would become out [ph] at that point in time. Also reserve for any G&A going forward and potential taxes so that’s about detail that I can get at this point but we will provide more guidance in the future.
Fair enough. And then just lastly for me, can you provide any update on where the company stands with any remaining litigation?
Yes, I think if you look -- I'm sorry in the Q I think it was a pretty much spelled everything out step by step, most of the -- obviously the Venezuelan litigation went with the assets. So there is no litigation there, the derivative -- the main derivative litigation is gone and no appeal was filed in a timely basis so it's done. The only thing new is a complaint filed or a prepetition complaint filed post-closing of Venezuela asset. We haven't estimated any likelihood or magnitude on that.
The other litigation outstanding is and probably the more important one is we’re planted in a lawsuit against [indiscernible] that will be ongoing. So there's going to significant clearing of the deck on the litigation side as regards harvest as a defendant.
[Operator Instructions]. We move next to Daniele Benatoff [ph]. Please go ahead. Your line is open.
So most of my questions have been answered. I think the only question that I wanted to clarify was you mentioned that you weren’t ready to talk yet about the amount of NOLs and how that will relate to capital gains related to the sale if you were to repatriate them and where that leaves you but when doing the bridge from 69 to the 62 you said that part of what you netted out was potential taxes. And to understand that you netted potential, what your current estimate is of potential taxes related to that sale?
Again we had not provided those kind of details to the public. What I will say is that when we develop -- when I calculated the 69 million that is soon the Venezuelan transaction only, of course as we go forward and we no more are in Gabon then we will know more about how the tax bracket [ph] will affect us and we will disclose the information at that time.
Another question that I had was when can we expect to hear anything about the use of cash? Because I think one of the ideas that at least was see out there in the ether was partial before announcing and finding out where you stand with the Gabon beginning to return part of the cash that is now sitting on the balance sheet.
Yes I mean as I’ve said before really the gating item there is what we do with Gabon. I think contemporaneously with an announcement one way or another our influence on Gabon we will announce where the cash goes to those two things. As I’ve said before on what -- one extreme might be an outright sale of Gabon in which case we would at the end of that distribute all cash to the shareholders and move on.
The other extreme of that is not being able to sell the Gabon -- we think Gabon is very good asset. We think there's a very profitable development plan there and while we’ve stated that our preference is to sell Gabon it has more to do with whether or not being a listed New York Stock Exchange company with one asset in West Africa is the best use on behalf of the shareholders of that cash. So those two extremes or those two kind of test still exists, it will be a decision for the Board to make at the time that we present them with the outcomes of our negotiations and the alternatives.
As I’ve said I think there will be certainty around that the issue by no later than year end and I hope it will be much sooner.
[Operator Instructions]. And it appears we have no further questions at this time. I'd like to turn the conference back over to James Edmiston for closing remarks.
Well yes thank you for joining us on this busy news day. Hope you have a good day. If you have any follow up questions feel free to give Steve a call he'll be happy to walk you through and again we hope to be able to give you a very clear path forward here in the coming month or so. Thank you. Goodbye.
Thank you. And this does conclude today's conference. You may just disconnect your line at any time and have a wonderful day.