Oil Strike Lowers Harvest's 2003 Income

Lower oil production in Venezuela was the main reason behind a drop in the net income of US oil company Harvest (NYSE: HNR) to US$27.3mn in 2003 from US$100mn in 2002, Harvest VP and CFO Steven Tholen said during a conference call to discuss 2003 earnings. The lower income was also partly due to the Venezuelan government's decision in February 2003 to fix the exchange rate, eliminating certain tax benefits to Harvest, Tholen said.

Venezuelan oil production fell 25% to 7.3 million barrels (mb) in 2003 compared to 9.7mb in 2002 due to the December 2002-February 2003 oil workers' strike, the company said in its earnings statement.

As a result of the strike, sales to state oil company PDVSA were disrupted for 37 days, reducing 2002 sales by 0.6mb and 2003 sales by 1.2mb.

However, Harvest's oil production in Venezuela recovered to 30,000b/d in December 2003 compared to 25,000b/d before the strike, Harvest's president and CEO Peter Hill said in the conference call.

The company expects to increase its Venezuelan hydrocarbons production by 50-75% in 2004 "resulting in strong growth of net income and cash flow," the statement said.

In November, Harvest began producing natural gas from its Uracoa and Bombal fields in the South Monagas Unit (SMU). Harvest signed a contract in 2002 to sell gas to PDVSA for 10 years. The company produced 2.7 billion cubic feet of natural gas in November and December. Gas sales stabilized at volumes of 70-80 million cubic feet a day in December.


Harvest has received bids for a contract to provide a drilling rig on its Uracoa field and expects to award the contract soon, Hill said. The company has prepared detailed drilling plans for the field. In its Bombal field, the company plans to finish implementing a gas-lift program "next month" to counter the higher-than-expected water cuts in the new wells, which is expected to improve oil production. Meanwhile, the company has submitted a letter to PDVSA requesting permission to develop the Isleno oil field near Uracoa. Harvest expects to receive an answer from PDVSA "in the not too distant future...the ball's in their court," Hill said.


In November, Harvest signed a memorandum of understanding (MOU) with PDVSA through its Venezuelan operating company Benton-Vinccler to evaluate, prepare a field development plan and negotiate the rights to develop the Temblador and El Salto Fields.

Under the MOU, Benton-Vinccler has six months to negotiate a joint venture contract with PDVSA to develop the two fields. Harvest has made "good progress" negotiating a contract with PDVSA on the Temblador field that will be framed under the new hydrocarbons law, Hill said. However, there is no timeframe to finalize the deal due to the sensitivity of the contract, which will be the first of its kind. "Both of us have to get it right the first time. We are taking one step at a time and moving forward," Hill said.

Harvest and PDVSA could sign a JV for Temblador before El Salto because the studies are more advanced on that field or the JV could encompass both fields. Temblador has produced more than 115mb of oil and 60bcf of gas since it was discovered in 1936. The field was partially closed down in 2002. El Salto has never produced since it was discovered in the 1980s. The fields cover an area of 700 sq. km. and lie close to Harvest's South Monagas Unit.

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