The study is part of negotiations to define a framework under which Harvest would migrate its South Monagas Unit to an "empresa mixta, or mixed company, with PDVSA under the 2001 organic hydrocarbons law.
Harvest's South Monagas operating agreement is one of the 32 such agreements that the Venezuelan government wants to migrate to joint venture contracts with PDVSA because the terms of the existing agreements are considered financially detrimental to the country.
Harvest's troubles in Venezuela began in December 2004, when the energy and oil ministry denied the company permits to drill new wells on South Monagas to increase oil and natural gas production. Then in January, PDVSA told Harvest it would have to reduce its 2005 exploration and production budget to US$20mn from US$60mn.
As a result, drilling on the field was suspended and production has fallen to 25,000 barrels of oil a day (b/d) at present from 29,000b/d earlier this year, Hill said in a conference call on Thursday to discuss first quarter results.
Production is likely to continue declining until an agreement with PDVSA is reached, Hill said. Harvest CFO Steven Tholen said talks with PDVSA are proceeding. "We are not disappointed at this point with the pace" of the talks, he said during the call.
Harvest "has exchanged proposals and is in discussions with PDVSA and the minister of energy and oil to resolve our 2005 capital program and production issues under our operating service agreement and also to establish a longer-term path forward," Hill said.
PDVSA will own a majority stake in the new company and Harvest will own the remaining stake in the joint venture. "If these negotiations are successful, Harvest would contribute its rights to the South Monagas unit to the new company and PDVSA would contribute other fields and assets pro-rata to their ownership interest," Hill said in the statement.
"We hope to have a successful conclusion to the negotiations within six months," he added.
Hill emphasized that, despite the legal "challenges" in countries like Venezuela and Russia where Harvest also operates, "we feel comfortable in those environments" and "60% of the world's oil and gas [reserves] are in Russia and Venezuela."
"What we are looking at is a long-term business," he added.
Harvest produced 2.5 million barrels (Mb) of oil, or 28,100b/d, in Venezuela in the first quarter, up from 1.9Mb in 1Q04, the company said in the statement. It also produced 7.3 billion cubic feet (Bcf) of natural gas compared to 7.8Bcf in 1Q04.
The company received an average of US$21.15 a barrel for first quarter sales, up US$5.05/b compared with the same period last year. Harvest received US$1.03 per thousand cubic feet of natural gas sold during 1Q05.
Harvest posted first quarter 2005 profits of US$17.3mn, up nearly 130% from net US$7.5mn for the same period last year, the statement said.
Operating cash flow rose to US$34.2mn, an increase of 86% when compared with the same period last year.
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