Operating cash flow (defined as cash flows from operating activities before changes in operating assets and liabilities) was $29.6 million for the 2006 first quarter compared with $35.3 million for the 2005 first quarter. See reconciliation to Generally Accepted Accounting Principles in table below.
Deliveries for the 2006 first quarter were 1.9 million barrels of oil, or 21,046 barrels of oil per day (Bopd), and 4.5 billion cubic feet, or 50 million cubic feet per day (MMcfpd), of natural gas for a combined total production of 2.6 million barrels of oil equivalent. Production for the same period last year was 2.5 million barrels of oil, or 28,117 Bopd, and 7.3 billion cubic feet, or 81 MMcfpd, of natural gas for a combined total production of 3.7 million barrels of oil equivalent.
The Company received an average of $28.79 per barrel of oil for 2006 first quarter sales, an increase of $7.64 per barrel, compared with the $21.15 per barrel average for the same period last year which included the amortization of oil price hedging contracts. The Company receives $1.03 per thousand cubic feet of natural gas delivered to Petroleos de Venezuela, S.A. (PDVSA).
Harvest President and Chief Executive Officer, James A. Edmiston, said, "Financially, the Company had a strong first quarter primarily due to higher oil prices. The continued suspension of the Company's drilling program resulting from actions taken by the Venezuelan government has caused the Company's oil and gas deliveries to PDVSA to decline. Oil deliveries from the fields are expected to average approximately 20,000 Bopd, 6,400 net to Harvest, for the 2006 second quarter."
On March 31, 2006, Harvest Vinccler, C.A. (HVCA) signed a Memorandum of Understanding (MOU) with PDVSA and Corporacion Venezolana del Petroleo S.A. (CVP) to convert its operating service agreement to a mixed company subject to certain conditions. Upon completion of the conversion, a Harvest Natural Resources, Inc. affiliate will own 40 percent of the mixed company (32 percent net to Harvest) and CVP will own the remaining 60 percent. Conversion of the operating service agreement to the mixed company is subject to 1) completion of definitive agreements, 2) finalization of additional consideration, 3) approval by the board of directors of the entities which control HVCA, 4) approval by the shareholders of Harvest and 5) approval by MEP and the Venezuelan National Assembly. Upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006.
Under the terms of the draft Conversion Contract attached to the MOU, the mixed company will have a 20-year term. In addition, all crude oil production will be sold to a PDVSA affiliate under a reference price intended to reflect the export value to the market for the type of crude delivered with payment in U.S. Dollars. Associated natural gas will be sold at U.S. Dollar denominated price of $1.03 per thousand cubic feet adjusted for royalties, with payment in Venezuelan Bolivars. Under current royalty and tax legislation, the mixed company will pay a 33.3 percent royalty and the income tax rate will be 50 percent. For additional information on the terms of the MOU and Conversion Contract and the risks associated with the timing and outcome of completing the conversion to the mixed company, please refer to pages 13 through 15 and 19 through 20 of the Company's Form 10-Q for the quarter ended March 31, 2006 filed with the Securities and Exchange Commission today.
Edmiston said, "Execution of the MOU represents an important milestone in the successful conversion of the Company's interests in Venezuela to a mixed company. The Company expects to conclude the conversion agreements, additional consideration arrangements and SENIAT tax resolution soon. Final approval for Harvest's conversion of its interests to a mixed company would rest with the Company's shareholders."
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