Venezuelan Assembly Okays Harvest's Mixed Company Conversion

Harvest Natural Resources, Inc. on Monday announced the Venezuelan National Assembly has approved the formation of mixed company Petrodelta, S.A. and the direct award of three additional fields to Petrodelta.

Harvest President and Chief Executive Officer, James A. Edmiston, said, "National Assembly approval of the formation of Petrodelta and the direct award of the three fields to Petrodelta is a key event to finalizing the conversion process. The new fields, Isleno, Temblador and El Salto, awarded Petrodelta will allow us to apply, on a much broader scale, the same technologies we used in developing the South Monagas Unit (SMU fields) which resulted in materially improved oil recovery." The new fields and the SMU fields will be developed under a 20-year grant from the Venezuelan government.

An 80 percent owned Harvest affiliate will own 40 percent of Petrodelta and Corporacion Venezolana del Petroleo S.A. (CVP) will own the remaining 60 percent.

National Assembly approval clears the way for the formation of Petrodelta and receipt of the transfer decree, after which an economic adjustment will be made to obtain the same economic result as if the conversion had been completed on April 1, 2006. For the period of April 1, 2006 through March 31, 2007, on a 100 percent basis, 6.7 million barrels of oil and 14.8 billion cubic feet of natural gas were delivered to Petroleos de Venezuela S.A. (PDVSA). The price for oil delivered to PDVSA is based on a formula that reflects the world market price for crude oil of this quality. Historically, this price has averaged 70 percent of the price for West Texas Intermediate crude oil, or approximately $47 per barrel for the April 1, 2006 to March 31, 2007 period. The natural gas sales price is $1.54 per thousand cubic feet.

After a one-third royalty, Petrodelta revenue for oil and gas deliveries during this period is estimated to be about $225 million while cash operating, capital and administrative costs were $46 million. Petrodelta is expected to retain a portion of its net proceeds to fund income tax payments and field development and pay the balance to Petrodelta's shareholders.

Petrodelta Reserve Potential

Based on a reserve report completed by an independent third party engineering firm, as of April 1, 2006, the six fields to be held by Petrodelta had gross proved reserves of 184 million barrels of oil and 160 billion cubic feet (Bcf) of natural gas, or 39 million barrels of oil and 34 Bcf of natural gas net to Harvest's 32 percent interest after a one-third royalty. The estimated additional unrisked probable and possible reserves for the fields are 451 million barrels and 256 Bcf of natural gas, or 96 million barrels and 55 Bcf net to Harvest's 32 percent interest after a one-third royalty. The pre-tax future net income of the proved reserves discounted at 10 percent is $617 million based on a realized oil price of $45.81 per barrel. The pre-tax future net income of the estimated additional unrisked probable and possible reserves discounted at 10 percent is $1.1 billion based on a realized oil price of $45.81 per barrel.

The SMU fields have been operated by Harvest Vinccler S.C.A. (HVSCA), an 80 percent owned Harvest subsidiary, since 1992. Through March 31, 2006, the SMU fields produced and delivered 113 million barrels of oil and 64 Bcf of gas to PDVSA. The fields currently produce approximately 14,000 barrels of oil per day (Bopd) and 35 million cubic feet of gas per day. Isleno, Temblador and El Salto fields are geographically close to the SMU fields and have the same geology and productive formations as SMU. The new fields will use existing SMU infrastructure where possible resulting in attractive economies of scale. There has been minimal development activity in the three newly awarded fields during the last 20 years.

The Isleno field was discovered in 1953 and has two discovered oil bearing structures with estimated unrisked probable and possible reserves of 49 million barrels of oil and 3 Bcf of natural gas, or 10 million barrels of oil and one Bcf of natural gas net to Harvest after a one-third royalty. The field is located approximately seven kilometers south of existing infrastructure in the SMU Uracoa field. The Petrodelta business plan projects full development of the Isleno field over the next three to four years.

The Temblador field was discovered in 1936 and partially developed over the next 20 years. Since its discovery, Temblador has produced 118 million barrels of oil and 64 billion cubic feet of natural gas from 155 wells. 3-D seismic information is available over the entire field and estimated proved reserves are 13 million barrels of oil and 10 Bcf of natural gas, or 2 million barrels of oil and 2 Bcf of natural gas net to Harvest after a one-third royalty. The estimated additional unrisked probable and possible reserves of the field are 122 million barrels of oil and 85 Bcf of natural gas, or 26 million barrels of oil and 18 Bcf of natural gas net to Harvest after a one-third royalty. The field is currently producing approximately 1,000 Bopd from 10 wells.

The El Salto field was discovered in 1936. A total of 31 wells have been drilled identifying nine productive structures and six productive formations. The field has produced less than 1 million barrels of oil and is currently dormant. Proved reserves for El Salto are 66 million barrels of oil and 16 Bcf of natural gas, or 14 million barrels of oil and 3 Bcf of natural gas net to Harvest after a one-third royalty. Estimated additional unrisked probable and possible reserves are 280 million barrels of oil and 168 Bcf of natural gas, or 60 million barrels of oil and 36 Bcf of natural gas net to Harvest after a one-third royalty. In addition, El Salto is expected to have substantial exploration upside from several fault blocks which have been identified on 2-D seismic but have not yet been confirmed through drilling.

Business Plan

Harvest and CVP have agreed upon a business plan which is expected to maximize the value of Petrodelta's hydrocarbon resources by: 1) increasing oil and gas production, 2) converting unproved reserves to proved reserves through targeted drilling, and 3) adding additional discovered reserves through exploration.

Petrodelta is expected to begin implementation of the business plan as soon as possible after it is formed and receives the transfer decree. HVSCA and CVP have already initiated the bidding and selection process for three drilling rigs, two workover rigs, long lead drilling and workover materials and for a seismic acquisition program. In addition, HVSCA has begun to increase staff to support the drilling programs.

The key exploration potential in Petrodelta is in the El Salto field area, which covers 475 square kilometers of which only 100 square kilometers is presently covered by 3-D seismic. During the next three years, the plan is to acquire 3-D seismic over the remaining area and to drill at least three exploration wells. Petrodelta has also identified an exploration prospect in the Tucupita field and plans to reprocess the existing 3-D seismic to enhance imaging prior to drilling.

Petrodelta's cash flow from operations is expected to fund operating and capital expenditure requirements as well as periodic dividends to Harvest and CVP.

The Value Proposition

Edmiston continued, "From the outset of this process, we sought to preserve the significant value of our Venezuelan business while at the same time recognizing and adapting to the policy changes initiated by the Venezuelan government. I believe the formation of Petrodelta, its asset base and business plan provide an excellent platform to meet or exceed those objectives. At the time HVSCA assumed operations of the SMU fields in 1992, they were inactive and had produced a total of 73 million barrels and had remaining proved reserves of 18 million barrels or an ultimate recovery of approximately 8 percent of the estimated 1.1 billion barrels of oil-in-place. From 1992 to March 31, 2006, HVSCA produced 113 million barrels of oil and has additional gross remaining proved reserves of 105 million barrels of oil for an estimated ultimate recovery of 291 million barrels or 27 percent of the oil-in-place or approximately a 220 percent improvement in recovery. According to our independent third-party engineering firm, the new fields contain approximately 4.9 billion barrels of original-oil-in-place. The projected ultimate recovery for the new fields based on proved and unrisked probable and possible reserves of the new fields reflect an average recovery factor of 13 percent, which is significantly less than the SMU fields. While we cannot promise that we will produce the same level of results from the new assets as we achieved at the SMU fields, we believe there is significant upside associated with further improvement of oil recoveries in the new fields where oil-in-place is more than 4.5 times that of the SMU fields.

Additionally, we believe there is a current opportunity to aggressively add reserves and production in Petrodelta in cooperation with the Venezuelan government and build substantial shareholder value using our 15-year operating history in Venezuela."

Implementation of the business plan is necessarily subject to availability of rigs, material and qualified personnel. In addition, the business plan is based on a number of assumptions and actual results may differ materially.

Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent oil and gas production and development company with principal operations in Venezuela and business development offices in Russia and the United Kingdom.

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