Harvest Energy Trust released of its fourth quarter and year ended December 31, 2009 financial and operating results. The audited financial statements, notes and MD&A pertaining to the year ended December 31, 2009 are filed on SEDAR at www.sedar.com and are available on Harvest's website at www.harvestenergy.ca on the 'Investor Information - Financial and Public Documents' page. All figures reported herein are Canadian dollars unless otherwise stated.
- Cashflow from operating activities for the year ended December 31, 2009 decreased to $473.6 million, compared to $655.9 million in the prior year, as a $502.6 million decline in the contribution from upstream operations was substantially offset by a $263.6 million reduction in the cash settlements on price risk management contracts, a $25.3 million increase in contribution from downstream operations and a $28.2 million reduction in cash interest expense;
- Upstream operations contributed $443.3 million of cashflow, down from $945.9 million in the prior year, reflecting the year-over-year drop in commodity prices, an 8% reduction in production and partially offset by lower operating costs;
- Upstream capital spending of $186.3 million was focused on drilling 107 wells and maintaining our enhanced oil recovery efforts. This was offset by net divestments of $62.1 million;
- Downstream operations contributed $108.9 million of cashflow reflecting improved refining margins and lower operating costs offset by lower throughput and a planned major turnaround;
- Capital expenditures in our downstream operations totaled $43.9 million focused on small, attractive investment opportunities and approximately $11 million of preliminary engineering on the Debottleneck Projects;
- Declared distributions totaling $164.8 million ($1.00 per Trust Unit) reflects an 35% payout ratio based on cashflow from operating activities and 34% payout ratio if asset retirement expenditures and non-cash working capital are excluded from the cashflow.
Fourth Quarter Highlights:
- Cashflows in the fourth quarter of $77.0 million were 58% lower than the $183.7 million for the fourth quarter 2008. The decrease is due to an increase in working capital as compared to a reduction in the prior year;
- Upstream capital spending in the fourth quarter decreased to $31.7 million, from $83.0 million in the same quarter last year due to restricted investment activity. Harvest drilled 19 wells (11.4 net) in the fourth quarter with a 95% success ratio compared to 82 wells (48.0 net) in the fourth quarter 2008;
- In the fourth quarter 2009, refinery throughput averaged 75,814 bbl/d, compared to 102,500 bbl/d in the fourth quarter of 2008, which reflected a planned crude and platformer maintenance slowdown in the quarter. Refining margins were US$6.55/bbl compared to US$3.93/bbl in the fourth quarter of 2008;
- Declared distributions of $9.1 million ($0.05 per Trust Unit) representing 12% of cashflow from operating activities.
- On October 21, 2009, Harvest entered into an Arrangement Agreement (the "Arrangement") with Korea National Oil Corporation (KNOC) for the purchase of all of the issued and outstanding Trust Units of Harvest at a price of C$10.00 per Trust Unit for an aggregate cash consideration of approximately $1.8 billion plus the assumption of approximately $2.3 billion of debt. The Arrangement closed December 22, 2009 with the acquisition of all the issued and outstanding trust units by KNOC's Canadian subsidiary, KNOC Canada Ltd. As a result of the acquisition, Harvest trust units were delisted from both the Toronto Stock Exchange and the New York Stock Exchange before the end of 2009;
- In conjunction with the acquisition, a new Board of Directors was assembled. The Board is comprised of Dr. Seong Hoon Kim as Chairman as well as Hong Geun Im, John Zahary, Bill Friley, Bill Robertson, Dennis Balderston, Richard Harris and Chang Koo Kang. Kyungluck Sohn joined Harvest as Chief Financial Officer, Jongwoo Kim was appointed VP, Business Planning and Corporate Secretary and Brian Kwak was appointed VP, Oilsands and Deputy COO, Upstream;
- Concurrent with closing the Arrangement, KNOC purchased an additional 60 million trust units at C$10 per unit. Harvest repaid approximately $600 million of existing bank indebtedness and entered into an amended $600 million credit facility with a syndicate of lenders;
- In accordance with the indentures governing Harvest's 77/8% Senior Notes and Convertible Debentures, KNOC made an offer in January to re-purchase these securities at a price of 101% of the principal amount plus accrued and unpaid interest. Approximately $156.4 million face value of the previous outstanding $914 million convertible debentures (17%) and US$40.4 million face value of the previous outstanding senior notes (16%) accepted the offer;
- Harvest expects that holders would no longer want to convert debentures as the conversion price of C$10 cash replaced the conversion into trust units. A holder who converts any Debentures today will receive, in exchange for their converted Debentures, a cash payment that is less than the principal amount converted. Holders of Debentures are urged to consult their own financial advisors with respect to any conversion or other investment decisions in respect of their Debentures;
- On January 29, 2010, KNOC agreed to make an additional capital contribution to Harvest of approximately $465.7 million, the proceeds of which was used to repay existing bank indebtedness.
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