Harvest Reports Third Quarter 2007 Results

Harvest Natural Resources announced 2007 third quarter earnings of $5.4 million, or $0.14 per diluted share, compared with a loss of $13.6 million, or $0.36 per diluted share, for the same period last year. The 2007 third quarter earnings included a $15.0 million gain on the purchase and exchange of U.S. dollar indexed Venezuelan government bonds. The proceeds from the sale of the bonds were used to service the Bolivar denominated debt of Harvest Vinccler, S.C.A., an 80 % owned Harvest affiliate.

The Company has not been able to recognize the equity earnings for its producing operations in Venezuela since the 2006 second quarter. Equity earnings are expected to be reported in the fourth quarter of 2007. The conversion agreements were executed in September and Petrodelta, S.A. was legally incorporated shortly thereafter. Publication of the Presidential transfer decree in October 2007 represented the final step of the formal conversion process.

Harvest President and Chief Executive Officer, James A. Edmiston, said: "The last step remaining to complete the conversion of our operating services agreement to Petrodelta was the October 25, 2007 publication of the transfer decree signed by President Chavez. The transfer decree gives Petrodelta the right to develop the Uracoa, Tucupita and Bombal fields, operated by Harvest since 1992, and the Isleno, Temblador and El Salto fields recently awarded to Petrodelta. Petrodelta has a detailed plan of development, which it will begin to implement immediately. With the transfer decree in hand, Petrodelta will begin producing oil and gas under a tax and royalty structure with a one-third royalty and a 50 % income tax rate. Petrodelta will invoice PDVSA for oil and gas delivered since April 1, 2006, and Harvest will be able to include its pro rata share of Petrodelta's earnings in its financial results."

Edmiston continued: "Harvest maintains a strong balance sheet as it prepares for Petrodelta to resume the drilling program initiated by Harvest in 2004. As of October 30, 2007, we have reduced our debt to $9.3 million, repurchased $32.1 million of common stock and expect Petrodelta's drilling plan to be self-funding. The publication of the transfer decree allows us to move forward with Petrodelta's operating and drilling plans. A workover rig is being mobilized to the Uracoa Field and will begin its work program of normal repair and maintenance. The first drilling rig is currently in port awaiting customs clearance in anticipation of resuming the Uracoa drilling program, which was suspended in 2005. A second workover rig and a second drilling rig are expected to start next year."

Production from the South Monagas Unit

For the nine months and eighteen months ended September 30, 2007, operating statistics (on a 100% basis) for the existing South Monagas Unit (SMU) operated by the Company's affiliate, Harvest Vinccler, S.C.A., are as follows:

  • Production of 4.2 million barrels of oil and 10.1 billion cubic feet (Bcf) of natural gas. Average daily production was 15,250 barrels and 37 million cubic feet of natural gas, or 21,400 barrels of oil equivalent (Boe), for the nine months ended September. Production for the eighteen months ended September 30 was 9.4 million barrels of oil and 21.7 Bcf of natural gas. Average daily production was 17,100 barrels of oil and 40 million cubic feet of natural gas, or 23,650 Boe.
  • Crude oil prices that would be paid if the conversion contract had been in place cannot be calculated, as one element of the pricing formula has not been set. Market prices for crude oil of the type produced in SMU averaged approximately $53.11 per barrel and $50.24 per barrel, respectively, for the nine and eighteen-month periods ended September 30. The price for natural gas that would be paid under the conversion contract is $1.54 per thousand cubic feet.
  • Petrodelta royalties and income taxes will be 33 and 50 %, respectively.

Share Buyback Program

Harvest purchased 2.9 million shares, or 7.7 %, of its common stock during the third quarter for $32.1 million, or $11.03 per share, including commissions. In June 2007, the Board of Directors authorized Harvest to purchase up to $50 million of its common stock through open market purchases.