Harvest Natural Resources, Inc. (NYSE-HNR) is an international oil and gas company that seeks and develops large resources in countries that others may perceive to be challenging.
Historically, Harvest has operated the South Monagas Unit in Venezuela under the terms of an operating service agreement (“OSA”) with Petroleos de Venezuela S.A. (“PDVSA”). In 2005, PDVSA pronounced that all OSAs must be converted to mixed companies in which the Venezuelan government would own a controlling interest. Since that pronouncement, Harvest, Harvest Vinccler (our 80 percent owned subsidiary) and representatives of the Venezuelan government have agreed on the documents that will govern the proposed transaction, including the conversion contract. On March 31, 2006, Harvest Vinccler signed a Memorandum of Understanding (the “Original MOU”) with PDVSA and Corporaci&243;n Venezolana del Petroleo S.A. (“CVP”) to convert the contractual arrangement governed by the OSA into the mixed company (Empresa Mixta Petrodelta, S.A.) subject to certain conditions, including finalizing an agreement between the parties for additional consideration to be awarded to the mixed company.
On August 16, 2006, the parties entered into an amendment to the Original MOU that provided for the award of three additional fields in Venezuela to the mixed company. The three fields are the Isleño, Temblador and El Salto fields. Subject to the conditions of the conversion contract, after the closing date established in the conversion contract, the mixed company will be formed and the OSA will be cancelled. Harvest will transfer substantially all of its assets, rights and contracts relating to the South Monagas Unit (Uracoa, Tucupita, Bombal fields or “SMU fields”) to the mixed company as well as the three additional fields that will be awarded to the mixed company. If the proposed transaction is completed, Harvest will own a net 32 percent ownership interest in the mixed company and CVP will own the remaining 60 percent. As the negotiation process continues, we retain a very substantial Venezuelan business. Our Venezuelan employees remain focused on excellence in operational performance. Management and the Board took a leadership position in proactively and constructively working with Venezuelan officials toward a resolution which is intended to satisfy the energy policies of the Venezuelan administration and preserve our shareholder value.
The uncertainty of outcome surrounding the events in Venezuela – as they pertain to the Venezuelan government's unilateral renouncement of the operating service agreements and retroactive tax claims – combined with Harvest's concentration of assets in Venezuela, have overtaken, in the near term, any traditional valuation methodology of the company's business prospects.
While the Harvest story of today is understandably dominated by the Venezuelan situation, we are focused on building the Harvest of tomorrow.
