Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944

Harvest Natural Resources

July 20, 2012

Price $8.70
Prince Range 52-weeks $14 - $4.50
Shares Outstanding 37,300,000
Market Cap $360 M

Business Summary

Harvest Natural Resources, Inc., an independent energy company, engages in the acquisition, exploration, development, production, and disposition of oil and natural gas properties. It primarily holds interests in the Bolivian Republic of Venezuela, exploration, acreage, including in onshore of West Sulaweei, Indonesia; offshore of Gabon; in onshore of Oman; and in offshore of the Peoples Republic of China. As of December 31, 2011, the company through its 32 percent interest in Petroeoce de Venezuela S.A., had 103.8 million barrels of oil equivalent (MMBOE) of proved plus probable reserves, including 43.5 MMBOE of proved reserves; and 60.5 MMBOE of probable reserves. Harvest Natural Resources, Inc., was founded in 1988 and is headquartered in Houston, Texas.

Harvest Natural Resources (HNR) is an oil and gas exploration company headquartered in Houston, Texas with exploration projects in Indonesia, Gabon, Oman and producing assets in Venezuela. On June 21, 2012 the company announced it had sold its 32% interest in its Venezuelan affiliate, Petrodelta, to the Indonesian state-owned oil company, PT Pertamina for $725 million in an all-cash transactions.

Subject to the definitive Stock Purchase Agreement (SPA), Pertamina will buy Harvest’s shares representing its 32% equity ownership in Petrodelta with an effective date of January 1, 2012, subject to obtaining the required approvals. Net proceeds are estimated to be $525 million, net of taxes and related transaction costs. Both Boards of Directors for Harvest and Pertamina have approved the sale. If the deal does not close on or before March 21, 2013, either party can walk away from the deal or negotiate an extension.

If the deal is correct our valuation of HNR is as follows:

Exploration assets other than Venezuela $250 M
Net Sales from Venezuela to Pertamina

Value of borrowing 125
Total $900
Per Share                                          37 M $24.00

Harvest Natural Resources … a Houston based medium size international oil exploration company is entering history. 

On June 21, 2012 HNR sold its 32% interest in its Venezuelan affiliate to its Indonesian state-owned oil company Pertamina for $720 million in an all-cash transaction.

To understand the significance of this transaction we have to refer to two fundamental trends in the oil industry.

There are companies like HNR that are becoming an expert in international exploration. In fact, HNR is currently involved with Indonesia, Gabon, Oman, and Venezuela. For that they need exploration expertise and they need international connections. In about 5 year ago, Jimmy Rogers the famous commodity expert stated that the Western world has not discovered a major oil field for 40 years. HNR had developed its interest, knowledge and expertise in international oil drilling in order to be a player in the field.

The field in fact is very large. There are opportunities for drilling all over the world. For such exploration, we don’t need major international companies like British Petroleum but a group of oil drilling team can put H&R into business.

The Venezuelan transaction is typical for what may come in the next few decades. On June 22, 2012, Harvest Natural who has exploration projects all over the world announced that it had sold its 32% interest in its Venezuelan affiliates spelled Petrodelta to an Indonesian state-owned oil company Pertamina for $725 million in an all cash transaction. The net proceeds are estimated to be $525 million which would cover all taxes. It is important to notice that the board of directors for Harvest and Pertamina have approved the sale.

On the other side of the equation Pertamina is in a global search for oil as it is in a hurry to replace its persistent production decline. Our research indicates that Pertamina which is wholly owned by the Indonesian government has developed a comprehensive plan to find oil production areas all over the world. The have 64 oil and gas controls with joint operation arrangement. 30 contracts are already in the commercial producing stage; others are in exploration. Pertamina has made a step forward to form strategic alliances corresponding to the exploration side of Pertamina’s exploration operations. They manage 3 fewer refiners and two LNG plants. Pertamina has sea transportation fleet which has 96 charter tankers. It has developed and international marketing division as well.

Thus, the cycle indicates that the original Harvest Exploration in Venezuela is now becoming the property and responsibility of the giant Pertamina whereas the $725 million is passing onto Harvest which in turn has been earned by previous exploration activities in Venezuela by Harvest.

Other Activities of Pertamina are equally important

Company Overview 

PT Pertamina (Persero) engages in the exploration and production of oil, gas and geothermal energy. It also engages in processing, marketing, trading, and shipping liquid petroleum gas, liquefied natural gas, petrochemicals, lube base oils, kerosene, autogas, automotive diesel oils, industrial fuel oils, non-fuel products, aviation gasoline, aviation turbine fuels, low oil mogas components, motor oils, naphta, residue, LSWR, HVGO, decant oils, sulfur, and lean gas. In addition, the company engages in the business of hotel, shipping, airlines, dockyard, marketing services, hospital, oil drilling services, management services, contracting services, insurance, and manufacturing.

Pertamina Mull Acquisitions

PT Pertamina (Persero) intends to pursue an acquisition of 10%-20% stake in an Iraqi oil company in 2012. Cahian Iskan, Minster of Stated-Owned Enterprises, said that Pertamina will acquire the stake of a company that produces 1.2 million barrels of oil per day.

Harvest Natural Resources Inc., HNR Energia BV, PT Pertamina (Persero) – M&A Call

To discuss share purchase agreement of Harvest Natural Resources, Inc. and HNR Energia BV with PT Pertamina (Persero).

The transaction which was already approved by directors will be put to stockholders of Harvest on September 1, 2012. Simultaneously the government of Indonesia is expected to approve the transaction.

Through various announcements the government of Venezuela has given its approval in advance.

Business Strategy

Upstream: Exploration and Production

  • Increasing production from existing fields
  • Expanding business activities and operations, including using inorganic methods (acquisitions)
  • Developing the potential of CBM in Pertamina areas
  • Forming strategic alliances to support the expansion and building specific skills

Upstream: Non Exploration and Production

  • Increasing the domestic gas trading business while taking the opportunity to expand the gas
  • Transport and process business through synergy with other Pertamina subsidiaries
  • Being pro-active in formulating pricing policy, in accordance with national policies
  • Building capacity and specific skills in drilling services to support oil and gas expansion plans

Presently, the Upstream Directorate managed 6 subsidiaries in the oil, gas and geothermal business, namely: PT Pertamina EP (PEP), PT Pertamina Hulu Energi (PHE), PT Pertamina Gas, PT Pertamina Geothermal Energy (PGE), PT Pertamina EP Cepu (PEP Cepu), and PT Pertamina Drilling Services Indonesia (PDSI), as well as developing the upstream support technological function carried out by the Exploration & Production Technology center (EPTC).

Harvest Natural will get if the deal is successfully closed $525 million after taxes. Since Harvest has $37 million shares outstanding, the net income to Harvest is $12.50 per share.

Harvest has drilling projects in Indonesia, Omar, and Gabon. This has serious values. Obviously, the influx of money can accelerate Harvest’s current exploration program and in fact enables Harvest to be a greater player in the international oil exploration game. It can drill on its own and make further drills with other drilling partners. In fact, Have can participate in every segment of the international oil industry.

Harvest has already indicated that it is not interested to be acquired. There is no way of denying but a company with $550 million net and $750 million gross liquid assets is a target for a market capitalization of $350 million.

Major buyers can enter the picture by acquiring 50,10, 20% of Harvest on the open market. There can also be private placements by strategic partners into Harvest.

On a tentative basis, we can state that a company with over $500 million unencumbered cash could command an altogether a billion dollar power in international drilling.

There are two issues to consider (1) the actual closing of this transaction where 3 parties are involved. (2) the action of outside parties who in one way or another can enter the picture. (3) a comprehensive plan that Harvest may put forward on the assumption that its credibility as an oil drilling company has increased. The company for the first time in its history will have $500 million cash at least $500 million borrowing capability.

The potential partners or stockholders do represent additional speculative power.

There is however, a speculative conclusion – the world has not heard the last of Harvest!

Pro-Forma of Harvest Natural Resources (HNR)

  1. HNR is an oil and gas exploration company headquartered in Houston, Texas.
  2. The company has exploration projects in Indonesia, Gabon, Oman and Venezuela.
  3. On June 21, 2012 the company sold its 32% interest in its Venezuelan affiliate to the Indonesian state owned oil company Pertamina for $725 million in cash. Estimated taxes can bring down the figure to $525 million.
  4. The Venezuelan based Petrodelta has reserves of 9 billion barrels.
  5. The HNR transaction is valued at $16.74 and on the reserve basis $20.88.
  6. In the most conservative value the deal is worth $14.05.
  7. HNR has additional $34 million in cash and an active production in Indonesia, Oman and Gabon. For the years 2012 the capital expenditure is valued at $24.5 million.
  8. Our estimate is as follows:
    • Closing price on June 21, 2012 - $4.88
    • Net profit $14.5
    • Reserves for taxes - $5
    • Benefits from $725 million - $10 million i.e. $2 per share
    • Total $25.93 per share
    • This sum could be discounted down to $20 per share
  9. In realistic terms there is every likelihood that the corporate structure will change. Because of the current price of HNR and the cash hoard of $800 million the market value at is only about $400 million or a 50% discount.
  10. We expect other companies will enter the picture.



Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.



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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail:

Copyright © 2011 Andrew Racz. All Rights Reserved.