Harvest Natural Announces 4Q:16 Results

Instant Max AI

(Harvest Natural Resources, Inc., 6.Mar.2017) – Harvest Natural Resources, Inc. announced 2016 fourth quarter and year-end earnings.

Harvest posted a fourth quarter 2016 net income of $100.6 million, or $9.00 per basic and diluted share, compared with a net loss of $73.2 million, or $5.70 per basic and diluted share, for the 2015 fourth quarter. For the year-ended December 31, 2016, Harvest’s net income was $66.6 million, or $5.35 per basic and diluted share, compared with a net loss of $98.6 million, or $8.71 per basic and diluted share, for 2015.

The fourth quarter 2016 results include non-recurring items of (i) gain on the sale of Harvest-Vinccler Dutch Holding B.V. of $118.9 million or $10.64 pre-tax per basic and diluted share; and (ii) loss on extinguishment of debt of $10.3 million, or $0.92 pre-tax per basic and diluted share. Adjusted for these non-recurring items, Harvest would have had a fourth quarter net loss, unadjusted for any income tax effects, of $8 million, or $0.72 per basic and diluted share.

The year-end 2016 results include exploration charges of $2.4 million, or $0.19 pre-tax per basic and diluted share, and non-recurring items of (i) gain on the sale of Harvest Holding of $115.5 million, or $9.29 per basic and diluted share; (ii) loss on the impairment of oilfield inventories of $1.5 million, or $0.12 pretax per basic and diluted share; (iii) interest expense of $4.2 million, or $0.34 pre-tax per basic and diluted share; (iv) loss on the change in fair value of warrant liabilities of $9.4 million, or $0.75 pre-tax per basic and diluted share; (v) gain on the change in fair value of derivative assets and liabilities of $2.4 million, or $0.19 pre-tax per basic and diluted share; (vi) loss on the extinguishment of debt of $10.3 million, or $0.83 pre-tax per basic and diluted share; and (vii) impairment of a note receivable of $5.2 million, or $0.41 per basic and diluted share. Adjusted for exploration charges and these non-recurring items, Harvest’s net loss, unadjusted for any tax effects, for 2016 would have been $18.5 million, or $1.49 per basic and diluted share.

Sale of Venezuela Interests

On October 7, 2016, Harvest completed the sale of all of its interests in Venezuela. The sale occurred pursuant to a June 29, 2016 share purchase agreement under which HNR Energia B.V. sold its 51 percent interest in Harvest Holding to Delta Petroleum N.V., a limited liability company organized under the laws of Curacao. Harvest Holding indirectly owned a 40% interest in Petrodelta S.A., through which all of the company’s interests in Venezuela were owned. As a result of the sale, Harvest Holding’s effect on results of operations and other items directly related to the sale have been reported as discontinued operations.

CT Energy Holding SRL, a private investment firm organized as a Barbados Society with Restricted Liability, assigned all of its rights and obligations under the Share Purchase Agreement to its affiliate, Delta Petroleum, on September 26, 2016. Harvest has no control or ownership interest in Delta Petroleum.

At the closing, the company received consideration consisting of:

— $69.4 million in cash paid after various closing adjustments. — An 11% non-convertible senior promissory note payable by Delta Petroleum to HNR Energia six months from the closing date in the principal amount of $12 million, guaranteed by the sole member and sole equity-holder of Delta Petroleum. This note plus accrued interest is due April 7, 2017. — The return of all of the company’s common stock owned by CT Energy, consisting of 2,166,900 shares to be held by the company as treasury shares. — The cancellation of $30 million in outstanding principal under the 15% Note. — The cancellation of the warrant issued to CT Energy in 2015 to purchase up to 8,517,705 shares of common stock for $5 per share (after adjustments for the November 3, 2016 stock split).

The relationship between the company and CT Energy effectively terminated upon the completion of the sale under the Share Purchase Agreement. All company securities held by CT Energy were terminated or relinquished, and Oswaldo Cisneros and Alberto Sosa resigned as CT Energy’s non-independent designees to the company’s board of directors. Additionally, all liens securing company debt formerly owed to CT Energy were released at the closing. Upon the closing, the company’s primary assets were cash from the proceeds of the transaction and the company’s oil and gas interests in Gabon.

NOL Poison Pill

Rights Agreement to Protect Net Operating Losses

On February 16, 2017, the Board adopted a Rights Agreement designed to preserve the company’s tax assets. As of December 31, 2016, the company had cumulative net operating loss carryforwards (NOLs) of approximately $56 million, which can be utilized in certain circumstances to offset possible future U.S. taxable income.

Harvest’s ability to use these tax benefits would be limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code. An ownership change would occur if stockholders that own (or are deemed to own) at least five percent or more of Harvest’s outstanding common stock increased their cumulative ownership in the company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Rights Plan reduces the likelihood that changes in Harvest’s investor base would limit Harvest’s future use of its tax benefits.

Shareholder Vote

At the company’s special meeting of stockholders on February 23, 2017, the stockholders voted to (1) authorize the sale by us, indirectly through a subsidiary, of all of our interests in Gabon upon the terms and conditions set forth in the Sale and Purchase Agreement; (2) approve, on an advisory basis, compensation that will or may become payable by us to our named executive officers in connection with the sale of our Gabon interests; and (3) authorize the complete liquidation and dissolution of Harvest.

Proposed Dissolution and Liquidation

Following the successful sale of our Venezuelan interests in October 2016 and in light of the proposed sale of our Gabon interests, our board of directors considered dissolution and liquidation as a possible alternative. On January 12, 2017, the Board unanimously determined that the dissolution and liquidation of Harvest was advisable, authorized the dissolution and liquidation and recommended that the proposed complete dissolution be submitted to a vote of Harvest’s stockholders.

Our Board also adopted a plan of complete dissolution, liquidation, winding up and distribution (the “Plan of Dissolution”) on this date. Harvest’s stockholders approved the proposed dissolution and liquidation at the special meeting on February 23, 2017.

Under the dissolution, liquidation and winding up process, which remains subject to the control of the Board and company management, the proceeds from the Gabon transaction would be combined with other Harvest assets to be distributed to Harvest’s stockholders, subject to the payment of certain costs and expenses. The company currently expects to commence dissolution proceedings as soon as practicable after the closing of the sale of its Gabon interests.

Distributions to Shareholders

The Board intends to declare a distribution payable to the shareholders after the Gabon transaction has closed. The exact amount of the distribution has not been determined at this time. Once the record date is set, the company will disclose the proposed distribution.

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