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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 2004 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from ______ to _____
COMMISSION FILE NO. 1-10762
---------------------------
HARVEST NATURAL RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0196707
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
15835 PARK TEN PLACE DRIVE, SUITE 115
HOUSTON, TEXAS 77084
(Address of Principal Executive Offices) (Zip Code)
(281) 579-6700
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
At August 2, 2004, 36,060,628 shares of the registrant's common stock were
outstanding.
HARVEST NATURAL RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets at June 30, 2004
and December 31, 2003...................................... 3
Unaudited Consolidated Statements of Operations and
Comprehensive Income for the Three and Six Months
Ended June 30, 2004 and 2003............................... 4
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003............................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.................................................. 17
Item 4. CONTROLS AND PROCEDURES............................................ 17
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.................................................. 18
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................... 18
Item 3. DEFAULTS UPON SENIOR SECURITIES.................................... 18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 18
Item 5. OTHER INFORMATION.................................................. 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................... 18
SIGNATURES..................................................................... 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
2004 2003
--------- ------------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 156,991 $ 138,660
Restricted cash .............................................................. 12 12
Accounts and notes receivable:
Accrued oil and gas sales ................................................ 40,958 32,766
Joint interest and other, net ............................................ 10,647 11,197
Prepaid expenses and other ................................................... 1,384 805
--------- ---------
TOTAL CURRENT ASSETS ................................................ 209,992 183,440
RESTRICTED CASH ................................................................... 16 16
OTHER ASSETS ...................................................................... 2,815 2,080
DEFERRED INCOME TAXES ............................................................. 4,749 4,749
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method - costs of $2,900
excluded from amortization in 2004 and 2003, respectively) ............... 602,583 593,622
Furniture and fixtures ....................................................... 9,129 8,948
--------- ---------
611,712 602,570
Accumulated depletion, depreciation and amortization ......................... (434,614) (418,507)
--------- ---------
177,098 184,063
--------- ---------
$ 394,670 $ 374,348
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other ............................................ $ 626 $ 4,163
Accounts payable, related party .............................................. 10,809 10,557
Accrued expenses ............................................................. 17,485 15,069
Accrued interest payable ..................................................... 1,405 1,427
Income taxes payable ......................................................... 12,127 8,647
Current portion of long-term debt ............................................ 6,367 6,367
--------- ---------
TOTAL CURRENT LIABILITIES ........................................... 48,819 46,230
LONG-TERM DEBT .................................................................... 93,650 96,833
ASSET RETIREMENT LIABILITY ........................................................ 750 1,459
COMMITMENTS AND CONTINGENCIES ..................................................... -- --
MINORITY INTEREST ................................................................. 35,417 30,113
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 a share; authorized 5,000 shares;
outstanding, none ........................................................ -- --
Common stock, par value $0.01 a share; authorized 80,000 shares; issued 36,777
shares at June 30, 2004 and 36,405 shares at December 31, 2003 ........... 368 364
Additional paid-in capital ................................................... 177,613 175,051
Retained earnings ............................................................ 41,292 27,537
Treasury stock, at cost, 730 shares June 30, 2004 and
December 31, 2003, respectively .......................................... (3,239) (3,239)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .......................................... 216,034 199,713
--------- ---------
$ 394,670 $ 374,348
========= =========
See accompanying notes to consolidated financial statements.
3
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
(in thousands, except per share data)
REVENUES
Oil sales $ 32,977 $ 28,576 $ 63,785 $ 47,966
Gas sales 8,420 -- 16,409 --
Ineffective hedge activity -- -- -- (565)
-------- -------- -------- --------
41,397 28,576 80,194 47,401
-------- -------- -------- --------
EXPENSES
Operating expenses 7,368 9,483 14,707 15,998
Depletion, depreciation and amortization 8,198 5,710 16,359 9,225
General and administrative 4,372 3,747 8,007 6,971
Gain on sale of long-lived assets (578) -- (578) --
Taxes other than on income 1,118 971 2,312 1,618
-------- -------- -------- --------
20,478 19,911 40,807 33,812
-------- -------- -------- --------
INCOME FROM OPERATIONS 20,919 8,665 39,387 13,589
OTHER NON-OPERATING INCOME (EXPENSE)
Investment earnings and other 425 354 728 632
Interest expense (2,448) (2,642) (4,937) (5,310)
Net gain (loss) on exchange rates (8) -- (617) 525
-------- -------- -------- --------
(2,031) (2,288) (4,826) (4,153)
-------- -------- -------- --------
INCOME FROM CONSOLIDATED
COMPANIES BEFORE INCOME
TAXES AND MINORITY INTERESTS 18,888 6,377 34,561 9,436
INCOME TAX EXPENSE 9,902 3,104 15,502 4,160
-------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS 8,986 3,273 19,059 5,276
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY COMPANIES 2,738 1,216 5,304 2,102
-------- -------- -------- --------
INCOME FROM CONSOLIDATED COMPANIES 6,248 2,057 13,755 3,174
EQUITY IN NET LOSSES
OF AFFILIATED COMPANIES -- (13,470) -- (30,045)
-------- -------- -------- --------
NET INCOME (LOSS) $ 6,248 $(11,413) $ 13,755 $(26,871)
======== ======== ======== ========
OTHR COMPREHENSIVE LOSS: UNREALIZED
MARK TO MARKET LOSS FROM CASH FLOW
HEDGING ACTIVITIES, NET OF TAX -- (3,001) -- (387)
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 6,248 $(14,414) $ 13,755 $(27,258)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.17 $ (0.32) $ 0.38 $ (0.76)
======== ======== ======== ========
Diluted $ 0.16 $ (0.32) $ 0.36 $ (0.76)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
--------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 13,755 $ (26,871)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion, depreciation and amortization ................ 16,359 9,225
Amortization of financing costs ......................... 152 281
Gain on disposition of assets ........................... (578) --
Equity in net losses of affiliated companies ............ -- 30,045
Allowance for employee notes and accounts receivable .... -- 103
Non-cash compensation-related charges ................... 263 123
Minority interest in consolidated subsidiary companies... 5,304 2,102
Deferred income taxes ................................... -- (667)
Changes in operating assets and liabilities:
Accounts and notes receivable ...................... (7,642) (4,346)
Prepaid expenses and other ......................... (579) 1,052
Commodity hedging contract ......................... -- (4,600)
Accounts payable ................................... (3,537) (494)
Accounts payable, related party .................... 252 796
Accrued expenses ................................... 2,416 12,767
Accrued interest payable ........................... (22) 34
Asset retirement liability ......................... (709) 2,238
Commodity hedging contract payable ................. -- (430)
Income taxes payable ............................... 3,480 1,065
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...... 28,914 22,423
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of long-lived assets ................. 578 --
Additions of property and equipment ......................... (9,394) (35,450)
Investment in and advances to affiliated companies .......... -- (517)
Decrease in restricted cash ................................. -- 1,800
Purchases of marketable securities .......................... -- (256,058)
Maturities of marketable securities ......................... -- 283,446
Investment costs ............................................ (887) (362)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .............. (9,703) (7,141)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options ................. 2,303 159
Purchase of treasury stock .................................. -- (404)
Payments on short-term borrowings and notes payable ......... (3,183) (2,767)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES .............. (880) (3,012)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......... 18,331 12,270
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 138,660 64,501
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 156,991 $ 76,771
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest expense ............ $ 6,528 $ 6,501
========= =========
Cash paid during the period for income taxes ................ $ 1,674 $ 2,180
========= =========
See accompanying notes to consolidated financial statements.
5
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM REPORTING
In our opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals
only) necessary to present fairly the financial position as of June 30, 2004,
and the results of operations and cash flows for the second quarter 2004 and
2003. The unaudited consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and do not include all disclosures
normally required by accounting principles generally accepted in the United
States of America. Reference should be made to our consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended 2003, which include certain definitions and a summary of significant
accounting policies and should be read in conjunction with this Quarterly Report
on Form 10-Q. The results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year.
ORGANIZATION
Harvest Natural Resources, Inc. is engaged in the exploration,
development, production and management of oil and gas properties. We conduct our
business principally in Venezuela (through our subsidiary Harvest Vinccler C.A.
or "Harvest Vinccler", formerly Benton Vinccler, C.A.) and, until September 25,
2003, through our minority equity investment in LLC Geoilbent ("Geoilbent"), a
Russian entity. Effective May 3, 2004, Benton Vinccler, C.A.'s name was changed
to Harvest Vinccler, C.A.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
wholly-owned and majority-owned subsidiaries. The equity method of accounting is
used for companies and other investments in which we have significant influence.
All intercompany profits, transactions and balances have been eliminated. We
accounted for our investment in Geoilbent prior to the sale in September 2003 of
our minority equity investment based on a fiscal year ending September 30, 2003.
MINORITY INTERESTS
We record a minority interest attributable to the minority shareholder of
our Venezuela subsidiaries. The minority interest in net income and losses is
subtracted or added to arrive at consolidated net income.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS 130") requires
that all items required to be recognized under accounting standards as
components of comprehensive income, be reported in a financial statement that is
displayed with the same prominence as other financial statements. We reflected
unrealized mark-to-market losses from cash flow hedging activities as other
comprehensive loss during the second quarter 2003 and, in accordance with SFAS
130, have provided a separate line in the unaudited consolidated statement of
operations.
DERIVATIVES AND HEDGING
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities. All derivatives are recorded on the balance
sheet at fair value. To the extent that the hedge is determined to be effective,
changes in the fair value of derivatives for qualifying cash flow hedges are
recorded each period in other comprehensive income. Our derivatives have been
designated as cash flow hedge transactions in which we hedge the variability of
cash flows related to forecasted transactions. The changes in the fair value of
these derivative instruments have been reported in other
6
comprehensive income because the highly effective test was met, and have been
reclassified to earnings in the period in which earnings were impacted by the
variability of the cash flows of the hedged item.
Harvest Vinccler hedged a portion of its 2003 oil sales by purchasing a
WTI crude oil put to protect its 2003 cash flow. The put was for 10,000 barrels
of oil per day for the period of March 1, 2003 through December 31, 2003. This
put qualified under the highly effective test and the mark-to-market loss at
June 30, 2003 was included in other comprehensive loss. Due to the pricing
structure for our Venezuela oil, the put had the economic effect of hedging
approximately 20,800 barrels of oil per day. The put cost was $2.50 per barrel,
or $7.7 million, and had a strike price of $30.00 per barrel. The notional
amount of the financial instrument was based on expected sales of crude oil
production from existing and future development wells. Oil sales for the six
months ended June 30, 2003 included $0.2 million loss in settlement on this
hedge.
From time to time, we use hedging instruments to protect our projected
investment return and cash flow by reducing the impact of a downward crude oil
price movement. Currently, we have no hedging instruments in place for our 2004
or 2005 production, but we continue to assess production levels and commodity
prices in conjunction with our capital resources and liquidity requirements.
ASSET RETIREMENT LIABILITY
Effective January 1, 2003, we adopted Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143").
In January 2003, as a result of adopting this statement, Harvest Vinccler
recorded, under the full cost method of accounting for oil and gas properties,
an increase in oil and gas properties and a corresponding liability in the
amount of $4.3 million. This asset retirement obligation is associated with the
plugging and abandonment of certain wells in Venezuela. SFAS 143 requires
entities to record the fair value of a liability for a legal obligation to
retire an asset in the period in which the liability is incurred if a reasonable
estimate of fair value can be made. Nine wells were abandoned in the six months
ended June 30, 2004 and 11 wells were abandoned in year ended December 31, 2003.
Changes in asset retirement obligations during the six months ended June 30,
2004 and year ended December 31, 2003 were as follows:
June 30, December, 31
2004 2003
------- ------------
Asset retirement obligations beginning of period $ 1,459 $ --
Liabilities recorded during the period -- 4,237
Liabilities settled during the period (481) (733)
Revisions in estimated cash flows (267) (2,125)
Accretion expense 39 80
------- -------
Asset retirement obligations end of period $ 750 $ 1,459
======= =======
EARNINGS PER SHARE
Basic earnings per common share ("EPS") is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding for computing basic EPS was 35.9 million for the three and six
months ended 2004, respectively, and 35.2 million for the three and six months
ended 2003. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The weighted average number of common shares outstanding for
computing diluted EPS, including dilutive stock options, was 38.2 million and
38.0 million for the three and six months ended 2004, respectively, and 36.8
million and 35.2 million for the three and six months ended 2003, respectively.
In September 2002, our board of directors authorized the repurchase of up to one
million shares of our common stock. No shares were repurchased in 2004 and
approximately 80,000 shares were repurchased in 2003 for an aggregate price of
$0.4 million.
An aggregate of 1.0 million options and warrants to purchase common stock
were excluded from the earnings per share calculations because they were
anti-dilutive for the three and six months ended 2004, respectively. An
aggregate of 3.1 million and 2.9 million options and warrants to purchase common
stock were excluded from the earnings per share calculations because they were
anti-dilutive for the three and six months ended 2003.
7
STOCK-BASED COMPENSATION
At June 30, 2004, we had several stock-based employee compensation plans,
which are more fully described in Note 6 in our Annual Report on Form 10-K for
the year ended 2003. In May 2004, our shareholders approved the 2004 Long Term
Incentive Plan (the "Plan"). The Plan provides for the issuance of up to
1,750,000 shares of our common stock in satisfaction of exercised stock options,
stock appreciation rights ("SARs") and restricted stock to eligible participants
including employees, non-employee directors and consultants of our company or
subsidiaries. Under the Plan, no more than 438,000 shares may be granted as
restricted stock, and no individual may be granted more than 110,000 shares of
restricted stock or 438,000 in options over the life of the Plan. The exercise
price of stock options granted under the plan must be no less than the fair
market value of our common stock on the date of grant. All options granted to
date will vest ratably over a three-year period from their dates of grant and
expire ten years from grant date. All restricted stock granted to date is
subject to a restriction period of not less than 36 months during which the
stock will be deposited with the Company and is subject to forfeiture under
certain circumstances. The Plan also permits the granting of performance awards
to eligible employees and consultants. Performance awards are paid only in cash
and are based upon achieving established indicators of performance over an
established period of time of at least one year. Performance awards granted
under the Plan may not exceed $5.0 million in a calendar year and may not exceed
$2.5 million to any one individual in a calendar year. In the event of a change
in control, any restrictions on restricted stock will lapse, the indicators of
performance under a performance award will be treated as having been achieved
and any outstanding options and SARs will vest and become exercisable.
Prior to 2003, we accounted for our stock-based employee compensation
plans under the recognition and measurement provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Effective January 1, 2003, we adopted the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123"), Accounting for Stock-Based Compensation as amended by Statement of
Financial Accounting Standards No. 148 ("SFAS 148"), Accounting for Stock-Based
Compensation - Transition and Disclosure, prospectively to all employee awards
granted, modified, or settled after January 1, 2003. Awards under our plans vest
in periodic installments after one year of their grant and expire ten years from
grant date. Therefore, the cost related to stock-based employee compensation
included in the determination of net income in the three and six months ended
2004 and 2003 is less than that which would have been recognized if the fair
value based method had been applied to all awards since the original effective
date of SFAS 123. The following table illustrates the effect on net income and
earnings per share if the fair value based method had been applied to all
outstanding and unvested awards in each period.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(in thousands, except per share data)
Net income (loss), as reported $ 6,248 $ (11,413) $ 13,755 $ (26,871)
Add: Stock based employee compensation
cost, net of tax 167 85 263 127
Less: Total stock-based employee
compensation cost determined
under fair value based method, net of tax (317) (243) (568) (486)
---------- ---------- ---------- ----------
Net income (loss) - proforma $ 6,098 $ (11,571) $ 13,450 $ (27,230)
========== ========== ========== ==========
Earnings (loss) per share:
Basic - as reported $ 0.17 $ (0.32) $ 0.38 $ (0.76)
========== ========== ========== ==========
Basic - proforma $ 0.17 $ (0.33) $ 0.38 $ (0.77)
========== ========== ========== ==========
Diluted - as reported $ 0.16 $ (0.32) $ 0.36 $ (0.76)
========== ========== ========== ==========
Diluted - proforma $ 0.16 $ (0.33) $ 0.35 $ (0.77)
========== ========== ========== ==========
Stock options of 0.4 million and 0.1 million were exercised in the six
months ended 2004 and 2003 with cash proceeds of $2.3 million and $0.2 million,
respectively.
8
NOTE 2 - LONG-TERM DEBT
LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
(in thousands)
Senior unsecured notes with interest at 9.375%... $ 85,000 $ 85,000
Note payable with interest at 6.4% .............. 2,100 2,700
Note payable with interest at 7.4% .............. 12,917 15,500
-------- --------
100,017 103,200
Less current portion ............................ 6,367 6,367
-------- --------
$ 93,650 $ 96,833
======== ========
In November 1997, we issued $115.0 million in 9.375 percent senior
unsecured notes due November 1, 2007 ("2007 Notes"), of which we have
repurchased $30.0 million. The terms of our 2007 Notes require net cash proceeds
in excess of $25 million from the sale of Geoilbent must be invested in the oil
and gas business within one year of sale or used to repay or prepay part of the
2007 Notes or certain debts of subsidiaries. We also have the option of
redeeming all of the 2007 Notes.
At June 30, 2004, we and Harvest Vinccler were in compliance with all
covenants under our respective borrowing obligations.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
We have employment contracts with five executive officers which provide
for annual base salaries, eligibility for bonus compensation and various
benefits. The contracts provide for a lump sum payment as a multiple of base
salary in the event of termination of employment without cause. In addition,
these contracts provide for payments as a multiple of base salary and bonus, tax
reimbursement and a continuation of benefits in the event of termination without
cause following a change in control. By providing one year notice, these
agreements may be terminated by either party on May 31, 2006.
In April 2004, we signed a ten-year lease for office space in Houston,
Texas, for approximately $17,000 per month. We anticipate moving into the new
space in August 2004. We lease 17,500 square feet of space in a California
building that we no longer occupy under a lease agreement that expires in
December 2004, all of which has been subleased for rents that approximate our
lease costs.
Excel Enterprises L.L.C. vs. Benton Oil & Gas Company, now known as
Harvest Natural Resources, Inc., Chemex, Inc., Benton-Vinccler, C.A., Gale
Campbell and Sheila Campbell in the District Court for Harris County, Texas.
This suit was brought in May 2003 by Excel alleging, among other things, breach
of a consulting agreement between Excel and us, misappropriation of proprietary
information and trade secrets, and fraud. Excel seeks actual and exemplary
damages, injunctive relief and attorneys' fees. The Court has abated the suit
pending final judgment of a case pending in Louisiana to which we are not a
party. We dispute Excel's claims and plan to vigorously defend against them. We
are unable to estimate the amount or range of any possible loss.
Harvest Vinccler has received a tax assessment from a tax inspector for
the Uracoa municipality in which part of the South Monagas Unit is located.
Harvest Vinccler has protested the tax assessment and the Uracoa municipality
has one year to respond to our protest. We dispute the tax assessment and
believe we have a substantial basis for our positions.
We are a defendant in or otherwise involved in litigation incidental to
our business. In the opinion of management, there is no litigation which is
material to us.
9
NOTE 4 - TAXES
TAXES OTHER THAN ON INCOME
Harvest Vinccler pays municipal taxes on operating fee revenues it
receives for production from the South Monagas Unit. We have incurred the
following Venezuelan municipal taxes and other taxes:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
Venezuelan Municipal Taxes $ 869 $ 827 $1,757 $1,340
Franchise Taxes 120 57 249 84
Payroll and Other Taxes 129 87 306 194
------ ------ ------ ------
$1,118 $ 971 $2,312 $1,618
====== ====== ====== ======
NOTE 5 - OPERATING SEGMENTS
We regularly allocate resources to and assess the performance of our
operations by segments that are organized by unique geographic and operating
characteristics. The segments are organized in order to manage regional
business, currency and tax related risks and opportunities. Revenues from the
Venezuela operating segment are derived from the production and sale of oil and
natural gas. Operations included under the heading "United States and other"
include corporate management, exploration and production activities, cash
management and financing activities performed in the United States and other
countries which do not meet the requirements for separate disclosure. All
intersegment revenues, expenses and receivables are eliminated in order to
reconcile to consolidated totals. Corporate general and administrative and
interest expenses are included in the United States and other segment and are
not allocated to other operating segments:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
SEGMENT REVENUES
Oil and gas sales:
Venezuela $ 41,397 $ 28,576 $ 80,194 $ 47,401
-------- -------- -------- --------
Total oil and gas sales 41,397 28,576 80,194 47,401
-------- -------- -------- --------
SEGMENT INCOME (LOSS)
Venezuela 10,950 4,871 21,213 8,409
Russia (654) (13,827) (1,191) (29,985)
United States and other (4,048) (2,457) (6,267) (5,295)
-------- -------- -------- --------
Net income (loss) $ 6,248 $(11,413) $ 13,755 $(26,871)
======== ======== ======== ========
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
OPERATING SEGMENT ASSETS
Venezuela .................. $ 265,920 $ 241,855
Russia ..................... 395 237
United States and other .... 177,783 180,768
--------- ---------
444,098 422,860
Intersegment eliminations... (49,428) (48,512)
--------- ---------
$ 394,670 $ 374,348
========= =========
10
NOTE 6 - RUSSIAN OPERATIONS
GEOILBENT
On September 25, 2003, we sold our minority equity investment in Geoilbent
to Yukos Operational Holding Limited for $69.5 million plus the repayment of the
subordinated loan and certain payables owed to us by Geoilbent in the amount of
$5.5 million. Prior to the sale, we owned 34 percent of Geoilbent, a Russian
limited liability company formed in 1991 to develop, produce and market crude
oil from the North Gubkinskoye and South Tarasovskoye Fields in the West Siberia
region of Russia. Our minority equity investment in Geoilbent was accounted for
using the equity method and was based on a fiscal year ending September 30.
Sales quantities attributable to Geoilbent for the six months ended March 31,
2003, were 2.9 million barrels (1.8 million domestic and 1.1 million export).
Prices for crude oil for the six months ended March 31, 2003 averaged $13.73
($7.69 domestic and $23.48 export) per barrel. Depletion expense attributable to
Geoilbent for the six months ended March 31, 2003 was $3.61 per barrel. All
amounts represent 100 percent of Geoilbent. Summarized financial information for
Geoilbent follows:
STATEMENTS OF OPERATIONS:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2003
------------------ ----------------
Revenues
Oil sales .................................. $ 17,854 $ 39,632
Expenses
Selling and distribution expenses .......... 1,658 2,704
Operating expenses ......................... 3,901 8,257
Impairment of oil and gas properties ....... 45,000 95,000
Depletion, depreciation and amortization.... 4,741 10,432
General and administrative ................. 2,233 3,778
Taxes other than on income ................. 7,910 15,873
--------- ---------
65,443 136,044
--------- ---------
Loss from operations ........................... (47,589) (96,412)
Other Non-Operating Income (Expense)
Other income (expense) ..................... 229 (202)
Interest expense ........................... (742) (1,221)
Net gain on exchange rates ................. 406 519
--------- ---------
(107) (904)
--------- ---------
Loss before income taxes ....................... (47,696) (97,316)
Income tax benefit ............................. (8,078) (8,948)
--------- ---------
Net Loss ....................................... $ (39,618) $ (88,368)
========= =========
Due to low Russian domestic oil prices, the net present value of
Geoilbent's proved reserves at December 31, 2002 and March 31, 2003, were lower
than Geoilbent's unamortized capitalized cost of its oil and gas properties at
that date. As a result, Geoilbent recorded a $50 million and $45 million full
cost ceiling test write-down in the three months ended December 31, 2002 and
March 31, 2003, respectively.
NOTE 7 - DOMESTIC OPERATIONS
We sold our California onshore property, which had a zero carrying value,
for net proceeds of $0.6 million on June 11, 2004. We and other parties remain
responsible to the State of California for any remediation costs associated with
the onshore property and the related offshore oil and gas leases.
11
NOTE 8- RELATED PARTY TRANSACTIONS
We entered into construction service agreements with Venezolana
International, S.A. ("Vinsa"). Vinsa is an affiliate of Venezolana de
Inversiones y Construcciones Clerico, C.A., which owns 20 percent of Harvest
Vinccler. Vinsa provided $0.2 million and $0.6 million in construction services
for our Venezuelan field operations for the three and six months ended 2004,
respectively, and $0.3 million and $0.4 million for the three and six months
ended 2003, respectively.
We entered into a consulting agreement with Oil & Gas Technology
Consultants Inc. ("OGTC") to provide operational and technical assistance in
Venezuela. OGTC is an affiliate of Venezolana de Inversiones y Construcciones
Clerico, C.A., which owns 20 percent of Harvest Vinccler. Payment for services
is due when earnings are not reinvested in Harvest Vinccler operations. The
consulting agreement was cancelled January 1, 2004. Expenses related to this
consulting agreement were $0.4 million and $0.7 million for the three and six
months ended 2003, respectively.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Harvest Natural Resources, Inc. ("Harvest" or the "Company") cautions that any
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) contained in this report or made by management of
the Company involve risks and uncertainties and are subject to change based on
various important factors. When used in this report, the words "budget",
"anticipate", "expect", "believes", "goals", "projects", "plans", "anticipates",
"estimates", "should", "could", "assume" and similar expressions are intended to
identify forward-looking statements. In accordance with the provisions of the
Private Securities Litigation Reform Act of 1995, we caution you that important
factors could cause actual results to differ materially from those in the
forward-looking statements. Such factors include our substantial concentration
of operations in Venezuela, the political and economic risks associated with
international operations, the anticipated future development costs for our
undeveloped proved reserves, the risk that actual results may vary considerably
from reserve estimates, the dependence upon the abilities and continued
participation of certain of our key employees, the risks normally incident to
the operation and development of oil and gas properties and the drilling of oil
and natural gas wells, the availability of materials and supplies necessary to
projects and operations, the price for oil and natural gas and related financial
derivatives, changes in interest rates, basis risk and counterparty credit risk
in executing commodity price risk management activities, the Company's ability
to acquire oil and gas properties that meet its objectives, changes in operating
costs, overall economic conditions, political stability, civil unrest, acts of
terrorism, currency and exchange risks, currency controls, changes in existing
or potential tariffs, duties or quotas, availability of sufficient financing,
changes in weather conditions, and ability to hire, retain and train management
and personnel. A discussion of these factors is included in our 2003 Annual
Report on Form 10-K, which includes certain definitions and a summary of
significant accounting policies and should be read in conjunction with this
Quarterly Report.
EXECUTIVE SUMMARY
We have significant financial flexibility and substantial cash flow
supported by current oil prices and current production levels for both oil and
gas. This should provide us with the ability to further strengthen the balance
sheet, reduce debt and to simultaneously pursue growth opportunities in both
Russia and Venezuela. While we cannot predict the degree to which we will be
successful, we continue to evaluate properties in both countries to find
opportunities which meet our focused acquisition criteria. Our strong cash
generating capacity is supported by our new gas production, lower operating
expenses and our Uracoa drilling program. We now have two rigs working and
expect to continue drilling through the rest of 2004 and into 2005. We are
increasing our Uracoa 2004 drilling program to eleven development wells and five
recompletions which is designed to take advantage of the high current crude oil
prices and to recover the lost production experienced as a result of a four
month delay in the start of our planned drilling program.
MANAGEMENT, OPERATIONAL AND FINANCIAL RESTRICTIONS
On September 25, 2003, we closed the Sale and Purchase Agreement to sell
our entire 34 percent minority equity investment in LLC Geoilbent ("Geoilbent"),
to Yukos Operational Holding Limited, a Russian oil and gas company, for $69.5
million plus $5.5 million as repayment of intercompany loans and outstanding
accounts payable owed to us by Geoilbent. The terms of our 9.375 percent senior
unsecured notes due November 1, 2007 (the "2007 Notes") require net cash
proceeds in excess of $25 million from the sale of Geoilbent must be invested in
the oil and gas business within one year of sale or used to repay or prepay part
of the 2007 Notes or certain debts of subsidiaries. We also have the option of
redeeming all of the 2007 Notes.
CAPITAL RESOURCES AND LIQUIDITY
Debt Reduction. We currently have a significant debt principal obligation
payable in 2007 ($85 million). We intend to continue to evaluate open market
debt purchases to reduce our 2007 Notes outstanding. We also may be required to
repay or prepay a portion of the 2007 Notes with the excess proceeds of the
Geoilbent transaction (see Management, Operational and Financial Restrictions).
Working Capital. The net funds raised and/or used in each of the
operating, investing and financing activities are summarized in the following
table and discussed in further detail below:
13
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
-------- --------
(in thousands)
Net cash provided by operating activities $ 28,914 $ 22,423
Net cash used in investing activities (9,703) (7,141)
Net cash used in financing activities (880) (3,012)
-------- --------
Net increase in cash $ 18,331 $ 12,270
======== ========
At June 30, 2004, we had current assets of $210.0 million and current
liabilities of $48.8 million, resulting in working capital of $161.2 million and
a current ratio of 4.3:1. This compares with a working capital of $137.2 million
and a current ratio of 4.0:1 at December 31, 2003. The increase in working
capital of $24.0 million was primarily due to the addition of natural gas sales
in Venezuela and the increase in oil sales prices and volumes.
Cash Flow from Operating Activities. During the six months ended 2004 and
2003, net cash provided by operating activities was approximately $28.9 million
and $22.4 million, respectively. The $6.5 million increase was due to natural
gas sales, higher crude oil prices, increased oil production and the sale of our
California onshore property offset by gas project payments and the crude oil put
amortization. We are required to make annual interest payments of approximately
$8.0 million on the 2007 Notes.
Cash Flow from Investing Activities. During the six months ended 2004 and
2003, we had drilling and production-related capital expenditures of
approximately $9.4 million and $35.5 million, respectively. The decrease in
capital expenditures is due to the completion of our gas project in 2003 and a
delay in our 2004 Uracoa drilling program.
The timing and size of capital expenditures for the South Monagas Unit are
at our discretion. Our remaining capital commitments worldwide support our
search for new acquisitions, are relatively minimal and are substantially at our
discretion. We currently have two rigs drilling in our Uracoa Field and expect
both rigs to continue drilling through the rest of this year and into next. We
have also increased our 2004 guidance on capital expenditures from $30-35
million to $40-45 million. We continue to assess production levels and commodity
prices in conjunction with our capital resources and liquidity requirements.
Cash Flow from Financing Activities. During the six months ended 2004,
Harvest Vinccler repaid $3.2 million of its U.S. dollar debt. During the six
months ended 2003, Harvest Vinccler repaid all of its Bolivar denominated debt
($2.2 million) and $0.6 million of its U.S. dollar debt which was an
acceleration of the next two principal payments.
RESULTS OF OPERATIONS
You should read the following discussion of the results of operations for
the six months ended 2004 and 2003 and the financial condition as of June 30,
2004 and December 31, 2003 in conjunction with our consolidated financial
statements and related notes included in our Annual Report on Form 10-K for the
year ended 2003.
SECOND QUARTER 2004 COMPARED WITH SECOND QUARTER 2003
Our results of operations for the second quarter 2004 primarily reflected
the results for Harvest Vinccler in Venezuela, which accounted for all of our
production and sales revenue. Our revenues increased $12.8 million, or 45
percent, during the second quarter 2004 compared with the second quarter 2003.
This was due to the addition of natural gas sales as well as higher crude oil
prices in Venezuela. Revenue for the second quarter 2004 included 0.2 million
barrels of oil at a $7.00 fixed price.
Oil sales quantities for the second quarter 2004 from Venezuela were
20,500 barrels of oil per day ("BOPD") compared with 23,200 BOPD for the second
quarter 2003. Oil revenue per barrel increased 30 percent (from $13.54 in 2003
to $17.66 in 2004) and oil sales quantities decreased 12 percent from 2.1
million barrels ("MMBbls") of oil in 2003 to 1.9 MMBbls of oil in 2004 during
the second quarter 2004 compared with the second quarter 2003. The
quarter-over-quarter production decline was, in part, related to the delay in
our Uracoa drilling program. Natural gas sales quantities for the second quarter
2004 from Venezuela were 89,800 million cubic feet ("Mcf") of gas per day (8.2
billion cubic feet ["Bcf"] of gas in 2004).
14
Our operating expenses decreased $2.1 million, or 22 percent, during the
second quarter 2004 compared with the second quarter 2003. This was primarily
due to timing of scheduled workovers, repairs and maintenance. Depletion,
depreciation and amortization increased $2.5 million, or 44 percent, during the
second quarter 2004 compared with the second quarter 2003 primarily due to the
start of natural gas production at the South Monagas Unit. Depletion expense per
barrel of oil equivalent produced from Venezuela during the second quarter 2004
was $2.40 compared with $2.53 during the second quarter 2003 primarily due to
reduced future development costs. General and administrative expenses increased
$0.6 million, or 16 percent, during the second quarter 2004 compared with the
second quarter 2003 primarily due to severance payments for a number of
employees paid in the second quarter of 2004 and the opening of an office in
Caracas. Taxes other than on income increased during the second quarter 2004
compared with the second quarter 2003. This was primarily due to increased
Venezuelan municipal taxes which are a function of oil and gas revenues.
Interest expense during the second quarter 2004 was relatively consistent
with that of the second quarter 2003. We realized income before income taxes and
minority interest of $18.9 million during the second quarter 2004 compared with
income of $6.4 million in second quarter 2003. Income tax expense increased $6.8
million due to the higher pre-tax income. The effective tax rate increased from
49 percent to 52 percent for the quarter ended 2004 compared with 2003. The rate
increase was due to foreign income taxes incurred on profitable foreign
operations offset by an increase in U.S. operating losses for which no benefit
was received for U.S. loss carryforwards which are fully reserved. The income
before minority interests increased $5.7 million for the second quarter 2004
compared with the second quarter 2003. This increase was primarily due to the
addition of natural gas sales as well as higher crude oil prices.
Equity in net loss of affiliated companies decreased $13.5 million during
the second quarter 2004 compared with the second quarter 2003. This was due to
the elimination of Geoilbent equity income on September 25, 2003, the date of
its sale.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003
Our revenues increased $32.8 million, or 69 percent, during the six months
ended 2004 compared with 2003. This was primarily due to the addition of natural
gas sales as well as higher crude oil prices. Revenue for the six months ended
2004 included 0.4 million barrels of oil at a $7.00 fixed price. Crude oil
volumes for the six months ended 2004 were also higher as the six months ended
2003 were affected by the shut-in of the production in Venezuela during all of
January and part of February due to the national work stoppage. Our sales
quantities for the six months ended 2004 from Venezuela were 20,800 BOPD
compared with 18,400 BOPD for the six months ended 2003. Natural gas sales
quantities for the six months ended 2004 from Venezuela were 88,000 Mcf of gas
per day (15.9 Bcf of gas in 2004).
Our operating expense decreased $1.3 million, or 8 percent, during the six
months ended 2004 compared with 2003. This was primarily due to timing of
scheduled workovers, repairs and maintenance. Depletion, depreciation and
amortization increased $7.1 million, or 77 percent, during the six months ended
2004 compared with 2003 due to increased oil and gas production at the South
Monagas Unit. Depletion expense per barrel of oil equivalent produced from
Venezuela during the six months ended 2004 was $2.41 compared with $2.54 during
the six months ended 2003 primarily due to reduced future development costs.
General and administrative expenses increased $1.0 million, or 15 percent,
during the six months ended 2004 compared with 2003. This was, in part, due to
severance payments for a number of employees paid in the second quarter of 2004
and the opening of an office in Caracas. Taxes other than on income increased
during the six months ended 2004 compared with 2003. This was primarily due to
increased Venezuelan municipal taxes, which are a function of oil revenues.
Interest expense decreased $0.4 million, or 7 percent, during the six
months ended 2004 compared with 2003 due to lower average outstanding debt
balance for the six months ended 2004 compare to 2003. Net gain on exchange
rates decreased $1.1 million for the six months ended 2004 compared with 2003.
This was due to a change in the Venezuelan official exchange rate in February
2003 from 1,600 Venezuela Bolivars for each U.S. Dollar to 1,920 Venezuela
Bolivars for each U.S. Dollar. We realized income before income taxes and
minority interest of $34.6 million during the six months ended 2004 compared
with income of $9.4 million in 2003. Income tax expense increased $11.3 million
due to higher pre-tax income. The effective tax rate remained relatively
consistent from the six months ended 2003 compared to 2004. The income before
minority interests increased $13.8 million for the six
15
months ended 2004 compared with 2003. This increase was primarily due to the
addition of natural gas sales as well as higher crude oil prices.
Equity in net losses of affiliated companies decreased $30.0 million
during the six months ended June 30, 2004 compared with 2003. This was due to
the elimination of Geoilbent equity income on September 25, 2003, the date of
its sale.
DOMESTIC OPERATIONS
We sold our California onshore property, which had a zero carrying value,
for net proceeds of $0.6 million on June 11, 2004. We and other parties remain
responsible to the State of California for any remediation costs associated with
the onshore property and the related offshore oil and gas leases.
VENEZUELA OPERATIONS
The Temblador and El Salto Field technical evaluation and proposed field
development plan required under the Memorandum of Understanding between Harvest
Vinccler and PDVSA has been completed. Harvest Vinccler has submitted a formal
development proposal and started discussions with PDVSA for the possible
acquisition of the rights to develop the Temblador, El Salto and Isleno Fields.
EFFECTS OF FOREIGN EXCHANGE RATES
Our results of operations and cash flow are affected by changing oil
prices. However, our South Monagas Unit oil sales are based on a fee adjusted
quarterly by the percentage change of a basket of crude oil prices instead of by
absolute dollar changes. This dampens both any upward and downward effects of
changing prices on our Venezuelan oil sales and cash flows. If the price of oil
increases, there could be an increase in our cost for drilling and related
services because of increased demand, as well as an increase in oil sales.
Fluctuations in oil and natural gas prices may affect our total planned
development activities and capital expenditure program. On February 5, 2003, the
Government of Venezuela fixed the exchange rate between the Bolivar and the U.S.
dollar, and restricted the ability to exchange Venezuelan Bolivars for U.S.
dollars and vice versa. Initially the exchange rate was fixed at 1,600
Venezuelan Bolivars for each U.S. dollar. On February 6, 2004, the official
exchange rate was adjusted to 1,920 Venezuelan Bolivars for each U.S. dollar.
Oil companies, such as Harvest Vinccler, are allowed to receive payments for oil
sales in U.S. dollars and pay U.S. dollar-denominated expenses from those
payments. The full amount of Harvest Vinccler's Bolivar denominated debt was
repaid as of March 31, 2003. We have substantial cash reserves and do not expect
the Venezuelan currency conversion restriction to adversely affect our ability
to meet our short-term loan obligations.
CONCLUSION
While we can give you no assurance, we believe that our cash flow from
operations and our existing cash balance will provide sufficient capital
resources and liquidity to fund execution of our business plan including capital
expenditures and interest payment obligations for the next 12 months. Our
expectation is based upon our current estimate of projected price levels,
ability to remit funds from Harvest Vinccler and an assumption that there will
be no material interruption in production or delays in the time periods between
the submission of quarterly invoices to PDVSA by Harvest Vinccler and the
subsequent payments of these invoices by PDVSA. Future cash flows are subject to
a number of variables including, but not limited to, the level of production,
prices, as well as various economic and political conditions which have
historically affected the oil and natural gas business. Prices for oil are
subject to fluctuations in response to changes in supply, market uncertainty and
a variety of factors beyond our control.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from adverse changes in oil and natural gas
prices, interest rates, foreign exchange and political risk, as discussed in our
Annual Report on Form 10-K for the year ended 2003. Information about market
risk for the first half of 2004 does not differ materially from that discussed
in the 2003 annual report.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in 13a-15(e)
of the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic filings with the
Securities and Exchange Commission.
There were no changes in our internal control over financial reporting
that occurred during the quarter ended June 30, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See our Annual Report on Form 10-K for the year ended 2003 for a
description of certain legal proceedings. There have been no
material developments in such legal proceedings since the filing of
such Annual Report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Stockholders held on May 20, 2004, the
following items were voted on by the Stockholders:
1. To approve the Election of Directors:
Votes in Favor Votes Against/Withheld
-------------- ----------------------
Stephen D. Chesebro' 33,802,327 772,406
John U. Clarke 33,395,321 1,179,412
Byron A. Dunn 33,275,100 1,299,633
H. H. Hardee 33,493,721 1,081,012
Peter J. Hill 33,803,527 771,206
Patrick M. Murray 33,495,258 1,079,475
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent accountants for the year ended December 31, 2004:
Votes in Favor Against/Withheld Votes Abstentions/Broker Non-Votes
- -------------- ---------------------- ----------------------------
33,933,255 585,813 55,665
3. To approve the Harvest Natural Resources 2004 Long Term
Incentive Plan:
Votes in Favor Against/Withheld Votes Abstentions/Broker Non-Votes
- -------------- ---------------------- ----------------------------
24,379,057 2,541,105 7,654,571
ITEM 5. OTHER INFORMATION
There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors
since our Schedule 14A filed on March 29, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1.I to our Form 10-Q
filed on August 13, 2002, File No. 001-10762).
3.2 Amended and Restated Bylaws as of December 11, 2003
(Incorporated by reference to Exhibit 3.3 to our Form 10-K
filed on March 10, 2004, File No. 001-10762).
18
4.1 Amended and Restated Rights Agreement, dated as of September
16, 2003, between Harvest Natural Resources, Inc. and Wells
Fargo Bank Minnesota, N.A. (incorporated by reference to
Exhibit 5 to Amendment No. 1 to our Registration Statement on
Form 8-A filed October 29, 2003 (Registration No. 000-17534)).
10.1 Harvest Natural Resources 2004 Long Term Incentive Plan
(Incorporated by Reference to Exhibit 4.5 to our Registration
Statement on Form S-8 filed on May 25, 2004 (Registration No.
333-115841)).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 executed by Peter J. Hill, President and Chief
Executive Officer.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 executed by Steven W. Tholen, Senior Vice
President, Chief Financial Officer and Treasurer.
32.1 Certification accompanying Quarterly Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 executed by
Peter J. Hill, President and Chief Executive Officer.
32.2 Certification accompanying Quarterly Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 executed by
Steven W. Tholen, Senior Vice President, Chief Financial
Officer and Treasurer.
(b) Reports on Form 8-K
On May 6, 2004, we filed a Report on Form 8-K with the
Securities and Exchange Commission in which we furnished a
press release announcing our results for the first quarter
ended March 31, 2004 and furnishing the following financial
statements: (i) Consolidated Balance Sheets for the Period
Ended March 31, 2004 and December 31, 2003; (ii) Consolidated
Statements of Operations for the Three Months Ended March 31,
2004 and 2003; and (iii) Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 2004 and 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEST NATURAL RESOURCES, INC.
Dated: August 5, 2004 By: /S/Peter J. Hill
-------------------------------------
Peter J. Hill
President and Chief Executive Officer
Dated: August 5, 2004 By: /S/Steven W. Tholen
-------------------------------------
Steven W. Tholen
Senior Vice President,
Chief Financial Officer and Treasurer
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1.I to our Form 10-Q filed on August 13,
2002, File No. 001-10762).
3.2 Amended and Restated Bylaws as of December 11, 2003 (Incorporated by
reference to Exhibit 3.3 to our Form 10-K filed on March 10, 2004,
File No. 001-10762).
4.1 Amended and Restated Rights Agreement, dated as of September 16,
2003, between Harvest Natural Resources, Inc. and Wells Fargo Bank
Minnesota, N.A. (incorporated by reference to Exhibit 5 to Amendment
No. 1 to our Registration Statement on Form 8-A filed October 29,
2003 (Registration No. 000-17534)).
10.1 Harvest Natural Resources 2004 Long Term Incentive Plan
(Incorporated by reference to Exhibit 4.5 to our Registration
Statement on Form S-8 filed on May 25, 2004 (Registration No.
333-115841)).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 executed by Peter J. Hill, President and Chief Executive
Officer.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 executed by Steven W. Tholen, Senior Vice President, Chief
Financial Officer and Treasurer.
32.1 Certification accompanying Quarterly Report pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 executed by Peter J. Hill,
President and Chief Executive Officer.
32.2 Certification accompanying Quarterly Report pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 executed by Steven W. Tholen,
Senior Vice President, Chief Financial Officer and Treasurer.