Attached files
file | filename |
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EX-31.1 - EX-31.1 - HARVEST NATURAL RESOURCES, INC. | h80470aexv31w1.htm |
EX-23.1 - EX-23.1 - HARVEST NATURAL RESOURCES, INC. | h80470aexv23w1.htm |
EX-99.2 - EX-99.2 - HARVEST NATURAL RESOURCES, INC. | h80470aexv99w2.htm |
EX-32.1 - EX-32.1 - HARVEST NATURAL RESOURCES, INC. | h80470aexv32w1.htm |
EX-31.2 - EX-31.2 - HARVEST NATURAL RESOURCES, INC. | h80470aexv31w2.htm |
EX-32.2 - EX-32.2 - HARVEST NATURAL RESOURCES, INC. | h80470aexv32w2.htm |
10-K/A - FORM 10-K/A - HARVEST NATURAL RESOURCES, INC. | h80470ae10vkza.htm |
Exhibit 99.1
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FAX (303) 623-4258 |
621 SEVENTEENTH STREET | SUITE 1550 | DENVER, COLORADO 80293 | TELEPHONE (303) 623-9147 |
February 26, 2010
Harvest (US) Holdings, Inc.
1177 Enclave Parkway, Suite 300
Houston, Texas, 77077
1177 Enclave Parkway, Suite 300
Houston, Texas, 77077
Attention: | Stephen Haynes Phil Harries |
Gentlemen:
At your request, Ryder Scott Company (Ryder Scott) has prepared an estimate of the proved
reserves, future production, and income attributable to certain leasehold and royalty interests of
Harvest (US) Holdings, Inc. (Harvest) as of December 31, 2009. The subject properties are located
in the state of Utah. The reserves and income data were estimated based on the definitions and
disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in
Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released
January 14, 2009 in the Federal Register (SEC regulations). Our third party study, completed on
February 26, 2010 and presented herein, was prepared for public disclosure by Harvest in filings
made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations.
The properties evaluated by Ryder Scott represent 100 percent of the total net proved liquid
hydrocarbon reserves and 100 percent of the total net proved gas reserves of Harvest as of December
31, 2009.
The estimated reserves and future net income amounts presented in this report, as of December
31, 2009, are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of
this report are based on the average prices during the 12-month period prior to the ending date of
the period covered in this report, determined as the unweighted arithmetic averages of the prices
in effect on the first-day-of-the-month for each month within such period, unless prices were
defined by contractual arrangements, as required by the SEC regulations. Actual future prices may
vary significantly from the prices required by SEC regulations; therefore, volumes of reserves
actually recovered and the amounts of income actually received may differ significantly from the
estimated quantities presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Harvest (US) Holdings, Inc.
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Harvest (US) Holdings, Inc.
As of December 31, 2009 | ||||||||||||||||
Proved | ||||||||||||||||
Developed | Total | |||||||||||||||
Producing | Non-Producing | Undeveloped | Proved | |||||||||||||
Net Remaining Reserves |
||||||||||||||||
Oil/Condensate
Barrels |
32,117 | 98,482 | 95,400 | 225,999 | ||||||||||||
Gas MMCF |
161 | 492 | 473 | 1,126 | ||||||||||||
Income Data M$ |
||||||||||||||||
Future Gross Revenue |
$ | 1,990 | $ | 6,102 | $ | 5,899 | $ | 13,990 | ||||||||
Deductions |
524 | 925 | 2,761 | 4,210 | ||||||||||||
Future Net
Income (FNI) |
$ | 1,466 | $ | 5,176 | $ | 3,138 | $ | 9,780 | ||||||||
Discounted FNI @ 10% |
$ | 1,053 | $ | 3,987 | $ | 1,772 | $ | 6,812 |
1100
LOUISIANA, SUITE 3800 530 8TH AVENUE, S.W., SUITE 1200 |
HOUSTON, TEXAS 77002-5218 CALGARY, ALBERTA T2P 358 |
TEL (713) 651-9191 TEL (403) 262-2799 |
FAX (713) 651-0849 FAX (403) 262-2790 |
Harvest (US) Holdings, Inc.
February 26, 2010
Page 2
February 26, 2010
Page 2
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are reported
on an as sold basis expressed in millions of cubic feet (MMCF) at the official temperature and
pressure bases of the areas in which the gas reserves are located. In this report, the revenues,
deductions, and income data are expressed as thousands of U.S. dollars (M$).
The estimates of the reserves, future production, and income attributable to properties in
this report were prepared using the economic software package PHDWin Petroleum Economic Evaluation
Software, a copyrighted program of TRC Consultants L.C. The program was used at the request of
Harvest. Ryder Scott has found this program to be generally acceptable, but notes that certain
summaries and calculations may vary due to rounding and may not exactly match the sum of the
properties being summarized. Furthermore, one line economic summaries may vary slightly from the
more detailed cash flow projections of the same properties, also due to rounding. The rounding
differences are not material.
The future gross revenue is after the deduction of production taxes. The deductions
incorporate the normal direct costs of operating the wells, ad valorem taxes, recompletion costs,
development costs, and certain abandonment costs net of salvage. The future net income is before
the deduction of state and federal income taxes and general administrative overhead, and has not
been adjusted for outstanding loans that may exist, nor does it include any adjustment for cash on
hand or undistributed income. Liquid hydrocarbon reserves account for approximately 75 percent and
gas reserves account for the remaining 25 percent of total future gross revenue from proved
reserves.
The discounted future net income shown above was calculated using a discount rate of 10
percent per annum compounded monthly. Future net income was discounted at four other discount
rates which were also compounded monthly. These results are shown in summary form as follows.
Discounted Future Net Income | ||||
As of December 31, 2009 | ||||
Total | ||||
Discount Rate Percent | Proved | |||
5 |
$ | 7,940 | ||
8 |
$ | 7,206 | ||
12 |
$ | 6,476 | ||
15 |
$ | 6,054 |
The results shown above are presented for your information and should not be construed as our
estimate of fair market value.
Reserves Included in This Report
The proved reserves included herein conform to the definition as set forth in the Securities
and Exchange Commissions Regulations Part 210.4-10(a). An abridged version of the SEC reserves
definitions from 210.4-10(a) entitled Petroleum Reserves Definitions is included as an attachment
to this report.
The various proved reserve status categories are defined under the attachment entitled
Petroleum Reserves Definitions in this report. The proved developed non-producing reserves
included herein consist of the shut-in category.
No attempt was made to quantify or otherwise account for any accumulated gas production
imbalances that may exist. The proved gas volumes included herein do not attribute gas consumed in
operations as reserves.
Harvest (US) Holdings, Inc.
February 26, 2010
Page 3
February 26, 2010
Page 3
Reserves are those estimated remaining quantities of petroleum that are anticipated to be
economically producible, as of a given date, from known accumulations under defined conditions.
All reserve estimates involve an assessment of the uncertainty relating the likelihood that the
actual remaining quantities recovered will be greater or less than the estimated quantities
determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of
reliable geologic and engineering data available at the time of the estimate and the interpretation
of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of
two principal classifications, either proved or unproved. Unproved reserves are less certain to be
recovered than proved reserves, and may be further sub-classified as probable and possible reserves
to denote progressively increasing uncertainty in their recoverability. At Harvests request, this
report addresses only the proved reserves attributable to the properties evaluated herein.
Proved oil and gas reserves are those quantities of oil and gas which, by analysis of
geoscience and engineering data, can be estimated with reasonable certainty to be economically
producible from a given date forward. The proved reserves included herein were estimated using
deterministic methods. If deterministic methods are used, the SEC has defined reasonable certainty
for proved reserves as a high degree of confidence that the quantities will be recovered.
Proved reserve estimates will generally be revised only as additional geologic or engineering
data become available or as economic conditions change. For proved reserves, the SEC states that
as changes due to increased availability of geoscience (geological, geophysical, and geochemical),
engineering, and economic data are made to the estimated ultimate recovery (EUR) with time,
reasonably certain EUR is much more likely to increase or remain constant than to decrease.
Moreover, estimates of proved reserves may be revised as a result of future operations, effects of
regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved
reserves included in this report are estimates only and should not be construed as being exact
quantities, and if recovered, the revenues therefrom, and the actual costs related thereto, could
be more or less than the estimated amounts.
Harvests operations may be subject to various levels of governmental controls and
regulations. These controls and regulations may include, but may not be limited to, matters
relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and
production practices, environmental protection, marketing and pricing policies, royalties, various
taxes and levies including income tax and are subject to change from time to time. Such changes in
governmental regulations and policies may cause volumes of proved reserves actually recovered and
amounts of proved income actually received to differ significantly from the estimated quantities.
The estimates of proved reserves presented herein were based upon a detailed study of the
properties in which Harvest owns an interest; however, we have not made any field examination of
the properties. No consideration was given in this report to potential environmental liabilities
that may exist nor were any costs included for potential liabilities to restore and clean up
damages, if any, caused by past operating practices.
Estimates of Reserves
The estimation of reserves involves two distinct determinations. The first determination
results in the estimation of the quantities of recoverable oil and gas and the second determination
results in the estimation of the uncertainty associated with those estimated quantities in
accordance with the definitions set forth by the Securities and Exchange Commissions Regulations
Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves
relies on the use of certain generally accepted analytical procedures. These analytical procedures
fall into three broad categories or methods: (1) performance-based methods; (2) volumetric-based
methods; and (3) analogy. These methods may be used singularly or in combination by the reserve
evaluator in the process of estimating the quantities of reserves. Reserve evaluators must select
the method or combination of methods which in their professional judgment is most appropriate given
the nature and amount of reliable geoscience and engineering data available at the time of the
estimate, the established or anticipated performance characteristics of the reservoir being
evaluated and the stage of development or producing maturity of the property.
Harvest (US) Holdings, Inc.
February 26, 2010
Page 4
February 26, 2010
Page 4
In many cases, the analysis of the available geoscience and engineering data and the
subsequent interpretation of this data may indicate a range of possible outcomes in an estimate,
irrespective of the method selected by the evaluator. When a range in the quantity of reserves is
identified, the evaluator must determine the uncertainty associated with the incremental quantities
of the reserves. If the reserve quantities are estimated using the deterministic incremental
approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by
the reserve category assigned by the evaluator. Therefore, it is the categorization of reserve
quantities as proved, probable and/or possible that addresses the inherent uncertainty in the
estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as
reasonable certainty wherein the quantities actually recovered are much more likely than not to be
achieved. The SEC states that probable reserves are those additional reserves that are less
certain to be recovered than proved reserves but which, together with proved reserves, are as
likely as not to be recovered. The SEC states that possible reserves are those additional
reserves that are less certain to be recovered than probable reserves and the total quantities
ultimately recovered from a project have a low probability of exceeding proved plus probable plus
possible reserves. All quantities of reserves within the same reserve category must meet the SEC
definitions as noted above.
Estimates of reserves quantities and their associated reserve categories may be revised in the
future as additional geoscience or engineering data become available. Furthermore, estimates of
reserves quantities and their associated reserve categories may also be revised due to other
factors such as changes in economic conditions, results of future operations, effects of regulation
by governmental agencies or geopolitical or economic risks as previously noted herein.
The proved reserves for the properties included herein were estimated by performance methods,
the volumetric method, and analogies. All (100%) of the proved producing reserves attributable to
producing wells and/or reservoirs were estimated by performance methods. These performance methods
include, but may not be limited to, decline curve analysis which utilized extrapolations of
historical production and pressure data available through November, 2009 in those cases where such
data were considered to be definitive. The data utilized in this analysis were supplied to Ryder
Scott by Harvest or obtained from public data sources and were considered sufficient for the
purpose thereof. All (100%) of the proved non-producing and undeveloped reserves included herein
were estimated by the analogy method.
To estimate economically recoverable proved oil and gas reserves and related future net cash
flows, we consider many factors and assumptions including, but not limited to, the use of reservoir
parameters derived from geological, geophysical and engineering data that cannot be measured
directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of
future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves
must be anticipated to be economically producible from a given date forward based on existing
economic conditions including the prices and costs at which economic producibility from a reservoir
is to be determined. While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such production may
increase or decrease from those under existing economic conditions, such changes were, in
accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.
Harvest has informed us that they have furnished us all of the material accounts, records,
geological and engineering data, and reports and other data required for this investigation. In
preparing our forecast of future proved production and income, we have relied upon data furnished
by Harvest with respect to property interests owned, production and well tests from examined wells,
normal direct costs of operating the wells or leases, other costs such as transportation and/or
processing fees, ad valorem and production taxes, recompletion and development costs, abandonment
costs after salvage, product prices based on the SEC regulations, adjustments or differentials to
product prices, geological structural and isochore maps, well logs, core analyses, and pressure
measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not
conducted an independent verification of the data furnished by Harvest. We consider the factual
data used in this report appropriate and sufficient for the purpose of preparing the estimates of
reserves and future net revenues herein.
Harvest (US) Holdings, Inc.
February 26, 2010
Page 5
February 26, 2010
Page 5
In summary, we consider the assumptions, data, methods and analytical procedures used in this
report appropriate for the purpose hereof, and we have used all such methods and procedures that we
consider necessary and appropriate to prepare the estimates of reserves herein. The proved
reserves included herein were determined in conformance with the United States Securities and
Exchange Commission (SEC) Modernization of Oil and Gas Reporting; Final Rule, including all
references to Regulation S-X and Regulation S-K, referred to herein collectively as the SEC
Regulations. In our opinion, the proved reserves presented in this report comply with the
definitions, guidelines and disclosure requirements as required by the SEC regulations.
Future Production Rates
For wells currently on production, our forecasts of future production rates are based on
historical performance data. If no production decline trend has been established, future
production rates were held constant, or adjusted for the effects of curtailment where appropriate,
until a decline in ability to produce was anticipated. An estimated rate of decline was then
applied to depletion of the reserves. If a decline trend has been established, this trend was used
as the basis for estimating future production rates.
Test data and other related information were used to estimate the anticipated initial
production rates for those wells or locations that are not currently producing. For reserves not
yet on production, sales were estimated to commence at an anticipated date furnished by Harvest.
Wells or locations that are not currently producing may start producing earlier or later than
anticipated in our estimates due to unforeseen factors causing a change in the timing to initiate
production. Such factors may include delays due to weather, the availability of rigs, the sequence
of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.
The future production rates from wells currently on production or wells or locations that are
not currently producing may be more or less than estimated because of changes including, but not
limited to, reservoir performance, operating conditions related to surface facilities, compression
and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or
allowables or other constraints set by regulatory bodies.
Hydrocarbon Prices
The hydrocarbon prices used herein are based on SEC price parameters using the average prices
during the 12-month period prior to the ending date of the period covered in this report,
determined as the unweighted arithmetic averages of the prices in effect on the
first-day-of-the-month for each month within such period, unless prices were defined by contractual
arrangements. For hydrocarbon products sold under contract, the contract prices, including fixed
and determinable escalations, exclusive of inflation adjustments, were used until expiration of the
contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic
average as previously described.
Harvest furnished us with the above mentioned average prices in effect on December 31, 2009.
These initial SEC hydrocarbon prices were determined using the 12-month average
first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons
are sold. These benchmark prices are prior to the adjustments for differentials as described
herein. The table below summarizes the benchmark prices and price reference used for the
geographic area(s) included in the report. In certain geographic areas, the price reference and
benchmark prices may be defined by contractual arrangements.
The product prices that were actually used to determine the future gross revenue for each
property reflect adjustments to the benchmark prices for gravity, quality, local conditions, and/or
distance from market, referred to herein as differentials. The differentials used in the
preparation of this report were furnished to us by Harvest. The differentials furnished to us were
accepted as factual data and reviewed by us for their reasonableness; however, we have not
conducted an independent verification of the data used by Harvest to determine these differentials.
Harvest (US) Holdings, Inc.
February 26, 2010
Page 6
February 26, 2010
Page 6
In addition, the table below summarizes the net volume weighted benchmark prices adjusted for
differentials and referred to herein as the average realized prices. The average realized prices
shown in the table below were determined from the total future gross revenue before production
taxes and the total net reserves for the geographic area and presented in accordance with SEC
disclosure requirements for each of the geographic areas included in the report.
Price | Average | Average Realized | ||||||||||
Geographic Area | Product | Reference | Benchmark Prices | Prices | ||||||||
United States |
Oil/Condensate | WTI Cushing | $61.18 /Bbl | $48.21 /Bbl | ||||||||
Gas | Henry Hub | $3.87 /MMBTU | $3.31 /MCF |
The effects of derivative instruments designated as price hedges of oil and gas quantities are
not reflected in our individual property evaluations.
Costs
Operating costs for the leases and wells in this report are based on the operating expense
reports of Harvest and include only those costs directly applicable to the leases or wells. The
operating costs include a portion of general and administrative costs allocated directly to the
leases and wells. No deduction was made for loan repayments, interest expenses, or exploration and
development prepayments that were not charged directly to the leases or wells. The operating costs
furnished to us were accepted as factual data and reviewed by us for their reasonableness; however,
we have not conducted an independent verification of the operating cost data used by Harvest.
Development costs were furnished to us by Harvest and are based on authorizations for
expenditure for the proposed work or actual costs for similar projects. The development costs
furnished to us were accepted as factual data and reviewed by us for their reasonableness; however,
we have not conducted an independent verification of these costs. The estimated net cost of
abandonment after salvage was included for properties where abandonment costs net of salvage were
significant. The estimates of the net abandonment costs furnished by Harvest were accepted without
independent verification.
The proved non-producing and undeveloped reserves in this report have been incorporated herein
in accordance with Harvests plans to develop these reserves as of December 31, 2009. The
implementation of Harvests development plans as presented to us and incorporated herein is subject
to the approval process adopted by Harvests management. As the result of our inquires during the
course of preparing this report, Harvest has informed us that the development activities included
herein have been subjected to and received the internal approvals required by Harvests management
at the appropriate local, regional and/or corporate level. In addition to the internal approvals
as noted, certain development activities may still be subject to specific partner AFE processes,
Joint Operating Agreement (JOA) requirements or other administrative approvals external to Harvest.
Additionally, Harvest has informed us that they are not aware of any legal, regulatory, political
or economic obstacles that would significantly alter their plans.
Current costs used by Harvest were held constant throughout the life of the properties.
Standards of Independence and Professional Qualification
Ryder Scott is an independent petroleum engineering consulting firm that has been providing
petroleum consulting services throughout the world for over seventy years. Ryder Scott is
employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta,
Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the
size of our firm and the large number of clients for which we provide services, no single client or
job represents a material portion of our annual revenue. We do not serve as officers or directors
of any publicly-traded oil and gas company and are separate and independent from the operating and
investment decision-making process of our clients. This allows us to bring the highest level of
independence and objectivity to each engagement for our services.
Harvest (US) Holdings, Inc.
February 26, 2010
Page 7
February 26, 2010
Page 7
Ryder Scott actively participates in industry-related professional societies and organizes an
annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of
our staff have authored or co-authored technical papers on the subject of reserves related topics.
We encourage our staff to maintain and enhance their professional skills by actively participating
in ongoing continuing education.
Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and
geoscientists have received professional accreditation in the form of a registered or certified
professional engineers license or a registered or certified professional geoscientists license,
or the equivalent thereof, from an appropriate governmental authority or a recognized
self-regulating professional organization.
We are independent petroleum engineers with respect to Harvest. Neither we nor any of our
employees have any interest in the subject properties and neither the employment to do this work
nor the compensation is contingent on our estimates of reserves for the properties which were
reviewed.
The results of this study, presented herein, are based on technical analysis conducted by
teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the
undersigned, the technical person(s) primarily responsible for overseeing, reviewing and approving
the evaluation of the reserves information discussed in this report, are included as an attachment
to this letter.
Terms of Usage
The results of our third party study, presented in report form herein, were prepared in
accordance with the disclosure requirements set forth in the SEC regulations and intended for
public disclosure as an exhibit in filings made with the SEC by Harvest.
Harvest makes periodic filings on Form 10-K with the SEC under the 1934 Exchange Act.
Furthermore, Harvest has certain registration statements filed with the SEC under the 1933
Securities Act into which any subsequently filed Form 10-K is incorporated by reference. We have
consented to the incorporation by reference in the registration statements on Form S-8 (Nos.
333-115841, 333-94823, 333-49114 and 333-85900) and Forms S-3 (No. 333-162858) of Harvest of the
references to our name as well as to the references to our third party report for Harvest, which
appears in the December 31, 2009 annual report on Form 10-K of Harvest. Our written consent for
such use is included as a separate exhibit to the filings made with the SEC by Harvest.
We have provided Harvest with a digital version of the original signed copy of this report
letter. In the event there are any differences between the digital version included in filings
made by Harvest and the original signed report letter, the original signed report letter shall
control and supersede the digital version.
The data and work papers used in the preparation of this report are available for examination
by authorized parties in our offices. Please contact us if we can be of further service.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580
TBPE Firm Registration No. F-1580
Scott James Wilson, P.E., M.B.A.
Senior Vice President
Senior Vice President
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