Harvest Natural Resources Announces Fourth Quarter and 2007 Results

HOUSTON, March 18 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. today announced 2007 fourth quarter and year-end results. Harvest posted fourth quarter earnings of $65.3 million, or $1.78 per diluted share, compared with a net loss of $8.6 million, or $0.23 per share, for the 2006 fourth quarter. Results for the 2007 fourth quarter include equity earnings for Harvest's 32 percent interest in its Venezuelan affiliate, Petrodelta, S.A. (Petrodelta), for the twenty-one months ended December 31, 2007 and gains on financing transactions.

Harvest's earnings for the twelve months ended December 31, 2007 were $57.2 million, or $1.51 per diluted share, compared with a loss of $62.5 million, or $1.68 per share, for 2006. Results for 2006 included charges of $73.8 million, or $59.0 million net to Harvest's 80 percent interest, for additional taxes and related interest in Venezuela for 2001 through 2006 and a net $3.9 million additional depletion and amortization restatement to reflect the retrospective application of the successful efforts method of accounting.

Harvest President and Chief Executive Officer, James A. Edmiston, said: "We are pleased to have completed the legal and contractual conversion to Petrodelta as well as executing the Contract for the Sale and Purchase of Hydrocarbons which paves the way for us to report our share of Petrodelta's operating and financial results. This will enable Petrodelta to finalize its audited financial statements and to ultimately declare a dividend to shareholders based on 2006 and 2007 financial results. Petrodelta has invoiced for 2006 oil and gas deliveries and expects to invoice for 2007 oil and gas deliveries shortly."

Production and Reserves

Petrodelta delivered 1.2 million barrels of oil, or 13,100 barrels of oil per day, and 3.3 billion cubic feet (Bcf) of natural gas to PDVSA Petroleo, S.A. (PPSA) during the fourth quarter 2007. The average price received for oil deliveries was $74.91, which was approximately 83 percent of the average price for West Texas Intermediate and approximates world market prices for the quality of oil produced by Petrodelta. The natural gas price is contractually fixed at $1.54 per thousand cubic feet (Mcf).

During the twenty-one months beginning April 1, 2006, the economical effective date for Petrodelta, and ended December 31, 2007, Petrodelta produced and sold 10.6 million barrels of oil and 25 Bcf of natural gas to PPSA. The average oil price was $54.85 per barrel, or 78 percent of the average price for West Texas Intermediate during that period.

Harvest engaged Ryder Scott Company, L.P. (Ryder Scott), an independent engineering firm, to prepare an estimate of proved reserves and an estimate of the future net cash flows associated with those reserves as of December 31, 2007. Ryder Scott used an oil price of $75.86 per barrel, which was approximately 83 percent of the average December 2007 West Texas Intermediate price, to estimate the value of Harvest's 32 percent interest in Petrodelta. Natural gas prices were $1.54 per Mcf as fixed in the hydrocarbon sales contract. Based on their evaluation, Harvest's share of Petrodelta's proved reserves, net of royalty, and after tax cash flows discounted at 10 percent is listed below.

After-tax cash flows discounted Oil(MMBbls) Natural Gas (Bcf) Total (MMBoe) at 10 percent ($MM) Proved 37.8 34.5 43.6 $523 Successful Efforts Adopted

During the 2007 fourth quarter, Harvest changed its accounting method for recording the results of its oil and gas exploration and development activities to the successful efforts method of accounting. Previously, Harvest used the full cost method of accounting. Petrodelta's financial statements are prepared in accordance with International Financial Reporting Standards which require the successful efforts method of accounting. The change in accounting principle resulted in a cumulative, non-cash increase to retained earnings of $52.4 million as of December 31, 2004.

Balance Sheet

On December 31, 2007, Harvest had $120.8 million of cash, or $3.19 per diluted share, and $6.8 million of restricted cash offset by $9.3 million equivalent of Bolivar denominated debt. During 2007, Harvest reduced its Bolivar denominated debt by $96 million equivalent from $105 million at year-end 2006.

Share Buyback Program

In June 2007, the board of directors authorized Harvest to purchase up to $50 million of its common stock though open market purchases. During 2007, Harvest purchased 3.0 million shares for $32.8 million, or $11.09 per share, including commissions. Currently, $17.2 million of the $50 million share purchase authorization remains available.

Conference Call

Harvest will hold an earnings conference call today at 10:00 a.m. Central Time (11:00 Eastern Time) to discuss fourth quarter and 2007 results and provide an operations update. To access the call, dial 785-424-1056, conference ID: Harvest, five to ten minutes prior to the start time. A recording of the conference call will also be available for replay through March 27, 2008 at 402-220-2656. To listen to the live webcast of the call, please visit our website at http://www.harvestnr.com/.

About Harvest Natural Resources

Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent energy company with principal operations in Venezuela, exploration assets in Indonesia and West Africa and a business development office in the United Kingdom. For more information visit the Company's website at http://www.harvestnr.com/.

"This press release may contain projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. They include estimates and timing of expected oil and gas production, oil and gas reserve projections of future oil pricing, future expenses, planned capital expenditures, anticipated cash flow and our business strategy. All statements other than statements of historical facts may constitute forward-looking statements. Although Harvest believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from Harvest's expectations as a result of factors discussed in Harvest's 2007 Annual Report on Form 10-K and other public filings."

HARVEST NATURAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS ($ thousands, unaudited) December 31, December 31, 2007 2006* ASSETS: CURRENT ASSETS: Cash and equivalents $120,841 $148,079 Restricted cash 6,769 15,888 Accounts receivable, net 9,418 9,811 Advances to equity affiliate 16,352 19,146 Deferred income taxes - 5,608 Prepaid expenses and other 1,032 1,246 Total current assets 154,412 199,778 RESTRICTED CASH - 73,001 OTHER ASSETS 4,301 176 INVESTMENT IN EQUITY AFFILIATES 251,173 192,090 PROPERTY AND EQUIPMENT, net 3,583 3,320 TOTAL ASSETS $413,469 $468,365 LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable, trade and other $5,949 $3,827 Accounts payable, related party 10,093 9,637 Accrued expenses 11,895 12,975 Accrued interest 5,136 6,850 Deferred revenue 11,217 Income taxes payable 503 34 Current portion of long-term debt 9,302 37,674 Total current liabilities 42,878 82,214 LONG TERM DEBT - 66,977 COMMITMENTS AND CONTINGENCIES - - MINORITY INTEREST 56,825 37,765 STOCKHOLDERS' EQUITY: Common stock and paid-in capital 202,323 194,556 Retained earnings 147,934 90,697 Treasury stock (36,491) (3,844) Total stockholders' equity 313,766 281,409 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $413,469 $468,365 * 2006 has been restated to reflect retrospective application of successful efforts method of accounting. HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts, unaudited) December 31, December 31, THREE MONTHS ENDED: 2007 2006 REVENUES: Oil sales (a) $11,217 EXPENSES: Depreciation 42 $72 Exploration expense 204 - General and administrative 9,754 6,260 Contribution for Science and Technology Fund - 3,887 Taxes other than on income (65) 195 9,935 10,414 INCOME (LOSS) FROM OPERATIONS 1,282 (10,414) OTHER NON-OPERATING INCOME (EXPENSE) Gain on financing transactions 34,581 - Investment earnings and other 1,524 2,590 Interest expense (1,015) (2,232) Net loss on exchange rates (31) (100) 35,059 258 INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS 36,341 (10,156) Income tax expense 5,283 7 INCOME (LOSS) BEFORE MINORITY INTERESTS 31,058 (10,163) Minority interest in consolidated subsidiary companies 17,909 (1,613) INCOME (LOSS) FROM CONSOLIDATED COMPANIES 13,149 (8,550) Net Income from unconsolidated equity affiliate 52,106 - NET INCOME (LOSS) $65,255 ($8,550) NET INCOME (LOSS) PER COMMON SHARE: Basic $1.87 ($0.23) Diluted $1.78 ($0.23) Weighted average shares outstanding: Basic 35.0 million 37.3 million Diluted 36.7 million 37.3 million (a) Recognition of deferred revenue HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per BOE and per share amounts, unaudited) December 31, December 31, TWELVE MONTHS ENDED: 2007 2006* Barrels of oil sold 1,894 MMCF of gas sold 4,506 Total BOE 2,645 Average price/barrel $28.96 Average price/mcf $1.03 REVENUES: Oil sales (a) $11,217 $54,858 Gas sales - 4,648 11,217 59,506 EXPENSES: Operating expenses 9,241 Depletion and amortization 14,829 Depreciation $384 606 Exploration expense 204 - General and administrative 29,742 26,421 Contribution for Science and Technology Fund - 3,887 Taxes other than on income 423 3,948 30,753 58,932 INCOME (LOSS) FROM OPERATIONS (19,536) 574 OTHER NON-OPERATING INCOME (EXPENSE) Gain on financing transactions 49,623 - Investment earnings and other 9,065 9,406 Interest expense (8,224) (23,156) Net gain (loss) on exchange rates (14) (121) 50,450 (13,871) INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS 30,914 (13,297) Income tax expense 6,312 60,917 INCOME (LOSS) BEFORE MINORITY INTERESTS 24,602 (74,214) Minority interest in consolidated subsidiary companies 19,060 (11,712) INCOME (LOSS) FROM CONSOLIDATED COMPANIES 5,542 (62,502) Net income from unconsolidated equity affiliates 51,695 - NET INCOME (LOSS) $57,237 ($62,502) NET INCOME (LOSS) PER COMMON SHARE: Basic $1.57 ($1.68) Diluted $1.51 ($1.68) Weighted average shares outstanding: Basic 36.5 million 37.2 million Diluted 37.9 million 37.2 million (a) Recognition of deferred revenue * 2006 has been restated to reflect retrospective application of successful efforts method of accounting. HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2007 2006 2007 2006* Cash Flows From Operating Activities: Net income (loss) $65,255 ($8,550) $57,237 ($62,502) Adjustments to reconcile net loss to net cash used in operating activities: Depletion, depreciation and amortization 42 72 384 15,435 Exploration expense 204 - 204 Net income from unconsolidated equity affiliates (52,106) - (51,695) - Non-cash compensation related charges 1,724 1,240 6,108 5,056 Gain on financing transactions (34,581) - (49,623) - Minority interest in consolidated subsidiary companies 17,909 (1,613) 19,060 (11,712) Deferred income taxes 5,608 - 5,608 (2,556) Changes in operating assets and liabilities: Accounts and notes receivable 299 3,622 393 61,839 Advances to equity affiliate (3,363) (1,912) 2,794 (19,146) Prepaid expenses and other (14) (393) 214 903 Accounts payable 1,868 385 2,122 3,419 Accounts payable, related party 108 116 456 434 Accrued expenses 2,337 5,464 (1,251) (5,469) Accrued interest 113 (16,384) (1,714) 4,213 Deferred revenue (11,217) - (11,217) 4,489 Asset retirement liability - - - 24 Income taxes payable (383) (22,203) 469 (18,875) Net Cash Used In Operating Activities (6,197) (40,156) (20,451) (24,448) Cash Flows From Investing Activities: Additions of property and equipment (511) (103) (851) (1,657) Investment in affiliated companies (2,791) (437) (7,388) (513) (Increase) decrease in restricted cash 49,005 (43,329) 82,120 (88,889) Investment costs (4,125) (30) (4,125) 503 Net Cash Provided By (Used In) Investing Activities 41,578 (43,899) 69,756 (90,556) Cash Flows From Financing Activities: Net proceeds from issuances of common stock 1,397 6 1,938 880 Purchase of treasury stock (666) - (32,755) - Proceeds from issuance of notes payable - 65,116 - 118,953 Payments of notes payable (23,093) (14,302) (45,726) (19,769) Net Cash Provided By (Used In) Financing Activities (22,362) 50,820 (76,543) 100,064 Net Increase (Decrease) in Cash 13,019 (33,235) (27,238) (14,940) Cash and Cash Equivalents at Beginning of Period 107,822 181,314 148,079 163,019 Cash and Cash Equivalents at End of Period $120,841 $148,079 $120,841 $148,079 * 2006 has been restated to reflect retrospective application of successful efforts method of accounting. PETRODELTA, S.A. STATEMENTS OF OPERATIONS (in thousands except per BOE and per share amounts, unaudited) YEAR ENDED: December 31, 2007 December 31, 2006 Barrels of oil sold 5,374 5,211 MCF of gas sold 13,456 11,519 Total BOE 7,616 7,131 Average price/barrel $58.61 $50.98 Average price/mcf $1.54 $1.54 $/BOE $/BOE REVENUES: Oil sales $314,928 $265,625 Gas sales 20,789 17,796 Royalty (114,847) (96,790) 220,870 186,631 EXPENSES: Operating expenses 23,752 $3.12 22,729 $3.19 Depletion and amortization 17,956 2.36 16,616 2.33 Depreciation 593 0.08 460 0.06 General and administrative 19,880 2.61 11,093 1.56 Taxes other than on income 2,747 0.36 2,029 0.28 64,928 8.53 52,927 7.42 INCOME FROM OPERATIONS AND BEFORE INCOME TAX 155,942 20.47 133,704 18.75 Current income tax expense 85,849 11.27 67,188 9.42 Deferred income tax expense (21,348) (2.80) (23,415) (3.28) NET INCOME 91,441 12.00 89,931 12.61 Adjustments to reconcile to Reported Net Income from Unconsolidated Equity Affiliate: Deferred income tax expense 21,348 2.80 23,415 3.28 NET INCOME $70,093 $9.20 $66,516 $9.33 Equity interest in unconsolidated equity affiliate 40% 40% Income before amortization of excess basis in equity affiliate 28,037 $26,606 Amortization of excess basis in equity basis (2,530) - Net income from unconsolidated equity affiliate $25,507 $26,606