IPAA 2004 OIL & GAS INVESTMENT SYMPOSIUM
April 19-21, 2004NYSE: HNRwww.harvestnr.com
Certain statements in this presentation are forward-looking and are based upon the Company’s current belief as to the outcome and timing of future events. All statements other than statements of historical facts included in the presentation regarding budgeted capital expenditures, increases in oil and gas production, the Company’s outlook on oil and gas prices, oil and gas reserves estimate, business strategy and other plans, estimates, projections, and objectives for future operations, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extend of changes in commodity prices for oil and gas, operating risks and other risk factors as described in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, the Company’s actual results and plans could differ materially from those expressed in the forward-looking statements.
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Share Price Performance
35 million shares outstanding
Significantly outperformed market
How was this achieved? How will we continue to grow value in the future?
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Key Events
Aug - Dec 2000 New CEO, Board and Executive appointed
Create strategy, set key deliverables February 2002 Announce Arctic Gas sale for $220 million September 2002 Announce Venezuelan Gas contract for 198 Bcf December 2002 Venezuela national civil work stoppage February 2003 Restart Venezuelan oil production September 2003 Announce Geoilbent sale for $75 million October 2003 Temblador and El Salto Evaluation December 2003 Announce Venezuelan Gas sales of 70 MMcfpd January 2004 Announce 2004 guidance
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Achievements
Strengthened the balance sheet
Reduced the cost structure
Delivered Venezuelan gas sales
• Diversified our revenue stream
$138 million cash to fund future value growth
Stabilized the CompanyDid what we said we would do
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Characteristics
Oil and gas production in Venezuela Focused on development Low below-the-ground risk Substantial oil and gas production upside Low cost producer Growth opportunities in Russia and Venezuela Strong balance sheet
Small, financially stable, international niche player
positioned for value growth
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To identify, access, integrate and exploit large known resources of hydrocarbons
Three guiding principles:• Enable• Risk manage
• Value harvest
Two stages to value growth• Venezuela is the “cash cow” for next 5 years
• Develop significant new opportunities
– Venezuela
– Russia
Strategy
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Venezuela
Most oil reserves in the Western Hemisphere
4th largest oil exporter to U.S.
Faja is one of world’s largest oil fields at 270 BBO
Proved oil reserves of 78 BBO
Oil provides 75% of government export revenue
Proved natural gas reserves of 148 TCF
State Oil Company PDVSA owns CITGO
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Venezuela - Political Situation
Key events: National civil work stoppage December to February, 2003
Referendum petition
PDVSA organization changed
Rebuilding production
Outcomes: Political and economic uncertainty remains
Referendum?
Seeking new foreign investment
Streamlined decision making in PDVSA/Ministry of Mines
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Orinoco – South Monagas UnitOrinoco – South Monagas Unit
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South Monagas Assets
3 Fields
158,000 Acres
20-Year Operating Service Agreement – 1992
Equity Structure HNR 80%
Vinccler 20%
Ryder Scott Reserves (80%)
• Oil – 70 MMbbl
• Natural gas – 156 Bcf
Pre-tax SEC PV 10 value at 12/31/03 is $545 million net to HNR
El Salto
Temblador
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South Monagas Unit
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Natural Gas Contract
Deliver up to 198 Bcf through July 2012• $1.03 per Mcf
• Added 26 MMBoe net to Harvest
• First sales on November 25, 2003
Adds $12 to $16 million cash flow in 2004
Drilling and infrastructure costs of $51 million
• $27 MM in 2003
Incremental oil production
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Uracoa Producing Formation
Before natural gas sales to PDVSA• Drill horizontal wells in
middle of the oil column• Water drive from bottom• Avoid gas to extent
possible
After natural gas sales to PDVSA
• Drill horizontal wells just below the gas cap
• Produce oil between gas cap and middle of oil column
• 4.5 MMBo priced at $7.00
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$15 $20 $25 $31.21
$35
$2.50 193 299 406 560 626
$2.80 179 284 391 545 612
$3.00 160 266 373 527 593
$3.50 127 233 340 494 560
$4.00 94 200 307 460 527
Operating cost per barrel
WTI Pricingper barrel
South Monagas Pre-tax SEC PV10 Sensitivity at December 31, 2003
($ MM net to HNR’s 80% interest)Assumes 2003 yearend proved reserves of 96 MMBOE
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South Monagas Playground
World class hydrocarbon province(8 BBO proven in 168 fields)
Low cost producer
Isleno Fields potential
Exclusive agreement to build field development plan for Temblador and El Salto Fields
Facilities still have capacity post gas contract
Harvest has experience and skills to grow in this region
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ISLENO FIELD
Submitted offer letter to tie field into SMU Requires SMU physical processing infrastructure
$10M work commitment Drill 3 wells Seismic Infrastructure
“Working with PDVSA to progress to agreement”
Growth in East Venezuela
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TEMBLADOR AND EL SALTO FIELDS
Signed MOU on October 17th 2003 with PDVSA
• 6 month exclusive period of evaluation and negotiation
Large, under-developed fields, next to SMU
• Temblador – discovered in 1930’s, produced 115MMBo & 60Bcf
– partially closed down in 2002
• El Salto – discovered in 1980’s, never developed
Plan to develop fields under new Organic Hydrocarbon Law
Fields are similar to SMU
“Growth by doing what we know best”
Growth in Eastern Venezuela
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European Exports from Russia
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Russia
Energy is 40% of Russia’s exports
Proved oil reserves of 49 BBO
Produces 9.0 million Bopd
Exports 5.5 million Bopd, world’s second largest
Holds nearly one-third of world’s natural gas reserves
Over 1,700 Tcf of proved gas reserves
World’s largest natural gas exporter, 6.7 Tcf annually
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Russian Acquisition Characteristics
Low risk development
Operating and financial control
Significant reserve, production and cash flow potential
Oil with expanded access to export markets
Natural gas and condensates near infrastructure
Financing capability
Partners
“WE WILL ACQUIRE AND DEVELOP QUALITY RUSSIAN ASSETS”
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Growth Opportunities in Russia
Partner of choice• 10 years experience
• $300 million returned to shareholders from asset sales
• HNR is not a threat
• Local respect… enquiries to repeat model
Opportunities are available
• Large, underdeveloped fields
Cash and financing capacity
Clear objectives, learned lessons
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Corporate Financial Overview
Guidance
2001 2002 2003 2004
Average price ($/Bbl) . . . . . . 12.52 13.08 14.07 ±12.00
Average price ($/Boe) . . . . . . ± 10.00
Production (MMBOE) . . . . . . 9.8 9.7 7.8 12-14
Lifting costs ($/Boe) . . . . . . . 4.37 3.50 3.97 2.50-2.75
Cash operating costs . . . . . . 6.97 5.62 6.56 4.25-4.75
Net income ($MM) . . . . . . . . . 43 100 27 15-20
Net cash provided by Operating Activities . . . . . . . . 37 43 39 65-75
Capital Expenditures . . . . . . . 43 43 61 30-35
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typicalHNR
Exploration risk □ □
Reinvestment risk □ □
Balance sheet risk □ □
Net income risk □ □
Political / Country risk □ □
Enterprise Risk
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Harvest Valuation
Proved reserves net to HNR 96 MMBoe
Reserves to production ratio 9 years
Pre-tax SEC PV10 net to HNR $545 million
Shares outstanding 36 million
Barrels equivalent per share 2.7
Cash balance $138 million
Long-term debt at Dec. 31, 2003 $ 97 million
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HARVEST AIMS
Transform company
• Grow reserves significantly… 5X is the goal
Use $138 million for seed-corn investments
• Apply project finance when appropriate
• Prudent, paced development
Manage balance sheet
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How we will grow in the future
50% to 75% production growth in 2004
Operating expense per Boe down 30% to 35%
50% to 70% cash flow increase in 2004
Grow through acquisition
Committed Management and Board – Delivered on Promises Made
WE HAVE AN EXCITING FUTURE
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