HNR Stock: Harvest Natural Resources Inc. (HNR) Withdraws from Major OPEC Country


This article was written by Noam Peleg, a Junior Financial Analyst at I Know Firstand enrolled at an undergraduate Finance program at the Interdisciplinary Center, Herzliya.

HNR Stock


  • Background on HNR
  • HNR Withdraws from Venezuela
  • OPEC’s Influence on HNR
  • HNR 2016 Third Quarter Earnings
  • Bullish I Know First Forecast on HNR

Background on HNR

Harvest Natural Resources Inc. (HNR) is an independent energy company, based out of Houston, Texas. Since 1989, Harvest Natural Resources has focused primarily on the exploration, acquisition, and development of oil and gas properties. Currently, they have 66.67% ownership interest in an oil and gas operation, Dussafu Production Sharing Contract (PSC), off the shore of Gabon. Panoro Energy holds the remaining ownership. This project spans approximately 680,000 acres and its area consists of four main drilling discoveries: Moubenga, Walt Whitman, Ruche, and Tortue. Moubenga and Walt Whitman were discovered prior to Harvest’s entrance into the Dussafu PSC project. The more recent discoveries, Ruche and Tortue, had been drilled in 2011 and 2013 respectively. Harvest is in the midst of multiple discussions with potential buyers of their Gabon interests after operational activities seized on September 30, 2016. There is no definitive way to conclude these negotiations will lead to a transaction.



HNR Withdraws from Venezuela

Harvest has previously been active in Oman, Indonesia, Russia, the U.S., and the South China Sea. For 22 years, Harvest has also shown presence in the country of Venezuela. The company’s interests in the country are owned by their subsidiary, Harvest Vinccler Dutch Holding B.V., while their equity affiliate, Petrodelta, conducts the operations there. After countless negotiations, Harvest had decided to relinquish all their assets in Venezuela and withdraw. As an energy company, what pushed them over the edge to exit a country that has one of the largest oil and gas reserves in the world you ask? President and CEO of Harvest Natural Resources Inc., James Edmiston, explained in a company press release issued January 16, 2015, “Over the past decade, the Venezuelan Government has violated Harvest’s rights as an investor by systematically thwarting the development of Harvest’s investment in Venezuela as well as the company’s ability to sell its interests there” (Reference Oil and Gas 360). In other words, Harvest’s sales were made unattractive to buyers by the implementation of extra-contractual conditions by the Venezuelan Government. For instance, in September 2013, the Venezuelan Government refused to accept an exchange of assets deal between Harvest and the Venezuelan Energy Company, Pluspetrol. Not only did Harvest suffer from governmental intervention in its asset sales, but from the crude oil price collapse.

OPEC’s Influence on HNR

In 2014, an oversupply by the Organization of the Petroleum Exporting Countries (OPEC) in the oil market caused a severe price drop. Prices fell by half, which led producers, such as Venezuela, to collapse. The country has recommended a cap at $70 per barrel and that this would be a fair price while the current price sits at roughly $45 per barrel. Venezuela, an OPEC member and holder of one of the largest oil and natural gas reserves in the world, is heavily reliant on revenues from oil to provide for its citizens. When oil prices are booming, Venezuela flourishes, they are free to depend on imports and tend to increase governmental spending. But when oil is weak, the country has less money to spend on resources and imports, leaving Venezuela in major shortages and economic chaos. To read more about Venezuela’s situation, click here. The country has accumulated billions in debt. Unpaid bills preceded companies in the area, involved in the production and exploration of oil fields, to pull back on operations. Harvest Natural Resources Inc. is a great example. Because of this significant decline, the company’s earnings fell just as fast and discouraged further development in the area.


The OPEC deal that was just accepted last Wednesday, has begun to positively benefit just about every oil company around the world. Specifically, the OPEC deal has also benefited Transocean (RIG) ,  Stone Energy (SGY)Vanguard Natural Resources LLC. (VNR), and Cenovus Stock Forecast (CVE). OPEC had made a pledge to cut production and the deal is set to reduce oil output by 1.2 million barrels per day from OPEC oil companies. The reduction puts a strain on supply as demands stays the same.


HNR 2016 Third Quarter Earnings

As mentioned above, Harvest was facing the harsh reality of the contracting oil market and the toll it was taking on their company. On October 7th, 2016, Harvest had signed over their Venezuelan assets to Delta Petroleum. The months leading up to the switch was a huge financial burden on Harvest. High transaction costs and income taxes, as well as loss from operations had the company struggling. Harvest announced on November 9, 2016, a third quarter net loss of $7.1 million, $4.7 million before income taxes. In comparison to last year, the company was at a net income of $5.7 million. The loss resulted in $0.55 loss per share. Third quarter results were based on multiple highlights. HNR Energia B.V., another subsidiary of Harvest, entered a Share Purchase Agreement to sell the company’s interests in Venezuela. They transferred 51% interest in Harvest Vinccler Dutch Holding B.V. to Delta Petroleum. According to the agreement, Harvest received $69.4 million after closing adjustments, $12 million six-month 11% note payable, a return of all Harvest common stock owned by Delta Petroleum’s affiliate, CT Energy, and forgiveness of $30 million of CT Energy debt owed by Harvest. The Canadian based company loaned $2 million to Harvest on four separate occasions to assist with transaction costs and operation expenses.

Other highlights included a notice from the NYSE on April 25, 2016 which read that Harvest Natural Resources Inc. was not in compliance with a listing requirement. The requirement that needed to be addressed was their average global market capitalization over a consecutive 30 trading-day period was less than $50 million, at the same time, its stockholders’ equity was less than $50 million. Harvest believes the sale of the Venezuelan assets will increase stockholders’ equity and solve the concerns with the NYSE. To meet the NYSE’s minimum price per share, the company completed a one-for-four reverse split of its issued and outstanding common stock. This became effective November 4, 2016 and resulted in a decrease of Harvest’s common stock from approximately 44 million shares to 11 million shares. Their price per share closed at $5.65 on December 7, 2016. Going forward, Harvest should be able to regain compliance with the Pricing Standard by the end of this year. In the coming months, debts incurred by Harvest are also expected to level out from Delta Petroleum’s transfer payments. Harvest stock should result in a steady increase.


Harvest is heavily invested in multiple projects around the world. The company has withdrawn from Venezuela and is in the process of negotiations to leave Gabon. With the uncertainty that OPEC will stick to its agreement to cap the market price for oil, Venezuela will continue its downward spiral. Extremely low oil prices and governmental intervention will continue to affect companies like Harvest and lead them to discontinue exploration and development in certain areas. The net loss taken on by Harvest as well as the non-compliance of the Pricing Standard is expected to end, allowing Harvest to resume control of the company and grow. Harvest Natural Resources Inc. has a bullish outlook on the market. The expectations of the market are in line with the I Know First algorithm’s prediction for the coming months.

Bullish I Know First Forecast on HNR

I Know First is currently bullish on HNR with 365.74 signal and 0.55 predictability for a 1 year forecast


I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.