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Harvest Natural Plants Seeds Of Growth
Oil exploring and production company Harvest Natural (NYSE:HNR) reported a second-quarter loss of $296,000, or 1 cent per share, compared with a loss of $4.2 million, or 13 cents per share, for the same period last year. The second-quarter results include exploration charges of $1.5 million, or 4 cents per share. Despite the quarterly loss, focusing on Harvest's EPS alone ignores the most important part of this small exploration and production company. (For more, see Unearth Profit In Oil Exploration And Production.)
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A Transformation
For years Harvest was known as an American-run oil company with operations in Venezuela. For obvious reasons, Harvest always seemed to suffer from the "Venezuela risk" in terms of market valuation, despite the fact that a few years ago Harvest and the government of Venezuela signed an agreement that even the powers of Venezuela would be hard-pressed to renounce today. Unlike majors ConocoPhillips (NYSE:COP) and ExxonMobil (NYSE:XOM), which were forced out of the country, Harvest made it work. As a result, Harvest now has a 32% interest in Petrodelta, a state-owned oil E&P company. For the second quarter of 2010, Petrodelta reported second-quarter earnings of $8.7 million, $2.8 million net to Harvest's 32% interest. Instead of receiving quarterly earnings, Harvest gets a special dividend from Petrodelta throughout the course of the year. In May 2010, Petrodelta's board of directors declared dividends to shareholders in the amount of $30.5 million, or $9.8 million net to Harvest.
Going Global
Over the past couple of years, Harvest has been using its cash-rich balance sheet along with earnings from Petrodelta to acquire exploration blocks very cheaply. What was once an oil company purely based on Venezuela is now a small oil company with a incredibly global exploration portfolio. The efforts have paid off. Harvest now shares in the production of the Antelope project in Utah, which, during the second quarter produced more than 50,000 barrels of oil net to Harvest. While this production is relatively small compared to Petrodelta, it's a sign of how this company might look in several years. In addition to Utah, Harvest also has interests in Indonesia, Gabon and Oman; less than a year ago, Harvest had no production outside of Venezuela.
A Cheap Option
Harvest currently trades for 11 times current earnings and 88% of book value. In addition the company has no net debt. Even ATP Oil and Gas (Nasdaq:ATPG), another very attractive oil company based on reserves, trades at 1.3 book value. Harvest has a market cap of $250 million and comes with exploration options that could be worth in the hundreds of millions of dollars over the course of several years.
The Bottom Line
Harvest natural is a cheap company on a standalone basis. However, its growing E&P profile outside of Venezuela also makes it an excellent target for mid-tier oil companies looking to easily obtain new drilling blocks. Thanks to its growing global exploration portfolio, this company is worth a look for oil-hungry investors. (For related reading, see Understanding Oil Industry Terminology.)
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A Transformation
For years Harvest was known as an American-run oil company with operations in Venezuela. For obvious reasons, Harvest always seemed to suffer from the "Venezuela risk" in terms of market valuation, despite the fact that a few years ago Harvest and the government of Venezuela signed an agreement that even the powers of Venezuela would be hard-pressed to renounce today. Unlike majors ConocoPhillips (NYSE:COP) and ExxonMobil (NYSE:XOM), which were forced out of the country, Harvest made it work. As a result, Harvest now has a 32% interest in Petrodelta, a state-owned oil E&P company. For the second quarter of 2010, Petrodelta reported second-quarter earnings of $8.7 million, $2.8 million net to Harvest's 32% interest. Instead of receiving quarterly earnings, Harvest gets a special dividend from Petrodelta throughout the course of the year. In May 2010, Petrodelta's board of directors declared dividends to shareholders in the amount of $30.5 million, or $9.8 million net to Harvest.
Over the past couple of years, Harvest has been using its cash-rich balance sheet along with earnings from Petrodelta to acquire exploration blocks very cheaply. What was once an oil company purely based on Venezuela is now a small oil company with a incredibly global exploration portfolio. The efforts have paid off. Harvest now shares in the production of the Antelope project in Utah, which, during the second quarter produced more than 50,000 barrels of oil net to Harvest. While this production is relatively small compared to Petrodelta, it's a sign of how this company might look in several years. In addition to Utah, Harvest also has interests in Indonesia, Gabon and Oman; less than a year ago, Harvest had no production outside of Venezuela.
A Cheap Option
Harvest currently trades for 11 times current earnings and 88% of book value. In addition the company has no net debt. Even ATP Oil and Gas (Nasdaq:ATPG), another very attractive oil company based on reserves, trades at 1.3 book value. Harvest has a market cap of $250 million and comes with exploration options that could be worth in the hundreds of millions of dollars over the course of several years.
The Bottom Line
Harvest natural is a cheap company on a standalone basis. However, its growing E&P profile outside of Venezuela also makes it an excellent target for mid-tier oil companies looking to easily obtain new drilling blocks. Thanks to its growing global exploration portfolio, this company is worth a look for oil-hungry investors. (For related reading, see Understanding Oil Industry Terminology.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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