Harvest Natural Resources Inc. (HNR:US) climbed the most since shares began trading in 1989 after the Houston-based company agreed to divest oil assets in Venezuela.
Harvest will sell its 32 percent stake in Petrodelta SA, a joint venture with Petroleos de Venezuela SA, to Indonesia’s state-owned oil company PT Pertamina for $725 million in cash, the company said yesterday in a statement. The price is four times the company’s market value yesterday.
“If you do the simple math of the net proceeds to the company after they pay taxes and transaction costs, the deal is worth approximately $14 a share, and the company still has assets in Gabon in western Africa which are worth $5 a share or more,” Patrick Goff, a senior analyst at First Capital Alliance LLC in Chicago, said yesterday in a telephone interview.
Harvest rose 87 percent to $9.12 at the close in New York as 10.2 million shares changed hands.
The company has had trouble getting regular payments from PDVSA, as its Caracas-based state oil company is known, and its assets in the South American country are undervalued because of political risk, John Malone, a senior analyst at Global Hunter Securities LLC in New York, said on March 6.
“An American company does not have any leverage whatsoever in terms of getting their capital out of the country,” Zachary Prensky, an analyst with Little Bear Research in New York, said yesterday in a telephone interview. “The people getting in to Venezuela are governments.”
The sale agreement was announced after the close of regular trading in New York yesterday when Harvest shares hit a 52-week low of $4.85 in intraday trading. Wunderlich Securities Inc. today raised its price target on Harvest from $7.00 to $11.00.
The deal needs approval from shareholders as well as the Venezuelan and Indonesian governments, Harvest said in the statement, adding that net proceeds from the sale are estimated to be about $525 million after “deductions for transaction related costs and taxes.”
“This deal is going to close 100 percent,” said Prensky. “It’s an enormous amount of money that will accrue to the Venezuelan treasury. They’ve got 200 million reasons to get this done.”
Both companies will meet during the week of Sept. 5 to assess progress of obtaining governmental approvals and have the right to terminate the purchase agreement at that time, Harvest said in a filing to U.S. regulators.
Harvest agreed not to solicit other offers and is allowed to enter into discussions with another potential purchaser if it receives an unsolicited bid as long as it gives Pertamina a chance to match a “superior proposal,” said Harvest.
Some observers speculated that China National Offshore Oil Corp. or China Petroleum & Chemical Corp. (386) would be the likely buyer for Harvest’s reserves in Venezuela, as the Asian country has invested billions of dollars to expand oil operations and political ties in Venezuela, said Thomas O’Donnell, an oil analyst affiliated with The New School university in New York.
“Whether in fact CNPC or Sinopec were involved at some stage, the fact that they have both not significantly increased their reserve holdings in Venezuela is a continuing sore point in their relationship with Caracas given Beijing’s huge state- sponsored investments to date,” O’Donnell said yesterday in an e-mailed response to questions.
China’s penchant for not wanting to pay a “good price” for Harvest’s assets kept them out of the deal, and China has pinned its hopes for acquiring reserves in Venezuela on its close ties with PDVSA and government, said O’Donnell.
“A sale of a lucrative Venezuelan mature field by Harvest to Indonesia while China has made such huge investments with the Chavez government, is but another reminder for Chinese companies of their difficulties in Venezuela,” said O’Donnell.
Petrodelta’s six fields hold gross proved reserves of 195 million barrels of oil and 235 billion cubic feet of gas, according to Harvest’s website.
Indonesia, which was in OPEC with Venezuela until three years ago when it began importing more oil than it exported and left the cartel, has been looking for a way to get involved in the South American country to tap reserves in the Orinoco heavy crude belt, Russell Dallen, head bond trader at Caracas Capital Markets in Miami, said in an e-mailed response to questions.
Both are leaders in the non-aligned movement and the investment allows them to secure their oil supplies on the cheap, Dallen said.
Venezuela surpassed Saudi Arabia this month to become the world’s largest holder of proved oil reserves, a resource that President Hugo Chavez, who is facing an undisclosed type of cancer, promises to tap if he gets re-elected in October.
The South American country’s deposits were at 296.5 billion barrels at the end of last year compared with Saudi Arabia’s 265.4 billion barrels, BP Plc (BP/) said on June 13 in its annual Statistical Review of World Energy.
“This gets to the heart of the fact that outside of the U.S. everyone else is clamoring to get in,” Prensky said. “People are trying to use the next year or so to get in there at an advantageous time. There’s no other country outside of Saudi Arabia where you can have a lower drilling risk profile.”
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