EX-99.1 2 h17331exv99w1.txt PRESS RELEASE DATED AUGUST 5, 2004 EXHIBIT 99.1 (HARVEST LOGO) FOR IMMEDIATE RELEASE HARVEST NATURAL RESOURCES ANNOUNCES SECOND QUARTER 2004 RESULTS HOUSTON, Texas (August 5, 2004) - Harvest Natural Resources, Inc. (NYSE: HNR) today announced 2004 second quarter earnings of $6.2 million, or $0.16 per diluted share. These results compare with a net loss of $11.4 million, or $0.32 per diluted share, for the same period last year. The 2003 second quarter results included a $13.5 million equity in net loss related to the Company's 34 percent interest in its formerly owned Russian affiliate, LLC Geoilbent ("Geoilbent") which was sold in September 2003. Net income for the six months ended June 30, 2004 was $13.8 million, or $0.36 per diluted share, compared with a net loss of $26.9 million, or $0.76 per diluted share, for the same period last year. The six months ended June 30, 2003 included a $30 million equity in net loss related to Geoilbent. Discretionary cash flow (defined as cash flows from operating activities before changes in operating assets and liabilities) was $16.8 million for the 2004 second quarter compared with $9.3 million for the 2003 second quarter. Discretionary cash flow for the six months ended June 30, 2004 was $35.3 million, compared with the $14.3 million for the same period last year. See reconciliation to Generally Accepted Accounting Principles in table below. Production for the 2004 second quarter was 1.9 million barrels of oil and 8.2 billion cubic feet (Bcf) of natural gas for a combined total production of 3.3 million barrels of oil equivalent. Production for the first six months of 2004 was 6.4 million barrels of oil equivalent including 3.7 million barrels of oil and 15.9 Bcf of gas. Production for the same period last year, which consisted of oil only, was 2.1 million and 3.3 million barrels respectively. Harvest President and Chief Executive Officer, Dr. Peter J. Hill, said, "We continue to deliver strong results based on new gas production, high oil prices and lower operating expenses. We now have two rigs drilling in our Uracoa Field and expect both rigs to continue drilling through the balance of 2004 and into 2005. We are increasing our Uracoa 2004 drilling program to 11 development wells and five recompletions which is designed to take advantage of the high prices and to recover the lost oil production experienced as a result of the four-month delay in the start of our planned drilling." The Company received an average of $17.66 per barrel of oil for 2004 second quarter sales, an increase of $4.12 per barrel, compared with the $13.54 per barrel average for the same period last year. The average the Company received for the six months ended June 30, 2004 was $16.87 per barrel of oil, an increase of $2.67 per barrel, compared with the $14.20 per barrel 15835 Park Ten Place Drive o Houston, Texas 77084 o ph: 281.579.6700 fax: 281.579.6760 Page 1 of 7 average for the same period in 2003. Revenue for the six months ended June 30, 2004 included 0.4 million barrels of oil at a $7.00 fixed price. The volume of fixed price oil delivered to PDVSA is based on the volumes of the Company natural gas sales. The Company receives $1.03 per thousand cubic feet of natural gas delivered to PDVSA. Operating expenses decreased to $7.4 million, or $2.28 per barrel of oil equivalent (Boe), for 2004 second quarter compared with $9.5 million, or $4.49 per barrel of oil equivalent, for last year's second quarter. Operating expenses for the 2004 first six months was $14.7 million, or $2.29 per Boe, compared with $16.0 million, or $4.79 per Boe, for the same period in 2003. For each comparative period the reduction was primarily due to timing of scheduled workovers, repairs and maintenance. Revised 2004 guidance is shown in the table below.

2004 REVISED GUIDANCE 2004 ORIGINAL GUIDANCE --------------------- ---------------------- Oil price ($/Bbl) $14.65(1) $12.30(2) Net income ($MM) $20 - $25 $15 - $20 Earnings per share - diluted $0.53 - $0.66 $0.42 - $0.56 Discretionary cash flow ($MM)(3) $60 - $70 $55 - $65 Capital expenditures ($MM) $40 - $45 $30 - $35

(1) Assumes actual prices through June 30 and an average West Texas Intermediate price of $30 per barrel thereafter. (2) Assumed an average West Texas Intermediate price of $26 per barrel. (3) Discretionary cash flow is defined as cash flows from operating activities before changes in operating assets and liabilities. See reconciliation to Generally Accepted Accounting Principles in table below. Hill said, "Harvest Vinccler production guidance remains unchanged at 33,000 and 38,000 barrels of oil equivalent per day during 2004 based on the expected success of the Uracoa drilling program. Due to the delay in starting the drilling program, oil production for 2004 will likely be nearer to the low end of our 22,000 to 26,000 barrels per day oil production guidance. Average natural gas production is projected to be at the upper end of our 70 to 80 million cubic feet per day guidance. Production through June 30 averaged 35,400 barrels of oil equivalent per day including an average of 20,800 barrels of oil and 88 million cubic feet of gas. We expect to exit the year with production rates between 35,000 and 40,000 barrels of oil equivalent per day including oil production between 25,000 and 30,000 barrels per day." The Temblador and El Salto Field technical evaluation and field development plan required by the Memorandum of Understanding between the Company's Venezuelan operating company, Harvest Vinccler C.A. and PDVSA has been completed. Harvest Vinccler has submitted a formal development proposal and has started discussions with PDVSA for the possible acquisition of the rights to develop the Temblador, El Salto and Isleno Fields. 15835 Park Ten Place Drive o Houston, Texas 77084 o ph: 281.579.6700 fax: 281.579.6760 Page 2 of 7 Hill continued, "Our strong balance sheet and cash generating capacity provide us with the financial flexibility to further strengthen the balance sheet, reduce debt and to simultaneously pursue growth opportunities in both Russia and Venezuela. We continue to evaluate properties in both countries to find opportunities which meet our focused acquisition criteria." The terms of the Company's 2007 Senior Notes require net cash proceeds in excess of $25 million from the September 2003 sale of Geoilbent to be invested in the oil and gas business within one year of sale or used to repay or prepay part of the 2007 Senior Notes or certain debts of subsidiaries. The Company also has the option of redeeming all of the 2007 Senior Notes. RECONCILIATION OF NON-GAAP MEASURES ($ MILLIONS)

Three Months Ended June 30 Six Months Ended June 30 -------------------------- ------------------------ 2004 2003 2004 2003 ------ ------ ------ ------ Net cash provided by operating activities $ 18.7 $ 11.2 $ 28.9 $ 22.4 Less changes in operating assets & liabilities (1.9) (1.9) 6.4 (8.1) ------ ------ ------ ------ Discretionary cash flow $ 16.8 $ 9.3 $ 35.3 $ 14.3

2004 Revised Guidance 2004 Original Guidance --------------------- ---------------------- Net cash provided by operating activities $70 - $80 $65 - $75 Less changes in operating asset & liabilities (10) (10) ---- ---- Discretionary cash flow $60 - $70 $55 - $65

Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent oil and gas exploration and development company with principal operations in Venezuela and Russia. For more information visit the Company's website at www.harvestnr.com. CONTACT: Steven W. Tholen Senior Vice President, Chief Financial Officer (281) 579-6700 Amanda M. Koenig Investor Relations (281) 579-6700 This press release may contain "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. All statements other than statements of historical facts included in this release may constitute forward-looking statements. Although the Company 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 the Company's expectations due to changes in operating performance, project schedules, oil and gas demands and prices, and other technical and economic factors. 15835 Park Ten Place Drive o Houston, Texas 77084 o ph: 281.579.6700 fax: 281.579.6760 Page 3 of 7 HARVEST NATURAL RESOURCES, INC. CONSOLIDATED BALANCE SHEETS ($ millions, unaudited)

June 30, 2004 December 31, 2003 ------------- ----------------- ASSETS: CURRENT ASSETS: Cash and equivalents $ 157.0 $ 138.7 Accounts receivable, net 51.6 43.9 Prepaid expenses and other 1.4 0.8 ------------- ------------- Total current assets 210.0 183.4 OTHER ASSETS 2.8 2.1 DEFERRED INCOME TAXES 4.7 4.7 PROPERTY AND EQUIPMENT, net 177.1 184.1 ------------- ------------- TOTAL ASSETS $ 394.6 $ 374.3 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable, trade and other $ 0.6 $ 4.2 Accounts payable, related party 10.8 10.5 Accrued expenses 17.4 15.1 Accrued interest 1.4 1.4 Income taxes payable 12.1 8.6 Current portion of long-term debt 6.4 6.4 ------------- ------------- Total current liabilities 48.7 46.2 LONG TERM DEBT 93.6 96.8 ASSET RETIREMENT PROVISION 0.8 1.5 COMMITMENTS AND CONTINGENCIES -- -- MINORITY INTEREST 35.4 30.1 STOCKHOLDERS' EQUITY: Common stock and paid-in capital 178.0 175.4 Retained earnings 41.3 27.5 Treasury stock (3.2) (3.2) ------------- ------------- Total stockholders' equity 216.1 199.7 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 394.6 $ 374.3 ============= =============

Page 4 of 7 HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per BOE and per share amounts, unaudited)

THREE MONTHS ENDED: June 30, 2004 June 30, 2003 ------------------- ------------- ------------- Barrels of oil sold 1,867 2,111 MMCF of gas sold 8,175 -- Total BOE 3,230 2,111 Average price/barrel $ 17.66 $ 13.54 Average price/mcf $ 1.03

$ $/BOE $ $/BOE ------------- ------------- ------------- ------------- REVENUES: Oil sales $ 32,977 $ 28,576 Gas sales 8,420 -- ------------- ------------- ------------- ------------- 41,397 12.82 28,576 13.54 ------------- ------------- ------------- ------------- EXPENSES: Operating expenses 7,368 2.28 9,483 4.49 Depletion and amortization 7,756 2.40 5,337 2.53 Depreciation 442 0.14 373 0.18 General and administrative 4,372 1.35 3,747 1.77 Gain on sale of long-lived assets (578) (0.18) -- -- Taxes other than on income 1,118 0.35 971 0.46 ------------- ------------- ------------- ------------- 20,478 6.34 19,911 9.43 ------------- ------------- ------------- ------------- INCOME FROM OPERATIONS 20,919 6.48 8,665 4.11 ============= ============= ============= ============= OTHER NON-OPERATING INCOME (EXPENSE) Investment income and other 425 0.13 354 0.17 Interest expense (2,448) (0.76) (2,642) (1.25) Net loss on exchange rates (8) -- -- -- ------------- ------------- ------------- ------------- (2,031) (0.63) (2,288) (1.08) ------------- ------------- ------------- ------------- INCOME FROM CONSOLIDATED COMPANIES BEFORE INCOME TAXES AND MINORITY INTERESTS 18,888 5.85 6,377 3.03 Income tax expense 9,902 3.07 3,104 1.47 ------------- ------------- ------------- ------------- INCOME BEFORE MINORITY INTERESTS 8,986 2.78 3,273 1.56 Minority interest in consolidated subsidiary companies 2,738 0.85 1,216 0.58 ------------- ------------- ------------- ------------- INCOME FROM CONSOLIDATED COMPANIES 6,248 1.93 2,057 0.98 Equity in net loss of affiliated companies -- -- (13,470) (6.38) ------------- ------------- ------------- ------------- NET INCOME (LOSS) $ 6,248 $ 1.93 $ (11,413) $ (5.40) ============= ============= ============= ============= NET INCOME (LOSS) PER COMMON SHARE: Basic $ 0.17 $ (0.32) Diluted $ 0.16 $ (0.32) ------------- ------------- ------------- ------------- Weighted average shares outstanding: Basic 35.9 million 35.2 million Diluted 38.2 million 36.8 million

Page 5 of 7 HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per BOE and per share amounts, unaudited)

SIX MONTHS ENDED: June 30, 2004 June 30, 2003 ------------------- ------------- ------------- Barrels of oil sold 3,781 3,338 MMCF of gas sold 15,931 -- Total BOE 6,436 3,338 Average price/barrel $ 16.87 $ 14.20 Average price/mcf $ 1.03

$ $/BOE $ $/BOE ------------- ------------- ------------- ------------- REVENUES: Oil sales $ 63,785 $ 47,966 Gas sales 16,409 -- Ineffective hedge activity -- (565) ------------- ------------- ------------- ------------- 80,194 12.46 47,401 14.20 ------------- ------------- ------------- ------------- EXPENSES: Operating expenses 14,707 2.29 15,998 4.79 Depletion and amortization 15,480 2.41 8,494 2.54 Depreciation 879 0.14 731 0.22 General and administrative 8,007 1.24 6,971 2.09 Gain on sale of long-lived assets (578) (0.09) -- -- Taxes other than on income 2,312 0.36 1,618 0.48 ------------- ------------- ------------- ------------- 40,807 6.35 33,812 10.12 ------------- ------------- ------------- ------------- INCOME FROM OPERATIONS 39,387 6.11 13,589 4.08 ------------- ------------- ------------- ------------- OTHER NON-OPERATING INCOME (EXPENSE) Investment income and other 728 0.11 632 0.19 Interest expense (4,937) (0.77) (5,310) (1.59) Net gain (loss) on exchange rates (617) (0.10) 525 0.16 ------------- ------------- ------------- ------------- (4,826) (0.76) (4,153) (1.24) ------------- ------------- ------------- ------------- INCOME FROM CONSOLIDATED COMPANIES BEFORE INCOME TAXES AND MINORITY INTERESTS 34,561 5.35 9,436 2.84 Income tax expense 15,502 2.41 4,160 1.25 ------------- ------------- ------------- ------------- INCOME BEFORE MINORITY INTERESTS 19,059 2.94 5,276 1.59 Minority interest in consolidated subsidiary companies 5,304 0.82 2,102 0.63 ------------- ------------- ------------- ------------- INCOME FROM CONSOLIDATED COMPANIES 13,755 2.12 3,174 0.96 Equity in net loss of affiliated companies -- -- (30,045) (9.00) ------------- ------------- ------------- ------------- NET INCOME (LOSS) $ 13,755 $ 2.12 $ (26,871) (8.04) ============= ============= ============= ============= NET INCOME (LOSS) PER COMMON SHARE: Basic $ 0.38 $ (0.76) Diluted $ 0.36 $ (0.76) ------------- ------------- ------------- ------------- Weighted average shares outstanding: Basic 35.9 million 35.2 million Diluted 38.0 million 35.2 million

Page 6 of 7 HARVEST NATURAL RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)

Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Cash Flows From Operating Activities: Net income (loss) $ 6,248 $ (11,413) $ 13,755 $ (26,871) Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 8,198 5,710 16,359 9,225 Amortization of financing costs 76 141 152 281 Gain on disposition of assets (578) -- (578) -- Equity in net losses of affiliated companies -- 13,470 -- 30,045 Allowance for employee notes and accounts receivable -- 52 -- 103 Non-cash compensation-related charges 167 81 263 123 Minority interest in consolidated subsidiary companies 2,738 1,216 5,304 2,102 Deferred income taxes -- -- -- (667) Changes in operating assets and liabilities: Accounts and notes receivable (1,740) (10,242) (7,642) (4,346) Prepaid expenses and other 7 674 (579) 1,052 Commodity hedging contract payable -- 2,275 -- (4,600) Accounts payable (898) (2,829) (3,537) (494) Accounts payable, related party (4) 525 252 796 Accrued expenses 5,278 13,430 2,416 12,767 Accrued interest payable (2,003) (2,197) (22) 34 Asset retirement liability (709) (2,025) (709) 2,238 Commodity hedging contract payable -- -- -- (430) Income taxes payable 1,903 2,380 3,480 1,065 --------- --------- --------- --------- Net Cash Provided By Operating Activities 18,683 11,248 28,914 22,423 --------- --------- --------- --------- Cash Flows From Investing Activities: Proceeds from sales of long-lived assets 578 -- 578 -- Additions of property and equipment (8,651) (22,945) (9,394) (35,450) Investment in and advances to affiliated companies -- (20) -- (517) Decrease in restricted cash -- -- -- 1,800 Purchases of marketable securities -- (55,726) -- (256,058) Maturities of marketable securities -- 82,796 -- 283,446 Investment costs (314) (384) (887) (362) --------- --------- --------- --------- Net Cash Provided By (Used In) Investing Activities (8,387) 3,721 (9,703) (7,141) --------- --------- --------- --------- Cash Flows From Financing Activities: Net proceeds from exercise of stock options 1,047 39 2,303 159 Repurchase of common stock -- -- -- (404) Payments on short term borrowings and notes payable (1,591) -- (3,183) (2,767) --------- --------- --------- --------- Net Cash Provided By (Used in) Financing Activities (544) 39 (880) (3,012) --------- --------- --------- --------- Net Increase in Cash 9,752 15,008 18,331 12,270 Cash and Cash Equivalents at Beginning of Period 147,239 61,763 138,660 64,501 --------- --------- --------- --------- Cash and Cash Equivalents at End of Period $ 156,991 $ 76,771 $ 156,991 $ 76,771 ========= ========= ========= =========

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