HNR - Harvest Natural Resources

[claphands22]

Venezuela, failed asset sales, going concern warning, financial restatements...oh my!

 

If you like your investments hairy, I present to you the Chewbacca of investments: Harvest Natural Resources. Why go long a company with all these problems?

 

It's simple (maybe too simple) For a company which was about to sell it's main Venezuela asset for $725MM it's current EV is ~$132MM**, the financial restatements were not material and going concern problems could be mitigated by selling their Gabon asset.

 

 

Here is the latest Q4 conference call transcript, with a couple quotes and highlights below

http://seekingalpha.com/article/1401261-harvest-natural-resources-ceo-discusses-q4-2012-results-earnings-call-transcript?part=single

 

...Let me close by saying that company has a set of assets far more valuable than indicated by today’s stock price...

 

...Venezuela is having to deal with and those type of issues tend to be temporary. It will get resolved, but the simple fact that it’s unsustainable. We all know that. But, yeah, we have $90 million more net to Harvest and we wouldn’t be having a lot of the conversations we’re having right now if that piece is working. Having said that, we got a world-class asset that has the $7.25 benchmark on it that is still experiencing growth in reserves and production. So we’ll not put all those things together.  You may not like hearing it, but I think it’s going to require some patience...

 

Patience in the face of uncertainty is a hallmark of good investments.

 

Here are a few more hairs. One, the main Venezualian subsidary, Petrodelta, has a large growth in accounts payable which is a great way of making your contractors uncooperative. Two, the management of HNR are not large equity holders of the stock. Three, eventhough account restatements were immaterial, there were still restatements which makes me question the executive's husbandry of shareholder value: maybe you don't eat your own cooking, but at least keep the kitchen clean.

 

For anyone still interested in diving deeper. Manual of Ideas posted an hour and fifteen minute video on February 2012 when the stock was $6.84 -- it's now $3.30

 

http://greatinvestors.tv/video/the-manual-of-ideas-investment-case-for-harvest-natural-reso.html

 

 

As much as this investment is hairy, this post is sloppy. I look forward to the developments of this company and your thoughts.

 

 

---

**I grabbed this number off yahoo finance, so it's dumb. There are warrants attached to debt offering that would dilute HNR, and these numbers don't reflect the current financial statements. Yet, the main idea is still relevant: the EV is far less than what was just offered for it's Venezuelian asset.

[Myth465]

With 2015 options available this looks like a really nice options play inmo.

I have loosely kept up with it but will have a closer look.

[muscleman]

Looks like a cheap cigarette butt?

[plato1976]

Do we have a imminent catalyst here ?

Do they have a plan to sell that Venezuela asset (potentially around 725MM) soon ?

 

:)

 

Venezuela, failed asset sales, going concern warning, financial restatements...oh my!

 

If you like your investments hairy, I present to you the Chewbacca of investments: Harvest Natural Resources. Why go long a company with all these problems?

 

It's simple (maybe too simple) For a company which was about to sell it's main Venezuela asset for $725MM it's current EV is ~$132MM**, the financial restatements were not material and going concern problems could be mitigated by selling their Gabon asset.

 

 

Here is the latest Q4 conference call transcript, with a couple quotes and highlights below

http://seekingalpha.com/article/1401261-harvest-natural-resources-ceo-discusses-q4-2012-results-earnings-call-transcript?part=single

 

...Let me close by saying that company has a set of assets far more valuable than indicated by today’s stock price...

 

...Venezuela is having to deal with and those type of issues tend to be temporary. It will get resolved, but the simple fact that it’s unsustainable. We all know that. But, yeah, we have $90 million more net to Harvest and we wouldn’t be having a lot of the conversations we’re having right now if that piece is working. Having said that, we got a world-class asset that has the $7.25 benchmark on it that is still experiencing growth in reserves and production. So we’ll not put all those things together.  You may not like hearing it, but I think it’s going to require some patience...

 

Patience in the face of uncertainty is a hallmark of good investments.

 

Here are a few more hairs. One, the main Venezualian subsidary, Petrodelta, has a large growth in accounts payable which is a great way of making your contractors uncooperative. Two, the management of HNR are not large equity holders of the stock. Three, eventhough account restatements were immaterial, there were still restatements which makes me question the executive's husbandry of shareholder value: maybe you don't eat your own cooking, but at least keep the kitchen clean.

 

For anyone still interested in diving deeper. Manual of Ideas posted an hour and fifteen minute video on February 2012 when the stock was $6.84 -- it's now $3.30

 

http://greatinvestors.tv/video/the-manual-of-ideas-investment-case-for-harvest-natural-reso.html

 

 

As much as this investment is hairy, this post is sloppy. I look forward to the developments of this company and your thoughts.

 

 

---

**I grabbed this number off yahoo finance, so it's dumb. There are warrants attached to debt offering that would dilute HNR, and these numbers don't reflect the current financial statements. Yet, the main idea is still relevant: the EV is far less than what was just offered for it's Venezuelian asset.

[claphands22]

Do we have a imminent catalyst here ?

Do they have a plan to sell that Venezuela asset (potentially around 725MM) soon ?

 

:)

 

Good questions.

 

Unfortunately, I have never been able to figure out catalysts. I'm sure if I was a better writer (read: better bullsh**ter) I could make one 

 

In the conference call, they said, they had interests in the asset. I don't know if they'll be able to sell it for 725MM, but you have an idea of what it could go for. Chevron still invests billions in Venezuala, they probably don't think HNR's Venezualian asset is worth 0. 

[claphands22]

Looks like a cheap cigarette butt?

 

I wouldn't call it a cigar butt, but we could be arguing semantics. I view cigar butts as something with obvious liquidable assets (cash, real estate, land, stocks) that are higher than a conservative estimate of the company's liabilities. In this situation, this company's main asset, Petrodelta, isn't obviously liquidable.

 

By the way, to implant more hair on this beast, Petrodelta owes HNR 90MM in dividends and are long overdue. So not only have they not been paying their contractors on time, they haven't been paying their shareholder (HNR).

[Myth465]

I have looked at this for a few hours and there is just too much hair.

 

No cash

Cash draining resources

Political risk in Venezuela with a new uncertain president

Acct / Going concern issues

 

http://seekingalpha.com/article/1287401-harvest-natural-resources-does-share-price-drop-present-an-opportunity

 

I dont see them getting much cash for the exploration assets, and believe the Venezuelan assets may be hard to sell given the uncertainty. This is more like a lotto ticket than an option. I also dont like the lack of Div payments, when I looked at HNR in 2008 / 2009 they had gotten a payment or 2.

 

It just goes in the too hard pile. I much prefer PWE, which pays 11% why you wait and may have a billion dollar asset sale pending .

I think Harvest will work out, but I have lost money on investments which had much better prospects...

[claphands22]

Out of HNR after they dumped their auditor.

[redhots]

Still some risk here but they received $125 million for the first part of Venezuela sale.  If things go right they could get $275 million more for the second part of the sale mid year.

http://finance.yahoo.com/news/harvest-natural-resources-announces-share-113700036.html

 

And they paid off their debt on Jan 10.

http://finance.yahoo.com/news/harvest-natural-resources-announces-completion-111300855.html