Below is transcript of the Harvest Natural Resources, Inc. (NYSE:HNR)’s Investors’ Conference Call, held on January 20, 2015 at 10:00 a.m. EST. Glenhill Advisors, Gruss Asset Management and Trellus Management Company was among Harvest Natural Resources, Inc. (NYSE:HNR) shareholders at the end of the previous quarter.
Harvest Natural Resources, Inc. (NYSE:HNR) is a petroleum exploration and production company. The Company is engaged in the exploration, development and production of properties in geological basins with proven active hydrocarbon systems. The Company holds interest in the Bolivarian Republic of Venezuela (Venezuela).
Company Representatives:
Keith L. Head – Vice President Harvest Natural Resources
James A. Edmiston – President and CEO Harvest Natural Resources
Operator
Good Morning and welcome to the Harvest Natural Resources’ investors’ conference call. As a reminder, this call is being recorded. I’ll now turn the call over to Mr. Keith L. Head Vice President, General Counsel for Harvest Natural Resources. Please go ahead.
Keith L. Head Vice President
Thank you! Good Morning and welcome to Harvest Natural Resources’ investors’ conference call. Earlier today the company filed a form 8-K with SEC in connection with this conference call and the few hours of replay of today’s call will be available in Investors relation portion of our website at www.harvestnr.com. Additionally, a telephonic replay will be available this afternoon by dialing 719-4570-820 pass code 8506893. This conference call will contain various forward looking statements and information including management’s expectations regarding financial operating at the results. These statements are based on management’s beliefs as well as assumptions made by and information currently available to management.
Although the company believes that the expectations reflected in such forward looking statements are reasonable, we can give no assurance that such expectations will proved to have been correct. Actual results may differ materially from the company’s expectations due to change in operating performance, project or billing schedules, oil and gas prices, as well as other technical, political and economic factors. Additional detailed information concerning a number of factors could cause actual results to differ materially from today’s information is readily available in company’s SEC filings under the heading risk factors and disclosure regarding our results.
Investors are urged to consider closely the disclosure of form 10-k which is available in SEC on our website. In addition, we will discuss potential transactions involving company assets. We can give no assurances that those transactions will be completed. At this time, I would like to turn the call forward to Mr. James A. Edmiston, Harvest Natural Resources’ President and Chief Executive Officer.
Mr. James A. Edmiston, Harvest Natural Resources’ President and Chief Executive Officer.
Thanks Keith and thanks for joining us today. I’m required to add a bit more color to the recent current relation 8-K where we announced the recent request for arbitration against Venezuela. I’m required to summarize with such proceeding looks alike in terms of steps and timing as well as what this actually means for company on strategic terms. Let me state up front that while our decisions at current route shouldn’t be surprising for most observers, it is certainly not our preferred outcome. We simply had no other options to preserve out rights in this case.
Where clearly pursuing arbitration will require the company to make strategic shifts that soon become irreversible so I communicate clearly and I hope that Venezuela will understand that there is remains a very short wonder of opportunity urgently set things right before those parties march out of the arbitration path. Till that point, I don’t want to use this call to one and a half an hour on is been treated in Venezuela nor do I think it serves their purpose at this stage. As a result I do not planned a whole Q&A session of this call but as always you are free to contact company directly with your questions in the coming days and weeks.
Let start with our request for arbitration and discuss some of the legal background, timing and issues related to the request. Harvest filed a request with ICSID the international center for settlements of investments disputes and institutions offered by the World Bank in Washington DC, where in 50 years the ICSID has served as a neutral arbitration form for international disputes. Specifically, harvest claim relates to the Government of Venezuela violations under the Netherland Venezuela bilateral investment treaty or with which the two countries signed back in 1991. Harvest’s investment in Venezuela is entitled protection under the Netherlands bet cents. Through the years the investment is being held by [inaudible]. Although Venezuela terminated the Netherland’s bet in 2008 the treaty contains the some set provision under which investors continue to be protected until 2023.
Further, the Netherland bet provides the resolution of investment disputes to be held before ICSID, [inaudible] few set of rules that determine how arbitrating cases will be conducted. The ICSID convention and ICSID traditional facility. As many of you know, Venezuela has announced the ICSID convention in 2012, and has taken a position is no longer bound to arbitrate this under the ICSID convention. Now I’d like get into the legal detail that Harvest believes its proceedings should be conducted under the ICSID convention for several reasons, including the fact that in earlier 2005, our [inaudible] party to the arbitration provided a notice of dispute letter under the which specifically consenting the arbitration under the ICSID convention.
We believe that in the arbitration, Harvest Investment will receive fair treatment and any award in favor of company will ultimately be enforceable against Venezuela Government. Our form 8-k filed Friday, contains the description of some of the conduct by the Venezuela Government which we believe violates Netherlands bet. I can’t and won’t elaborate in going into the further details with respect to claims set forth in the request but the claims includes that very of the Government to approve two separate transactions the company entered into this [inaudible] transactions which would each been fully added with your appropriate authorities prior to undertaking either transactions.
As you would recall Harvest entered into transaction with [inaudible] 2012 to sell us 32% stake in Petro Delta for 725 million And is we have recently announced the transactions to sell of our remaining 20.4% interest in Petro Delta to crude petrol for 275 million terminated because of failure to receive the Venezuela Government approval. As we noted in our announcement in each of these transactions, the government conditioned its approval on wholly unreasonable and extra contractual conditions. Although, the barrier of the Govt. to allow Petro Delta to pay approved and declared dividend to 12.2 million dollars, as well as the barrier to allow Petro Delta to approve and declare dividend since 2010.
Next, the denial of Petro Delta right to fully explore and develop the reserve within its designated area. Also, the failure of the Govt. to make payments to Petro Delta for all hydro carbon sales. Recordings instead are now going balance in the accounts of Petro Delta, as well as barrier to pay Petro Delta for its hydro carbons in US Dollars. Also, in appearance with Petro Delta operations including its affiliates act as supplier and material and equipment and provide their services to Petro Delta.
Further, in appearance of Petrodelta’s lack of management including the use of oil, Bolivar’s US dollars exchange rates to the debt of manufacture delta and to the benefit of the Valenzuela government panavases and its affiliates. And finally, the fort’s migration of the harvest investment in Venezuela from an operating services agreement to a mix company structure in two thousand and seven. These actions incrementally and in total operated harvest rights as in investor as this systematically toward the development of our investment in Venezuela as long as our ability accelerate us there. Now let me turn to the anticipate Carnie of the Arbitration process Athens any new term could save for resolution of our dispute. Peace of mind that these are merely estimates and there are many factors that being to this time which fact it to officially acknowledge the request for arbitration in the next week or so, and it’s would then screen and read the server request.
At the registration of the request the parties will each appoint an arbitrator and the chairman will be agreed to or pointed by ICSID. All together this process could take approximately six months, then sixty days of the apartment of the arbitration panel. A schedule hearing will be help to set forth procedure that matters relevant to the timeline case up to demonize for briefs exchange and production of documents hearing day etcetera. A specific timeline be on this point in deck will to project whatever of that case scenario would be looking at the hearing or the merits of late two thousand sixteen what is the decision from the panel in mid the late two thousand seventeen. However, those of you who will follow the arbitration proceedings involved in catacode exam mobile metal the process came hour will be for your ranking.
Now let’s move on and discuss what this action needs in terms of strategic plans in new term changes for the company. You will recall that we intended you to proceeds from the terminated close to transaction wants to present the award of directors be often that moving forward with early development appraisal aspiration of Japanese softer book where were there to outstanding things that today the aspiration program and where were putting the finishing touches or an interpretation of the out forward precisely or we continue to believe order of magnitude potential exist relative for our current discoveries. On the other end even in the case of the Venezuela of sale haven’t been estimated.
The board would also consider the option of a follow-up outright sale to voted return of capital of shareholders. To those were kind of arrange of options to be considered post poking of the Venezuela sale. Management’s focus of the past several months has been to fully develop these options for the board’s consideration. To that end we shut down all offices, the headquarters and Venezuela and cut our run rate to minimal GNA and technical and for engineering activities related to the vote. In bear well with those activities will take days of the past several months with select group of interested parties and discussed in commercial opportunities throughout the block including barmen’s as well as part for outright sales will continue to be active in that regard.
However as I mentioned before Venezuela’s actions regarding the failed sale very significant strategic coop. co insist for our company. Absent in an urgent resolution of our dispute with Venezuela which provides the proceeds expected from the sale of our interest in Petro Delta. As we pick options are now more restricted as it relate accordingly and given those the equity in that market as at this point award capitalization which to allow harvest invest forward with their [inaudible] more challenging and seems unlikely.
Rather without a neutral resolution with Venezuela or a larger capitalization the most likely outcome we include shorting it return with liquidity in order to defensively market our like a bone interest and you pick a bone sale proceeds to A fully form an arbitration, B extinguishing your lacks of abilities, and C finally distribute for remainder the shareholders, effectively pointing down the company with the exemptions of the arbitration claim. In seven days we will address new term liquidity to get us through the above process and short term which expects the run rate to be in one point three million dollar per month range includes our new term legal expense increase.
Our preference is to place the verge loan to the bone sale and where we will make happen the equity market from their current stance as on. We don’t have news on that approximate next few weeks. Although I remain helpful and open to a solution between the parties, we are not in the position to lazy actions described beforehand without a fern and an urge that resolve on the part of Venezuela authorities to address the problem and yet to be cleared that at this point no such discussion are taking price. Anyway I hope this call has been helpful you’re encouraged to follow-up if you have any questions and again thank you for joining us today.
Operator:
And that does conclude your teleconference for today thank you for your participation. You may disconnect at any time.
