HNR: Potential sale of assets or company

In the previous quarter, management had mentioned there were interests from third parties for company’s assets and for acquisition of the entire company. Today’s announcement by management shows that there has been an offer made by a third party.

Harvest Natural Resources, Inc. today announced that it has retained BofA Merrill Lynch to provide advisory services to assist the Company in exploring a broad range of strategic alternatives for enhancing shareholder value.  These alternatives could include, but are not limited to, certain extraordinary transactions, including, possibly, a sale of assets or a sale or merger of the Company.

Harvest President and Chief Executive Officer, James A. Edmiston, said:  “The decision to engage BofA Merrill Lynch reflects the Board and management’s careful consideration of Harvest’s current enterprise value as indicated by its stock price relative to our own internal valuation of the asset portfolio, the near and mid-term capital requirements of our business plan relative to our financial position, and preliminary expressions of interest received from third parties.  This initiative is designed to examine all possible alternatives to unlock the potential of our assets and maximize value to our shareholders.”

Although the company did not mention the details of the third party interests, my take from the language is that the company has received a low ball offer to acquire the entire company. Management is now going to look to get a offer close to the company’s internal valuation, I think this is in the $15-20/share range.

Also, in today’s 8K the company mentioned that the reserves will be increased substantially with the coming months.

Edmiston continued:  “Since the contract conversion in Venezuela at year-end 2007, Petrodelta’s production growth and the potential of the Temblador and El Salto fields have been clearly demonstrated.  We have recorded significant reserve growth over that short period, primarily due to the outstanding results of the initial drilling in El Salto.  It is anticipated that our interim reserve report, due to be released in early October, will continue to build on that trend. Additionally, our Antelope project in Utah, beginning with the successful Monument Butte northern extension and followed by our Bar F discovery, has positioned the Company for a sustained oil appraisal and exploitation project on our extensive acreage position.

This increase in reserves should substantially up any acquisition offer for the company. The timing of hiring Merrill Lynch and the update on the reserves in early October leads me to believe we could see a transaction happen very quickly.

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