TER: What is the shape of Harvest's debt:equity ratio and cash flow?JW: Its cash flow is effectively zero. Harvest has producing assets in Venezuela, which it is selling because the Venezuelan government has asked it very politely not to take any money out of the country. It does not get to repatriate the cash flow. The Gabon asset is close to generating cash flow, however. Harvest's debt:equity ratio is not bad. It carries $80 million ($80M) in debt. The equity value is $200M. So its debt:equity range is 25-30%. The company intends to pay off its debt with cash from the Venezuelan sale. But the current cash flow, in my opinion, is not the best way to value Harvest, because the true value is in it assets—either for development or for sale. TER: How can investors make money off of Harvest? JW: Right now, the stock is trading in the $5-and-low-change range. If the deal with Pluspetrol goes through, Pluspetrol will take over Harvest Natural Resources, and pay about $6/share in cash—and every other asset will be spun off into a new company. So $5.14/share means $6 in cash and a spun-off asset of everything but Venezuela, which has had its share of headaches, anyway. Again, $6/share in cash and about $3/share in new stock is a good return. Obviously, Harvest has to complete the deal in Venezuela, which is not necessarily a walk in the park, but there is ample upside to it. TER: Why does Pluspetrol, an Argentinean company, want to buy a Venezuelan operation? JW: In July 2012, Harvest tried to sell the asset to a company called PT Pertamina, the state-owned Indonesian company, for $715M. One of the contingencies of the agreement closing was that PT Pertamina and Indonesia and Venezuela sign off on the deal. But the Indonesians walked away and the stock fell from $10-11 to the $3-4 range, where it languished. It recently popped on the news of the $373M Pluspetrol deal, which is tax friendly because the ability for Pluspetrol to buy Harvest as a whole means that the entire $373M can enter the States. Harvest then can pays off its $80M debt. After fees, there will be $240M left for the equity holders, which, with 40M shares outstanding is $6/share in cash. At that point, the shareholder is responsible for the taxes. This allows the shareholder to get a much larger amount of capital or cash while still having all the other same assets in a more tax-friendly situation. TER: What other acquisitions or sales are in play with companies that you follow? JW: Gulfport Energy Corp. (GPOR:NASDAQ) is one of my favorite names. It has a sizable oil sands position through a 25% interest in a company called Grizzly Oil Sands ULC (private). It is expected to bring production online for its SAGD project in Canada before year-end. That will unlock a lot of value and allow Gulfport and its partners to monetize assets through an initial public offering or an outright sale of the company in a year or so. Bill Barrett Corp. (BBG:NYSE) is taking competitive bids on three different properties—gas assets in the Piceance Basin and the Uintah Basin and oil assets in the Powder River Basin. It plans to monetize one of these three assets to pay down debt in order to keep its liquidity position strong and to reform its balance sheet. It started the year at a debt level of $1.1 billion ($1.1B), and it has vowed to not let that level move any higher from Dec. 31, 2012 to 2013 through utilizing an asset sale. In the Denver area, Triangle Petroleum Corp. (TPO:TSX.V; TPLM:NYSE.MKT) is diversifying into services under the leadership of Peter Hill, who used to work at BP Plc (BP:NYSE; BP:LSE). Hill saw that hydraulic fracking services are tough to get, especially for a smaller company. Midstream fracking services are effectively nonexistent in the Bakken. Hill decided to expand production and acreage position in the Williston Basin while investing in building infrastructure to move oil to the market. Triangle runs a portfolio approach, which is a bit of a rarity within the industry. There are a few companies that do something similar, but usually they are larger than Triangle. Triangle itself is a self-contained company. It rents rigs and equipment while drilling its own acreage. It has midstream pipes for transporting water, gas, and oil. It fracks for itself and also for third parties. TER: How is its stock performing? JW: In the last six months, Triangle's stock has doubled. It has grown its acreage position. It has continued to see better and better returns on both the fracking business and the midstream transport business. Investors get excited about an asset when it starts producing revenues, cash flow, EBITDA and earnings per share numbers. All of the Triangle segments now produce positive EBITDA. That is a huge win for the small conglomerate. TER: Are there any other companies that investors should pay attention to? JW: Resolute Energy (REN:NYSE) has a nice legacy asset in Southern Utah called the Aneth field. It has been producing for a very long time. It gets great oil production out of it. Resolute is free cash flow positive, which is a rarity in this day and age, and a high growth rate in the 5-10%/year range. The company is in the Permian basin and it has purchased 22,000 net acres in both the Delaware and Midland basins, where it is drilling horizontally under the radar of the boom. It should have results in the next couple of months. TER: Thank you for spending time with us today, Jason. JW: You are welcome, Peter. Jason Wangler has over five years of equity research experience focused on the exploration and production and oilfield services sectors of the energy space. Jason previously worked at Wunderlich Securities Inc. and Dahlman Rose & Company before moving to SunTrust Robinson Humphrey. He also previously worked at Netherland, Sewell & Associates, Inc. as a petroleum analyst. He received his Masters in Business Administration from the University of Houston where he was also named the 2007 Finance Student of the Year. He received his Bachelor of Science degree in Business Administration with a focus on Finance from the University of Nevada where he was named the 2003 Silver Scholar award winner for the College of Business Administration. In 2010 he was highlighted as a "Best on the Street" analyst by The Wall Street Journal and has been a guest on CNBC. DISCLOSURE:
1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None. 2) The following companies mentioned in the interview are sponsors of The Energy Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
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