Harvest Natural Resources Inc. (NYSE: HNR) reported Jan. 2 that the share purchase agreement (SPA) between Petroandina Resources Corp. NV, Pluspetrol Resources Corp. BV, Harvest, and HNR Energia BV, a wholly owned subsidiary of Harvest, for the purchase of Harvest's remaining interests in Venezuela for a purchase price of $275 million in cash has been terminated as a result of the failure to obtain approval of the transaction from the government of the Bolivarian Republic of Venezuela by Dec. 31, 2014.
Representatives of the Venezuelan government and Corporacion Venezolana del Petroleo SA (CVP), a PDVSA affiliate who along with another PDVSA affiliate owns a 60% interest in Petrodelta, informed Harvest and Petroandina that any approval of the contemplated transaction would be conditioned on Petroandina guaranteeing an unspecified bonus payment for access to Petrodelta's reserves and $1.52 billion of financing for Petrodelta. Neither of these conditions exists as contractual obligations related to ownership in Petrodelta and ultimately Petroandina and the Venezuelan government could not reach an agreement on those matters.
Harvest and Petroandina signed the SPA on Dec. 16, 2013, and closing of the transaction had been subject to, among other things, approval by the company's stockholders and the government of the Bolivarian Republic of Venezuela. On May 7, 2014, the company's stockholders approved the sale of the company's remaining interests in Venezuela to Petroandina.
As a result of the termination of the SPA, Harvest will retain its 20.4% interest in Petrodelta and Petroandina will retain its 11.6% interest in Petrodelta, which it had purchased from Harvest for $125 million in cash on Dec. 16, 2013.
Regarding the termination of this deal, Wunderlich Securities analysts commented, “Harvest Natural Resources (HNR) announced this morning that its Venezuelan sale has been terminated. The deal was on the table for a year and since May 2014 only needed Venezuelan approval to close. Obviously this would have been a big step for HNR given the $275 million cash payment to the company that well exceeds its market capitalization of the company.
“It looks to us like basically Venezuela wanted a lot of money just to transfer the assets, which, in our view, sounds pretty close to a bribe. Venezuela essentially told the parties that it needed an unspecified bonus payment for access to the reserves and $1.52 billion in financing for the company. We believe the latter was possible and that the buyer was willing to do this but the buyer likely would not want to pay what amounts to be a possible bribe.
“Harvest and the buyer retain their interests from the previous deal. The company now has a 20.4% interest in Petrodelta and Petroandina/Pluspetrol has 11.6% due to the first tranche closing that generated $125 million in cash for Harvest.
“At this point, Venezuela is probably not worth much given the inability to generate cash from the assets or get a sale done. Sadly, despite the lucrative oil assets and strong production, these assets are worth little to Harvest until it can unlock that value, and with the company having no luck on dividend payments or getting approval selling the assets there aren't many avenues left so we think at this point Harvest has to wait for a better day/regime before it can try again to generate returns.
“Gabon still holds value, is in a friendlier place, and could be a source of funds. The company mentioned on the release that it would look at strategic alternatives to strengthen the balance sheet and we believe the best/easiest one at this point would be a monetization of all or part of its Gabon interests. Recall the company had a $125 million deal (or about $3/share) struck in 2013 that it walked away from and, given recent successes in the region and HNR's seismic processing, that number could move higher if a deal could be struck.”