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Harvest Natural Resources Reports Reserve Increase at El Salto Field

Harvest Natural Resources, Inc. (NYSE: HNR) today announced an increase in reserves attributed to Petrodelta, S.A., Harvest's 32% indirect owned Venezuelan affiliate.  

The increase is a result of a new reserve report dated September 30, 2010 for the El Salto field, which is the largest of the six fields operated by Petrodelta.  Proved and probable ("2P") reserves net to Harvest in Venezuela have increased to 103.0 million barrels of oil equivalent ("MMBOE") at September 30, 2010, a 26% increase over year end 2009.  Proved reserves net to Harvest in Venezuela increased to 50.4 MMBOE at September 30, 2010, a 10% increase over year end 2009.  These reserve additions are the result of successful recent drilling and the extension of Block 5, a previously proven fault block in the El Salto field.  The reserve report was prepared by the independent petroleum engineering firm of Ryder Scott Company, L.P. (Ryder Scott) at Harvest's request.

As used in this press release, references to oil and gas reserves that are "net to Harvest" refer to Harvest's net 32% indirect equity interest in Petrodelta after deducting a 33.33% royalty and do not refer to working interest ownership or other ownership interest held directly by Harvest.  

Highlights of the interim reserves report:

  • The discovery of a southern extension to El Salto Block 5 through the drilling of the ELS 33 and ELS 34 wells.  The drilling has added 394 million barrels ("MMBO) of gross oil-in-place, and 28.2 MMBO gross of proved, probable and possible oil reserves through 2027.
  • Total gross oil-in-place at the El Salto field is now estimated at 7.1 billion barrels compared to 6.7 billion barrels at year end 2009.  
  • The increase in proved reserves is driven by the successful completion of three producing oil wells, ELS 32, ELS 33 and ELS 34, since June 2010.
  • In the El Salto field only, 2P oil reserves net to Harvest now stand at 66.3 MMBO, an increase of 20.0 MMBO, or 43%, from year end 2009.  Proved oil reserves are 22.9 MMBO, up 29% from last year.
  • The Before Tax Discounted Future Net Income from the El Salto field 2P reserves net to Harvest has increased to $1,456 million, a 95% increase from year end 2009.

The interim reserve report only included the El Salto field.  In the opinion of Harvest, there has been no material change to the reserves at the other five fields except for production in 2010.  After adjusting the other five fields from year end 2009 reserves for 2010 production through September, the total 2P oil and gas reserves in Venezuela net to Harvest are now estimated to be 91.9 MMBO and 66.6 billion cubic feet of gas ("BCF") or 103.0 MMBOE.  The reserves of all six fields in Petrodelta will be reviewed at year end 2010.

Harvest President and Chief Executive Officer, James A. Edmiston, said, "This new reserve report on El Salto documents the continued impressive results of Petrodelta's appraisal and development drilling program in the prolific El Salto field.  Since year end 2008, through the drilling of a total of five wells in El Salto, Harvest's net proved and probable oil reserves in El Salto have surged to 66.3 MMBO from 28.8 MMBO, a 130% increase in less than two years."

Edmiston continued:  "Taking into account the production net to Harvest of 1.3 MMBO and 0.4 BCF from year end 2009 through September 2010, the total proved reserves net to Harvest in Venezuela have increased to 50.4 MMBOE from 46.3 MMBOE at year end 2009.  This represents a proved reserve replacement ratio of 300% in only nine months.  Proved plus probable reserves net to Harvest in Venezuela now stand at 103.0 MMBOE compared to 83.3 MMBOE at year end 2009 and 71.0 MMBOE at year end 2008.

"Since the commencement of Petrodelta's operation of the El Salto field, the mapped gross oil-in-place in the nine drilled fault blocks has increased by 51% to 7.1 billion barrels, driven by new drilling and the resulting improved petrophysical analysis.  This year, Petrodelta has also reprocessed and reinterpreted 1000 km of 2D and 110 square km of 3D seismic, which has identified at least ten prospective, yet undrilled, fault blocks within the El Salto licensed area.  Harvest's internal geological mapping suggests that these additional fault blocks could contain more than 4 billion barrels of unrisked gross oil in place."

The reserve report for the El Salto field assumes a West Texas Intermediate crude oil price of $77.34 per barrel, which yields $69.12 per barrel after adjustment for location and quality.  The natural gas reserves were based on a contractual price of $1.54 per thousand cubic feet (Mcf).  Both oil and gas prices were held constant.

Reserves Disclosure

In December 2008, the SEC issued its final rule, Modernization of Oil and Gas Reporting, which is effective for reporting 2009 and forward reserve information.  The SEC's Modernization of Oil and Gas Reporting allows the disclosure of probable and possible reserves.

Proved reserves are those quantities of oil and gas which by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible from a given date forward from known reservoirs and under existing economic conditions, operating methods, government regulations, etc., i. e., at prices as described above and costs as of the date the estimates are made.  Prices include consideration of changes in existing prices provided only by contractual arrangements, and do not include adjustments based upon expected future conditions.  Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.  Possible reserves are those additional reserves which are less certain to be recovered than probable reserves and thus the probability of achieving or exceeding the proved plus probable plus possible reserves is low.

Reserves may be estimated using probabilistic methods in which there is at least a 90% probability of recovery of proved reserves, at least a 50% probability of recovery of probable reserves, and at least a 10% probability of recovery of possible reserves.  Our probable reserves were calculated using probabilistic methods and represent the 50% probability that the actual quantities recovered will be equal to or greater than the proved plus probable estimate.  The larger quantity of proved reserves plus probable reserves, as compared to proved reserves only, is attributable largely to using a less conservative interpretation of reservoir size and recovery factor in estimating probable reserves.

The estimate of reserves is made using available geological and reservoir data as well as production performance data.  These estimates are prepared by an independent third party petroleum engineering consulting firm and revised, either upward or downward, as warranted by additional data.  Revisions are necessary due to changes in, among other things, reservoir performance, prices, economic conditions and governmental restrictions, as well as changes in the expected recovery associated with infill drilling.  Decreases in prices, for example, may cause a reduction in some proved reserves due to reaching economic limits earlier.  A material adverse change in the estimated volumes of proved reserves could have a negative impact on DD&A expense and could result in the recognition of an impairment.

In calculating the reserves in this press release, initial production rates are based on the current producing rates for those wells now on production.  Test data and other related information were used to estimate the anticipated initial production rates for those wells or locations that are not currently producing.  If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated.  An estimated rate of decline was then applied to depletion of the reserves.  If a decline trend has been established, this trend was used as the basis for estimating future production rates.  For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by Harvest to Ryder Scott.

Ryder Scott performed a reserve evaluation on the El Salto field with an effective date of September 30, 2010.  The El Salto field represents approximately 55% of proved oil reserves, 87% of probable oil reserves and 75% of possible oil reserves of Harvest Natural Resources in Venezuela.  Harvest believes that no material changes in remaining reserves have occurred in the other five fields of Petrodelta (Uracoa, Bombal, Tucupita, Isleno and Temblador) since December 31, 2009.  Reserves on these other five fields have been estimated effective September 30, 2010 by subtracting the actual volumes produced and sold during 2010 through September 30, 2010 from the reserves as of December 31, 2009.  

Source: Harvest Natural Resources, Inc.

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