Harvest rose 23 percent to $7.70 at the close in New York, the biggest gain since June 18, 2007. The Houston-based oil producer is in exclusive talks to sell its 32 percent stake in the Petrodelta joint venture in Venezuela, it said in a statement today.
“While no dollar amounts were provided, news of an imminent sale has nonetheless put a charge into shares today,” Chad Mabry, senior oil and gas analyst at Rodman & Renshaw LLC in Houston, said today in an e-mailed note to clients.
Harvest has had trouble getting regular payments from Petrodelta majority partner Petroleos de Venezuela SA, and its assets in the South American country are undervalued because of political risk, John Malone, a senior analyst at Global Hunter Securities LLC in New York, said today in a telephone interview.
“You can’t be certain that politics will change in Venezuela,” Malone said. “It’s a fantastic asset, but whoever is going to make it produce is going to be someone with very deep pockets and a little more leverage with the government.”
About 4.3 million Harvest shares have changed hands today, more than nine times its 90-day average.
PDVSA, as the Caracas-based state oil company is known, has a 60 percent stake in Petrodelta. The venture produced 31,205 barrels a day in 2011, an increase of 33 percent from 2010, Harvest said today in the statement.
Harvest was raised to “buy” from “neutral” at Pritchard Capital Partners LLC by equity analyst John Abbott. His 12-month target price is $12.00 a share.
“Somebody who can navigate the political risk better might be willing to pay up for it,” Malone said. A strategic buyer such as an Asian national oil company might buy the assets, he said.
“If the assets were in Colombia, they would be worth significantly more. But they’re not,” Malone said.
Harvest’s present value of net future reserves in Petrodelta was $543 million at the end of last year and would imply a value of $13 to $14 a share if a Petrodelta sale values its reserves in that range, said Mabry.
Petrodelta is self funding, produces dividends and has margins of around $30 a barrel, Harvest Chief Executive Officer James Edmiston said on a conference call in August 2011.
“The upside technically on this asset is extremely high. So the real issue that we’re talking about is political risk,” he said at the time. “There is no reason to sell this thing in a fire sale. It’s not draining resources from the company, it’s not draining capital from the company.”
Petrodelta’s proved plus probable reserves on Dec. 31, 2011, net to Harvest, are 103.7 million barrels of oil equivalent, the company said today.
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