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Press release from CNW Group

HRT - 1st quarter 2013 earnings results

Wednesday, May 15, 2013

HRT - 1st quarter 2013 earnings results

03:34 EDT Wednesday, May 15, 2013

RIO DE JANEIRO, May 14, 2013 /CNW/ - HRT Participações em Petróleo S.A. - "HRT", "HRTP" or "Company" (BM&FBovespa: HRTP3 and TSX-V: HRP.V) announces its results for the first quarter of 2013 ("1Q13"). Unless otherwise specified, the financial and operational information below is presented on a consolidated basis and stated in thousands of Brazilian Reais (R$) according to International Financial Reporting Standards (IFRS), including our direct subsidiaries: HRT O&G Exploração e Produção de Petróleo Ltda. ("HRT O&G"), Integrated Petroleum Expertise Company - Serviços em Petróleo Ltda. ("IPEX"), HRT Africa Petróleo S.A. ("HRT Africa"), HRT Netherlands B.V. ("Netherlands"), Air Amazonia Serviços Aéreos Ltda. ("Air Amazonia"), and HRT America Inc. ("HRT America"), its respective subsidiaries and branches.

1Q13 HIGHLIGHTS

CORPORATE

  • Completion of the Annual Shareholders' Meeting for the election of new Board Members through a cumulative voting procedure, increasing the number of independent members to nine, and election of a Fiscal Council;

  • Signing of a binding Term Sheet for the sale of Air Amazonia;

  • Qualification as an "A" Operator granted by ANP (Brazilian National Agency of Petroleum, Natural Gas and Biofuels).

SOLIMÕES BASIN

  • Conclusion of 1-HRT-10-AM well drill stem test;

  • Four-year extension of the second period of the exploration phase for 10 blocks, granted by ANP;

  • Spud of well 1-HRT-11-AM.

POLVO

  • Signing of a PSA with BP Energy do Brasil to acquire 60% participating interest in the Polvo Field.

NAMÍBIA BASINS

  • MME approval for the transfer of a 14% participating interest in PELs 23, 24 and 28 to Galp Energia;

  • Spud of the first offshore well on the Wingat-1.

MANAGEMENT REPORT

In the First Quarter of 2013, HRT has experienced one of the most important achievements since the IPO: the negotiation for the acquisition of a 60% participating interest in the Polvo Field in the Campos Basin, in the State of Rio de Janeiro. HRT and HRT Oil & Gas have entered into a Purchase and Sale Agreement (PSA) with BP to acquire a 60% stake in the Polvo Field, besides the "Polvo A" fixed platform and a 3,000 HP drilling rig for a total sum of US$ 135 million.

Polvo's transaction and the recent confirmation of our Class "A" Operator qualification by ANP are key milestones in the implementation of our strategy to diversify our portfolio beyond exploration assets. Polvo is a great fit for HRT, due to its potential and the previous experience our staff had with the asset. Our team of upstream professionals includes geologists and engineers who discovered and operated Polvo prior to BP's acquisition of the asset from Devon in 2011. We know the field well and see untapped potential for further exploration and future production within the larger license area.

It is worth noting that the completion of this transaction is subject to certain conditions, including final ANP`s approval. But most of all, I would like to highlight that, in less than three years since its start up, HRT, upon conclusion of the deal, will be the 4th largest oil producer in Brazil. We are confident that this step will keep driving the company towards a sustainable future.

As we have mentioned last quarter, the year started with the need of undertaking corporate initiatives, which included a review of the organizational structure, the cash flow preservation, and the planning of the exploratory campaigns in Namibia and in Solimões basins.

It has been a year of hard work, and we have made a lot of progress. We have increased the operational efficiency of the drilling rigs in the Solimões, following a steep learning curve that allowed us to considerably reduce the drilling time and cost in the Solimões Basin. We have concluded the drilling of the HRT-11 well in less than 60 days and now is being evaluated.

In line with the strategy to concentrate efforts on the company´s core business, HRT signed a binding Term Sheet with Erickson Air-Crane regarding the sale of Air Amazonia. The transaction involves the sale of the Company's rotary-wing fleet (14 helicopters) for US$65 million, with the understanding that Erickson Air-Crane will provide aerial services to the Company`s operations in the Solimões Basin for a three-year period. This will provide flexibility and productivity to HRT O&G work program, and the increase in efficiency will bring cost savings to our operations in the Solimões Basin.

Talking about achievements, it is important to mention that ANP has granted a four-year extension of the second period for 10 blocks located in the southern and eastern parts of the Solimões Basin. This extension confirms the commitment that HRT made to further evaluate its frontier blocks. The gas findings in wells 1-HRT-5-AM, 1-HRT-9-AM and 1-HRT-10-AM indicate that the extension to the southern structural trends have potential for new hydrocarbon discoveries. This new four-year period is aligned with the strategy to expand the exploratory campaign to the southern and eastern blocks, where seismic data have been acquired and rigs prepared to drill.

In addition, HRT was granted an extension of concessions by the Government of the Republic of Namibia in respect of the first exploration rights over the ten blocks that we operate, until 2016. Namibia is the only country in West Africa that has not made any oil discoveries so far. HRT is confident that the combination of assets with outstanding potential and its world-class team will allow the company to become a leader in oil and gas.

In the first quarter, HRT announced the spud-in of the Wingat-1, at PEL-23, the first offshore well in its three back-to-back drilling foreseen at its exploratory campaign this year. This well had a target to encounter the reservoirs of an Albian carbonate platform, which were hit at 4,050 m depth below the sea-level. HRT forecasts that the current activities in the Wingat-1 well will be concluded next week.

HRT today has a volume of net risked Pmean prospective resources, in Namibia and Solimões, of approximately 7.8 billion BOEs, in addition to the 3C contingent resources of 0.5 billion BOEs in the Solimões.

To conclude the quarter, we have elected a Chairman and Vice Chairman to the Board of Directors of HRT. John Anderson Willott, former Vice President of Exploration for North and South America and Vice President of Worldwide Production Geoscience for Exxon Mobil, was elected as the Chairman of the Board. Oscar Alfredo Prieto, current CEO of Pan American Energy, was elected as Vice Chairman. The Board now has two other new members Mr. François Moreau and Stefan Alexander. On behalf of HRT´s management, I would like to welcome the 11 members elected and to emphasize our commitment to keep focusing on the areas of corporate governance and compliance to ensure that, as we grow, we continue to reflect the international best business practices.

Milton Romeu Franke
CEO of HRT

CORPORATE GOVERNANCE

On April 29, HRT held its Annual Shareholder's Meeting to elect its new Board of Directors. The voting procedure resulted in the election of additional three independent members. John Anderson Willott was elected as the Chairman and Oscar Prieto as the Vice Chairman of the Company's Board of Directors.

The Board was completed, with a mandate of two years, by: Marcio Rocha Mello, Wagner Elias Peres, Elias Ndevanjema Shikongo, François Moreau, Joseph P. Ash, Peter L. O'Brien, Stefan Alexander, Thomas W. Ebbern and Charles Laganá Putz.

The Annual Shareholder's Meeting  also elected the Company's Fiscal Council, composed of three full members, appointed by majority of votes: Jaime Luiz Kalsing, Marcelo Joaquim Pacheco and Edmundo Falcão Koblitz, and three alternate members: Arnaldo José Vollet, Murici dos Santos and Fábio Gameleira.

HRT GROUP COMPANIES - 1Q13 HIGHLIGHTS

HRT OIL & GAS

SOLIMÕES

In January 2013, HRT O&G concluded the drill stem test of a cased hole in the HRT-10 well located in the Tucumã prospect (1-HRT-192/02-AM), block SOL-T-192, approximately 30 km to the south of the Juruá Field in the Solimões Basin.

The tests, performed in two intervals, aimed to identify the presence of hydrocarbons in a faulted anticlinal structure in a regional SW-NE oriented structural lineament sub parallel to the Juruá and Tefé gas trend.

The drill stem test results for HRT-10, together with the gas findings in wells HRT-5 and HRT-9, confirm the gas trend potentials to the south and south-west in the SOL-T-191 and SOL-T-192 Blocks, and open a new exploratory play fairway for SOL-T-214, SOL-T-215 and SOL-T-216 Blocks, for future new wells to be drilled.

The presence of a richer liquid bearing gas/condensate reinforces the geological model interpreted for the area, consolidates the potential for gas in the region and supports the relevance of the gas monetization project, that is being conducted in partnership with TNK-Brasil and Petrobras.

Figure 1 - Geographical location of well 1-HRT-10-AM (Click Here)

In March, the ANP granted an additional four-year extension to the second period of the exploration phase for 10 blocks located in the south and east of the Solimões Basin (SOL-T-151, SOL-T-174, SOL-T-196, SOL-T-197, SOL-T-192, SOL-T-214, SOL-T-215, SOL-T-216, SOL-T-217 and SOL-T-218).

This concession of this extension gives HRT and TNK-Brasil, its partner in the mentioned blocks, the opportunity to develop the exploratory campaign up to March 2017 and to further evaluate these frontier blocks in the Solimões Basin. This is a large and unexplored region that covers over 27,000 km2, with potential to identify new hydrocarbon accumulations.

In the second half of March, the Company spudded the well HRT-11, on the Cajazeira prospect, at SOL-T-172 Block, located approximately 60 km to the northeast of the Leste do Urucu Field.

The main target of this well was to identify the presence of hydrocarbons in Carboniferous reservoirs of the Juruá Formation, encountered at 2,230 meters depth, and the secondary target was to identify the Devonian reservoirs of the Uerê Formation reached at 2,300 meters depth, with hydrocarbon accumulations. This well was drilled by the QG-VIII, with a total depth of 2,400 meters and is now being evaluated.

Figure 2 - 1-HRT-11-AM well on block SOL-T-172. (Click Here)

Subsequent to quarter end, in early April, HRT O&G was technically qualified by ANP as an "A" Operator, being able to operate exploration blocks located in onshore, shallow water, deep and ultra-deep waters.

At the end of the same month, HRT O&G filed with ANP the required guarantees to allow its participation in the 11th Bid Round. With this qualification as an "A" operator, HRT is able to participate, with no restrictions, in the 11th Bid Round.

POLVO

At the beginning of May, a Purchase and Sale Agreement (PSA) was signed with BP Energy do Brasil Ltda ("BP") for the acquisition of a 60% stake in the Polvo Field and 100% membership interest in BP Energy America LLC, owner of the "Polvo A" fixed platform, and a drilling rig, which amounted to US$ 135 million.

The Polvo Field, located in the southern part of the Campos Basin and 100 km east of the city of Cabo Frio, in the State of Rio de Janeiro, currently produces approximately 13,000 barrels per day of 20.3° API oil from three producing reservoirs. The license covers over 134 km2  of acreage with numerous attractive prospects for further exploration. The "Polvo A" platform is connected to the "FPSO Polvo" with facilities for hydrocarbon separation and water treatment, oil storage and offloading capabilities.

To conclude the deal, HRT (as guarantor) and its wholly-owned subsidiary HRT O&G have entered into a Loan Agreement with Credit Suisse, through a financial instrument called Cédula de Crédito Bancário (CCB), for the amount of up to US$75 million. The loan has a two-year term and will be partially repaid (US$40 million) in 180 days with the remaining amount payable in five quarterly installments, after a 12-month grace period.

The amount of US$ 60 million that was not financed will be adjusted with the results obtained in the exploration of the Polvo Field, up to the closing date, once all the precedent conditions have been fulfilled, including ANP's approval. Once concluded, the deal will have an effective date of January 1, 2013 and HRT O&G will become the operator of Polvo Field.

The acquisition of 60% of Polvo takes part of the Company`s strategy to diversify its portfolio beyond exploration assets. Polvo is a great fit for HRT. HRT has a significant knowledge of the field - acquired through the experience of several upstream professionals who discovered and operated Polvo prior to BP's acquisition of the asset from the previous operator - and sees untapped potential for further exploration and future production within the larger license area.

Figure 3 - Polvo Field location in Campos Basin (Click Here)

Figure 4 - Polvo A Rig and Polvo FPSO (Click Here)

HRT AFRICA

In January 2013, the Namibia's Ministry of Mines and Energy ("MME") approved the transfer to Galp Energia of a 14% participating interest in the exploratory rights of Petroleum Exploration License 23 (PEL 23), located in the Walvis Basin, and PELs 24 and 28, located in the Orange Basin, offshore the Republic of Namibia. HRT has retained operatorship of these PELs.

In March, HRT Africa spudded the Wingat-1 (2212/07-1) wildcat well, the first offshore well in our 3-well back-to-back exploratory drilling campaign. The Wingat Prospect is located in PEL 23, approximately 200 km northwest of Walvis Bay, in 1,034 meters of water depth.

The main objective of the well was to test the resource potential of the Albian (Cretaceous) carbonate platform that has a well-defined seismic amplitude anomaly in the PSDM-3D data set.

HRT forecasts that the current activities in the Wingat-1 well will be concluded next week.

Figure 5 - Wingat-1 well location in Walvis Basin (Click Here)

AIR AMAZONIA

At the beginning of March, HRT signed a binding Term Sheet with the American company Erickson Air- Crane Inc. for the transfer of its air logistics business, Air Amazonia.

The agreed-upon total amount for the transaction was set between US$65 million and US$75 million, and includes the sale of the Company's rotary-wing fleet (14 helicopters), with the understanding that the Buyer will provide aerial services to HRT's operations in the Solimões Basin for a three-year period. The deal is contingent upon meeting certain contractual terms.

The transaction will bring cost savings to our operations in the Solimões Basin.

FINANCIAL RESULTS - 1Q13

In the table below are the Company's summarized consolidated results, including the results of its subsidiaries HRT O&G, IPEX, HRT Netherlands, HRT America, HRT Africa, HRT Luxembourg and Air Amazonia. (Click Here)

The EBITDA result for the first quarter of 2013 was negative R$98 million, 266% lower than the same period in 2012. The reduction is primarily driven by a positive result obtained, in the first quarter of 2012, through the sale of a 45% interest in the Solimões Consortium to TNK Brasil Ltda.

Excluding the aforementioned positive effect caused by the sale to TNK, the EBITDA would be negative R$108 million, in the first quarter of 2012, compared with negative R$98 million for this quarter, which shows an improvement of 10%, mostly due to a 75% decrease in Geology and Geophysics expenses.

It is important to highlight that, in this quarter, the share-based compensation distributed to the employees in January 2013, was recognized in the amount of R$ 20 million. According to international accounting standards, it shall be considered, on the granting date, the difference between the acquisition price and the market value, even though only 3% of shares have been exercised.

When combined, third-party services and general and administrative items did not change materially when compared with the prior quarter. The headcount reduction in 2012, and the consequent decrease of the demand for general and administrative services, explains the reduction in the General and Administrative line item, when compared with the first quarter of 2012.

In this quarter, costs previously booked as capital for 4-HRT-7D-AM well were allocated under other operating expenses, since the well was declared as having no production capacity.

Financial revenues, which include foreign exchange fluctuations, were reduced by 58% when compared with the same period in 2012, primarily due to a 21% decrease in the cash balance, a transfer of resources to be invested abroad having LIBOR as reference rate, and a decrease of the Brazilian basic interest tax rate (SELIC), which determines the interest earned by the Company in Brazil.

The main highlights of the Income Statement in the first quarter of 2013, compared with the same quarter of the previous year, were:

  • Decrease of net revenues due to the reduction of services provided by the subsidiary IPEX to third parties;

  • Decrease of financial revenues due to a lower cash balance and interest rate (SELIC);

  • Decrease of total expenses, relating to the improvement in cost control and a headcount reduction in FY 2012; and

  • Reduction of the loss in the first quarter of 2013, compared with the same period in 2012, excluding the positive impacts from the sale of a 45% interest to TNK-Brasil, concerning the exploratory rights over the 21 blocks in the Solimões Basin, which contributed R$166 million (net of taxes) to that quarter's result.

The table below presents the variation of the main accounts of the Balance Sheet in 2013 against 2012. (Click Here)

The Company ended the first quarter with a consolidated cash balance of R$829 million, a decrease of 21% over the balance of the 4Q12, due to disbursements for the exploratory campaign in the Solimões and Namibia basins.

The decrease of R$110 million on Property, Plants and equipment refers to the transfer of the value of the helicopters involved in the sale transaction of Air Amazonia to the item "Assets Held for Sale" in the Current Assets.

The chart below presents the evolution in cash balance, showing inflows and outflows, highlighting disbursements, inflow from revenues and receivables due to the exercise of warrants and loans. (Click Here)

Below, it is presented the breakdown for disbursements performed in 2013, by project, and grouped as recurring and non-recurring disbursements: (Click Here)

In the first quarter of 2013, the Company disbursed R$233 million in recurring expenses which were:

  • R$ 174 million for the exploratory campaign for activities including exploration, drilling, air, fluvial and ground logistics, for both Solimões and Namibia.

  • R$34 million for seismic, related to exploration activities in the Solimões and Namibia basins, involving hiring services of seismic survey and seismic data processing; and

  • R$25 million for G&A, taxes and financial expenses, referring to corporate expenses with personnel, administrative expenses and corporate insurance, which were not directly allocated to the exploratory campaign, though existing for the development of the Group's exploration activities.

The chart below presents the variation of the average daily cash burn rate in the 1Q13, where a slight decrease in the first quarter versus the previous quarter is noticeable. It is important to highlight that the positive impact (net inflow) in the second quarter of 2012 was driven by receiving the first installment from TNK for their acquisition of an interest in the Solimões blocks. (Click Here)

ABOUT HRT

HRT Participações holds one of the largest independent oil and gas exploration and production companies in Brazil. The HRT Group comprises eight main subsidiaries: HRT O&G Exploração e Produção de Petróleo Ltda., Integrated Petroleum Expertise Company - Serviços em Petróleo Ltda., HRT Africa Petróleo S.A., HRT Netherlands B.V., Air Amazonia Serviços Aéreos Ltda., HRT America Inc., HRT Canada Inc.. The Company retains a 55% interest in 21 exploratory blocks in the Solimões Basin. HRT also operates ten exploratory blocks off the Namibian coast: eight blocks in the Orange Sub-basin and two blocks in the Walvis Sub-basin. HRT's team includes PhDs and masters in geochemistry, geophysics, biology and engineering, most of them former employees of Petrobras and ANP (Brazil petroleum agency). HRT is committed to minimizing any possible environmental impacts in the sites where it acts. Our commitment to the local communities is towards health conditions, safety and quality of life. For more information, please visit the Company's website: www.hrt.com.br/ir

DISCLAIMER

Certain information contained in this document, including any information as to our strategy, projects, plans or future financial or operating performance and other statements  that  express  management's  expectations or estimates  of future  performance  constitute  "forward-looking statements".  All statements,  other  than statements  of historical  fact,  are forward-looking statements.  The words  "believe",  "expect", "will",  "anticipate", "contemplate", "target", "plan",  "continue", "budget", "may",  "intend", "estimate" and similar expressions  identify  forward-looking statements.  Forward-looking statements  are necessarily  based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to signifi cant business, economic and competitive uncertainties  and contingencies.  HRT cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties  and other factors that may cause the actual fi nancial results, performance or achievements of HRT to be materially different from HRT's estimated future results, performance or achievements expressed or implied by those forwardlooking statements and the forward-looking statements are not guarantees of future performance.

HRT disclaims any intention or obligation  to update or revise any forward-looking statements  whether as a result of new information,  future events or otherwise, except as required by applicable law.

PDF available at: http://stream1.newswire.ca/media/2013/05/15/20130515_C7104_DOC_EN_26748.pdf

SOURCE: HRT Participações em Petróleo S.A.

For further information:

Investor Relations Contacts

www.hrt.com.br/ir
ri@hrt.com.br
+55 21 2105-9700

Carlos Tersandro Adeodato
CFO and IRO

Sandra Calcado
IR Manager

Priscila Sarandy Domingues
IR Specialist

Tainah Costa
IR Senior Analyst

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