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Harvest Energy Trust (HTE) |
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WIKI ANALYSIS
Canadian Harvest Energy Trust (NYSE: HTE) is a petroleum company that operates in both the upstream exploration and downstream refining sectors of the oil and gas industry. The company has 192,297 MBoe in estimated reserves. Its upstream production rate is 60,336 Boe/d while it refines at a rate of 109,611 bbl/d.[1] The company's refinery purchases its crude oil feedstock mostly from Iraq, Venezuela and Russia. The instability of these countries' oil output threatens the company's supply of refining feedstocks.
Although the majority of the company's revenue comes from its refining business, the majority of its profits come from oil exploration - a combination of rising oil and gas prices and narrowing profit margins in the refining industry, as rising crude oil prices have outpaced increases in the price of refined gasoline.[2] Unlike many of its competitors with reserves in Alberta, Canada, Harvest Energy has not invested in oil sands, but has instead worked to improve conventional production and refinery capacity.[3]
Business Overview
Business & Financial Metrics[4]
In 2009, HTE incurred a net loss of $1.11 billion on revenues of $3.14 billion. This represents a significant drop from 2008, when the company earned $496.7 million on $5.49 billion in revenues.
Business Segments[5]
Harvest Energy Trust operates in two main sectors of the oil and gas industry: upstream and downstream.
- Upstream (24.1% of revenue): acquires properties with an established production history and then launches projects to enhance the the output. Its assets are located in Alberta, Saskatchewan and British Columbia.[1]
- Downstream (75.9% of revenue): refines petroleum and then sells the refined petroleum products. Harvest's crude oil refinery has a 115,000 barrels per day capacity.[3] Harvest's refinery is in Come by Chance, Newfoundland, Canada, and it is fed by tankers which come primarily from Iraq (Basra Light), Venezuela (Hamaca), and Russia (Urals Blend). The refinery has approximately 7 million barrels of tankage space to store refined and unrefined goods, and it has deep water docking facilities. The combination of both of these allow the refinery to receive and store large loads of crude oil. The crude oil is fractionated into a series of refined products. Extremely light, non-condensable petroleum gases are burnt in the refinery. Liquid petroleum gases such as propane, butane, naphtha, kerosene, diesel, and gasoline gasoline are sold for conventional use. The residual can sometimes be processed to high sulphur fuel oil or discarded. [6]
Key Trends and Forces
Harvest Energy's upstream profits are threatened by Alberta's new royalty regime
The government of Alberta released a new royalty regime on oil, natural gas, and bitumen that took effect in 2009. This causes royalty rates on conventional oil to rise up to 50%, natural gas up to 40%, and butanes and propane up to 30%.[7] The majority of Harvest's production is in Alberta. Harvest Energy's undeveloped regions are also in the Province of Alberta.[8]
Harvest Energy's downstream operations purchase from unstable regions
75% of Harvest's crude oil feedstock comes from Iraq. The remaining input comes primarily from Venezuela and Russia. The Iraqi oil is from Basra, which has no outside forces controlling it since the British troops pulled out in August 2007.[9] Since that time, there has been an ongoing battle, both politically and militarily, to control the region and the oil.[10] Harvest has waited for a final decision to be made on who controls the region before entering a long term contract.[11] In March 2008, one of the two main pipelines in the region was severely damaged by bomb attacks.[12] The stoppage temporarily cut oil production in the region in third and jolted prices from below $100 a barrel to $108.22.[13] Oil production has also been stopped because of periodic electricity blackouts.[14] The shortage of oil supply makes it difficult for Harvest Energy to purchase its input from other locations.
Harvest has not developed an extensive oil sands project
Oil sands are essentially pits filled with tar, or bitumen, a heavier, denser form of hydrocarbon than oil. Although it takes an extra step and expensive equipment, refineries can refine bitumen into crude oil.[15] The regions of Alberta, Canada and Venezuela are particularly rich in this form of oil. There are approximately 175 billion barrels of proven oil reserves in Alberta alone, with the possibility of more buried deeper. This makes Alberta home to the second largest oil reserve after Saudi Arabia.[16] While many competitors have invested in oil sands to ensure long term production levels, Harvest Energy has not done so.[17] Extraction of oil from the dirt is only profitable as long as oil prices remain high. These regions in Alberta have not been used in the past since prices were not high enough. If prices fall in the future, the oil sands will once again become unprofitable. However, as long as prices remain elevated, the process is profitable, and many Alberta based oil companies predict it is the future for oil production.[18]
Competition
Unlike many of its competitors its size, Harvest Energy controls both upstream and downstream services. Harvests' single refinery's capacity is much smaller than the capacity of multi-national companies with many refineries spread across the globe. However, its upstream services are comparable to many other oil and gas drilling and exploration companies.
- Enerplus Resources Fund (ERF): is a Canadian based onshore drilling company. Like Harvest, it is mostly based in Alberta, however it does not have any downstream refining operations. Enerplus has also invested in oil sands.[19]
- Encana (ECA): is a Canadian drilling company with both upstream and downstream operations. It is significantly larger than Harvest, and like Enerplus, it has invested in the oil sands of Alberta throught a joint venture with ConocoPhillips (COP).[20]
- Provident Energy Trust (PVX): is an investment trust which owns petroleum and natural gas assets. It operates mostly in Canada, and like Harvest, it has spread vertically. Provident trust also has midstream services which include pipelines, gathering and transportation services.[21]
- Penn West Energy Trust (PWE): is a Canadian trust with oil and gas drilling, exploration, extraction, and production capabilities. It is substantially larger than Harvest Energy and it has invested in several oil sands.
References
- ↑ 1.0 1.1 HTE 40-F 2007 "Overview" p.20
- ↑
- ↑ 3.0 3.1 HTE 40-F 2007 "Downstream" p.21
- ↑ HTE 2009 20-F pg. 159
- ↑ HTE 2009 20-F pg. 115
- ↑ HTE 40-F 2007 "Overview of Crude Oil Processing" p.49-50
- ↑ ERF 40-F 2008 "Province of Alberta" p. 68
- ↑ HTE 40-F 2008 "Oil and Gas Wells" p.31
- ↑ Washington Post: "As British Leave, Basra Deteriorates"
- ↑ AlterNet "Shia Parties Battle for Control of Oil-Rich Basra Region"
- ↑ HTE 10-K 2008 "Risks Related to Harvest's Downstream Operations" p.64
- ↑ Guardian: "Maliki vows there will be 'no retreat' against Shia militias in Basra"
- ↑ BBC News "Oil hits $108 on pipeline blast"
- ↑ Iraq Dictionary "Basrah oil refinery resumed its operations"
- ↑ Alberta Energy: "Alberta Oil Sands"
- ↑ CBS News: "The Oil Sands Of Alberta
- ↑ ERF 40-F 2008 "Oil Sands" p.16-19
- ↑ ERF 40-F 2008 "Kirby Project" p.15-17
- ↑ Google Finance: Enerplus Energy Fund (ERF)
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