Harvest Natural Resources (HNR): Giving Up?

TheStreetSweeper issues an investor alert for Harvest Natural Resources (HNR) before shareholders hit the oil slick that's spreading out in front of them.

The company is unprofitable but the stock began another upward flight after the Houston oil company took the unusual step Monday of withdrawing its request to the SEC to sell stock.(Source: Company SEC filing)

It's the market's perception that the company's withdrawal will temporarily eliminate the risk of diluting current shares.But dilution - or the lack of it - doesn't really matter now.

That's because the company appears to be at the brink of dissolving.

That revelation is buried in the Oct. 7 announcement that Harvest closed the sale of all of its Venezuelan assets.

The market reacted positively because investors hadn't read to the bottom of the release where this gem is buried:"Harvest is currently evaluating the possible sale of its Gabon interests, distributions of cash to its stockholders, and possible dissolution of the Company."

So shareholders may have bought on the Venezuelan sale news with the thought they were investing in a company that suddenly had the cash to possibly develop its remaining asset ... exploratory property in waters 1,650 feet deep off the coast of Gabon near the Republic of Congo. (Source: Google)

But stockholders are actually investing in a company planning to be nothing. And it's not really shocking that Harvest has gotten to this point. Here's why ...

*1. Historical Financial Despair

Harvest's revenue is nothing if not a long string of zeros. And the losses have been suffocating, exceeding $23 million last year:(Source: Marketwatch, TheStreetSweeper)

No wonder there have been big doubts the company would remain in business:"We expect that in 2016 we will not generate revenues and will continue to generate losses from operations and that our operating cash flows will not be sufficient to cover our operating expenses... our circumstances at such time raises substantial doubt about our ability to continue as a going concern."

*2. Selling Assets

It's pretty tough to make a buck if a company has no sales. And it's pretty tough to sell a product if a company has no assets.But that's where Harvest appears to be headed.After selling the Venezuelan assets, Harvest is trying to get rid of all its remaining troublesome assets ... meaning its last asset of Gabon, near the Republic of Congo. But good luck with that endeavor.

Would-be buyers are well aware that exploration and development of Gabon would be challenging enough even if a company had multi-millions of dollars, decades of offshore drilling experience, extreme diplomacy skills and maybe even the wherewithal to negotiate the return of a $1.1 million payment blocked during US sanctions against Libya.(Source: Company presentation)

Indeed, in 2010, the company began trying to find a buyer for the Venezuelan property. Six years later, Harvest happily joined the string of companies dumping Venezuelan assets at discount prices to avoid their crippling inflation and supply shortages. The October sale occurred after two sales had fallen through, including a 2013 deal that failed to gain the Venezuelan government's approval.

Harvest thought it had Gabon sold in 2013 but that deal collapsed without explanation. The clock is ticking: The government approval runs out in July 2018 and any purchasers will have to jump thorough hoops again before exploration and development may begin.

With oil prices around $50 - about half the 2013 prices - any potential suitors may think long and hard about a mere prospect offering contingent resources in the deep waters off the coast of Africa.

*3. Getting The NYSE Boot

Meanwhile the pressure on the stock is increasing. The New York Stock Exchange has notified Harvest that it has violated two standards - a minimum $50 million stockholders' equity and $50 million market valuation -  and stands to lose its listing. The trip to the dreaded OTC or Bulletin Board often initiates the final throes in a stock's slow, painful death.

Unloading the Venezuelan assets and a reverse stock split on Nov. 3 let Harvest temporarily address the deficits. But the wolves remain at the doorstep. Harvest must remain in compliance for at least two consecutive financial quarters.

Meanwhile, the stock appears troubled from a technical point of view, too ...

*4. Technical Indicator: Overbought

Over the last few days, a chief technical indicator - the Relative Strength Index or RSI - suggests the stock is positioned to drop.

Shares are widely considered overbought and possibly overvalued when the RSI readings are above 70.

In Harvest's case, the RSI hit 71 on Nov. 28 and continued to track upward to 86 on Dec. 5 - the day Harvest filed the registration withdrawal - and 84.97 on Tuesday, Dec. 6. These high RSIs indicate the stock's elevated risk for reversal. (Source: amigobulls)

So the RSIs indicate the stock may be poised for rapid retreat.

*5. Poor Institutional Interest, Plus Selling

Finally, average investors are pretty much denied the comfort of institutions' stamp of approval for Harvest.(Source: Nasdaq)Less than 14% of Harvest shares are owned by institutions. And sold out positions exceed new positions by a massive 13 times.

*Conclusion:

Investors have nothing to look forward to in Harvest. The unprofitable company is getting out of its failing business which has been based in highly risky countries. Harvest is basically a shell with a business that never worked. We expect Harvest will simply spin into another "company," issue a raft of shares and try to grab another doomed acquisition.

TheStreetSweeper believes this stock is extremely dangerous and worth significantly less than half the current valuation.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in HNR and stand to profit on any future declines in the stock price.* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.