Harvest Operations Reports 2016 Year End Results

CALGARY, ALBERTA -- (Marketwired) -- 02/23/17 -- Harvest Operations Corp. ("Harvest" or the "Company") announced its financial and operating results for the fourth quarter and full year ended December 31, 2016.

This press release is an overview of the fourth quarter and full year results for 2016 and should be read with the audited consolidated financial statements and Management's Discussion and Analysis (MD&A) for the fourth quarter and full year ended December 31, 2016 available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

All financial data has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board except where otherwise noted. All figures reported herein are in Canadian dollars unless otherwise stated.

2016 HIGHLIGHTS:

Conventional

--  Petroleum and natural gas sales for the fourth quarter and twelve months
    ended December 31, 2016 were $90.8 million and $322.3 million, a
    decrease of $18.2 million and $188.0 million, respectively when compared
    to the same periods in 2015. The decrease on a fourth quarter basis was
    due primarily to a reduction in sales volumes which was partially offset
    by increased commodity prices. The decrease on a twelve month basis was
    due to a reduction in sales volumes and decreased commodity prices.
--  Sales volumes for the fourth quarter and twelve months ended December
    31, 2016 were 26,589 boe/d and 31,996 boe/d, a decrease of 11,552 boe/d
    and 9,739 boe/d, respectively, as compared to the same periods in 2015.
    The decreases were primarily due to dispositions of certain producing
    properties during 2015 and 2016 and natural declines which exceeded the
    volume added from our curtailed drilling program in 2016.
--  Harvest's share of Deep Basin Partnership ("DBP") volumes for the fourth
    quarter and twelve months ended December 31, 2016 were 4,571 boe/d and
    4,762 boe/d, an increase of 144 boe/d and 1,462 boe/d, respectively,
    when compared to the same periods in 2015. The fourth quarter increase
    was due to DBP's successful 2016 drilling program. The twelve month
    increase was primarily due to new wells being brought online and
    additional assets contributed on October 1, 2015 by Harvest. These were
    partially offset by production curtailments due to third party
    transportation restrictions.
--  Operating losses for the fourth quarter and twelve months ended December
    31, 2016 were $71.4 million and $265.2 million, respectively (2015 -
    $569.7 million and $1,167.9 million). The decrease in operating loss
    from the fourth quarter and twelve months of 2015 was primarily due to
    lower impairment expenses, depreciation, depletion and amortization
    expenses, loss from joint ventures, royalties, operating expenses and
    higher gains on disposition of assets, which was partially offset by
    lower revenue.
--  Capital asset additions of $13.7 million and $19.0 million in the fourth
    quarter and twelve months of 2016, respectively, were mainly related to
    drilling and completion, well equipment, pipelines and facilities. Four
    gross wells (2.1 net) and five gross wells (2.4 net) were rig-released
    during the fourth quarter and twelve months of 2016, respectively.
--  On August 16, 2016 Harvest closed the disposition of some of its oil and
    gas assets in Southern Alberta for net proceeds of $6.7 million. On June
    30, 2016, Harvest closed the disposition of all of its oil and gas
    assets in Saskatchewan for net proceeds of $61.6 million. Together with
    other less significant dispositions of Conventional assets, Harvest
    recognized gains of $0.3 million and $35.2 million for the three and
    twelve months ended December 31, 2016, respectively (2015 - gains of
    $4.5 million and losses of $1.7 million), relating to the derecognition
    of PP&E, E&E, goodwill, and decommissioning and environmental
    liabilities.
--  Operating netback prior to hedging per boe for the fourth quarter and
    twelve months ended December 31, 2016 were $15.97 and $10.22
    respectively; an increase of $6.68 and a decrease of $2.08 from the same
    periods in 2015. The year to date decrease was mainly due to lower
    realized prices, which was partially offset by lower operating expenses
    per boe. The fourth quarter increase was mainly due to higher realized
    prices which were partially offset by increased transportation and
    marketing expenses per boe.
--  Cash contributions from Harvest's Conventional operations for the fourth
    quarter and twelve months of 2016 were $33.3 million and $74.6 million,
    respectively (2015 - $29.8 million and $154.3 million). The fourth
    quarter increase in cash contributions is primarily due to higher
    commodity prices, decreased operating costs and royalties. These
    increases were partially offset by lower revenue and increased
    transportation costs. The twelve month decrease in cash contributions
    was mainly due to lower revenue, partially offset by lower operating
    expenses, and general and administrative expenses.

Oil Sands

--  Pre-operating losses for the fourth quarter and twelve months of 2016
    were $3.5 million and $13.5 million, respectively (2015 - $235.1 million
    and $508.7 million, respectively). The 2016 pre-operating losses were
    mainly due to pre-operating and general and administrative expenses.
    Prior year pre-operating losses also included asset impairment expenses
    of $229.0 million and $491.0 million, respectively.

Corporate

--  The weakening of the Canadian dollar against the U.S. dollar during the
    fourth quarter of 2016 resulted in a net unrealized foreign exchange
    loss of $45.5 million (2015 - $69.6 million). The strengthening of the
    Canadian dollar against the U.S. dollar during the twelve months of 2016
    resulted in net unrealized foreign exchange gain of $23.8 million (2015
    - $308.4 million loss). Unrealized foreign exchange gains and losses
    resulted primarily due to the translation of U.S. dollar denominated
    debt (including related party loans) into Canadian dollars. For the
    fourth quarter and twelve months ended 2016, the total effect of
    currency fluctuations on unrealized foreign exchange was reduced by
    lower levels of U.S. dollar denominated debt as a result of the
    conversion of all related party debt into equity on December 22, 2016,
    and the reduction in principal balance of senior notes resulting from a
    6 7/8% senior notes debt exchange transaction.
--  On February 17, 2017, Harvest entered into an agreement with a Korean
    based bank that allows Harvest to borrow $500 million through a three
    year fixed rate term loan. Once drawn, proceeds from the term loan will
    be used to repay credit facility borrowings. In addition, as at February
    23, 2017, Harvest has received formal commitments for a new three year
    $500 million revolving credit facility with a syndicate of banks that
    will replace the Company's $1 billion revolving credit facility. Both
    the term loan and new syndicated revolving credit facility are
    guaranteed by KNOC and are both expected to close on February 24, 2017.
    The new syndicated revolving credit facility is secured by a first
    floating charge over all of the assets of Harvest and its material
    subsidiaries and contains no financial covenants.
--  On December 22, 2016, KNOC converted all its outstanding loans to common
    shares of Harvest. The carrying value of the loans, plus accrued
    interest at December 22, 2016 of $722.2 million was converted to equity
    and $10.3 million previously recognized in contributed surplus relating
    to these loans were transferred to shareholder's capital. As a result,
    72.7 million common shares were issued to KNOC. As at December 31, 2016
    there were no related party loans outstanding. This transaction provides
    significant savings to Harvest through reducing interest expense by
    approximately $40.0 million annually, improving the Company's balance
    sheet, and is further evidence of KNOC's continuing financial support of
    Harvest.
--  On June 16, 2016 Harvest completed an exchange of a significant portion
    of its 6 7/8% senior notes due 2017, for new 2 1/3% senior notes due
    2021, at an exchange ratio of US$900 principal amount of the new 2 1/3%
    senior notes for each US$1,000 principal amount of the old 6 7/8% senior
    notes. US$217.5 million of the old 6 7/8% senior notes was exchanged for
    US$195.8 million new 2 1/3% senior notes. The extinguishment of the old
    6 7/8% senior notes resulted in a gain of $36.0 million. The transaction
    provides significant saving to Harvest by reducing interest expense by
    US$9.9 million annually, as well as a reduction in principal of US $21.7
    million.

FINANCIAL AND OPERATING HIGHLIGHTS

                               Three Months Ended      Twelve Months Ended
                                   December 31             December 31
                             -----------------------------------------------
                                   2016        2015        2016        2015
----------------------------------------------------------------------------
Conventional
Petroleum and natural gas
 sales (1)                         90.8       109.0       322.3       510.3
Daily sales volumes
 (boe/d)(2)                      26,589      38,141      31,996      41,735
Deep Basin Partnership
  Daily sales volumes
   (boe/d)                        5,553       5,418       5,802       4,126
  Harvest's share of daily
   sales volumes (boe/d) (4)      4,571       4,427       4,762       3,300
Average realized price
  Oil and NGLs ($/bbl)(3)         45.12       37.65       37.14       43.02
  Gas ($/mcf)(3)                   4.27        2.30        2.22        2.62
Operating netback prior to
 hedging($/boe)(4)                15.97        9.29       10.22       12.30
Operating loss(4)                 (71.4)     (569.7)     (265.2)   (1,167.9)
Cash contribution from
 operations(4)                     33.3        29.8        74.6       154.3

Capital asset additions
 (excluding acquisitions)          13.7        22.4        19.0       146.5
Corporate acquisition(5)              -           -           -        37.1
Property dispositions, net            -        (9.4)     (170.2)     (130.5)

Net wells drilled                   2.1           -         2.4        19.2
Net undeveloped land
 additions (acres)                3,608         795      15,513      42,988
Net undeveloped land
 dispositions (acres)            (3,794)    (14,902)    (43,842)    (20,702)

Oil Sands
Capital asset additions             1.9         0.5         1.9        66.0
Pre-operating loss(4)(6)           (3.5)     (235.1)      (13.5)     (508.7)

NET LOSS                         (162.5)     (909.7)     (348.2)   (1,808.9)
----------------------------------------------------------------------------
(1) Includes the effective portion of Harvest's realized natural gas and
 crude oil hedges.
(2) Excludes volumes from Harvest's equity investment in the Deep Basin
 Partnership.
(3) Excludes the effect of derivative contracts designated as hedges.
(4) This is a non-GAAP measure; please refer to "Non-GAAP Measures" in this
 MD&A.
(5) Corporate acquisition represents the total consideration for the
 transaction including working capital assumed.
(6) Oil Sands was substantially completed in Q1 2015, all pre-operating
 expenses prior to Q1 2015 were capitalized.

CONFERENCE CALL

Harvest will hold a conference call to discuss our fourth quarter and year end 2016 results on Tuesday, February 28, 2017 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time).

To access the conference call dial 1-800-273-9672 (international callers) or 1-416-340-2216 (Toronto local) a few minutes prior to start and request the Harvest Operations conference call. The call will be available for replay by dialing 1-800-408-3053 and entering the passcode 8505237. The replay will be available up to and including March 28, 2017.

HARVEST CORPORATE PROFILE

Harvest is a wholly-owned, subsidiary of Korea National Oil Corporation ("KNOC"). Harvest is a significant operator in Canada's energy industry offering stakeholders exposure to exploration, development and production of crude oil and natural gas (Upstream) and an oil sands project under construction and development in northern Alberta (BlackGold).

KNOC is a state owned oil and gas company engaged in the exploration and production of oil and gas along with storing petroleum resources. KNOC will fully establish itself as a global government-run petroleum company by applying ethical, sustainable and environment-friendly management and by taking corporate social responsibility seriously at all times. For more information on KNOC, please visit their website at www.knoc.co.kr/ENG/main.jsp.

ADVISORY

Certain information in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factor that may cause actual results to be materially different from future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements.

Readers are cautioned that the forward-looking information may not be appropriate for other purposes and the actual results may differ materially from those anticipated. Although management believes that the forward-looking information is reasonable based on information available on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Therefore, readers are cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Although we consider such information reasonable at the time of preparation, it may prove to be incorrect and actual results may differ materially from those anticipated. Harvest assumes no obligation to update forward-looking statements should circumstances, estimates or opinions change, except as required by law. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Contacts:
INVESTOR & MEDIA CONTACT: Harvest Operations Corp.
Greg Foofat
Toll Free Investor Mailbox: (866) 666-1178
[email protected]
www.harvestenergy.ca

Source: Harvest Operations Corp.

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