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HTE: Harvest Energy Trust, CEO John Zahary Interviewed

Interview date: 25 Oct 07

Interviewer: Ian Roberts of at

Harvest Energy Website at

Roberts describes HTE as “one of Canada’s largest Royalty Energy Trusts, plus offering unit holders exposures to …upstream and downstream operations.”

About 1:25 into interview, Zahary begins a walkthrough of Harvest Energy Trust:

• Integrated “oil” company active in both the upstream market of production of both oil and natural gas.
• Now active in the downstream market of refining and marketing of oil.

The Upstream Business

• Located in the Western Provinces of Alberta, Saskatchewan and British Columbia.
• Produces about 60,000 barrels of oil equivalent per day
• Most of that oil equivalent, 70-75% of it, is Oil, while the remainder is Natural Gas.
• This has been the core business for about 5 years now, or the time HTE has been around.

The Upstream business is now complemented by refining and marketing business . . .

The Downstream Business

• Downstream refinery is located on the East Coast in Canada in Labrador and Newfoundland coasts
• Bring in oil from around the world and process it
• Sell it locally in the Newfoundland market
• Sell it in world markets, especially in New York and Boston, which Zahary calls a “great market” which Harvest has great access to in view of their close location.

Compared to other Canadian oil trusts, Zahary believes Harvest has a “unique set of assets” which Harvest has acquired over the past 5 years which Zahary feels would be hard to replicate today.

What Harvest is looking for in assets:

• Good cashflow characteristics to help pay the attractive dividends to investors
• In particular, Harvest likes to focus on long life assets which have a lot of identified opportunities in them. Through these types of purchases Zahary says Harvest creates what he calls “optionality” for investors, i.e., Harvest creates opportunities for investors to receive capital appreciation through the exercise of these purchases of these assets they buy.

Harvest is “very entrepreneurial” in getting into “new things” such as “enhanced oil recovery”.

• Good value asset acquisitions
• Very large oil and gas assets recently purchased
• Getting incremental recovery from these cheaper assets by using new enhanced methods to recover hard to get oil and Natural gas.
• The refinery business is a medium sized sour cracking business which produces a lot of distillate product, gasoline product and which is the first Canadian “Clean Fuels Refinery” . . . so Harvest’s refinery meets the highest specifications of the most high priced markets in the world
• Harvest refinery also produces Heavy Fuel Oil which provides an opportunity going forward with higher oil produces to further refine that Heavy Fuel Oil
• Harvest could also expand this refinery which in view of how hard it is to build in other parts of the world offers Harvest a “great” opportunity

Macro Issues to watch:

• Change in oil prices
• Change in Natural Gas prices
• Impact of Canadian dollars on foreign exchanges
• For US Investors it’s a “hedge” for foreign exchange
• Canada is a great place for political stability of oil and gas although navigating the income trust taxation issues coming up in 2010
• Also minor exposure to Alberta taxation

Best Reasons to invest in Harvest:

• Long life assets
• Unique assets of production and refining and marketing
• Attractive yield paid monthly
• Capital gains

Monthly and Daily Charts for HTE
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