May 12, 2009 / 5:17 PM / 9 years ago

UPDATE 2-Harvest Trust to cut debt, wraps up refinery work

* Returns to profit in Q1

* Completes refinery turnaround

* Units rise 1.4 pct (Adds details on financing, closes shares)

By Scott Haggett

CALGARY, Alberta, May 12 (Reuters) - Harvest Energy Trust HTE_u.TO, having returned to profit in the first quarter, said on Tuesday it would push to cut its debt because of concerns that credit markets would stay tight for another year.

The trust, which produces oil and gas in Western Canada and operates a 115,000-barrel-a-day refinery in Newfoundland and Labrador, said was considering a number of steps to reduce its debt before a C$1.6 billion ($1.4 billion) credit facility expires next April.

“With an appreciation of the reduced availability of credit and our reduced cash flow in a low commodity price environment we believe that it’s prudent to direct ... excess cash flow to debt repayment,” Robert Fotheringham, Harvest’s chief financial officer, said on a conference call.

Fotheringham said the trust may take other steps to reduce what it owes, including selling assets, cutting the amount of cash Harvest distributes to its unitholders, or issuing new units or unsecured debt.

Fotheringham also said that Harvest is currently in no danger of running afoul of covenants on its existing debt.

Following Fotheringham’s pledge to pay down debt, Harvest said later on Tuesday it plans to sell 16 million new trust units, priced at C$7.30 each, to a group of underwriters in order to raise C$116.8 million.

The underwriters also have an option to buy 15 percent more units at the same price if demand warrants. Should that option be exercised, proceeds from the units will total C$134.4 million, with the money earmarked to pay off debt and for general corporate purposes. RETURN TO PROFIT

Late on Monday, Harvest said its first-quarter net income rose to C$56.9 million, or 36 Canadian cents per unit, up from a C$346,000 loss, or nil per unit, in the year-prior quarter.

Cash flow rose 73 percent, to C$221.7 million, or C$1.28 per unit, from C$128.1 million, or 85 Canadian cents, as it cut costs and the contribution from its downstream refining operations more than quadrupled.

“Specifically, upstream cash flow was inline at C$71.3 million versus consensus of C$68 million, but downstream came in at a whopping $142.0 million versus consensus of $92.3 million,” Victor Rodberg, an analyst at Dundee Securities wrote in a note to clients. “Crack spreads and hence refining margins were wider than anticipated by the market for the downstream segment.”

Harvest said production from its oil and gas operations fell 7 percent, to 54,115 barrels of oil equivalent per day. REFINERY WORK COMPLETE

The trust also said it completed a major maintenance turnaround at its 115,000-barrel-a-day refinery at Come by Chance, Newfoundland and Labrador.

The maintenance work included a catalyst replacement in the hydrocracker and distillate hydrotreater, and regeneration of a platformer catalyst.

Harvest said it refurbished several other process and utility units at the facility. The cost of the turnaround, which began early last month, came to C$45 million with another C$22 million spent on work that included a 1,000 barrel a day increase in the hydrocracker’s capacity.

The trust said that with the shutdown, it expects the refinery’s throughput for the year to average 98,000 barrels a day.

Harvest’s units rose 11 Canadian cents to C$8.19 on the Toronto Stock Exchange on Tuesday.

$1=$1.16 Canadian Editing by Peter Galloway

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