UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K10-K/A
Amendment No. 1
(Mark One)
   
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20062007
or
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 1-10762
HARVEST NATURAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
   
Delaware
(State or other jurisdiction of incorporation or organization)		 77-0196707
(I.R.S. Employer Identification Number)
1177 Enclave Parkway, Suite 300  
1177 Enclave Parkway, Suite 300
Houston, Texas		77077

(Address of principal executive offices)		 
77077
(Zip Code)
Registrant’s telephone number, including area code: ((281)281) 899-5700
Securities registered pursuant to Section 12(b) of the Act:
   
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 Par Value NYSE
Securities registered pursuant to Section 12(g) of the Act:
   
Title of each class
 
Name of each exchange on which registered
None None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Noþ
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filero Accelerated Filerþ
Large Accelerated FileroAccelerated FilerþNon-Accelerated Filero
(Do not check if a smaller reporting company)		Smaller Reporting Companyo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 200629, 2007 was: $503,574,368.$444,689,722.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date. Class: Common Stock, par value $0.01 per share, on March 2, 2007,12, 2008, shares outstanding: 37,536,523.35,050,833.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 20072008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, not later than 120 days after the close of the registrant’s fiscal year, pursuant to Regulation 14A, are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this annual report.
 
 

 

HARVEST NATURAL RESOURCES, INC.
FORM 10-K
TABLE OF CONTENTS
Page
Part I
Item 1. Business
1
Item 1A. Risk Factors
11
Item 1B. Unresolved Staff Comments
17
Item 2. Properties
17
Item 3. Legal Proceedings
17
Item 4. Submission of Matters to a Vote of Security Holders
18
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
19
Item 6. Selected Financial Data
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
30
Item 8. Financial Statements and Supplementary Data
31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
31
Item 9A. Controls and Procedures
31
Item 9B. Other Information
31
Part III
Item 10. Directors, Executive Officers and Corporate Governance
32
Item 11. Executive Compensation
32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32
Item 13. Certain Relationships and Related Transactions, and Director Independence
32
Item 14. Principal Accountant Fees and Services
32
Part IV
Item 15. Exhibits and Financial Statement Schedules
33
Financial StatementsS-2
Signatures
S-29
Explanatory Note Payable Agreement
Form of 2006 Long Term Incentive Plan Stock Option Agreement
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Consent of Ryder Scott Company, LP
Certification Pursuant to Section 302 by President and CEO
Certification Pursuant to Section 302 by Sr. VP, CFO and Treasurer
Certification Pursuant to Section 906 by President and CEO
Certification Pursuant to Section 906 by Sr. VP, CFO and Treasurer

PART I
Harvest Natural Resources, Inc. (“Harvest” or the “Company”) cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. When used in this report, the words “budget”, “guidance”, forecast”, “anticipate”, “expect”, “believes”, “goals”, “projects”, “plans”, “anticipates”, “estimates”, “should”, “could”, “assume” and similar expressions are intended to identify forward-looking statements. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, we caution you that important factors could cause actual results to differ materially from those in the forward-looking statements. Such factors include our concentration of operations in Venezuela, the political and economic risks associated with international operations (particularly those in Venezuela), the anticipated future development costs for our undeveloped reserves, successful conversion of Venezuelan assets to a mixed company, the risk that actual results may vary considerably from reserve estimates, the dependence upon the abilities and continued participation of certain of our key employees, the risks normally incident to the operation and development of oil and natural gas properties, risks incumbent to being a minority shareholder in a corporation, the permitting and the drilling of oil and natural gas wells, the availability of materials and supplies necessary to projects and operations, the price for oil and natural gas and related financial derivatives, changes in interest rates, basis risk and counterparty credit risk in executing commodity price risk management activities, the Company’s ability to acquire oil and natural gas properties that meet its objectives, changes in operating costs, overall economic conditions, political stability, civil unrest, acts of terrorism, currency and exchange risks, currency controls, changes in existing or potential tariffs, duties or quotas, changes in taxes, changes in governmental policy, availability of sufficient financing, changes in weather conditions, and ability to hire, retain and train management and personnel. SeeItem 1A - Risk FactorsandItem 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 1. Business
Executive Summary
     Harvest Natural Resources, Inc. (“Harvest”) is an independent energy company engaged in the acquisition, exploration, development, production and disposition of oil and natural gas properties since 1989, when it was incorporated under Delaware law. Over our history, we have acquired and developed significant interests in the Bolivarian Republic of Venezuela (“Venezuela”filing this Amendment No. 1 to its Annual Report on Form 10-K/A (this “Amendment”) and the Russian Federation (“Russia”) and have undeveloped acreage offshore of the People’s Republic of China (“China”).
          Currently, our only producing assets are in Venezuela. Since 1992, our subsidiary, Harvest Vinccler S.C.A. (“Harvest Vinccler”), has been providing operating services to Petroleos de Venezuela, S.A. (“PDVSA”)solely for the South Monagas Unit underpurpose of adding as an Operating Service Agreement (“OSA”). However, beginning in 2005,exhibit the governmentaudited financial statements of Venezuela initiated a series of actions to compel companies with operating service agreements to convert those agreements into new companies in which PDVSA would have a majority interest. On March 31, 2006, Harvest Vinccler signed a Memorandum of Understanding (the “MOU”) with two affiliates of PDVSA, Corporación Venezolana del Petroleo S.A. (“CVP”) and PDVSA Petroleo S.A. (“PPSA”), to convert the OSA into a minority interest in Empresa Mixtaits 40 percent owned foreign equity affiliate, Petrodelta, S.A. (“Petrodelta”). The MOU is subject to certain conditions, including execution of a conversion contract, and Venezuelan government approvals. On August 16, 2006, the MOU was amended to providethat were not available for the addition of the Isleño, El Salto and Temblador fields to Petrodelta as additional consideration for our conversion of the OSA to Petrodelta. On December 18, 2006, at our special meeting of the stockholders, the transactions contemplated by the MOU were approved. As of this report, we have not yet obtained the governmental approvals necessary to complete the conversion, and the timing of and probability for such approval is uncertain.
          In April 2006, the Venezuelan National Assembly passed legislation terminating all operating service agreements and directing the government to take over the operations carried out by the private companies without prejudice to the incorporation of mixed companies for that purpose. This action, coupledinclusion with the unfinished conversion to Petrodelta, has left Harvest Vinccler without a contractual means recognized by the government of Venezuela to address revenues or costs and expenses since March 31, 2006. As a result of this situation, our consolidated financial statements prepared in accordance with generally accepted accounting principals in the

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United States of America (“GAAP”)Harvest’s original Annual Report on Form 10-K for the year ended December 31, 2006 do not reflect the net results of our producing operations in Venezuela for the last three quarters of the year. We will not be able to include the results of our Venezuelan operations in our consolidated financial statements until the conversion to Petrodelta is completed. Although the MOU provides that upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result2007, as if the conversion had been completed on April 1, 2006, this adjustment will not occur until the conversion is completed.
          Since signing the MOU, CVP has designated its board members and a General Manager and President for Petrodelta, both of whom influence Harvest Vinccler’s operations and staffing. Harvest Vinccler continues in the day-to-day operations of its properties in Venezuela, and during the last three quarters of 2006, it has accrued cash advances of $36.3 million to fund operations. At the request of PDVSA, Harvest Vinccler invoiced PDVSA for these costs and $21.2 million, representing the second and third quarter advances, have been reimbursed. Harvest Vinccler invoiced PDVSA for fourth quarter advances of $15.1 million in February 2007. In 2006, Harvest Vinccler resolved and substantially paid all of the tax claims made by the SENIAT, the Venezuelan income tax authority. Harvest Vinccler paid $73.8 million additional taxes and related interest for the periods of 2001 through first quarter 2006.
          At December 31, 2006, Harvest Vinccler had three loans outstanding with two Venezuelan banks for a total of 225 billion Venezuelan Bolivars (“Bolivars”) (approximately $104.7 million). These loans are collateralized by $88.9 million deposited in two U. S. banks. The loans were used to meet the SENIAT income tax assessments and related interest, refinance a portion of one of the Bolivar loans and to fund operating requirements.
          SeeItem 1 – Business, Operations, Item 1A – Risk Factors,andItem 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operationsfor a complete description of these and other events during 2006.
          As of December 31, 2006, we had total assets of $422.7 million. We had unrestricted cash in the amount of $148.1 million, long-term debt of $67.0 million, total revenues of $59.5 million and net cash used in operating activities of $24.4 million. For the year ended December 31, 2005, we had total assets of $400.8 million. We had cash in the amount of $163.0 million, no long-term debt, total revenues of $236.9 million and net cash provided by operating activities of $114.7 million.
          Our business strategy is to seek and develop large known resources in countries perceived as politically challenging. Our strategy is to diversify risk by adding projects in countries other than Venezuela. In executing our business strategy, we strive to:
•maintain financial prudence and rigorous investment criteria;
•access capital markets;
•create a diversified portfolio of assets;
•preserve our financial flexibility;
•use our experience, skills and relationships to acquire new projects; and
•keep our organizational capabilities in line with our rate of growth.
While our strategy does not focus on unexplored areas, we will consider appropriate exploration investments on an opportunistic basis.
          In Venezuela, our goal, post conversion, is to influence the management and operations of Petrodelta while developing and producing the SMU fields and the Isleño, Temblador and El Salto fields in the most efficient manner. We expect that amounts available for dividends will be distributed to Petrodelta’s owners on a quarterly basis.
          We intend to use our available cash to pursue growth opportunities in countries other than Venezuela. However, this strategy is limited by factors including access to additional capital, timing for conversion and restrictions on the use of a significant portion of our cash.

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          The ability to successfully execute our strategy is subject to significant risks including, among other things, conversion to Petrodelta, operating risks, political risks, legal risks and financial risks. SeeItem 1A – Risk Factors,Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operationsand other information set forth elsewhere in this Annual Report on Form 10-K for a description of these and other risk factors.
Available Information
          We file annual, quarterly and current reports, proxy statements and other documentsfiled with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1934. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.govMarch 17, 2008 (the “Original Filing”).
     We also make available, free of chargeThis Amendment does not change the results as reported in the Original Filing but is required to be filed as an Amendment within six months after Harvest’s calendar year ending on or through our Internet website (http://www.harvestnr.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the Securities Act of 1934 are also available on the website. In addition, we have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our chief executive officer, principal financial officer and principal accounting officer. The text of the Code of Business Conduct and Ethics has been posted on the Corporate Governance section of our website. We intend to post on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics applicable to our senior officers. Additionally, the Code of Business Conduct and Ethics is available in print to any person who requests the information. Individuals wishing to obtain this printed material should submit a request to Harvest Natural Resources, Inc., Attention Investor Relations.
Operations
          All of our operations are in Venezuela. Since 2005, Harvest Vinccler has been unable to execute its facilities and drilling program due to actions by the Venezuelan government, and daily production of oil and natural gas volumes have and will continue to decline. In 2006, we completed a ten-well workover program to mitigate the normal decline curve. Harvest Vinccler is currently operating the South Monagas Unit comprising the Uracoa, Tucupita and Bombal fields (the “SMU fields”) pending the completion of the conversion of the OSA to Petrodelta. We began the year with average oil deliveries of 22,000 barrels of oil per day (“Bopd”) and natural gas deliveries of 56 million cubic feet a day (“MMCFpd”). The fields currently produce approximately 17,000 Bopd and 37 MMCFpd.
          The following table summarizes our Venezuela proved reserves, drilling and production activity, and financial operating data at the end of each of the years ended December 31, 2006, 2005 and 2004. The Venezuelan reserves are attributable to our OSA between Harvest Vinccler and PDVSA under which all mineral rights are2007 if the 50 percent or less owned by the Government of Venezuela. The reserve information presented belowperson is net of a 20 percent deduction for the minority interest in Harvest Vinccler. Drilling and production activity and financial data are reflected without deduction for minority interest. For 2004 and 2005, the year-end reserves include production projected through termination of the OSA in 2012. In April 2006, the Venezuelan government unilaterally terminated the OSA.foreign person.

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  Harvest Vinccler 
  Year Ended 
  12/31/06  12/31/05  12/31/04 
  (Dollars in 000’s) 
RESERVE INFORMATION:
            
Proved Reserves (MBoe)  —   36,105   84,418 
Standardized measure of discounted future net cash flows $—  $329,438  $544,980 
DRILLING AND PRODUCTION ACTIVITY:
            
Gross wells drilled  —   1   16 
Average daily production (Boe)  29,389   35,732   36,418 
FINANCIAL DATA:
            
Oil and natural gas revenues $59,506  $236,941  $186,066 
Expenses:            
Operating expenses and taxes other than on income  9,451   39,969   33,297 
Depletion  9,904   41,175   34,108 
Income tax expense(a)
  20,076   65,943   38,968 
          
Total expenses  39,431   147,087   106,373 
          
Results of operations from oil and natural gas producing activities $20,075  $89,854  $79,693 
          
(a)Excludes taxes of $50.3 million recorded in 2006 due to the settlement of the SENIAT tax assessments.
          Until we complete the conversion to Petrodelta, we will not have reserves to report under SEC guidelines and, accordingly, no reserves are reported as of December 31, 2006. The 2005 reserve information shown above has been reduced from 2004 to exclude reserves formerly classified as proved undeveloped. Under SEC standards for the reporting of oil and natural gas reserves, proved reserves are estimated quantities of crude oil and natural gas “which geological data and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirsunder existing economic and operating conditions.” (Emphasis added). The 2005 quantities of proved reserves have been reduced to remove undeveloped reserves because of the actions taken by the Venezuelan government beginning in 2005. After completion of the conversion to Petrodelta, we will report our net 32 percent of Petrodelta’s proved reserves. This will include the quantities of proved reserves attributable to the three fields to be added to Petrodelta as provided in the MOU.
South Monagas Unit
          In July 1992, we and Venezolana de Inversiones y Construcciones Clerico, C.A., a Venezuelan construction and engineering company (“Vinccler”), signed a 20-year operating service agreement with Lagoven, S.A., an affiliate of PDVSA, to reactivate and further develop the SMU fields. We were the first U.S. company since 1976 to be granted such an oil field development contract in Venezuela. The OSA was one of the original 33 operating service agreements entered into between PDVSA affiliates and private oil companies. Although it is our position that the OSA is still in place and we continue in the day-to-day operations of the SMU fields, the Venezuelan government has terminated all operating services agreements effective April 2006.
          Under the terms of the OSA, Harvest Vinccler is a contractor for a PDVSA affiliate. Harvest Vinccler is responsible for overall operations of the SMU fields, including all necessary investments to reactivate and develop the SMU fields. The Venezuelan government maintains full ownership of all hydrocarbons in the fields. In addition, the PDVSA affiliate maintains full ownership of equipment and capital infrastructure following its installation. The OSA provides for Harvest Vinccler to receive an operating fee for each barrel of crude oil delivered. It also provides Harvest Vinccler with the right to receive a capital recovery fee for certain of its capital expenditures, provided that such operating fee and capital recovery fee cannot exceed the maximum total fee per barrel set forth in the agreement. Historically, our maximum total fee under the OSA averaged approximately 48 percent of the price of West Texas Intermediate (“WTI”). Under an amendment we signed in August 2005 to limit our fee, the fee has historically averaged approximately 47 percent of the price of WTI. In September 2002, Harvest Vinccler and PDVSA signed an amendment to the OSA, providing for the delivery of up to 198 million cubic feet (“Bcf”) of natural gas through July 2012 at a price of $1.03 per thousand standard cubic feet (“Mcf”). The OSA stipulated that all payments for oil and natural gas were to be paid in U.S. Dollars. Despite these

4

requirements, PDVSA paid the fee for first quarter 2005 deliveries 50 percent in U.S. Dollars and 50 percent in Bolivars. Subsequent quarterly payments for 2005 and the first quarter of 2006 for oil and natural gas deliveries were received 75 percent in U.S. Dollars and 25 percent in Bolivars.
Petrodelta
          Upon receipt of the Venezuelan government approvals contemplated by the MOU, Harvest Vinccler and, we believe, HNR Finance B.V. (“HNR Finance”), and CVP will enter into a Contract of Conversion (the “Conversion Contract”). HNR Finance is a Dutch private company with limited liability. HNR Finance owns a 99.9 percent limited partnership interest in Harvest Vinccler, and Harvest Vinccler Ltd., a Cayman Islands exempted company, owns a 0.1 percent general partnership interest in Harvest Vinccler. All of the equity interest in HNR Finance and Harvest Vinccler Ltd. is owned by Harvest Vinccler Dutch Holding B.V., a Dutch private company with limited liability. We own an 80 percent equity interest in Harvest Vinccler Dutch Holding B.V. The remaining 20 percent equity interest is owned by Oil & Gas Technology Consultants (Netherlands) Coöperatie U.A. (“OGTC”). OGTC is controlled by an affiliate of Vinccler.
          Upon execution of the Conversion Contract, Petrodelta will be formed. Subject to the conditions of the Conversion Contract, as of the closing date established in the Conversion Contract, the OSA will be cancelled, Harvest Vinccler will transfer substantially all of its tangible assets and contracts, permits and rights related to the SMU fields in Venezuela to Petrodelta, and Petrodelta will engage in the exploration, production, gathering, transportation and storage of hydrocarbons from the SMU fields, as well as the Isleño, Temblador and El Salto fields which will have been awarded to Petrodelta. Upon completion of conversion, HNR Finance will have a 40 percent ownership interest in Petrodelta. Since we indirectly own 80 percent of HNR Finance, we will indirectly own a net 32 percent in Petrodelta and Vinccler will indirectly own the remaining eight percent. CVP will own the remaining 60 percent. We have requested CVP to add HNR Finance as a party to the Conversion Contract.
          Exploration and production activities under the Conversion Contract will be conducted by Petrodelta for a maximum period of 20 years. Petrodelta will undertake its operations in accordance with the business plan agreed to by CVP and Harvest Vinccler which will be set forth in Annex I to the Conversion Contract. Under the Conversion Contract, work programs and annual budgets adopted by Petrodelta must be consistent with the business plan. The business plan may be modified by a favorable decision of the shareholders owning at least 75 percent of the shares of Petrodelta. Harvest Vinccler has proposed a business plan to CVP for Petrodelta, but it has not been formally approved.
          Petrodelta will adopt policies and procedures governing its operations, including, among others, policies and procedures for safety, health and environment, contracting, maintenance of insurance, accounting, banking and treasury, and human resources, following the guidelines established by CVP. To the extent possible, such policies and procedures will be consistent with the policies and procedures of PDVSA and the ultimate parent company of Harvest Vinccler. Petrodelta will hire personnel, largely from Harvest Vinccler, and the shareholders will appoint the management of Petrodelta. Harvest Vinccler will transfer or assign its employees requested by the board of directors to Petrodelta. Harvest Vinccler will fill its share of management positions with employees or secondees to Harvest Vinccler. The General Manager of Petrodelta will be appointed by the Board of Directors and will be in charge of the daily management of the business of Petrodelta and will have the power and duties customary to manage, direct and supervise the accounting of Petrodelta. CVP has the right to nominate the General Manager to Petrodelta while HNR Finance has the right to nominate the Technical and Operations Manager. CVP also has the right to nominate the Manager of Prevention and Loss Control.
          Petrodelta will be governed in accordance with the Charter and By-laws of Petrodelta as set forth in Annex E to the Conversion Contract. Under the Charter and By-Laws, matters requiring shareholder approval may be approved by a simple majority with the exception of certain specified matters which require the approval by the holders of at least 75 percent of the capital stock. These matters include: most changes to the Charter and By-laws; changes in the capital stock of Petrodelta that would alter the percentage participation of HNR Finance or CVP; any liquidation or dissolution of Petrodelta; any merger, consolidation or business combination of Petrodelta; disposition of all or any substantial part of the assets of Petrodelta, except in the ordinary course of business; any financing agreement for an amount greater than $10 million; approval or modification of Petrodelta’s financial statements; creation of certain reserve funds; any distribution of dividends or return of paid-in surplus; changes to the policy regarding dividends and other distributions established by the Charter and By-laws; changes to the

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business plan; changes to the contract for sale and purchase of hydrocarbons with PPSA; contracts with shareholders or affiliates that are not at market price; any social investment in excess of the amount required by the Venezuelan government; any waiver of material rights or actions with respect to litigation involving more than $1 million; selection of external auditors; appointment of any judicial representative or general agent of Petrodelta; and designation of a liquidator in the event of the liquidation of Petrodelta.
          The Board of Directors of Petrodelta will consist of five directors, three of whom are appointed by CVP, including the President of the Board, and two of whom are appointed by HNR Finance. Decisions of the Board of Directors will be taken by the favorable vote of at least three of its members, except in the case of any decision implementing a decision of the Shareholders’ Meeting relating to any of the matters where a qualified majority is required, in which case, a favorable vote of four members will be required. The Board of Directors has broad powers of administration and disposition expressly granted in the Charter and By-laws of Petrodelta. The powers include: proposing budget and work programs; presenting the annual report to the shareholders; appointing and dismissing personnel; making recommendations regarding financial reserves and utilization of surplus; making proposals on dividends consistent with the By-laws and Charter of Petrodelta; agreeing on contracts consistent with the work programs and budgets; opening and closing bank accounts; make, accept, endorse and guarantee bank drafts and other commercial instruments consistent with work programs and budgets; and implementing policies and procedures of Petrodelta.
          The sale of oil and gas by Petrodelta to the Venezuelan government will be pursuant to a contract for sale and purchase of oil and gas with PPSA. The form of the agreement is set forth in Annex K to the Conversion Contract. Crude oil delivered from the SMU fields to PDVSA will be priced with reference to Merey 16 published prices, weighted for different markets, and adjusted for variations in gravity and sulphur content, commercialization costs and distortions that may occur given the reference priced and prevailing market conditions. Natural gas delivered from the SMU fields to PDVSA will be priced at $1.54 per thousand cubic feet. The reference price for crude oil and the price for natural gas produced from the Temblador, El Salto and Isleño fields has not been set under the contract. PPSA will make payment to Petrodelta of each invoice by wire transfer, in United States Dollars (“U.S. Dollars”) in the case of payment for crude oil and natural gas liquids delivered, and in Bolivars in the case of payment for natural gas delivered, in immediately available funds to the bank accounts designated by Petrodelta.
          An unofficial English version of the Conversion Contract is attached to our proxy statement filed with the SEC on November 6, 2006 in connection with our special meeting of stockholders to approve the conversion to Petrodelta.
          Once the conversion is completed, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006. The adjustment will take into account the value of oil and natural gas produced from April 1, 2006 and the costs incurred by Harvest Vinccler in relation to such production.
South Monagas Unit Fields
Uracoa Field
          There are currently 82 oil and natural gas producing wells in the field. The current production facility has capacity to handle 60 thousand barrels (“MBbls”) of oil per day, 130 MBbls of water per day, and storage of up to 75 MBbls of crude oil. All natural gas presently being delivered by Harvest Vinccler is produced from the Uracoa field.
Tucupita Field
          There are currently 19 oil producing wells and five water injection wells at Tucupita field. The Tucupita production facility has capacity to process 30 MBbls of oil per day, 125 MBbls of water per day and storage for up to 60 MBbls of crude oil. The oil is transported through a 31-mile, 20 MBbls of oil per day pipeline from the Tucupita field to the Uracoa plant facilities.
Bombal Field

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          The East Bombal field was drilled in 1992, and currently has one producing well. There are currently two oil producing wells in the West Bombal field. The fluid produced from West Bombal field flows through a six-mile pipeline and is tied into the 31-mile Tucupita oil pipeline to the Uracoa plant facilities. Development of the East Bombal field has been postponed pending completion of the conversion of the OSA to Petrodelta.
Infrastructure and Facilities
          Harvest Vinccler has constructed a 25-mile oil pipeline from its oil processing facilities at Uracoa to PDVSA’s storage facility, the custody transfer point. The operating service agreement specifies that the oil stream may contain no more than one percent base sediment and one percent water. Quality measurements are conducted both at Harvest Vinccler’s facilities and at PDVSA’s storage facility.
          In 2003, we built and completed a 64-mile pipeline with a normal capacity of 70 million cubic feet (“MMcf”) of natural gas per day and a design capacity of 90 MMcf of natural gas per day, a gas gathering system, upgrades to the UM-2 plant facilities and new gas treatment and compression facilities.
          In August 1999, Harvest Vinccler sold its power generation facilities located in the Uracoa and Tucupita fields. Concurrently with the sale, Harvest Vinccler entered into a long-term power purchase agreements with the purchaser of the facilities to provide for the electrical needs of the field throughout the remaining term of the operating service agreement. Harvest Vinccler has entered into long-term agreements for the leasing of compression and the operation and maintenance of the gas treatment and compression facilities.
The Isleño, Temblador and El Salto Fields
          The Isleño, Temblador and El Salto fields to be transferred to Petrodelta after conversion are located in the same geographic area and have the same geology and productive formations as the SMU fields. As with the SMU fields before Harvest Vinccler’s entry in 1992, there had been minimal development activity in the three fields during the last 20 years.
Isleño Field
          The Isleño fields were discovered in 1953. Two-dimensional seismic data is available over a portion of the Isleño fields. Seven oil appraisal wells have been drilled in Isleño which have confirmed the presence of commercial oil deposits. The fields are located near existing infrastructure in the SMU Uracoa field. Petrodelta’s business plan projects full development of the Isleño fields over the next three years.
Temblador Field
          The Temblador field was discovered in 1936 and developed in the 1940s and the 1950s. Temblador has produced 118 million barrels of oil equivalent (“Boe”) and 64 billion cubic feet of natural gas from 155 wells since 1936. Three-dimensional seismic is available over the entire Temblador field.
El Salto Field
          The El Salto field was discovered in 1936. A total of 31 appraisal wells have been drilled identifying nine productive structures and six productive formations. The field has produced less than 1 million Boe and is currently dormant. Three-dimensional seismic data is available over one-third of the El Salto field. The El Salto field has substantial exploration upside from several fault blocks, which have been identified using seismic data but have not yet been confirmed through drilling.
Business Plan of Petrodelta
          While the business plan for Petrodelta has not yet been finalized, we envision the plan to call for the immediate resumption of the suspended development of the SMU fields as well as appraisal and development of the Isleño, Temblador and El Salto fields.

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          Harvest Vinccler had previously identified and submitted in excess of 20 development wells for approval in the SMU fields. These wells will likely be the immediate focus of the restarted development program in Petrodelta. Concurrently, we envision the timely appraisal and development of the Isleño field and further development of the Temblador field. We believe the Isleño field production can be integrated into the existing Uracoa field infrastructure providing for early production from the field. Temblador field production would be processed at existing field facilities. The El Salto field is believed to contain substantial undeveloped reserves. Accordingly, we expect to acquire additional three-dimensional seismic and undergo significant appraisal and development in a timely manner to provide for larger scale development implementation. Overall, production is expected to peak four to six years from commencement of Petrodelta.
Risk Factors
          We face significant risks in Venezuela. These risks and other risk factors are discussed inItem 1A – Risk FactorsandItem 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
WAB-21, South China Sea (Benton Offshore China Company)
General
          In December 1996, we acquired Crestone Energy Corporation, subsequently renamed Benton Offshore China Company. Its principal asset is a petroleum contract with China National Offshore Oil Corporation (“CNOOC”) for the WAB-21 area. The WAB-21 petroleum contract covers 6.2 million acres in the South China Sea, with an option for an additional 1.25 million acres under certain circumstances, and lies within an area which is the subject of a border dispute between the People’s Republic of China and Vietnam. Vietnam has executed an agreement on a portion of the same offshore acreage with another company. The border dispute has lasted for many years, and there has been limited exploration and no development activity in the WAB-21 area due to the dispute.
Location and Geology
          The WAB-21 contract area is located in the West Wan’an Basin (Nam Con Son) on the South China Sea. Its western edge lies approximately 50 miles southeast of the Dai Hung (Big Bear) Oil Field. The block is to the east of significant natural gas discoveries at Lan Tay and Lan Do, which are reported to contain two trillion cubic feet of natural gas. WAB-21 is also adjacent to the 2005 Thien Ung discovery which tested oil and natural gas and east of the Dua and Blackbird discoveries that successfully tested oil and gas in 2006. The WAB-21 contract area covers several similar structural trends and geological formations, each with potential for hydrocarbon reserves in possible multiple pay zones similar to the known fields and discoveries.
Drilling and Development Activity
          Due to the border dispute between China and Vietnam, we have been unable to pursue an exploration program during phase one of the contract. As a result, we have obtained license extensions, with the current extension in effect until May 31, 2007. While no assurance can be given, we believe we will continue to receive contract extensions so long as the border disputes persist.
Activities by Area
          The following table summarizes our consolidated activities by area.

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(in thousands) Venezuela United States Total
Year ended December 31, 2006
            
Oil and natural gas sales $59,506   —  $59,506 
Total Assets $306,289  $116,422  $422,711 
             
Year ended December 31, 2005
            
Oil and natural gas sales $236,941   —  $236,941 
Total Assets $258,268  $142,530  $400,798 
             
Year ended December 31, 2004
            
Oil and natural gas sales $186,066   —  $186,066 
Total Assets $309,794  $57,692  $367,486 
Production, Prices and Lifting Cost Summary
          In the following table we have set forth, by country, our net production, average sales prices and average operating expenses for the period ended March 31, 2006, and years ended December 31, 2005 and 2004. The presentation for Venezuela includes 100 percent of the production, without deduction for minority interest.
             
  Year Ended December 31,
  2006(a) 2005 2004
Venezuela(b)
            
Crude Oil Production (Bbls)  1,894,101   8,762,687   8,152,261 
Natural Gas Production (Mcf)  4,506,094   25,677,460   31,059,416 
Average Crude Oil Sales Price ($per Bbl)(c)
 $28.96  $24.02  $18.90 
Average Natural Gas Sales Price ($per Mcf) $1.03  $1.03  $1.03 
Average Operating Expenses ($per Boe) $3.49  $3.05  $2.50 
(a)Reflects oil and natural gas deliveries through March 31, 2006.
(b)Information represents 100 percent of production.
(c)Average crude oil sales price after hedging activity.
Regulation
General
          Our operations are affected by political developments and laws and regulations in the areas in which we operate. In particular, oil and natural gas production operations and economics are affected by:
•change in governments;
•civil unrest;
•price and currency controls;
•limitations on oil and natural gas production;
•tax, environmental, safety and other laws relating to the petroleum industry;
•changes in laws relating to the petroleum industry;
•changes in administrative regulations and the interpretation and application of such rules and regulations; and
•changes in contract interpretation and policies of contract adherence.
          In any country in which we may do business, the oil and natural gas industry legislation and agency regulation are periodically changed, sometimes retroactively, for a variety of political, economic, environmental and

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other reasons. Numerous governmental departments and agencies issue rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties for the failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business and our potential for economic loss.
Venezuela
          On February 5, 2003, Venezuela imposed currency controls and created the Commission for Administration of Foreign Currency with the task of establishing the detailed rules and regulations and generally administering the exchange control regime. These controls fix the exchange rate between the Bolivar and the U.S. Dollar and restrict the ability to exchange Bolivars for U.S. Dollars and vice versa. The Bolivar is not readily convertible into the U.S. Dollar. We do not expect the Venezuelan currency conversion restriction to adversely affect our ability to meet short-term loan obligations and operating requirements for the foreseeable future.
          No capital expenditures to comply with environmental regulations were required in 2004, 2005 or 2006. Harvest Vinccler is also subject to income, municipal and value-added taxes, and must file certain monthly and annual compliance reports with the national tax administration and with various municipalities.
Drilling and Undeveloped Acreage
          For acquisitions of leases and producing properties, development and exploratory drilling, production facilities and additional development activities such as workovers and recompletions, we spent approximately (excluding our share of capital expenditures incurred by equity affiliates) $1.5 million, $9.0 million and $39.2 million in 2006, 2005 and 2004, respectively. Included in these numbers is $8.9 million and $33.5 million for the development of proved undeveloped reserves in 2005 and 2004, respectively.
          We have participated in the drilling of wells as follows:
                         
  Year Ended December 31,
  2006 2005 2004
  Gross Net Gross Net Gross Net
Wells Drilled:
                        
Development:                        
Crude oil  —   —   1   0.8   16   12.8 
                         
Average Depth of Wells (Feet)
  —   —   —   4,349   —   5,443 
                         
Producing Wells(1):
                        
Crude Oil  103   82.4   108   86.4   124   99.2 
(1)The information related to producing wells reflects wells we drilled, wells we participated in drilling and producing wells we acquired.
          All of our drilling activities were conducted on a contract basis with independent drilling contractors. We do not directly operate any drilling equipment.
Acreage
          The following table summarizes the undeveloped acreage that we hold under concession as of December 31, 2006:
         
  Undeveloped
  Gross Net
China  7,470,080   7,470,080 
         

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Title to Undeveloped Acreage
          The WAB-21 petroleum contract lies within an area which is the subject of a border dispute between China and Vietnam. Vietnam has executed an agreement on a portion of the same offshore acreage with a third party. The border dispute has existed for many years, and there has been limited exploration and no development activity in the WAB-21 area due to the dispute. It is uncertain when or how this dispute will be resolved, and under what terms the various countries and parties to the agreements may participate in the resolution.
Competition
          We encounter substantial competition from major, national and independent oil and natural gas companies in acquiring properties and leases for the exploration and development of crude oil and natural gas. The principal competitive factors in the acquisition of such oil and natural gas properties include staff and data necessary to identify, investigate and purchase such properties, the financial resources necessary to acquire and develop such properties, and access to local partners and governmental entities. Many of our competitors have influence, financial resources, staffs, data resources and facilities substantially greater than ours.
Environmental Regulation
          Various federal, state, local and international laws and regulations relating to the discharge of materials into the environment, the disposal of oil and natural gas wastes, or otherwise relating to the protection of the environment, may affect our operations and costs. We are committed to the protection of the environment and believe we are in substantial compliance with the applicable laws and regulations. However, regulatory requirements may, and often do, change and become more stringent, and there can be no assurance that future regulations will not have a material adverse effect on our financial position, results of operations and cash flows.
Employees
          At December 31, 2006, our Houston office had 18 full-time employees. Harvest Vinccler had 240 employees and our Moscow and London offices had 11 and 5 employees, respectively. We augment our staffs from time to time with independent consultants, as required.
Item 1A. Risk Factors
In addition to the other information set forth elsewhere in this Form 10-K, the following factors should be carefully considered when evaluating us.
While approved by our stockholders, the conversion of the OSA to Petrodelta may not be completed and we may not recover our investments or be compensated for our services in Venezuela, and our interests in Venezuela may be unlawfully confiscated by the Venezuelan government.Since April 1, 2006, our operations in Venezuela have continued to be conducted pursuant to the terms of the OSA, which the government no longer recognizes and which it claims is illegal. As such, our future ability to contractually recover all or part of our investments and be compensated for our services depends on completing the process for the conversion of the OSA and transfer of our interests to Petrodelta. If we are unable to convert to Petrodelta, we may not be paid for oil and natural gas produced after March 31, 2006. Further, if we are unable to successfully complete the conversion to Petrodelta, we believe the Venezuelan government will seize our assets and take over Venezuelan operations. Our recourse will be to pursue claims in arbitration for expropriation of our interests or similar claims against the Venezuelan government. An arbitration proceeding may take a number of years to conclude and we can provide no assurances as to outcome.
Certain conditions to signing the Conversion Contract may not be met.Before we sign the Conversion Contract, certain conditions must be satisfied, most of which are beyond our control. These conditions include approval by the Venezuelan Ministry of Energy and Petroleum (“MEP”) and the Venezuelan National Assembly; obtaining or filing all necessary consents, authorizations, orders or approvals of governmental authorities; making all necessary filings or registrations with governmental authorities and giving all requisite notifications to governmental authorities; completion of the Conversion Contract and all annexes, including the

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business plan; and the award of the Isleño, Temblador and El Salto fields to Petrodelta by the Venezuelan government.
Until conversion to Petrodelta is complete, we will likely continue to incur expenses without receiving revenues.Even though it is our position that the OSA is still in place, as a result of actions by the government of Venezuela, Harvest Vinccler currently has no recognized agreement setting out its rights and obligations within Venezuela. Harvest Vinccler continues in the day-to-day operations of the SMU fields and continues to incur expenses in doing so; however, there are no contractual means recognized by Venezuela to receive revenues or be reimbursed for costs and expenses during the period prior to the conversion to Petrodelta. Although the MOU provides that upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006, this adjustment will not occur until and unless the conversion is completed. The timing for completing the conversion to Petrodelta is uncertain. While we continue to maintain cash reserves, our operations in Venezuela represent all of our revenues, and the funds available to pursue our growth strategy may be adversely affected by the financial demands of continued operations in Venezuela during the conversion process.
Until the conversion to Petrodelta is complete and drilling operations resume, our production volumes will continue to decline.Since 2005, our volumes of crude oil and natural gas deliveries have declined significantly. The decline is due to PDVSA’s refusal to allow us to carry out our drilling and facilities program for 2005 and 2006 and the natural decline of the field. Until conversion is completed, the resumption of any significant drilling operations is unlikely and the SMU field’s production volumes will continue to decline.
If the conversion to Petrodelta is completed, we will be a minority interest owner in Petrodelta.Upon conversion of the OSA to Petrodelta and transfer of our assets to Petrodelta, we will be a minority interest owner and no longer have sole control over operations. Our control of Petrodelta will be limited to our rights under the Conversion Contract and its annexes and the Charter and By-Laws of Petrodelta. As a result, our ability to implement our business plan, assure quality control, and set the timing and pace of development may be adversely affected.
If the conversion to Petrodelta is completed, our estimates of reserves may not be realized. Ryder Scott Company, L.P. provided an estimate of reserves attributable to HNR Finance’s interest in the properties to be operated by Petrodelta. We cannot predict whether the volumes of reserves will ultimately be recovered, and volumes of reserves actually recovered may differ significantly from estimated quantities.
If the conversion to Petrodelta is completed, our flexibility in selling or exchanging a direct or indirect interest in Petrodelta to diversify our assets and acquire additional properties may be limited.We continue to look at alternatives to diversify our assets. However, the alternatives are limited. If the conversion to Petrodelta is completed, and we decide to enter into a sale or exchange of all or part of our Venezuelan assets with an unrelated third party, the third party must be approved by the Venezuelan government. The number of potential buyers that will be acceptable to the Venezuelan government may be limited, and this number of potential buyers may be further affected and limited by country risk concerns. Further, a sale or exchange of all or part of our Venezuelan assets after completing the conversion to Petrodelta may be subject to U.S. federal tax consequences.
If the conversion to Petrodelta is completed, CVP and PPSA might not have the funds available to reimburse us for oil and gas deliveries made during the period prior to conversion.Pursuant to the MOU, CVP has agreed to make an economic adjustment to compensate us so as to achieve the same economic result as if the conversion had been completed on April 1, 2006. This adjustment is to occur once the conversion is completed. However, there are no assurances that CVP and PPSA will have adequate funds to make payment to us for the period dating back to April 1, 2006.
The total capital required for development of the fields in Venezuela may exceed the ability of Harvest Vinccler and CVP to finance.Our ability to fully develop the fields in Venezuela will require a significant investment. Our and CVP’s future capital requirements for the development of the SMU fields and the Isleño, Temblador and El Salto fields may exceed the cash available from existing cash flow and cash on hand. Our ability to secure financing is currently limited and uncertain, and has been and may be affected by numerous factors beyond our control, including the risks associated with operating in Venezuela. Because of this financial risk, we

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may not be able to secure either the equity or debt financing necessary to meet our future cash needs for investment, which may limit our ability to fully develop the properties, cause delays with their development or require early divestment of all or a portion of those projects. Failure by us to meet a capital requirement could be a default under the Conversion Contract and cause the forfeiture of some or all our shares in Petrodelta. In addition, CVP may be unable or unwilling to fund its share of capital requirements and our ability to require them to do so is limited.
The loss of key personnel or the ability to establish and retain an experienced and competent workforce in Venezuela could adversely affect our ability to successfully execute our business plan.Our ability to successfully implement the business plan for Petrodelta depends to a large degree on the skills and experience of individuals in key management and operating positions and retaining a capable workforce. We have no assurances that key employees will remain after the conversion to Petrodelta is completed or that Petrodelta will be able to attract and retain competent employees to replace those employees who do not remain with Petrodelta. Moreover, as a minority interest owner in Petrodelta, we have a limited ability to appoint key positions or control decisions on workforce staffing.
Pending conversion to Petrodelta, the actions of CVP, through its members to the Petrodelta board and its appointed General Manager or President, may adversely affect our ability to conduct operations and retain key personnel.
Contracting policies and procedures of Petrodelta could adversely affect successful execution of the business plan.Successful implementation of the business plan of Petrodelta will require the use of skilled and competitively priced contractors for the development of the fields, including the drilling of wells, building of infrastructure and providing essential services. Due to factors such as global competition and the business climate in Venezuela, contractors, labor, and materials and equipment may not be readily available at competitive prices. Further, as a minority interest owner in Petrodelta, our influence over contracting decisions and contracting policies and procedures is limited.
Petrodelta’s business plan will be sensitive to market prices for oil.Petrodelta will be operating under a business plan, the success of which will rely heavily on the market price of oil. To the extent that market values of oil decline, the business plan of Petrodelta may not be successful.
A decline in the market price of crude oil could uniquely affect the financial condition of Petrodelta.Under the terms of the Conversion Contract and other governmental documents, Petrodelta is subject to a special advantage tax (“ventajas especiales”) which requires that if in any year the aggregate amount of royalties, taxes and certain other contributions is less than 50 percent of the value of the hydrocarbons produced, Petrodelta must pay the government the difference. In the event of a significant decline in crude prices, the ventajas especiales could force Petrodelta to operate at a loss. Moreover, our ability to control those losses by modifying the business plan or restricting the budget is limited under the Conversion Contract.
Oil price declines and volatility could adversely affect Petrodelta’s future, our revenue, cash flows and profitability.Prices for oil fluctuate widely. Prices also affect the amount of cash flow available for capital expenditures and dividends from Petrodelta. Any restrictions on future dividends from Petrodelta may impact our ability to service our Venezuelan debt. Lower prices may also reduce the amount of oil that we can produce economically and lower oil production could affect the amount of natural gas we can produce. We cannot predict future oil prices. Factors that can cause fluctuations in oil prices include:
•relatively minor changes in the global supply and demand for oil;
•export quotas;
•market uncertainty;
•the level of consumer product demand;
•weather conditions;
•domestic and foreign governmental regulations and policies;
•the price and availability of alternative fuels;
•political and economic conditions in oil-producing and oil consuming countries; and
•overall economic conditions.

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If the conversion to Petrodelta is not completed, our ability to pursue other transactions will be limited.If the conversion to Petrodelta is not completed, we will continue to assess and consider other strategic alternatives for preserving value, including a transfer of all or part of our Venezuelan assets to another party, and we will continue to pursue other business opportunities and investments unrelated to Venezuela. There can be no assurance that we will be able to successfully pursue any such strategic alternatives. Without completion of conversion to Petrodelta, the alternatives available to us are more limited and subject to a number of significant variables.
The legal or fiscal regime for Petrodelta may change and the Venezuelan government may not honor its commitments.While we believe that the Conversion Contract and Petrodelta provide a basis for a more durable arrangement in Venezuela, the value of the business necessarily depends upon Venezuela’s maintenance of legal, tax, royalty and contractual stability. Our recent experiences in Venezuela demonstrate that such stability should not be assumed because the Venezuelan government may not honor its legal and contractual commitments. While we have and will continue to take measures to mitigate our risks, no assurance can be provided that we will be successful in doing so or that events beyond our control will not adversely affect the value of our business in Venezuela.
The actions of the Venezuelan government may cause us to file for international arbitration. As a result of the actions taken by PDVSA, MEP and the SENIAT, we delivered formal notices to Venezuelan government officials of an investment dispute under Venezuelan law and bilateral investment treaties entered into by the government of Venezuela. The bilateral investment treaties and Venezuelan law provide for international arbitration of investment disputes conducted through the International Centre for Settlement of Investment Disputes of the World Bank. An arbitration proceeding may take a number of years to conclude and we can provide no assurances as to its outcome.
Continuing to do business in Venezuela is subject to risk.Our operations in Venezuela are subject to various risks including, among other things, loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, change in laws, exchange controls, war, insurrection, civil unrest, strikes and other political risks, being subject to foreign laws, legal systems and the exclusive jurisdiction of Venezuelan courts or tribunals, unilateral renegotiation of contracts with the Venezuelan government and changes in laws and policies governing operations of mixed companies. These factors increase our exposure to production disruptions and project execution risk.
Remaining in Venezuela may limit our ability to acquire other oil and gas properties.Under our business plan, Petrodelta may not be a significant source of dividends in its early years. Moreover, our lack of asset diversification and concentration of risk limits our access to both debt and equity capital. Therefore, our near-term growth and diversification must come from unrestricted cash on hand and asset-based lending, rather than cash or debt from our Venezuelan operations. This may limit the size and type of other projects we are able to acquire.
Tax claims by municipalities in Venezuela may adversely affect Harvest Vinccler’s financial condition.The municipalities of Uracoa and Libertador have asserted numerous tax claims against Harvest Vinccler which we believe are without merit. However, the reliability of Venezuela’s judicial system is a source of concern and it can be subject to local and political influences. Accordingly, no assurance can be given that the tax claims will be overturned. Enforcement of the claims through court order requested by the municipalities, even while the claims are under review, could lead to the seizure of Harvest Vinccler’s assets.
Our strategy to focus on Russia and other countries perceived to be politically challenging carries greater deal execution, operating, financial, legal and political risks.While we believe our established presence in countries perceived to be politically challenging and our experience and skills from prior operations position us well for future projects, doing business in Russia and other countries perceived to be politically challenging also carries unique risks. The operating environment is often difficult and the ability to operate successfully will depend on a number of factors, including our ability to control the pace of development, our ability to apply “best practices” in drilling and development, and the fostering of productive and transparent relationships with local partners, the local community and governmental authorities. Financial risks include our ability to control costs and attract financing for our projects. In addition, often the legal systems of these countries are not mature and their reliability is uncertain. This may affect our ability to enforce contracts and achieve certainty in our rights to develop and

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operate oil and natural gas projects, as well as our ability to obtain adequate compensation for any resulting losses. Our strategy depends on our ability to have operational and financial control. Recently, the Russian government began to consider legislation to restrict certain “strategic” projects in Russia to majority-owned Russian companies. If adopted, such legislation could adversely affect our ability to acquire projects in Russia consistent with our strategy.
Operations in areas outside the United States are subject to various risks inherent in foreign operations, and our strategy to focus on countries perceived to be politically challenging limits our risk diversification.Our operations are subject to various risks inherent in foreign operations. These risks may include, among other things, loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection, civil unrest, strikes and other political risks, increases in taxes and governmental royalties, being subject to foreign laws, legal systems and the exclusive jurisdiction of foreign courts or tribunals, renegotiation of contracts with governmental entities, changes in laws and policies, including taxes, governing operations of foreign-based companies, currency restrictions and exchange rate fluctuations and other uncertainties arising out of foreign government sovereignty over our international operations. Our international operations may also be adversely affected by laws and policies of the United States affecting foreign policy, foreign trade, taxation and the possible inability to subject foreign persons to the jurisdiction of the courts in the United States. Our strategy to focus on countries perceived to be politically challenging increases our exposure to operating, financial and political risks.
Our cash position and limited ability to access additional capital may limit our growth opportunities.We have used $88.9 million of our cash as collateral for debt in Venezuela, and, until conversion to Petrodelta, there will be no additional cash available from operations. The unfinished conversion to Petrodelta also significantly limits our access to additional capital, and, after conversion, the concentration of our political risk in Venezuela may limit our ability to leverage our assets. In addition, our future cash position depends upon the payment of dividends by Petrodelta, in particular for the period from April 1, 2006 through the date of conversion. While we believe such dividends, if available, will be paid, there is no assurance this will be the case. These factors may limit our ability to grow through the acquisition of additional oil and gas properties and projects.
Our foreign operations expose us to foreign currency risk.Presently, our only operations are located in Venezuela. Venezuela is considered a highly inflationary economy. There are many factors which affect foreign exchange rates and resulting exchange gains and losses, many of which are beyond our influence. We have recognized significant exchange gains and losses in the past, resulting from fluctuations in the relationship of the Bolivar to the U.S. Dollar. It is not possible to predict the extent to which we may be affected by future changes in exchange rates. The majority of our Venezuelan receipts are denominated in U.S. Dollars. A large portion of our operating and capital expenditures are in U.S. Dollars. For a discussion of currency controls in Venezuela, seeItem 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources.Successful acquisition of projects in any international country may also expose us to foreign currency risk in that country.
Estimates of oil and natural gas reserves are uncertain and inherently imprecise. This Annual Report on Form 10-K contains estimates of our proved oil and natural gas reserves. These estimates are based upon various assumptions, including assumptions required by the SEC relating to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. Until we complete the conversion to Petrodelta, we will not have reserves to report under SEC guidelines and, accordingly, no reserves are reported as of December 31, 2006. Moreover, our quantities of proved reserves in 2005 were reduced to remove undeveloped reserves because the actions taken by the Venezuelan government created uncertainty as to whether these reserves would be recovered under the economic and operating conditions which existed in Venezuela (“Contractually Restricted Reserves”).
          The process of estimating oil and natural gas reserves is complex requiring significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Therefore, these estimates are inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves likely will vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves set forth. Actual production, revenue, taxes, development expenditures and

15

operating expenses with respect to our reserves will likely vary from the estimates used, and these variances may be material.
          You should not assume that the present value of future net revenues referred to inNotes to the Consolidated Financial Statements, TABLE V – Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Natural Gas Reserve Quantitiesis the current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of the estimate. Any changes in demand, our ability to produce or in governmental regulations, policies or taxation will also affect actual future net cash flows. The timing of both the production and the expenses from the development and production of oil and natural gas properties will affect the timing of actual future net cash flows from estimated proved reserves and their present value. In addition, the 10 percent discount factor, which is required by the SEC to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily the most accurate discount factor. The effective interest rate at various times and the risks associated with the oil and natural gas industry in general will affect the accuracy of the 10 percent discount factor.
We may not be able to replace production with new reserves. In general, production rates and remaining reserves from oil and natural gas properties decline as reserves are depleted. The decline rates depend on reservoir characteristics. We will not have any reserves to report under SEC guidelines until we complete the conversion to Petrodelta or acquire additional properties with proved reserves or conduct successful exploration and development activities. Our future oil and natural gas production is highly dependent upon our level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive and uncertain. We may be unable to make the necessary capital investment to maintain or expand our oil and natural gas reserves if cash flow from operations is reduced and external sources of capital become limited or unavailable. We cannot assure you that our future exploration, development and acquisition activities will result in additional proved reserves or that we will be able to drill productive wells at acceptable costs.
Our operations are subject to numerous risks of oil and natural gas drilling and production activities.Oil and natural gas drilling and production activities are subject to numerous risks, including the risk that no commercially productive oil or natural gas reservoirs will be found. The cost of drilling and completing wells is often uncertain. Oil and natural gas drilling and production activities may be shortened, delayed or canceled as a result of a variety of factors, many of which are beyond our control. These factors include:
•unexpected drilling conditions;
•pressure or irregularities in formations;
•equipment failures or accidents;
•weather conditions;
•shortages in experienced labor;
•delays in receiving necessary governmental permits;
•shortages or delays in the delivery of equipment;
•delays in receipt of permits or access to lands; and
•government actions or changes in regulations.
          The prevailing price of oil also affects the cost of and the demand for drilling rigs, production equipment and related services. We cannot assure you the new wells we drill will be productive or that we will recover all or any portion of our investment. Drilling for oil and natural gas may be unprofitable. Drilling activities can result in dry wells and wells that are productive but do not produce sufficient net revenues after operating and other costs.
The oil and natural gas industry experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pump and pipe failures, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, pipeline ruptures and discharges of toxic gases. If any of these industry operating risks occur, we could have substantial losses. Substantial losses may be caused by injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. In accordance with industry practice, we maintain insurance against some, but not all, of the risks

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described above. We cannot assure you that our insurance will be adequate to cover losses or liabilities. We cannot predict the continued availability of insurance at premium levels that justify its purchase.
Competition within the industry may adversely affect our operations. We operate in a highly competitive environment. We compete with major, national and independent oil and natural gas companies for the acquisition of desirable oil and natural gas properties and the equipment and labor required to develop and operate such properties. Many of these competitors have financial and other resources substantially greater than ours.
Our oil and natural gas operations are subject to various governmental regulations that materially affect our operations. Our oil and natural gas operations are subject to various foreign governmental regulations. These regulations may be changed in response to economic or political conditions. Matters regulated may include permits for discharges of wastewaters and other substances generated in connection with drilling operations, bonds or other financial responsibility requirements to cover drilling contingencies and well plugging and abandonment costs, reports concerning operations, the spacing of wells, and unitization and pooling of properties and taxation. At various times, regulatory agencies have imposed price controls and limitations on oil and natural gas production. In order to conserve or limit supplies of oil and natural gas, these agencies have restricted the rates of flow of oil and natural gas wells below actual production capacity. We cannot predict the ultimate cost of compliance with these requirements or their effect on our operations.
The loss of key personnel could adversely affect our ability to successfully execute our strategy.We are a small organization and depend on the skills and experience of a few individuals in key management and operating positions to execute our business strategy. Loss of one or more key individuals in the organization could hamper or delay achieving our strategy.
Item 1B. Unresolved Staff Comments
          None.
Item 2. Properties
          In April 2004, we signed a ten-year lease for office space in Houston, Texas, for approximately $17,000 per month. Also during 2004, Harvest Vinccler leased office space in Maturin and Caracas, Venezuela for approximately $13,200 and $4,000 per month, respectively. See alsoItem 1 – Businessfor a description of our oil and natural gas properties and reserves.
Item 3. Legal Proceedings
Excel Enterprises L.L.C. vs. Benton Oil & Gas Company, now known as Harvest Natural Resources, Inc., Chemex, Inc., Benton-Vinccler, C.A., Gale Campbell and Sheila Campbell in the District Court for Harris County, Texas. This suit was brought in May 2003 by Excel alleging, among other things, breach of a consulting agreement between Excel and us, misappropriation of proprietary information and trade secrets, and fraud. Excel seeks actual and exemplary damages, injunctive relief and attorneys’ fees. In October 2003, the Court abated the suit pending final judgment of a case pending in Louisiana to which we are not a party. We dispute Excel’s claims and plan to vigorously defend against them. We are unable to estimate the amount or range of any possible loss.
Uracoa Municipality Tax Assessments. In July 2004, Harvest Vinccler received three tax assessments from a tax inspector for the Uracoa municipality in which part of the SMU fields are located. A protest to the assessments was filed with the municipality, and in October 2004 the tax inspector responded in part by affirming one of the assessments and issuing a payment order. Harvest Vinccler has filed a motion with the tax court in Barcelona, Venezuela, seeking to enjoin the payment order and dismiss the assessment. In July 2006, the Uracoa Municipality issued two additional assessments seeking to impose an increase in tax rates for the last quarter of 2005 and the first quarter of 2006. In August 2006, the Uracoa Municipality issued two further assessments, including penalties, for second quarter 2006 estimated revenues based on the first quarter 2006 oil and natural gas sales and for supposed errors of Harvest Vinccler as withholding agent. We dispute all of the tax assessments and

17

believe we have a substantial basis for our positions. We are unable to estimate the amount or range of a possible loss.
Libertador Municipality Tax Assessment. In April 2005, Harvest Vinccler received a tax assessment from a tax inspector for the Libertador municipality in which part of the SMU fields are located. Harvest Vinccler has submitted a protest to the assessment at the Mayor’s Office, and if no favorable resolution is obtained, it will file a motion with the tax court seeking to enjoin the payment order and dismiss the assessment. We dispute the allegations set forth in the assessment and believe we have a substantial basis for our position. We are unable to estimate the amount or range of a possible loss.
International Arbitration. As a result of the actions taken by PDVSA, the Ministry of Energy and Petroleum (“MEP”) and the SENIAT, in July 2005, we delivered formal notices to Venezuelan government officials of an investment dispute under Venezuelan law and bilateral investment treaties entered into by the government of Venezuela. The bilateral investment treaties and Venezuelan law provide for international arbitration of investment disputes conducted through the International Centre for Settlement of Investment Disputes of the World Bank.
The SENIAT Tax Assessment. In July 2005, the SENIAT, the Venezuelan income tax authority, issued a preliminary tax assessment to Harvest Vinccler of 202 billion Bolivars, or approximately $94 million, related to 2001 through 2004 tax years. We determined not to contest two elements of the claim and made payments totaling 11.3 billion Bolivars, or $5.3 million, in August and September, 2005. During the second quarter 2006, the SENIAT initiated an audit of 2005 tax payments, and in October 2006, Harvest Vinccler received an assessment from the SENIAT for 2005 taxes in the amount of $15.8 million. In 2006, Harvest Vinccler resolved and substantially paid all of the tax claims made by the SENIAT. Harvest Vinccler paid $73.8 million additional taxes and related interest for the periods of 2001 through first quarter 2006.
Item 4. Submission of Matters to a Vote of Security Holders
          At a special meeting of stockholders held on December 18, 2006, the following items were voted on by the stockholders:
1.Proposal to approve the proposed transaction, including the conversion contract between our subsidiary Harvest Vinccler, S.C.A. and Corporación Venezolana del Petroleo, S.A., and entailing the transfer of substantially all of our assets to Empresa Mixta Petrodelta, S.A., pursuant to the conversion contract:
     
  Against/Withheld Abstentions/Broker Non-
Votes in Favor Votes Votes
30,910,607 133,118 114,731
2.Proposal to postpone or adjourn the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the transaction described in proposal 1:
     
  Against/Withheld Abstentions/Broker Non-
Votes in Favor Votes Votes
27,746,888 3,282,231 129,337
3.To vote on such other matters as may properly come before the special meeting or any adjournment or postponement of the special meeting:
     
  Against/Withheld Abstentions/Broker Non-
Votes in Favor Votes Votes
18,457,926 10,894,377 1,806,153

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PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
          Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HNR”. As of December 31, 2006, there were 37,204,498 shares of common stock outstanding, with approximately 589 stockholders of record. The following table sets forth the high and low sales prices for our Common Stock reported by the NYSE.
             
Year Quarter High Low
 2005  First quarter $16.92  $11.30 
    Second quarter  12.48   8.13 
    Third quarter  11.68   9.00 
    Fourth quarter  10.81   8.57 
             
 2006  First quarter  10.68   8.00 
    Second quarter  14.35   9.89 
    Third quarter  14.40   9.71 
    Fourth quarter  11.74   9.81 
          On March 2, 2007, the last sales price for the common stock as reported by the NYSE was $9.26 per share.
          Our policy is to retain earnings to support the growth of our business. Accordingly, our board of directors has never declared a cash dividend on our common stock.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
          For securities authorized for issuance under equity compensation plans, seeNotes to the Consolidated Financial Statements Note 5 – Stock Option and Stock Purchase Plans.
STOCK PERFORMANCE GRAPH
          The graph below shows the cumulative total stockholder return over the five-year period ending December 31, 2006, assuming an investment of $100 on December 31, 2001 in each of Harvest’s common stock, the Dow Jones U.S. Exploration & Production Index and the S&P Composite 500 Stock Index.
          This graph assumes that the value of the investment in Harvest stock and each index was $100 at December 31, 2001 and that all dividends were reinvested.

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PLOT POINTS
(December 31 of each year)
                         
  2001 2002 2003 2004 2005 2006
Harvest Natural Resources, Inc. $100  $448  $691  $1,199  $617  $738 
Dow Jones US E&P Index $100  $101  $130  $183  $301  $315 
S&P 500 Index $100  $77  $97  $106  $109  $124 
          Total Return Data provided by S&P’s Institutional Market Services, Dow Jones & Company, Inc. is composed of companies that are classified as domestic oil companies under Standard Industrial Classification codes (1300-1399, 2900-2949, 5170-5179 and 5980-5989). The Dow Jones US Exploration & Production Index is accessible at http://www.djindexes.com/mdsidx/index.cfm?event=showTotalMarket.
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
          The following table sets forth our selected consolidated financial data for each of the years in the five-year period ended December 31, 2006. The selected consolidated financial data have been derived from and should be read in conjunction with our annual audited consolidated financial statements, including the notes thereto. Our year-end financial information contains results from our Russian operations through our equity affiliates based on a twelve-month period ending September 30. Accordingly, our results of operations for the years ended December 31, 2003 and 2002 reflect results from Geoilbent (until sold on September 25, 2003) for the twelve months ended September 30, 2003 and 2002.

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  Year Ended December 31, 
  2006(1)  2005  2004  2003  2002 
  (in thousands, except per share data) 
Statement of Operations:
                    
Total revenues $59,506  $236,941  $186,066  $106,095  $126,731 
Operating income  5,499   119,525   90,480   33,627   34,585 
Net income (loss)  (58,562)  50,839   34,360   27,303   100,362 
Net income (loss) per common share:                    
Basic $(1.57) $1.38  $0.95  $0.77  $2.90 
                
Diluted $(1.57) $1.32  $0.90  $0.74  $2.78 
                
                     
Weighted average common shares outstanding                    
Basic  37,225   36,949   36,128   35,332   34,637 
Diluted  37,225   38,444   38,122   36,840   36,130 
                     
  Year Ended December 31,
  2006 2005 2004 2003 2002
  (in thousands)
Balance Sheet Data:
                    
Total assets $422,711  $400,798  $367,486  $374,348  $335,192 
Long-term debt, net of current maturities  66,977   —   —   96,833   104,700 
Stockholders’ equity(2)
  244,886   297,512   243,189   199,713   171,317 
(1)Activities under our OSA are reflected under the equity method of accounting effective April 1, 2006. Since such activities are subject to the completion of the conversion to Petrodelta, we have not recorded any net earnings from such activities for the nine months ended December 31, 2006.
(2)No cash dividends were declared or paid during the periods presented.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
          We had a loss of $58.6 million, or $1.57 per diluted share, for the twelve months ended December 31, 2006 compared with earnings of $50.8 million, or $1.32 per diluted share, for 2005. The loss for 2006 is due to the inability to recognize equity earnings for the producing operations in Venezuela since the second quarter of 2006 and charges of $73.8 million for additional taxes and related interest in Venezuela for 2001 through 2006. We will not be able to report the results of our Venezuelan operations in our consolidated financial statements until the conversion to Petrodelta is completed. Although the MOU executed by Harvest Vinccler and CVP in March 2006 provides that upon completion of the conversion there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006, this adjustment will not occur until the conversion is completed.
          In 2006, the conversion to Petrodelta has progressed in a number of important areas:
•In August, the MOU was amended to provide for the addition of the Isleño, Temblador and El Salto fields to Petrodelta as additional consideration for our conversion of the OSA to Petrodelta. The addition of these fields is subject to government approval.
•In a special meeting of the stockholders in December 2006, our stockholders approved entering into the transaction contemplated by the MOU.
•Harvest Vinccler has resolved and substantially paid all of the tax claims made by the SENIAT, the Venezuelan income tax authority. We continue to believe that Harvest Vinccler has properly paid all of its taxes, but we understand that resolving the income tax issues with the SENIAT is a necessary step in the transition of Harvest Vinccler’s operations to Petrodelta.
•At the request of PDVSA, Harvest Vinccler invoiced PDVSA for $36.3 million of advanced or accrued costs incurred during the last three quarters of 2006, and $21.2 million, representing the second and third quarter advances, have been reimbursed. The fourth quarter advances of $15.1 million were invoiced to PDVSA in February 2007.
•We have provided CVP with the business plan for the Petrodelta properties. Our plan calls for the immediate resumption of the suspended development of the SMU fields as well as appraisal and development of the Isleño, Temblador and El Salto fields. We are also actively working with CVP on staffing plans for Petrodelta and have reached agreement on other elements of the Conversion Contract.
          Despite this progress, the conversion is not completed, and we can give no assurance with respect to the probability or the timing of completion. The most significant matter to execution of the Conversion Contract and the formation of Petrodelta is the receipt of approvals by the Venezuelan government. Based on our ongoing discussions with Venezuelan officials, we believe that these approvals will be received, but we cannot provide assurance when or if that will occur. However, PDVSA has informed us that a number of other companies have signed their conversion contracts and formed the mixed companies. Moreover, we understand that three companies have completed the conversion process and are now in the position to invoice PDVSA for the crude oil produced since April 1, 2006. With the precedents established and issues resolved by the companies more advanced in the conversion process, we believe that companies such as Harvest Vinccler should be able to expedite the conversion process and the issuance of invoices for payment once we receive the government approvals.
          Certain operating statistics for the three and nine month periods ended December 31, 2006, for the SMU fields operated by Harvest Vinccler are set forth below. This information is provided at 100 percent, without reduction for our interest under the OSA or our ownership interest in Petrodelta. While we believe this information to be accurate, no representation is made with respect to what will be reflected in our consolidated financial

22

statements after completing the conversion to Petrodelta. This information may not be representative of future results.
         
  Three Months Ended Nine Months Ended
  December 31, 2006 December 31, 2006
Oil production (million barrels)  1.6   5.2 
Natural gas production (billion cubic feet)  3.6   11.5 
Barrels of oil equivalent  2.2   7.1 
Cash operating costs ($millions)  11.8   28.5 
Capital expenditures ($millions)  2.9   3.4 
          Crude oil delivered from the SMU fields to PDVSA will be priced with reference to Merey 16 published prices, weighted for different markets, and adjusted for variations in gravity and sulphur content, commercialization costs and distortions that may occur given the reference priced and prevailing market conditions. Crude oil prices that would be paid for the oil production if the conversion contract were in place cannot yet be calculated as several elements of the pricing formula have not been set. Market prices for crude oil of the type produced in the fields operated by Harvest Vinccler averaged approximately $41.36 and $47.69 a barrel for the three and nine months ended December 31, 2006, respectively. The price for natural gas that would be paid under the conversion contract is $1.54 per thousand cubic feet.
          InItem 1 – BusinessandItem 1A – Risk Factors,we discuss the situation in Venezuela and how the actions of the Venezuelan government have and continue to adversely affect our operations. Collectively, the events in Venezuela, both actual and threatened, are having a material adverse effect on our financial condition, results of operations and cash flows. The situation in Venezuela has also restricted our available cash and had a significant adverse effect on our ability to obtain financing to acquire and develop growth opportunities elsewhere. Until there is clarity and certainty over completion of the conversion to Petrodelta, including the receipt of payment for prior crude oil and natural gas deliveries and the resumption of drilling operations, uncertainty over the future of our investment in Venezuela will continue to affect our performance and limit our growth opportunities. We continue to assess and consider alternatives for preserving value, including a possible sale or exchange of all or part of our interests in Venezuela. The alternatives available to us are limited and subject to a number of significant variables, including timing for the completion of conversion to Petrodelta, the value to us of Petrodelta’s assets, governmental approvals and any tax consequences.
          We recognize the need to diversify our asset base and that is the primary focus of our strategy. We will use our available cash and future access to capital markets to build a diversified portfolio of assets in a number of countries that fit our strategic investment criteria. We are pursuing opportunities in a number of areas including Russia, the Commonwealth of Independent States, the Middle East and Asia.
In executing our business strategy, we will strive to:
•maintain financial prudence and rigorous investment criteria;
•access capital markets;
•create a diversified portfolio of large assets;
•preserve our financial flexibility;
•use our experience, skills to acquire new projects; and
•keep our organizational capabilities in line with our rate of growth.
To accomplish our strategy, we intend to:
•Diversify our political risk:Acquire large oil and natural gas fields in a number of countries to diversify and reduce the overall political risk of our international investment portfolio.
•Seek Operational and Financial Control: We desire control of major decisions for development, production, staffing and financing for each project for a period of time sufficient for us to ensure maximum returns on investments.

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•Establish a Presence Through Joint Venture Partners and the Use of Local Personnel:We seek to establish a presence in the countries and areas we operate through joint venture partners to facilitate stronger governmental and business relationships. In addition, we use local personnel to help us take advantage of local knowledge and experience and to minimize costs. In pursuing new opportunities, we will seek to enter at an early stage and find local partners in an effort to reduce our risk in any one venture.
•Commit Capital in a Phased Manner to Limit Total Commitments at Any One Time:We are willing to agree to minimum capital expenditures or development commitments at the outset of new projects, but we endeavor to structure such commitments to fulfill them over time under a prudent plan of development, allowing near-term operating cash flow to help fund further investment, thereby limiting our maximum cash exposure. We also seek to maximize available local financing capacity to develop the hydrocarbons and associated infrastructure.
•Provide Technical Expertise:We believe there is an advantage in being able to provide geological, geophysical and engineering expertise beyond what many companies or countries possess internally. In addition to our in-house technical capabilities, in January 2007 we acquired a minority interest in a technical firm with significant experience in providing leading edge geophysical, geosciences and reservoir engineering services in many places in the world. Through this acquisition we have preferred access to these services.
•Limit Exploration Activities:While our strategy does not focus on unexplored areas, we consider appropriate exploration opportunities that have large potential scale and the ability to manage risk without significant initial cost.
•Maintain A Prudent Financial Plan: We intend to maintain our financial flexibility by closely monitoring spending, holding sufficient cash reserves, minimizing the use of restricted cash, actively seeking opportunities to reduce our weighted average cost of capital and increase our access to debt and equity markets.
Results of Operations
          We include the results of operations of Harvest Vinccler in our consolidated financial statements and reflect the 20 percent ownership interest of Vinccler as a minority interest.
          Effective April 1, 2006, our operations have been reflected under the equity method of accounting but our ability to recognize equity earnings for the producing operations in Venezuela are subject to completion of the conversion of the OSA to Petrodelta. There will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed at that date.
          The following discussion should be read with the results of operations for each of the years in the three-year period ended December 31, 2006 and the financial condition as of December 31, 2006 and 2005 in conjunction with our Consolidated Financial Statements and related Notes thereto.
          We have presented selected expense items from our consolidated income statement as a percentage of revenue in the following table:
             
  Years Ended December 31,
  2006 2005 2004
Operating Expenses  16%  17%  18%
Depletion, Depreciation and Amortization  18   19   19 
General and Administrative  44   10   12 
Taxes Other Than on Income  7   3   3 
Interest Expense  39   1   4 

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Years Ended 2006 and 2005
          We reported a net loss of $58.6 million, or $1.57 diluted earnings per share, for 2006 compared with net income of $50.8 million, or $1.32 diluted earnings per share, for 2005.
Total expenses and other non-operating (income) expense:
                 
  Year Ended      % 
  December 31,  Increase  Increase 
  2006  2005  (Decrease)  (Decrease) 
General and administrative $26.4  $22.8   3.6   16%
Contribution to Science and Technology Fund  3.9   —   3.9   100 
Account receivable write-off on retroactive oil price adjustment  —   4.5   (4.5)  (100)
Taxes other than on income  3.9   6.4   (2.5)  (39)
Investment income and other  (9.4)  (4.2)  (5.2)  124 
Interest expense  23.2   3.4   19.8   582 
Net (gain) loss on exchange rates  0.1   (2.8)  2.9   (104)
             
  $48.1  $30.1  $18.0   60%
             
          General and administrative expenses increased due to higher business development costs and employee related expenses. Taxes other than on income decreased due to the elimination of municipal taxes as a result of the conversion of the OSA to Petrodelta. Interest expense increased due to Harvest Vinccler’s estimated liability for interest on the tax assessments of $52.9 million as well as increased borrowings to pay the tax assessments.
          In 2005, Venezuela modified the Science and Technology Law to require companies doing business in Venezuela to invest, contribute, or spend a percentage of their gross revenue on projects to promote inventions or investigate technology in areas deemed critical to Venezuela. Harvest Vinccler was unable to estimate the corresponding percentage of the gross revenue for 2005 or the first quarter of 2006 until the regulations were released as many aspects of the law were unclear. In October 2006, the Executive Branch of the Venezuelan government issued the Regulations for the Science and Technology Law which established the methodology for determining the required investment, contribution or expenditure for the 2005 calendar year financial results. After release of the regulations, Harvest Vinccler accrued $3.9 million for the estimated liability for 2005 and the first quarter of 2006 based on its current understanding of the regulations.
Years Ended 2005 and 2004
          We reported net income of $50.8 million, or $1.32 diluted earnings per share, for 2005 compared with net income of $34.4 million, or $0.90 diluted earnings per share, for 2004. Below is a discussion of revenues, price and volume variances.
                     
  Year Ended      %    
  December 31,  Increase  Increase    
(in millions) 2005  2004  (Decrease)  (Decrease)  Increase 
Revenues                    
Crude oil $210.5  $154.1  $56.4   37%    
Natural gas  26.4   32.0   (5.6)  (18)    
                 
Total Revenues $236.9  $186.1  $50.8   27%    
                 
The following table reconciles the net change in revenue:
                     
Price and Volume Variances                    
Crude oil price Variance (per Bbl) $24.02  $18.90  $5.12   27% $41.6 
Volume Variances                    
Crude oil volumes (MBbls)  8,763   8,152   611   7% $14.7 
Natural gas volumes (MMcf)  25,677   31,059   (5,382)  (17)  (5.5)
                    
Total volume variances                 $9.2 
                    

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Revenue, Crude Oil Price Variance and Volume Variances
          Revenues were higher in 2005 compared with 2004 due to increases in world crude oil prices and oil volumes as a result of our second half 2004 drilling program. Price variance is net of the cost of hedges in place during 2005. Natural gas delivery volumes declined due to the refusal of MEP and PDVSA to issue permits for the drilling of new oil wells and the natural decline of associated natural gas from existing oil wells. All natural gas deliveries are associated with the Uracoa oil wells.
          Total expenses and other non-operating (income) expense:
                 
  Year Ended      % 
  December 31,  Increase  Increase 
  2005  2004  (Decrease)  (Decrease) 
Operating expenses $39.7  $33.3  $6.4   19%
Depletion and amortization  41.2   34.2   7.0   20 
Depreciation  2.7   1.9   0.8   42 
General and administrative  22.8   21.9   0.9   4 
Account receivable write-off on retroactive oil price adjustment  4.5   —   4.5   100 
Gain on sale of long-lived assets  —   (0.6)  0.6   100 
Bad debt recovery  —   (0.6)  0.6   100 
Taxes other than on income  6.4   5.6   0.8   14 
Investment income and other  (4.2)  (2.1)  (2.1)  100 
Interest expense  3.4   7.7   (4.3)  (56)
Net (gain) loss on exchange rates  (2.8)  0.6   (3.4)  566 
             
  $113.7  $101.9  $11.8   12%
             
          Operating expenses increased as a result of higher oil volumes and maintenance work. Depletion and amortization expense per Boe produced during 2005 was $3.16 versus $2.56 in 2004. The increase was due to the exclusion of Contractually Restricted Reserves in our proved reserves as well as other minor revisions. General and administrative expense increased primarily due to penalties accrued for the failure to withhold the prescribed amount of value added taxes from payments to vendors in Venezuela in 2005. Taxes other than on income increased due to increased Venezuelan municipal taxes which result from higher oil revenues.
          The effective tax rate increased to 46 percent in 2005 from 41 percent in 2004 primarily due to the payment of $5.3 million related to a partial settlement of the 2001 through 2004 preliminary tax assessment.
Capital Resources and Liquidity
          While we can give no assurance, we currently believe that our cash on hand will provide sufficient capital resources and liquidity to fund our business development expenditures and semi-annual interest payment obligations for the next twelve months. InItem 1A – Risk Factors, we discuss a number of variables and risks related to Venezuela that could cause actual results to differ materially and significantly affect our capital resources and liquidity. These risk factors include, but are not limited to, the affects of continued delays in the conversion to Petrodelta, delays or inability of PDVSA to pay for past and future crude oil and natural gas deliveries, the ability to implement our business plan, changes in oil prices, fiscal and contractual stability and expropriation of our assets. We also point out that the total capital required to develop the fields in Venezuela may exceed Harvest Vinccler’s available cash and financing capabilities, and that there may be operational or contractual consequences to this inability. In addition, our ability to acquire and develop growth opportunities outside of Venezuela is dependent upon the ability to receive dividends from Petrodelta and access debt and equity markets.
          The oil and natural gas industry is a highly capital intensive and cyclical business with unique operating and financial risks (seeItem 1A — Risk Factors). We require capital principally to fund the acquisition and development of new oil and gas properties.
          The amount of available capital will affect the scope of our operations and the rate of our growth. Our future rate of capital resource and liquidity growth also depends substantially upon the prevailing prices of oil. Prices also affect the amount of cash flow available for capital expenditures.

26

          On February 5, 2003, Venezuela imposed currency controls and created the Commission for Administration of Foreign Currency with the task of establishing the detailed rules and regulations and generally administering the exchange control regime. These controls fix the exchange rate between the Bolivar and the U.S. Dollar and restrict the ability to exchange Bolivars for U.S. Dollars and vice versa. The Bolivar is not readily convertible into the U.S. Dollar. We do not expect the Venezuelan currency conversion restriction to adversely affect our ability to meet short-term loan obligations and operating requirements for the foreseeable future.
          Our ability to acquire and develop growth opportunities outside of Venezuela is dependent upon the ability to receive dividends from Petrodelta and access debt and equity markets.
Debt Reduction.We have semi-annual principal obligations of $9.8 and $9.3 million on the Harvest Vinccler loans. We have no other debt obligations.
Working Capital.Our capital resources and liquidity are affected by the conversion to Petrodelta and the ability of Petrodelta to declare dividends.
          The net funds raised and/or used in each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:
             
  Year Ended December 31, 
  (in thousands) 
  2006  2005  2004 
Net cash provided by (used in) operating activities $(24,448) $114,665  $74,140 
Net cash used in investing activities  (90,556)  (15,647)  (39,684)
Net cash provided by (used in) financing activities  100,064   (20,599)  (88,516)
          
Net increase (decrease) in cash $(14,940) $78,419  $(54,060)
          
          At December 31, 2006, we had current assets of $199.8 million and current liabilities of $82.2 million, resulting in working capital of $117.6 million and a current ratio of 2.4:1. This compares with a working capital of $178.1 million and a current ratio of 3.9:1 at December 31, 2005. The decrease in working capital of $60.5 million was primarily due to the inability to reflect the net results of our producing operations in Venezuela in our consolidated financial statements for the year ended December 31, 2006 and the charge in the second and third quarters 2006 of $73.8 million for additional taxes and related interest for the impact of income tax assessments by the SENIAT for 2001 through first quarter 2006.
Cash Flow from Operating Activities. During the year ended December 31, 2006, net cash used in operating activities was approximately $24.4 million. During the year ended December 31, 2005, net cash provided by operating activities was approximately $114.7 million. The $139.1 million decrease was primarily due to the collection of the first quarter accrued oil and gas sales receivable which was offset by the charge in the second and third quarters for the estimated tax assessments and related interest, as well as our inability to recognize equity earnings for our producing properties in Venezuela beginning with the second quarter of 2006 under the equity method of accounting pending conversion to Petrodelta.
Cash Flow from Investing Activities.During the year ended December 31, 2006, we had limited workover and production-related expenditures and we deposited cash of $94.5 million as collateral for four loans with Venezuelan banks, of which $5.6 million has been returned to us. During the year ended December 31, 2005, we had drilling workover and production-related capital expenditures of approximately $16.1 million and no restricted cash. The decrease in capital expenditures is due to the continued suspension of our drilling program and the fact that the conversion of the OSA to Petrodelta has not been finalized. The increase in restricted cash is due to collateral for the new borrowings to pay the tax assessments received from the SENIAT and to fund operations. We continue to expend funds during the period prior to the conversion for workovers and maintenance of the existing wells. After the conversion to Petrodelta, our capital commitments will be determined by the business plan provided for in the Conversion Contract and the annual budget approved by the Petrodelta Board of Directors to implement the business plan. Outside of Venezuela, our capital commitments support our business development efforts and are substantially at our discretion.

27

Cash Flow from Financing Activities.During the year ended December 31, 2006, Harvest Vinccler borrowed 11 billion Bolivars (approximately $5.0 million) for short term Bolivar denominated obligations, 105 billion Bolivars (approximately $48.8 million) and 20 billion Bolivars (approximately $9.3 million) for the SENIAT income tax assessments and related interest and 120 billion Bolivars (approximately $55.8 million) for the SENIAT income tax assessments and related interest, to refinance previous borrowings and for operational needs. Also during the year ended December 31, 2006, Harvest Vinccler repaid $5.5 million of its U.S. Dollar debt (one payment of $0.3 million and four payments of $1.3 million each on the variable rate loans) and 31 billion Bolivars (approximately $14.3 million) of its Bolivar debt. During the year ended December 31, 2005, Harvest Vinccler repaid $6.4 million of its U.S. Dollar denominated debt (four payments of $0.3 million each and four payments of $1.3 million each on the variable rate loans).
Contractual Obligations
          We have a lease obligation of approximately $17,000 per month for our Houston office space. This lease runs through April 2014. In addition, Harvest Vinccler has lease obligations for office space in Maturin and Caracas, Venezuela for approximately $13,200 and $4,000 per month, respectively.
                     
  Payments (in thousands) Due by Period 
      Less than          After 4 
Contractual Obligation Total  1 Year  1-2 Years  3-4 Years  Years 
Long-Term Debt $104,651  $37,674  $38,140  $28,837  $— 
Building Lease  2,775   407   400   412   1,556 
                
Total $107,426  $38,081  $38,540  $29,249  $1,556 
                
Effects of Changing Prices, Foreign Exchange Rates and Inflation
          Our results of operations and cash flow are affected by changing oil prices. Fluctuations in oil prices may affect our total planned development activities and capital expenditure program.
          As noted above underCapital Resources and Liquidity, Venezuela imposed currency exchange restrictions in February 2003, and adjusted the official exchange rate in February 2004 and again in March 2005. We do not expect the currency conversion restrictions or the adjustment in the exchange rate to have a material impact on us at this time. Within the United States, inflation has had a minimal effect on us, but it is potentially an important factor with respect to results of operations in Venezuela.
          During the year ended December 31, 2005, our net foreign exchange gain attributable to our international operations was $2.8 million. The U.S. Dollar and Bolivar exchange rates were adjusted in March 2005. No gains or losses were recognized from February 2004 to February 2005. However, there are many factors affecting foreign exchange rates and resulting exchange gains and losses, many of which are beyond our control. We have recognized significant exchange gains and losses in the past, resulting from fluctuations in the relationship of the Venezuelan currency to the U.S. Dollar. It is not possible for us to predict the extent to which we may be affected by future changes in exchange rates and exchange controls.
Critical Accounting Policies
Principles of Consolidation
          The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. The equity method of accounting is used for companies and other investments in which we have significant influence. All intercompany profits, transactions and balances have been eliminated.
Investment in Equity Affiliate
          Effective April 1, 2006, our activities under our OSA are reflected under the equity method of accounting. Since such activities are subject to the completion of the conversion of the OSA to Petrodelta, our consolidated financial statements prepared in accordance with GAAP for the year ended December 31, 2006, do not reflect the

28

net results of our producing operations in Venezuela for the last three quarters of the year. We will not be able to include the results of our Venezuelan operations in our consolidated financial statements until the conversion to Petrodelta is completed.
Property and Equipment
          We follow the full cost method of accounting for oil and natural gas properties with costs accumulated in cost centers on a country-by-country basis. All costs associated with the acquisition, exploration and development of oil and natural gas reserves are capitalized as incurred, including exploration overhead. Only overhead that is directly identified with acquisition, exploration or development activities is capitalized. All costs related to production, general corporate overhead and similar activities are expensed as incurred. The costs for China unproved properties are excluded from amortization until the properties are evaluated. At least annually, we evaluate our unproved property for possible impairment. If we abandon all exploration efforts in China where no proved reserves are assigned, all exploration and acquisition costs associated with the country will be expensed. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expenses are difficult to predict with any certainty.
Income Taxes
          Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns, and (b) operating loss and tax credit carry forwards. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
Foreign Currency
          Our current operations are in Venezuela. The U.S. Dollar is our functional and reporting currency. Amounts denominated in non-U.S. currencies are re-measured in U.S. Dollars, and all currency gains or losses are recorded in the statement of operations. We attempt to manage our operations in such a manner as to reduce our exposure to foreign exchange losses. However, there are many factors that affect foreign exchange rates and resulting exchange gains and losses, many of which are beyond our influence. We have recognized significant exchange gains and losses in the past resulting from fluctuations in the relationship of the Bolivar to the U.S. Dollar. It is not possible to predict the extent to which we may be affected by future changes in exchange rates.
New Accounting Pronouncements
          In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard 155 – Accounting for Certain Hybrid Financial Instruments (“SFAS 155”), which eliminates the exemption from applying SFAS 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS 155 also allows the election of fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event. Adoption is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 155 will not have a material effect on our consolidated financial position, results of operations or cash flows.
          In March 2006, the FASB issued Statement of Financial Accounting Standard 156 – Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Adoption is required as of the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156 will not have a material effect on our consolidated financial position, results of operations or cash flows.
          In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48 (“FIN 48”) – Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of Statement of Financial Accounting Standard No. 109 – Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected

29

to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 will not impact our consolidated financial position, results of operations and cash flows.
          In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157 – Fair Value Measurement (“SFAS 157”) which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Adoption is effective for all financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged. SFAS 157 will not have a material effect on our consolidated financial position, results of operations and cash flows.
          In September 2006, the FASB issued SFAS 158 – Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”) which improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Adoption is effective as of December 31, 2006, for calendar year corporations with publicly traded equity securities. Earlier application is encouraged. SFAS 158 will not have an effect on our consolidated financial position, results of operations or cash flows.
          In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) regarding the process of quantifying financial statement misstatements. SAB 108 addresses the diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. The guidance in SAB 108 did not have a material effect on our consolidated financial position, results of operations and cash flows.
Off-Balance Sheet Arrangements
          We do not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
          We are exposed to market risk from adverse changes in oil and natural gas prices, interest rates and foreign exchange risk, as discussed below.
Oil Prices
          As an independent oil producer, our revenue, other income and profitability, reserve values, access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil and natural gas. Prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control. Historically, prices received for oil production have been volatile and unpredictable, and such volatility is expected to continue. In August and September 2004, Harvest Vinccler hedged a portion of its oil sales for calendar year 2005 by purchasing two WTI crude oil puts. Because gains or losses associated with hedging transactions are included in oil sales when the hedged production is delivered, such gains and losses are generally offset by similar changes in the realized prices of the commodities. SeeNote 1 – Derivatives and Hedgingfor a complete discussion of our derivative activity. We had no hedging transactions in place for our 2004 or 2006 production.
Interest Rates
          Total short-term debt at December 31, 2006 of $37.7 million consisted of Harvest Vinccler’s Bolivar denominated debt, which had a fixed rate for its initial twelve months. Total short-term debt at December 31, 2005 of $5.5 million consisted of Harvest Vinccler U.S. Dollar denominated variable rate loans, which was all repaid in 2006. A hypothetical 10 percent adverse change in the interest rate would not have a material affect on our results of operations.
Foreign Exchange

30

          The Bolivar is not readily convertible into the U.S. Dollar. We have utilized no currency hedging programs to mitigate any risks associated with operations in Venezuela, and therefore our financial results are subject to favorable or unfavorable fluctuations in exchange rates and inflation in that country. Venezuela has recently imposed currency exchange controls (seeCapital Resources and Liquidityabove).
Item 8. Financial Statements and Supplementary Data
          The information required by this item is included herein on pages S-1 through S-28.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
          None.
Item 9A. Controls and Procedures
          The SEC adopted rules requiring reporting companies to maintain disclosure controls and procedures to provide reasonable assurance that a registrant is able to record, process, summarize and report the information required in the registrant’s quarterly and annual reports under the Securities Exchange Act of 1934 (the “Exchange Act”). While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area. There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures.We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
          Based on their evaluation as of December 31, 2006, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is 1) recorded, processed, summarized and reported within the time periods as specified in the SEC’s rules and forms and 2) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the Internal Control Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, and issued an attestation report which is included herein.
Item 9B. Other Information
          None.

31

PART III
Item 10. Directors, Executive Officers and Corporate Governance
          Please refer to the information under the captions “Election of Directors” and “Executive Officers” in our Proxy Statement for the 2007 Annual Meeting of Stockholders.
Item 11. Executive Compensation
          Please refer to the information under the caption “Executive Compensation” in our Proxy Statement for the 2007 Annual Meeting of Stockholders.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
          Please refer to the information under the caption “Stock Ownership” in our Proxy Statement for the 2007 Annual Meeting of Stockholders.
Item 13.Certain Relationships and Related Transactions, and Director Independence
          Please refer to the information under the caption “Certain Relationships and Related Transactions” in our Proxy Statement for the 2007 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
          Please refer to the information under the caption “Independent Registered Public Accounting Firm” in our Proxy Statement for the 2007 Annual Meeting of Stockholders.

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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Index to Financial Statements:
     
    Page
(a)1. Index to Financial Statements:Report of Independent Registered Public Accounting Firm*
    
Consolidated Balance Sheets at December 31, 2007 and 2006*
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005*
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005*
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005*
Notes to Consolidated Financial Statements*
      2. Consolidated Financial Statement Schedules and Other:
Schedule II — Valuation and Qualifying Accounts*
       
Report of Independent Registered Public Accounting Firm
S-1
Schedule III — Financial Statements and Notes for Petrodelta, S.A.   
Consolidated Balance Sheets at December 31, 2006 and 2005
S-2
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2006, 2005 and 2004
S-3
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004
S-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
S-5
Notes to Consolidated Financial Statements
S-77
2. Consolidated Financial Statement Schedules and Other:
Schedule II — Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
*Previously filed.
(b) 3. Exhibits:
 
3.1 Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762.)
 
 
3.2 Amended and Restated Bylaws as of April 6, 2006.May 17, 2007. (Incorporated by reference to Exhibit 3.23.1 to our Form 10-Q8-K filed on April 20, 2006,23, 2007, File No. 1-10762.)
 
 
4.1 Form of Common Stock Certificate. (Incorporated by reference to the exhibitsExhibit 4.1 to our Registration Statement Form S-1 (Registration10-K filed on March 17, 2008, File No. 33-26333).1-10762.)
 
 
4.2 Certificate of Designation, Rights and Preferences of the Series B.B Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.)
 
 
4.3 SecondThird Amended and Restated Rights Agreement, dated as of April 15, 2005,August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.399.3 to our Form 10-Q8-A filed on April 29, 2005,October 23, 2007, File No. 1-10762.)
 
 10.1Operating Service Agreement between Benton Oil and Gas Company and Lagoven, S.A., which has been subsequently combined into PDVSA Petroleo y Gas, S.A., dated July 31, 1992, (portions have been omitted pursuant to Rule 406 promulgated under the Securities Act of 1933 and filed separately with the Securities and Exchange Commission. (Incorporated by reference to the exhibits to our Registration Statement Form S-1 (Registration No. 33-52436).)
 
10.3Alexander E. Benton Settlement and Release Agreement effective May 11, 2001 (Incorporated by reference to Exhibit 10.27 to our Form 10-Q, filed on August 13, 2001, File No. 1-10762.).

33

10.510.1 2001 Long Term Stock Incentive Plan. (Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 filed on April 9, 2002 (Registration Statement No. 333-85900).)
 
 10.6Addendum No. 2 to Operating Service Agreement Monagas SUR dated 19th September, 2002. (Incorporated by reference to Exhibit 10.4 to our Form 10-Q filed on November 8, 2002, File No. 1-10762.)
 
10.7†10.2 Harvest Natural Resources 2004 Long Term Incentive Plan. (Incorporated by reference to Exhibit 4.5 to our Registration Statement on Form S-8 filed on May 25, 2004 (Registration Statement No. 333-115841).)

2

 
 10.8
10.3†
 Form of Indemnification Agreement between Harvest Natural Resources, Inc. and the Directorseach Director and Executive OfficersOfficer of the Company. (Incorporated by reference to Exhibit 10.19 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)
 
 10.9†
10.4 Form of 2004 Long Term Stock Incentive Plan Stock Option Agreement. (Incorporated by reference to Exhibit 10.20 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)
 
 10.10†
10.5 Form of 2004 Long Term Stock Incentive Plan Director Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.21 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)
 
 10.11†
10.6 Form of 2004 Long Term Stock Incentive Plan Employee Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.22 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)
 
 10.12The Transitory Agreement between Harvest Natural Resources, Inc. and PDVSA Petroleo S.A., dated August 4, 2005. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
10.13
10.7†
 Employment Agreement dated September 12, 2005 between Harvest Natural Resources, Inc. and Steven W. Tholen. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
 10.14†Employment Agreement dated September 12, 2005 between Harvest Natural Resources, Inc. and Kerry R. Brittain. (Incorporated by reference to Exhibit 10.3 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
10.15
10.8†
 Employment Agreement dated September 12, 2005 between Harvest Natural Resources, Inc. and Karl L. Nesselrode. (Incorporated by reference to Exhibit 10.4 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
 10.16
10.9†
 Employment Agreement dated September 15, 2005 between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.5 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
 10.17†Employment Agreement dated September 26, 2005 between Harvest Natural Resources, Inc. and Byron A. Dunn. (Incorporated by reference to Exhibit 10.6 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)
 
10.18
10.10†
 Stock Option Agreement dated September 15, 2005, between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.24 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)
 
 10.19
10.11†
 Stock Option Agreement dated September 15, 2005, between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.25 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)

34

 10.20
10.12†
 Stock Option Agreement dated September 26, 2005, between Harvest Natural Resources, Inc. and Byron A. Dunn. (Incorporated by reference to Exhibit 10.26 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)
 
 10.21
10.13†
 Employment Agreement dated February 10, 2006 between Harvest Natural Resources, Inc. and Kurt A. Nelson. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on April 20, 2006, File No. 1-10762.)
 
 10.22Memorandum of Understanding dated March 31, 2006, between Corporación Venezolana del Petroleo, S.A., PDVSA Petroleo, S.A. and Harvest Vinccler, C.A. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on April 20, 2006, File No. 1-10762.)
 
10.2310.14 Harvest Natural Resources 2006 Long Term Incentive Plan. (Incorporated by reference to Exhibit 4.5 to our Registration Statement on Form S-8 filed on June 1, 2006 [Registration Statement No. 333-134630].)
 
 10.24
10.15 Form of 2006 Long Term Incentive Plan Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
 
 10.25
10.16 Form of 2006 Long Term Incentive Plan Director Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.3 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
 
 10.26
10.17 Form of 2006 Long Term Incentive Plan Employee Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.4 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)

3

 
 10.27
10.18†
 Stock Unit Award Agreement dated September 15, 2005 between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.5 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
 
 10.28
10.19†
 Stock Unit Award Agreement dated March 2, 2006 between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.6 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
 
 10.29Note Payable agreement dated September 28, 2006 between Harvest Vinccler, C.A. and Banco Mercantil, C.A. Banco Universal related to a principal amount of 105 billion Bolivars with interest at 10.02 percent, for financing of the SENIAT assessments. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on October 26, 2006, File No. 1-10762.)
 
10.30Note Payable agreement dated October 3, 2006 between Harvest Vinccler, C.A. and Banco Mercantil, C.A. Banco Universal related to a principal amount of 20 billion Bolivars with interest at 10.02 percent, for financing of the SENIAT assessments. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on October 26, 2006, File No. 1-10762.)
10.31Amendment to Original Memorandum of Understanding dated August 16, 2006, between Corporación Venezolana del Petroleo, S.A. and Harvest Vinccler, C.A. (Incorporated by reference to Appendix C to our Definitive Proxy filed on November 6, 2006, File No. 1-10762.)
10.3210.20 Note Payable agreement dated November 20, 2006 between Harvest Vinccler, C.A. and Banesco Banco Universal C.A. related to a principal amount of 120 billion Bolivars with interest at 10.0 percent, for refinancing of the SENIAT assessments and operating requirements.
(Incorporated by reference to Exhibit 10.32 to our Form 10-K filed on March 13, 2007, File No. 1-10762.)
 10.33
10.21 Form of 2006 Long Term Incentive Plan Stock Option Agreement –— Five Year Vesting, Seven Year Term. (Incorporated by reference to Exhibit 10.33 to our Form 10-K filed on March 13, 2007, File No. 1-10762.)
 
10.22Amendment to Harvest Natural Resources 2006 Long Term Incentive Plan adopted July 19, 2006. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on May 3, 2007, File No. 1-10762.)
 
10.23†
Employment Agreement dated May 7, 2007 between Harvest Natural Resources, Inc. and Keith L. Head. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on July 25, 2007, File No. 1-10762.)
10.24†
Stock Option Agreement dated May 7, 2007 between Harvest Natural Resources, Inc. and Keith L. Head. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on July 25, 2007, File No. 1-10762.)
10.25†
Employee Restricted Stock Agreement dated May 7, 2007 between Harvest Natural Resources, Inc. and Keith L. Head. (Incorporated by reference to Exhibit 10.3 to our Form 10-Q filed on July 25, 2007, File No. 1-10762.)
10.26†
Consulting Agreement dated July 16, 2007 between Harvest Natural Resources, Inc. and Kerry R. Brittain. (Incorporated by reference to Exhibit 10.5 to our Form 10-Q filed on July 25, 2007, File No. 1-10762.)
10.27Contract for Conversion to a Mixed Company between Corporación Venezolana del Petróleo, S.A., Harvest-Vinccler, S.C.A. and HNR Finance B.V. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on November 1, 2007, File No. 1-10762.)
10.28†
Separation Agreement dated November 16, 2007 between Harvest Natural Resources, Inc. and Byron A. Dunn. (Incorporated by reference to Exhibit 10.28 to our Form 10-K filed on March 17, 2008, File No. 1-10762.)
21.1 List of subsidiaries. (Incorporated by reference to Exhibit 21.1 to our Form 10-K filed on March 17, 2008, File No. 1-10762.)

35

 
23.1 Consent of PricewaterhouseCoopers LLP – Houston
— Houston. (Incorporated by reference to Exhibit 23.1 to our Form 10-K filed on March 17, 2008, File No. 1-10762.)
 
23.2Consent of Espiñeira, Sheldon y Asociados.
23.3 Consent of Ryder Scott Company, LPLP. (Incorporated by reference to Exhibit 23.2 to our Form 10-K filed on March 17, 2008, File No. 1-10762.)
 
 
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by James A. Edmiston, President and Chief Executive Officer.

4

 
 
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.
 
 
32.1 Certification accompanying Annual Report on Form 10-K pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 20021350 executed by James A. Edmiston, President and Chief Executive Officer.
 
 
32.2 Certification accompanying Annual Report on Form 10-K pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 20021350 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.
 
† †Identifies management contracts or compensating plans or arrangements required to be filed as an exhibit hereto pursuant to Item 14(c)15(a) and (b) of Form 10-K.

365

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Harvest Natural Resources, Inc.:
We have completed integrated audits of Harvest Natural Resources, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under 15(a) (1) present fairly, in all material respects, the financial position of Harvest Natural Resources, Inc. and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company’s total consolidated revenues relate to operations in Venezuela. On March 31, 2006, the Company’s Venezuelan subsidiary signed a Memorandum of Understanding (the “MOU”) to convert its Operating Service Agreement to Empresa Mixta Petrodelta S.A. (“Petrodelta”) subject to certain conditions. As of December 31, 2006, a number of the conditions have not been met, and the conversion to Petrodelta has not been completed. Although the MOU provides that upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006, this adjustment will not occur until the conversion is completed. Upon completion of the conversion, the equity method of accounting is expected to be followed for Petrodelta.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Houston, Texas
March 13, 2007

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
         
  December 31,��
  2006  2005 
  (in thousands, except per 
  share data) 
ASSETS        
Current Assets:        
Cash and cash equivalents $148,079  $163,019 
Restricted cash  15,888   — 
Accounts and notes receivable:        
Accrued oil and gas sales  —   60,900 
Joint interest and other, net  9,811   10,750 
Advances to provisional equity affiliate  19,146   — 
Deferred income tax  5,608   3,052 
Prepaid expenses and other  1,246   2,149 
       
Total Current Assets  199,778   239,870 
Restricted Cash  73,001   — 
Other Assets  176   1,600 
Investment in provisional equity affiliate  146,436   — 
Property and Equipment:        
Oil and gas properties (full cost method-costs of $2,900 excluded from amortization in 2006 and 2005, respectively)  2,900   641,684 
Other administrative property  1,375   9,568 
       
   4,275   651,252 
Accumulated depletion, depreciation, and amortization  (955)  (491,924)
       
Net Property and Equipment  3,320   159,328 
       
  $422,711  $400,798 
       
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable, trade and other $3,827  $408 
Accounts payable, related party  9,637   9,203 
Accrued expenses  12,975   18,444 
Accrued interest  6,850   2,637 
Deferred revenue  11,217   6,728 
Income taxes payable  34   18,909 
Current portion of long-term debt  37,674   5,467 
       
Total Current Liabilities  82,214   61,796 
Long-Term Debt  66,977   — 
Asset Retirement Liability  —   2,129 
Commitments and Contingencies        
Minority Interest  28,634   39,361 
Stockholders’ Equity:        
Preferred stock, par value $0.01 a share; Authorized 5,000 shares; outstanding, none        
Common stock, par value $0.01 a share; Authorized 80,000 shares at December 31, 2006 and 2005; issued 37,974 shares and 37,757 shares at December 31, 2006 and 2005, respectively  380   378 
Additional paid-in capital  194,176   188,242 
Retained earnings  54,174   112,736 
Treasury stock, at cost, 770 shares at December 31, 2006 and 2005, respectively  (3,844)  (3,844)
       
Total Stockholders’ Equity  244,886   297,512 
       
  $422,711  $400,798 
       
See accompanying notes to consolidated financial statements.

S-2

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
             
  Years Ended December 31, 
  2006  2005  2004 
  (in thousands, except per share data) 
Revenues
            
Oil sales $54,858  $210,493  $154,075 
Gas sales  4,648   26,448   31,991 
          
   59,506   236,941   186,066 
          
             
Expenses
            
Operating expenses  9,241   39,723   33,324 
Depletion, depreciation and amortization  10,510   43,968   36,020 
General and administrative  26,421   22,819   21,857 
Contribution to Science and Technology Fund  3,887   —   — 
Account receivable write-off on retroactive oil price adjustments  —   4,548   — 
Bad debt recovery  —   —   (598)
Gain on sale of long-lived asset  —   —   (578)
Taxes other than on income  3,948   6,358   5,561 
          
   54,007   117,416   95,586 
          
             
Income from Operations  5,499   119,525   90,480 
Other Non-Operating Income (Expense)            
Loss on early extinguishment of debt  —   —   (2,928)
Investment earnings and other  9,406   4,205   2,085 
Interest expense  (23,156)  (3,388)  (7,749)
Net gain (loss) on exchange rates  (121)  2,752   (622)
          
   (13,871)  3,569   (9,214)
          
             
Income (Loss) from Consolidated Companies Before Income Taxes and Minority Interest  (8,372)  123,094   81,266 
Income Tax Expense  60,917   57,025   33,288 
          
Income (Loss) Before Minority Interest  (69,289)  66,069   47,978 
Minority Interest in Consolidated Subsidiary Companies  (10,727)  15,230   13,618 
          
Net Income (Loss) $(58,562) $50,839  $34,360 
          
             
Net Income (Loss) Per Common Share:            
Basic $(1.57) $1.38  $0.95 
          
Diluted $(1.57) $1.32  $0.90 
          
             
Other comprehensive loss:            
Unrealized mark to market loss from cash flow hedging activities, net of tax  —   —   (487)
          
Comprehensive income (loss) $(58,562) $50,839  $33,873 
          
See accompanying notes to consolidated financial statements.

S-3

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
                             
                  Accumulated       
  Common      Additional      Other       
  Shares  Common  Paid-in  Retained  Comprehensive  Treasury    
  Issued  Stock  Capital  Earnings  Gain(Loss)  Stock  Total 
Balance at January 1, 2004
  36,405  $364  $175,051  $27,537  $—  $(3,239) $199,713 
                             
Issuance of common shares:                            
Exercise of warrants  53   —   600   —   —   —   600 
Exercise of stock options  1,001   10   7,381   —   —   —   7,391 
Employee stock-based compensation  85   1   2,151   —   —   —   2,152 
Treasury stock (34 shares)  —   —   —   —   —   (540)  (540)
Accumulated other comprehensive loss  —   —   —   —   (487)  —   (487)
Net Income  —   —   —   34,360   —   —   34,360 
                      
                             
Balance at December 31, 2004
  37,544   375   185,183   61,897   (487)  (3,779)  243,189 
                             
Issuance of common shares:                            
Exercise of stock options  240   3   829   —   —   —   832 
Employee stock-based compensation  74   —   2,230   —   —   —   2,230 
Treasury stock (5 shares)  —   —   —   —   —   (65)  (65)
Accumulated other comprehensive gain  —   —   —   —   487   —   487 
Net Income  —   —   —   50,839   —   —   50,839 
                      
                             
Balance at December 31, 2005
  37,858   378   188,242   112,736   —   (3,844)  297,512 
                             
Issuance of common shares:                            
Exercise of stock options  139   1   879   —   —   —   880 
Employee stock-based compensation  80   1   5,055   —   —   —   5,056 
Net Loss  —   —   —   (58,562)  —   —   (58,562)
                      
                             
Balance at December 31, 2006
  38,077  $380  $194,176  $54,174  $—  $(3,844) $244,886 
                      
See accompanying notes to consolidated financial statements.

S-4

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
             
  Years Ended December 31, 
  2006  2005  2004 
  (in thousands) 
Cash Flows From Operating Activities:            
Net income (loss) $(58,562) $50,839  $34,360 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depletion, depreciation and amortization  10,510   43,968   36,020 
Amortization of financing costs  —   —   228 
Gain on disposition of assets and investments  —   —   (578)
Write off of unamortized financing costs  —   —   936 
Account receivable write-off on retroactive oil price adjustments  —   4,548   — 
Allowance for employee notes and accounts receivable  —   —   (598)
Deferred compensation expense  —   (745)  1,521 
Non-cash compensation related charges  5,056   2,230   2,152 
Minority interest in consolidated subsidiary companies  (10,727)  15,230   13,618 
Deferred income taxes  (2,556)  2,982   (1,285)
Changes in operating assets and liabilities:            
Accounts and notes receivable  61,839   (4,481)  (27,156)
Advances to provisional equity affiliate  (19,146)  —   — 
Prepaid expenses and other  903   (723)  (621)
Commodity hedging contract  —   14,947   (14,947)
Accounts payable  3,419   (8,020)  4,265 
Accounts payable, related party  434   (1,860)  506 
Accrued expenses  (5,469)  (10,165)  12,765 
Accrued interest  4,213   2,565   (1,356)
Deferred revenue  4,489   6,728   — 
Asset retirement liability  24   188   482 
Income taxes payable  (18,875)  (3,566)  13,828 
          
Net Cash Provided By (Used In) Operating Activities  (24,448)  114,665   74,140 
          
Cash Flows from Investing Activities:            
Proceeds from sale of long-lived assets  —   —   578 
Additions of property and equipment  (1,657)  (16,147)  (39,106)
Investments in provisional equity affiliates  (513)  —   — 
(Increase) decrease in restricted cash  (88,889)  28   — 
Investment costs  503   472   (1,156)
          
Net Cash Used In Investing Activities  (90,556)  (15,647)  (39,684)
          
Cash Flows from Financing Activities:            
Net proceeds from issuances of common stock  880   767   7,451 
Proceeds from issuance of notes payable  118,953   —   — 
Payments of note payable  (19,769)  (6,366)  (91,367)
Dividend paid to minority interest  —   (15,000)  (4,600)
          
Net Cash Provided By (Used In) Financing Activities  100,064   (20,599)  (88,516)
          
Net Increase (Decrease) in Cash and Cash Equivalents  (14,940)  78,419   (54,060)
Cash and Cash Equivalents at Beginning of Year  163,019   84,600   138,660 
          
Cash and Cash Equivalents at End of Year $148,079  $163,019  $84,600 
          
Supplemental Disclosures of Cash Flow Information:            
Cash paid during the year for interest expense $23,171  $795  $12,541 
          
Cash paid during the year for income taxes $62,505  $20,991  $11,705 
          
See accompanying notes to consolidated financial statements.

S-5

Supplemental Schedule of Noncash Investing and Financing Activities:
          During the year ended 2006, we issued 0.1 million shares of restricted stock valued at $1.0 million.
          During the year ended 2005, we issued 0.1 million shares of restricted stock valued at $0.8 million and Dr. Peter J. Hill, our former Chief Executive Officer, elected to pay withholding tax on a 2002 restricted stock grant on a cashless basis. This resulted in 5,497 shares being held as treasury stock at cost.
          During the year ended 2004, we issued 0.1 million shares of restricted stock valued at $1.2 million and we wrote-off $0.9 million of unamortized debt financing costs in connection with the redemption and discharge of the 9.375 percent senior unsecured notes due November 1, 2007 (“2007 Notes”). Also during the year ended 2004, the holders of our warrants elected to exercise 45,000 warrants on a cashless basis by delivering Company shares to us. This resulted in the issuance of 34,054 shares which are held as treasury stock at cost.
See accompanying notes to consolidated financial statements.

S-6

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 — Organization and Summary of Significant Accounting Policies
Organization
          Harvest Natural Resources, Inc. is engaged in the exploration, development, production and management of oil and natural gas properties. We conduct our business principally in Venezuela through our subsidiary Harvest Vinccler S.C.A. (“Harvest Vinccler”) in which we indirectly own an 80-percent interest. Effective April 1, 2006, our activities under our Operating Service Agreement (“OSA”) are reflected under the equity method of accounting. Since such activities are subject to the completion of the conversion of the OSA to Empresa Mixta Petrodelta S. A. (“Petrodelta”), we have not recorded any net earnings from such activities for the nine months ended December 31, 2006.
          On March 31, 2006, Harvest Vinccler signed a Memorandum of Understanding (the “MOU”) with two affiliates of PDVSA, Corporación Venezolana del Petroleo S.A. (“CVP”) and PDVSA Petroleo S.A. (“PPSA”), to convert the OSA into Petrodelta. Upon receipt of the Venezuelan government approvals contemplated by the MOU, Harvest Vinccler and, we believe, HNR Finance B.V. and CVP will enter into a Contract of Conversion (the “Conversion Contract”). Upon execution of the Conversion Contract, Petrodelta will be formed. Subject to the conditions of the Conversion Contract, the OSA will be cancelled, Harvest Vinccler will transfer substantially all of its tangible assets and contracts, permits and rights related to the Uracoa, Tucupita and Bombal fields (“SMU fields”) in Venezuela to Petrodelta and Petrodelta will engage in the exploration, production, gathering, transportation and storage of hydrocarbons from the SMU fields, as well as the Isleño, Temblador and El Salto fields which will have been awarded to Petrodelta. Upon completion of conversion, HNR Finance B.V. will have a 40 percent ownership interest in Petrodelta. Since we indirectly own 80 percent of HNR Finance B.V., we will indirectly own a net 32 percent in Petrodelta and Vinccler will indirectly own the remaining eight percent. CVP will own the remaining 60 percent. We have requested CVP to add HNR Finance as a party to the Conversion Contract. Petrodelta will be governed by its own Charter and By-Laws.
Principles of Consolidation
          The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated.
Reporting and Functional Currency
          The U.S. Dollar is our functional and reporting currency.
Revenue Recognition
          Oil and natural gas revenue is accrued monthly based on production and delivery. Until March 31, 2006, each quarter, Harvest Vinccler invoiced PDVSA Petroleo S.A., an affiliate of Petroleos de Venezuela S.A. (“PDVSA”), based on barrels of oil accepted by PDVSA during the quarter, using quarterly adjusted U.S. Dollar contract service fees per barrel. The related OSA with PDVSA provided for Harvest Vinccler to receive an operating fee for each barrel of crude oil delivered and the right to receive a capital recovery fee for certain of its capital expenditures, provided that such operating fee and capital recovery fee could not exceed the maximum total fee per barrel set forth in the agreement. In August 2005, Harvest Vinccler and PDVSA executed a Transitory Agreement (the “Transitory Agreement”) which provided that the maximum total fee per barrel paid under the OSA could not exceed 66.67 percent of the total value of the crude oil as determined under an Annex to the Transitory Agreement. This limitation was applied retroactively to January 1, 2005 and approximated 47 percent of West Texas Intermediate (“WTI”). The operating fee was subject to quarterly adjustments to reflect changes in the special energy index of the U.S. Consumer Price Index. Until March 31, 2006, each quarter Harvest Vinccler also invoiced PDVSA for natural gas sales based on a fixed price of $1.03 per Mcf. In addition, Harvest Vinccler agreed to sell to PDVSA 4.5 million barrels of oil

S-7

stipulated as additional volumes resulting from the natural gas production (“Incremental Crude Oil”). A portion of the Incremental Crude Oil was invoiced to PDVSA quarterly at a fixed price of $7.00 per Bbl. The invoices were prepared and submitted to PDVSA by the end of the first month following the end of each calendar quarter, and payment was due from PDVSA by the end of the second month following the end of each calendar quarter. Harvest Vinccler invoiced PDVSA for the first quarter 2006 delivery of its crude oil and natural gas in accordance with the Transitory Agreement. However, Harvest Vinccler recorded deferred revenue of $9.0 million for 2005 deliveries pending clarification on the calculation of crude prices under the Transitory Agreement.
          As of December 31, 2006, the conversion to Petrodelta has not been completed due to the lack of approvals by the Venezuelan government. In April 2006, the Venezuelan National Assembly passed legislation terminating all operating service agreements and directing the government to take over the operations carried out by the private companies without prejudice to the incorporation of mixed companies for that purpose. This action, coupled with the unfinished conversion to Petrodelta, has left Harvest Vinccler without a contractual means recognized by the government of Venezuela to address revenues or costs and expenses since March 31, 2006. As a result of this situation, our consolidated financial statements prepared in accordance with generally accepted accounting principals in the United States of America (“GAAP”) for the year ended December 31, 2006 do not reflect the net results of our producing operations in Venezuela for the last three quarters of the year. We will not be able to include the results of our Venezuelan operations in our consolidated financial statements until the conversion to Petrodelta is completed. Although the MOU provides that upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006, this adjustment will not occur until the conversion is completed. Harvest Vinccler continues in the day-to-day operations of its properties in Venezuela and continues to incur expenses in doing so. The equity method of accounting will be followed for Petrodelta to reflect our net 32 percent interest. During the last three quarters of 2006, Harvest Vinccler advanced or accrued $36.3 million to fund operations. At the request of PDVSA, Harvest Vinccler has invoiced PDVSA for these costs and $21.2 million, representing the second and third quarter advances, have been reimbursed.
Cash and Cash Equivalents
          Cash equivalents include money market funds and short term certificates of deposit with original maturity dates of less than three months. At December 31, 2006, Harvest Vinccler had 58.7 billion Venezuela Bolivars (“Bolivars”) which are shown in the December 31, 2006 financial statements as $27.3 million in cash and cash equivalents.
Restricted Cash
          Restricted cash represents cash and cash equivalents held in U.S. banks used as collateral for Harvest Vinccler’s line of credit and loan agreements, and is classified as current or non-current based on the terms of the agreements. SeeNote 2 – Long-Term Debt.
Credit Risk and Operations
          All of our total consolidated revenues relate to operations in Venezuela. During the years ended December 31, 2006 and 2005, our Venezuelan crude oil and natural gas production represented all of our total production from consolidated companies, and our sole source of revenues related to such Venezuelan production is PDVSA, which maintains full ownership of all hydrocarbons in its fields. Because the conversion to Petrodelta has not been completed, we have not been paid by PDVSA for our oil and natural gas deliveries since April 1, 2006.
Derivatives and Hedging
          Statement of Financial Accounting Standards No. 133 (“SFAS 133”), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. All derivatives are recorded on the balance sheet at fair value. To the extent that the hedge is determined to be effective, changes in the fair value of derivatives for qualifying cash flow hedges are recorded each period in other comprehensive income. Our derivatives have been designated as cash flow hedge transactions in which we hedge the variability of cash flows related to future oil prices for some or all of our forecasted oil production. The changes in the fair value of these

S-8

derivative instruments have been reported in other comprehensive income because the highly effective test was met, and have been reclassified to earnings in the period in which earnings were impacted by the variability of the cash flows of the hedged item.
          We had no hedging instruments in place for our 2004 or 2006 production. In August 2004, Harvest Vinccler hedged a portion of its oil sales for calendar year 2005 by purchasing a WTI crude oil put for 5,000 barrels of oil per day. The put cost was $4.24 per barrel, or $7.7 million, and had a strike price of $40.00 per barrel. In September 2004, Harvest Vinccler hedged an additional portion of its calendar year 2005 oil sales by purchasing a second WTI crude oil put for 5,000 barrels of oil per day. The put cost was $3.95 per barrel, or $7.2 million, and had a strike price of $44.40 per barrel. Due to the amended pricing structure as revised by the Transitory Agreement for our Venezuelan oil, these two puts had the economic effect of hedging approximately 21,500 barrels of oil per day for an average of $17.72 per barrel. These puts qualified under the highly effective test and the mark-to-market loss at December 31, 2004 was included in other comprehensive loss.
          At December 31, 2004, Accumulated Other Comprehensive Loss consisted of $0.7 million ($0.5 million net of tax) of unrealized losses on our crude oil puts. Oil sales for the year ended 2004 included no losses in settlement of the puts. Deferred net losses recorded in Accumulated Other Comprehensive Loss at December 31, 2004 were reclassified to earnings during 2005. All hedging instruments expired under their own terms on December 31, 2005.
Asset Retirement Liability
          Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”) requires entities to record the fair value of a liability for a legal obligation to retire an asset in the period in which the liability is incurred if a reasonable estimate of fair value can be made. No wells were abandoned in the years ended December 31, 2006 or 2005. Changes in asset retirement obligations during the years ended December 31, 2006 and 2005 were as follows (in thousands):
         
  December 31,  December 31, 
  2006  2005 
Asset retirement obligations beginning of period $2,129  $1,941 
Liabilities recorded during the period  —   96 
Liabilities settled during the period  —   — 
Revisions in estimated cash flows  (7)  (17)
Accretion expense  31   109 
Reclassified to provisional equity affiliate  (2,153)  — 
       
Asset retirement obligations end of period $—  $2,129 
       
Accounts and Notes Receivable
          Allowance for doubtful accounts related to former employee notes at December 31, 2006 and 2005 was $2.8 million.
Other Assets
          Other assets consist of investigative costs associated with new projects. New project costs are reclassified to oil and natural gas properties or expensed depending on management’s assessment of the likely outcome of the project.
Property and Equipment
          We follow the full cost method of accounting for oil and natural gas properties with costs accumulated in cost centers on a country-by-country basis, subject to a cost center ceiling (as defined by the Securities and Exchange Commission [“SEC”]). All costs associated with the acquisition, exploration and development of oil and natural gas reserves are capitalized as incurred. Only overhead that is directly identified with acquisition,

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exploration or development activities are capitalized. All costs related to production, general corporate overhead and similar activities are expensed as incurred.
          The costs of unproved properties are excluded from amortization until the properties are evaluated. At least quarterly we evaluate our unproved properties on a country by country basis for possible impairment. If we abandon all exploration efforts in a country where no proved reserves are assigned, all exploration and acquisition costs associated with the country are expensed. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expenses are difficult to predict with any certainty.
          Excluded costs at December 31, 2006 consisted of property acquisition costs in the amount of $2.9 million which were all incurred prior to 2001. All of the excluded costs at December 31, 2006 relate to the acquisition of Benton Offshore China Company and exploration related to its WAB-21 property. The ultimate timing of when the costs related to the acquisition of Benton Offshore China Company will be included in amortizable costs is uncertain.
          All capitalized costs (including oilfield inventory and future abandonment costs under SFAS 143) and estimated future development costs of proved reserves are depleted using the units of production method based on the total proved reserves of the country cost center. Depletion expense, which was substantially all attributable to the Venezuelan cost center for the years ended December 31, 2006, 2005 and 2004 was $9.9 million, $41.2 million and $34.1 million ($3.74, $3.16 and $2.56 per equivalent barrel), respectively.
          A gain or loss is recognized on the sale of oil and natural gas properties only when the sale involves a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved property.
          Depreciation of furniture and fixtures is computed using the straight-line method with depreciation rates based upon the estimated useful life of the property, generally 5 years. Leasehold improvements are depreciated over the life of the applicable lease. Depreciation expense was $0.6 million, $2.8 million and $1.9 million for the years ended December 31, 2006, 2005 and 2004, respectively.
          The major components of property and equipment at December 31 are as follows (in thousands):
         
  2006  2005 
Proved property costs $—   630,634 
Costs excluded from amortization  2,900   2,900 
Oilfield inventories  —   8,150 
Other administrative property  1,375   9,568 
       
   4,275   651,252 
Accumulated depletion, impairment and depreciation  (955)  (491,924)
       
  $3,320  $159,328 
       
          We perform a quarterly cost center ceiling test of our oil and natural gas properties under the full cost accounting rules of the SEC. The consolidated financial statements of the wholly-owned and majority owned subsidiaries do not include ceiling test write-downs in 2006 or 2005. We have reclassified our oil and natural gas properties to investment in provisional equity affiliate.
Stock-Based Compensation
          At December 31, 2006 and 2005, we had several stock-based employee compensation plans, which are more fully described inNote 5 – Stock Option and Stock Purchase Plans. Prior to 2003, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards Statement No. 123 (“FAS 123”), Accounting for Stock-Based Compensation as amended by Statement of Financial accounting Standards No. 148 (“SFAS 148”), prospectively to all employee awards granted, modified, or settled after January 1, 2003. Effective

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January 1, 2005, we adopted Statement of Financial Accounting Standard 123 (revised 2004) Share-Based Payment (“SFAS 123R”) to all employee awards granted, modified, or settled after October 1, 2005. The effect of the adoption of SFAS 123R was not material. Awards under our plans vest in periodic installments after one year of their grant and expire ten years from grant date. Therefore, the costs related to stock-based employee compensation included in the determination of net income in the years ended December 31, 2005 and 2004 are less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of FAS 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.
         
  2005  2004 
  (in thousands, except per share data) 
Net income, as reported $50,839  $34,360 
         
Add: Stock-based employee compensation cost, net of tax  2,635   999 
         
Less: Total stock-based employee compensation cost determined under fair value based method, net of tax  (2,711)  (1,382)
       
         
Net income – proforma $50,763  $33,977 
       
Net income per common share:        
Basic – as reported $1.38  $0.95 
       
Basic – proforma $1.37  $0.94 
       
         
Diluted – as reported $1.32  $0.90 
       
Diluted – proforma $1.32  $0.89 
       
          Stock options of 0.1 million, 0.2 million and 1.1 million were exercised in the years ended December 31, 2006, 2005 and 2004, respectively, with cash proceeds of $0.9 million, $0.8 million and $8.0 million, respectively.
Income Taxes
          Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns, and (b) operating loss and tax credit carryforwards. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
Foreign Currency
          We have operations outside of the United States, principally in Venezuela. The U.S. Dollar is our functional and reporting currency. Amounts denominated in non-U.S. currencies are re-measured in U.S. Dollars, and all currency gains or losses are recorded in the statement of operations. We attempt to manage our operations in a manner to reduce our exposure to foreign exchange losses. However, there are many factors that affect foreign exchange rates and resulting exchange gains and losses, many of which are beyond our influence. We have recognized significant exchange gains and losses in the past, resulting from fluctuations in the relationship of the Venezuelan currency to the U.S. Dollar. It is not possible to predict the extent to which we may be affected by future changes in exchange rates.
Financial Instruments
          Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are placed with commercial banks with high

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credit ratings. This diversified investment policy limits our exposure both to credit risk and to concentrations of credit risk.
Comprehensive Income
          Statement of Financial Accounting Standards No. 130 (“SFAS 130”) requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. We reflected unrealized mark-to-market losses from cash flow hedging activities as other comprehensive loss during the year ended December 31, 2004 and in accordance with SFAS 130, have provided a separate line in the audited consolidated statement of operations and comprehensive income.
Minority Interests
          We record a minority interest attributable to the minority shareholder of our Venezuela and Barbados subsidiaries. The minority interests in net income and losses are generally subtracted from or added to arrive at consolidated net income.
New Accounting Pronouncements
          In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard 155 – Accounting for Certain Hybrid Financial Instruments (“SFAS 155”), which eliminates the exemption from applying SFAS 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS 155 also allows the election of fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event. Adoption is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 155 will not have a material effect on our consolidated financial position, results of operations or cash flows.
          In March 2006, the FASB issued Statement of Financial Accounting Standard 156 – Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Adoption is required as of the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156 will not have a material effect on our consolidated financial position, results of operations or cash flows.
          In July 2006, the FASB issued Financial Interpretation No. 48 (“FIN 48”) – Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of Statement of Financial Accounting Standard No. 109 – Accounting for Income Taxes. FIN 48 was issued to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 will impact our consolidated financial position, results of operations and cash flows.
          In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157 – Fair Value Measurement (“SFAS 157”) which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Adoption is effective for all financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged. SFAS 157 will not have a material effect on our consolidated financial position, results of operations and cash flows.
          In September 2006, the FASB issued SFAS 158 – Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”) which improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur

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through comprehensive income. Adoption is effective as of December 31, 2006, for calendar year corporations with publicly traded equity securities. Earlier application is encouraged. SFAS 158 will not have an effect on our consolidated financial position, results of operations or cash flows.
          In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) regarding the process of quantifying financial statement misstatements. SAB 108 addresses the diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. The guidance in SAB 108 did not have a material effect on our consolidated financial position, results of operations and cash flows.
Use of Estimates
          The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil, plant products and natural gas reserve volumes and the future development costs. Actual results could differ from those estimates.
Reclassifications
          Certain items in 2004 and 2005 have been reclassified to conform to the 2006 financial statement presentation.
Note 2 — Long-Term Debt and Liquidity
Long-Term Debt
          Long-term debt consists of the following (in thousands):
         
  December 31,  December 31, 
  2006  2005 
Note payable with interest at 10.0% $55,814  $— 
Note payable with interest at 10.0%  39,535   — 
Note payable with interest at 10.0%  9,302   — 
Note payable with interest at   9.0%  —   300 
Note payable with interest at 11.5%  —   5,167 
       
   104,651   5,467 
         
Less current portion  37,674   5,467 
       
  $66,977  $— 
       
          On September 15, 2006, Harvest Vinccler entered into a short term line of credit with a Venezuelan bank for 11 billion Bolivars (approximately $5.0 million). The line of credit was due March 19, 2007, and had a fixed interest rate of 10.5 percent. The line of credit was collateralized by a $5.6 million deposit in a U.S. bank to cover the line of credit and accrued interest. The line of credit was used to meet short term Bolivar denominated obligations. The line of credit was repaid on November 24, 2006.
          On September 27, 2006, Harvest Vinccler entered into a three year term loan with a Venezuelan bank for 105 billion Bolivars (approximately $48.8 million). The first principal payment is due 360 days after the funding date in the amount of 21 billion Bolivars (approximately $9.8 million), and 21 billion Bolivars (approximately $9.8 million) every 180 days thereafter. A payment in the amount of 20 billion Bolivars (approximately $9.3 million) was made on December 18, 2006. The interest rate for the first year is fixed at 10.0 percent and will be negotiated for the second year subject to a maximum of 95 percent of the average interest rate charged by six major Venezuelan banks. This loan is collateralized by a $40.0 million deposit in a U.S. bank. The loan was used to meet the SENIAT income tax assessments and related interest.

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          On October 3, 2006, Harvest Vinccler entered into a term loan with a Venezuelan bank for 20 billion Bolivars (approximately $9.3 million). The loan matures in 180 days at a fixed interest rate of 10.0 percent. The loan was used to meet the SENIAT income tax assessments and related interest. This loan is collateralized by a $7.7 million deposit in a U.S. bank.
          On November 20, 2006, Harvest Vinccler entered into a three year term loan with a Venezuelan bank for 120 billion Bolivars (approximately $55.8 million). The first principal payment is due 180 days after the funding date in the amount of 20 billion Bolivars (approximately $9.3 million), and 20 billion Bolivars (approximately $9.3 million) every 180 days thereafter. The interest rate for the first 180 days is fixed at 10.0 percent and may be adjusted from time to time thereafter within the limits set forth by the Central Bank of Venezuela or in accordance with the conditions in the financial market. The loan is collateralized by a $40.4 million deposit in a U.S. bank. The loan will be used to meet the SENIAT income tax assessments and related interest, refinance a portion of the Bolivar loan and to fund operating requirements.
Note 3 — Commitments and Contingencies
          We have employment contracts with six executive officers which provide for annual base salaries, eligibility for bonus compensation and various benefits. The contracts provide for a lump sum payment as a multiple of base salary in the event of termination of employment without cause. In addition, these contracts provide for payments as a multiple of base salary and bonus, excise tax reimbursement and a continuation of benefits in the event of termination without cause following a change in control. By providing one year notice, these agreements may be terminated by either party on May 31, 2008.
          In April 2004, we signed a ten-year lease for office space in Houston, Texas, for approximately $17,000 per month. Also during 2004, Harvest Vinccler leased office space in Maturin and Caracas, Venezuela for $13,200 and $4,000 per month, respectively.
Excel Enterprises L.L.C. vs. Benton Oil & Gas Company, now known as Harvest Natural Resources, Inc., Chemex, Inc., Benton-Vinccler, C.A., Gale Campbell and Sheila Campbell in the District Court for Harris County, Texas. This suit was brought in May 2003 by Excel alleging, among other things, breach of a consulting agreement between Excel and us, misappropriation of proprietary information and trade secrets, and fraud. Excel seeks actual and exemplary damages, injunctive relief and attorneys’ fees. In October 2003, the Court abated the suit pending final judgment of a case pending in Louisiana to which we are not a party. We dispute Excel’s claims and plan to vigorously defend against them. We are unable to estimate the amount or range of any possible loss.
Uracoa Municipality Tax Assessments. In July 2004, Harvest Vinccler received three tax assessments from a tax inspector for the Uracoa municipality in which part of the SMU fields are located. A protest to the assessments was filed with the municipality, and in October 2004 the tax inspector responded in part by affirming one of the assessments and issuing a payment order. Harvest Vinccler has filed a motion with the tax court in Barcelona, Venezuela, seeking to enjoin the payment order and dismiss the assessment. In July 2006, the Uracoa Municipality issued two additional assessments seeking to impose an increase in tax rates for the last quarter of 2005 and the first quarter of 2006. In August 2006, the Uracoa Municipality issued two further assessments, including penalties, for second quarter 2006 estimated revenues based on the first quarter 2006 oil and natural gas sales and for supposed errors of Harvest Vinccler as withholding agent. We dispute all of the tax assessments and believe we have a substantial basis for our positions. We are unable to estimate the amount or range of a possible loss.
Libertador Municipality Tax Assessment. In April 2005, Harvest Vinccler received a tax assessment from a tax inspector for the Libertador municipality in which part of the SMU fields are located. Harvest Vinccler has submitted a protest to the assessment at the Mayor’s Office, and if no favorable resolution is obtained, it will file a motion with the tax court seeking to enjoin the payment order and dismiss the assessment. We dispute the allegations set forth in the assessment and believe we have a substantial basis for our position. We are unable to estimate the amount or range of a possible loss.

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International Arbitration. As a result of the actions taken by PDVSA, the Ministry of Energy and Petroleum (“MEP”) and the SENIAT, in July 2005, we delivered formal notices to Venezuelan government officials of an investment dispute under Venezuelan law and bilateral investment treaties entered into by the government of Venezuela. The bilateral investment treaties and Venezuelan law provide for international arbitration of investment disputes conducted through the International Centre for Settlement of Investment Disputes of the World Bank.
The SENIAT Tax Assessment. In July 2005, the SENIAT, the Venezuelan income tax authority, issued a preliminary tax assessment to Harvest Vinccler of 202 billion Bolivars, or approximately $94 million, related to 2001 through 2004 tax years. We determined not to contest two elements of the claim and made payments totaling 11.3 billion Bolivars, or $5.3 million, in August and September, 2005. During the second quarter 2006, the SENIAT initiated an audit of 2005 tax payments, and in October 2006, Harvest Vinccler received an assessment from the SENIAT for 2005 taxes in the amount of $15.8 million. In 2006, Harvest Vinccler resolved and substantially paid all of the tax claims made by the SENIAT. Harvest Vinccler paid $73.8 million additional taxes and related interest for the periods of 2001 through first quarter 2006.
          We are a defendant in or otherwise involved in other litigation incidental to our business. In the opinion of management, there is no such litigation which will have a material adverse impact on our financial condition, results of operations and cash flows.
Note 4 — Taxes
Taxes Other Than on Income
          Harvest Vinccler paid municipal taxes through the first quarter 2006 on operating fee revenues it received under the OSA for deliveries from the SMU fields. In September 2006, PDVSA remitted to the Uracoa municipality an additional $1.0 million in municipal taxes based on the new tax rates from amounts that had been withheld by PDVSA from Harvest Vinccler’s first quarter 2006 oil and natural gas sales for other purposes. The components of taxes other than on income were (in thousands):
             
  2006  2005  2004 
Venezuelan municipal taxes $3,191  $5,788  $4,485 
Franchise taxes  175   (70)  464 
Payroll and other taxes  582   640   612 
          
  $3,948  $6,358  $5,561 
          
Contribution to Science and Technology Fund
          In 2005, Venezuela modified the Science and Technology Law to require companies doing business in Venezuela to invest, contribute, or spend a percentage of their gross revenue on projects to promote inventions or investigate technology in areas deemed critical to Venezuela.
          In October 2006, the Executive Branch issued the Regulations for the Science and Technology Law which established the methodology for determining the required investment, contribution or expenditure for the 2005 calendar year financial results. Harvest Vinccler was unable to estimate the corresponding percentage of the gross revenue for 2005 or the first quarter of 2006 until the regulations were released as many aspects of the law were unclear. After release of the regulations, Harvest Vinccler accrued $3.9 million for the estimated liability for 2005 and the first quarter of 2006 based on its current understanding of the regulations. After March 31, 2006, Harvest Vinccler believes it will not have any gross revenue subject to this law. The regulation provides that the amount that is not invested, contributed or spent must be deposited with an official agency created to administrate the law which has yet to be formed. It is possible that there will be a legal challenge to the regulations.
Taxes on Income
          The tax effects of significant items comprising our net deferred income taxes as of December 31, 2006 and 2005 are as follows (in thousands):

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  2006  2005 
Deferred tax assets:        
Operating loss carryforwards $7,466  $2,020 
Difference in basis of assets  25,343   25,343 
Deferred revenue  5,608   3,052 
Valuation allowance  (32,809)  (27,363)
       
Net deferred tax asset  5,608   3,052 
Less current portion  5,608   3,052 
       
  $—  $— 
       
          The valuation allowance increased by $5.5 million as a result of the change in the U.S. deferred tax assets related to the net operating loss carryforward. Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Management believes it is more likely than not that they will not be realized through future taxable income. The difference in interpretation of oil pricing under the OSA has been recognized and represents our entire deferred tax asset.
          The components of income before income taxes and minority interest are as follows (in thousands):
             
  2006  2005  2004 
Income (loss) before income taxes            
United States $(15,688) $8,178  $(16,593)
Foreign  7,316   114,916   97,859 
          
Total $(8,372) $123,094  $81,266 
          
          The provision (benefit) for income taxes consisted of the following at December 31, (in thousands):
             
  2006  2005  2004 
Current:            
United States $—  $739  $(8)
Foreign  63,473   53,304   34,581 
          
   63,473   54,043   34,573 
             
Deferred:            
Foreign  (2,556)  2,982   (1,285)
          
  $60,917  $57,025  $33,288 
          
          A comparison of the income tax expense (benefit) at the federal statutory rate to our provision for income taxes is as follows (in thousands):
             
  2006  2005  2004 
Computed tax expense at the statutory rate $(2,930) $43,083  $28,443 
State income taxes  —   —   25 
Effect of foreign source income and rate differentials on foreign income  8,563   16,065   (2,169)
Change in valuation allowance  5,446   13,129   7,020 
Alternative minimum tax  —   739   — 
Venezuela tax settlement  49,793   —   — 
Net operating loss utilization  —   (15,567)  — 
Other  45   (424)  (31)
          
Total income tax expense $60,917  $57,025  $33,288 
          
          Rate differentials for foreign income result from tax rates different from the U.S. tax rate being applied in foreign jurisdictions.
          At December 31, 2006, we had, for federal income tax purposes, operating loss carryforwards of approximately $21.3 million, expiring in the years 2021 through 2026.

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          We do not provide deferred income taxes on undistributed earnings of international consolidated subsidiaries for possible future remittances as all such earnings are reinvested as part of our ongoing business. The amount of deferred taxes on the undistributed earnings cannot be determined at this time.
Note 5 — Stock Option and Stock Purchase Plans
          In May 2006, our shareholders approved the 2006 Long Term Incentive Plan (the “Plan”). The Plan provides for the issuance of up to 1,825,000 shares of our common stock in satisfaction of exercised stock options, stock appreciation rights (“SARs”) and restricted stock to eligible participants including employees, non-employee directors and consultants of our Company or subsidiaries. Under the Plan, no more than 325,000 shares may be granted as restricted stock. No individual may be granted more than 900,000 options or SARs and no more than 175,000 shares of restricted stock during any period of three consecutive calendar years. The exercise price of stock options granted under the plan must be no less than the fair market value of our common stock on the date of grant. All options granted through December 31, 2006 will vest ratably over a three-year period from their dates of grant and expire ten years from grant date. Restricted stock granted to employees or consultants to date is subject to a restriction period of not less than 36 months during which the stock will be deposited with Harvest Natural Resources, Inc. and is subject to forfeiture under certain circumstances. Restricted stock granted to non-employee directors will vest as to one-third of the shares on each anniversary of the date of grant of the award provided that he is still a director on that date. The Plan also permits the granting of performance awards to eligible employees and consultants. Performance awards are paid only in cash and are based upon achieving established indicators of performance over an established period of time of at least one year. No employee or consultant shall be granted a performance award during a calendar year that could result in a cash payment of more than $5.0 million. In the event of a change in control, any restrictions on restricted stock will lapse, the indicators of performance under a performance award will be treated as having been achieved and any outstanding options and SARs will vest and become exercisable.
          In May 2004, our shareholders approved the 2004 Long Term Incentive Plan (the “Plan”). The Plan provides for the issuance of up to 1,750,000 shares of our common stock in satisfaction of exercised stock options, stock appreciation rights (“SARs”) and restricted stock to eligible participants including employees, non-employee directors and consultants of our Company or subsidiaries. Under the Plan, no more than 438,000 shares may be granted as restricted stock, and no individual may be granted more than 110,000 shares of restricted stock or 438,000 in options over the life of the Plan. The exercise price of stock options granted under the plan must be no less than the fair market value of our common stock on the date of grant. All options granted to date will vest ratably over a three-year period from their dates of grant and expire ten years from grant date. All restricted stock granted to date is subject to a restriction period of 36 months during which the stock will be deposited with the Company and is subject to forfeiture under certain circumstances. The Plan also permits the granting of performance awards to eligible employees and consultants. Performance awards are paid only in cash and are based upon achieving established indicators of performance over an established period of time of at least one year. Performance awards granted under the Plan may not exceed $5.0 million in a calendar year and may not exceed $2.5 million to any one individual in a calendar year. In the event of a change in control, any restrictions on restricted stock will lapse, the indicators of performance under a performance award will be treated as having been achieved and any outstanding options and SARs will vest and become exercisable.
          In January 2001, we adopted the Non-Employee Director Stock Purchase Plan (the “Stock Purchase Plan”) to encourage our directors to acquire a greater proprietary interest in us through the ownership of our common stock. Under the Stock Purchase Plan, each non-employee director could elect to receive shares of our common stock for all or a portion of their fee for serving as a director. The number of shares issuable was equal to 1.5 times the amount of cash compensation due the director divided by the fair market value of the common stock on the scheduled date of payment of the applicable director’s fee. The shares have a restriction upon their sale for one year from the date of issuance. As of December 31, 2002, 337,850 shares had been issued from the plan. The Stock Purchase Plan was terminated by the Board of Directors in September 2002.
          In July 2001, our shareholders approved the 2001 Long Term Stock Incentive Plan. The 2001 Long Term Stock Incentive Plan provides for grants of options to purchase up to 1,697,000 shares of our common stock in the form of Incentive Stock Options and Non-Qualified Stock Options to eligible participants including employees of

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our company or subsidiaries, directors, consultants and other key persons. The exercise price of stock options granted under the plan must be no less than the fair market value of our common stock on the date of grant. No officer may be granted more than 500,000 options during any one fiscal year, as adjusted for any changes in capitalization, such as stock splits. In the event of a change in control, all outstanding options become immediately exercisable to the extent permitted by the plan. All options granted to date vest ratably over a three-year period from their dates of grant and expire ten years from grant date.
          Since 1989 we have adopted several other stock option plans under which options to purchase shares of our common stock have been granted to employees, officers, directors, independent contractors and consultants. Options granted under these plans have been at prices equal to the fair market value of the stock on the grant dates. Options granted under the plans are generally exercisable in varying cumulative periodic installments after one year and cannot be exercised more than ten years after the grant dates. Following the adoption of the 2001 Long Term Stock Incentive Plan, no options may be granted under any of these plans.
          A summary of the status of our stock option plans as of December 31, 2006, 2005 and 2004 and changes during the years ending on those dates is presented below (shares in thousands):
                         
  2006 2005 2004
  Weighted Weighted Weighted
  Average Average Average
  Exercise Exercise Exercise
  Price Shares Price Shares Price Shares
Outstanding at beginning of the year: $8.61   4,070  $8.18   3,793  $7.52   4,523 
Options granted  10.62   558   11.51   922   13.36   378 
Options exercised  (5.69)  (65)  (3.45)  (241)  (7.41)  (955)
Options cancelled  (19.96)  (440)  (14.24)  (404)  (6.31)  (153)
                         
Outstanding at end of the year  7.70   4,123   8.61   4,070   8.18   3,793 
                         
Exercisable at end of the year  5.91   2,719   7.40   2,886   7.71   3,236 
                         
          Significant option groups outstanding at December 31, 2006 and related weighted average price and life information follow (shares in thousands):
                             
  Outstanding  Exercisable 
      Weighted-                  
      Average  Weighted-          Weighted-    
Range of Number  Remaining  Average  Aggregate  Number  Average  Aggregate 
Exercise Outstanding  Contractual  Exercise  Intrinsic  Exercisable  Exercise  Intrinsic 
Prices at 12/31/06  Life  Price  Value  at 12/31/06  Price  Value 
$  1.55 - $  2.75  1,486   3.84  $1.97  $12,866   1,486  $1.97  $12,866 
$  4.80 - $  7.10  350   5.61   5.65   1,744   350   5.65   1,744 
$  8.72 - $10.91  1,121   7.26   10.08   716   159   8.90   275 
$11.88 - $16.90  1,103   5.40   13.00   —   661   12.92   — 
$18.25 - $19.75  63   0.45   19.04   —   63   19.04   — 
                         
   4,123          $15,326   2,719      $14,885 
                         
          The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value based on our closing stock price of $10.63 as of December 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. Of the number outstanding, 608,750 options are pledged to us to secure a repayment of debt.
          The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

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  2006 2005 2004
For options granted during:            
             
Weighted average fair value $5.98  $6.35  $10.33 
Weighted averaged expected life  7   7   2-10 
Valuation assumptions:            
Expected volatility  49.9%-53.3%  50.0%-53.4%  69.6%
Risk-free interest rate  4.6%-5.2%  3.9%-4.6%  2.6%-4.8%
Expected dividend yield  0%  0%  0%
Expected annual forfeitures  3%  3%  0%
          The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility and expected life. The expected volatility is based on historical volatilities of our stock. Historical data is used to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options are expected to be outstanding. The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Under the Black-Scholes option pricing model, the weighted-average estimated values of stock options granted during 2006, 2005 and 2004 were $5.98, $6.35 and $10.33, respectively.
          A summary of our nonvested shares as of December 31, 2006, and changes during the year ended December 31, 2006, is presented below (shares in thousands):
         
      Weighted-Average
      Grant-Date
Nonvested Shares Shares Fair Value
Nonvested at January 1, 2006  1,185  $7.30 
Granted  557   5.98 
Vested  (328)  7.81 
Forfeited  (10)  11.73 
         
Nonvested at December 31, 2006  1,404  $6.75 
         
          As of December 31, 2006, there was $5.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under our plans. That cost is expected to be recognized over the next three years. The total fair value of shares vested during the years ended December 31, 2006, 2005 and 2004 was $4.1 million, $2.7 million and $1.4 million, respectively.
          In addition to options issued pursuant to the plans, options have been issued to individuals other than our officers, directors or employees at $11.88 which vest over three years. At December 31, 2006, a total of 10,000 options issued outside of the plans were both outstanding and exercisable.
Note 6 — Operating Segments
          We regularly allocate resources to and assess the performance of our operations by segments that are organized by unique geographic and operating characteristics. The segments are organized in order to manage regional business, currency and tax related risks and opportunities. As a result of the situation in Venezuela, our GAAP consolidated financial statements for the nine months ended December 31, 2006 do not reflect the net results of our producing operations in Venezuela. SeeNote 7 – Venezuela, Operations. Revenue from Venezuela is derived primarily from the delivery and sale of oil and natural gas. Operations included under the heading “United States and Other” include corporate management, cash management, business development and financing activities performed in the United States and other countries which do not meet the requirements for separate disclosure. All intersegment revenues, other income and equity earnings, expenses and receivables are eliminated in order to reconcile to consolidated totals. Corporate general and administrative and interest expenses are included in the United States and Other segment and are not allocated to other operating segments.

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  2006  2005  2004 
  (in thousands) 
Segment Revenues
            
Oil and gas sales:            
Venezuela $59,506  $236,941  $186,066 
          
Total oil and gas sales  59,506   236,941   186,066 
          
             
Segment Income (Loss)
            
Venezuela  (42,895)  64,096   54,469 
United States and other  (15,667)  (13,257)  (20,109)
          
Net income (loss) $(58,562) $50,839  $34,360 
          
         
  December 31,  December 31, 
  2006  2005 
  (in thousands) 
Operating Segment Assets
        
Venezuela $306,289  $258,268 
United States and other  155,973   161,328 
       
   462,262   419,596 
Intersegment eliminations  (39,551)  (18,798)
       
  $422,711  $400,798 
       
Note 7 — Venezuela Operations
South Monagas Unit, Venezuela (Harvest Vinccler)
          Currently, our only producing assets are in Venezuela. Since 1992, Harvest Vinccler has been providing operating services to PDVSA for the South Monagas Unit under an OSA. However, beginning in 2005, the government of Venezuela initiated a series of actions to compel companies with operating service agreements to convert those agreements into new companies in which PDVSA would have a majority interest. On March 31, 2006, Harvest Vinccler signed a MOU with two affiliates of PDVSA, CVP and PPSA, to convert the OSA into a minority interest in Petrodelta. The MOU is subject to certain conditions, including execution of a conversion contract, and Venezuelan government approvals. On August 16, 2006, the MOU was amended to provide for the addition of the Isleño, El Salto and Temblador fields to Petrodelta as additional consideration for our conversion of the OSA to Petrodelta. On December 18, 2006, at a Special Meeting of the Stockholders, the transactions contemplated by the MOU were approved. As of this report, the governmental approvals necessary to complete the conversion have not yet been obtained, and the timing of and probability for such approval is uncertain.
          In April 2006, the Venezuelan National Assembly passed legislation terminating all operating service agreements and directing the government to take over the operations carried out by the private companies without prejudice to the incorporation of mixed companies for that purpose. This action, coupled with the unfinished conversion to Petrodelta, has left Harvest Vinccler without a contractual means recognized by the government of Venezuela to address revenues or costs and expenses since March 31, 2006. As a result of this situation, our consolidated financial statements prepared in accordance with GAAP for the year ended December 31, 2006, do not reflect the net results of our producing operations in Venezuela for the last three quarters of the year. We will not be able to include the results of our Venezuelan operations in our consolidated financial statements until the conversion to Petrodelta is completed. Although the MOU provides that upon completion of the conversion, there will be an adjustment between the parties to obtain the same economic result as if the conversion had been completed on April 1, 2006, this adjustment will not occur until the conversion is completed.
          Since signing the MOU, CVP has designated its board members and a General Manager and President for Petrodelta, both of whom influence Harvest Vinccler’s operations and staffing. Harvest Vinccler continues in the day-to-day operations of its properties in Venezuela, and during the last three quarters of 2006, it has accrued cash advances of $36.3 million to fund operations. At the request of PDVSA, Harvest Vinccler invoiced PDVSA for these costs and $21.2 million, representing the second and third quarter advances, have been reimbursed. Harvest Vinccler invoiced PDVSA for fourth quarter advances of $15.1 million in February 2007. In 2006, Harvest Vinccler resolved and substantially paid all of the tax claims made by the SENIAT. Harvest Vinccler paid $73.8

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million additional taxes and related interest for the periods of 2001 through first quarter 2006. The tax payments were largely made through borrowings by Harvest Vinccler, which are partially collateralized with restricted cash deposits.
          At December 31, 2006, Harvest Vinccler has three loans outstanding with two Venezuelan banks for a total of 225 billion Bolivars (approximately $104.7 million). These loans are collateralized by $88.9 million deposited in two U.S. banks. The loans were used to meet the SENIAT income tax assessments and related interest, refinance a portion of one of the Bolivar loans and to fund operating requirements.
Note 8 — China Operations
          In December 1996, we acquired Crestone Energy Corporation, subsequently renamed Benton Offshore China Company. Its principal asset is a petroleum contract with China National Offshore Oil Corporation (“CNOOC”) for the WAB-21 area. The WAB-21 petroleum contract covers 6.2 million acres in the South China Sea, with an option for an additional 1.25 million acres under certain circumstances, and lies within an area which is the subject of a border dispute between the People’s Republic of China and Vietnam. Vietnam has executed an agreement on a portion of the same offshore acreage with another company. The border dispute has lasted for many years, and there has been limited exploration and no development activity in the WAB-21 area due to the dispute. Due to the border dispute between China and Vietnam, we have been unable to pursue an exploration program during Phase One of the contract. As a result, we have obtained license extensions, with the current extension in effect until May 31, 2007. While no assurance can be given, we believe we will continue to receive contract extensions so long as the border disputes persist. WAB-21 represents the $2.9 million excluded from the full cost pool as reflected on our December 31, 2006 balance sheet.
Note 9 — Related Party Transactions
          In August 1997, we entered into a consulting agreement with Oil & Gas Technology Consultants Inc. (“OGTC”) to provide operational and technical assistance in Venezuela. OGTC is an affiliate of Venezolana de Inversiones y Construcciones Clerico, C.A., which indirectly owns 20 percent of Harvest Vinccler. Payment for services is due when earnings are not reinvested in Harvest Vinccler operations. The consulting agreement was cancelled January 1, 2004. At December 31, 2006 and 2005, we owed $9.6 million and $9.2 million, respectively, under the consulting agreement.
Note 10 — Earnings Per Share
          Basic earnings per common share (“EPS”) are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 37.2 million, 36.9 million and 36.1 million for the years ended December 31, 2006, 2005 and 2004, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 37.2 million, 38.4 million and 38.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.
          An aggregate of 1.5 million options were excluded from the earnings per share calculations because their exercise price exceeded the average price for the year ended December 31, 2006. For the years ended December 31, 2005 and 2004, 1.9 million and 0.9 million options and warrants, respectively, were excluded from the earnings per share calculations because their exercise price exceeded the average price.
Note 11 – Subsequent Event
          On January 19, 2007, we purchased a 45 percent interest in Fusion Geophysical, L.L.C. (“Fusion”) for $4.6 million. Fusion is a technical firm specializing in the areas of geophysics, geosciences and reservoir engineering.

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
Quarterly Financial Data (unaudited)
          Summarized quarterly financial data is as follows:
                 
  Quarter Ended 
  March 31  June 30  September 30  December 31 
  (amounts in thousands, except per share data) 
Year ended December 31, 2006
                
Revenues $59,172  $334  $—  $— 
Expenses  (28,143)  (7,796)  (7,654)  (10,414)
Non-operating income (expense)  1,940   (13,419)  (2,650)  258 
             
Income before income taxes and minority interests  32,969   (20,881)  (10,304)  (10,156)
Income tax expense  14,762   40,810   5,338   7 
             
Income before minority interests  18,207   (61,691)  (15,642)  (10,163)
Minority interests  4,339   (11,409)  (2,044)  (1,613)
             
Net income (loss) $13,868  $(50,282) $(13,598) $(8,550)
             
                 
Net income (loss) per common share:                
Basic $0.37  $(1.35) $(0.36) $(0.23)
             
Diluted $0.36  $(1.35) $(0.36) $(0.23)
             
                 
  Quarter Ended 
  March 31  June 30  September 30  December 31 
  (amounts in thousands, except per share data) 
Year ended December 31, 2005
                
Revenues $60,986  $56,442  $61,221  $58,292 
Expenses  (27,300)  (26,207)  (32,245)  (31,664)
Non-operating income (expense)  3,054   277   (1,827)  2,065 
             
Income before income taxes and minority interests  36,740   30,512   27,149   28,693 
Income tax expense  13,533   11,959   16,332   15,201 
             
Income before minority interests  23,207   18,553   10,817   13,492 
Minority interests  5,172   4,402   2,674   2,982 
             
Net income $18,035  $14,151  $8,143  $10,510 
             
                 
Net income per common share:                
Basic $0.49  $0.38  $0.22  $0.28 
             
Diluted $0.47  $0.37  $0.21  $0.27 
             
                 
Other comprehensive income (loss)  (6,048)  1,770   2,287   1,991 
             
Total comprehensive income $11,987  $15,921  $10,430  $12,501 
             
Supplemental Information on Oil and Natural Gas Producing Activities (unaudited)
          The following tables summarize our proved reserves, drilling and production activity, and financial operating data at the end of each year. The Venezuelan reserves are attributable to our OSA between Harvest Vinccler and Petroleos de Venezuela S.A. under which all mineral rights are owned by the government of Venezuela. The government of Venezuela unilaterally terminated the OSA in April 2006.
          In accordance with Statement of Financial Accounting Standards No. 69, “Disclosures About Oil and Gas Producing Activities” (“SFAS 69”), this section provides supplemental information on our oil and natural gas exploration and production activities. Tables I through III provide historical cost information pertaining to costs incurred in exploration, property acquisitions and development; capitalized costs; and results of operations. Tables IV through VI present information on our estimated proved reserve quantities, standardized measure of estimated discounted future net cash flows related to proved reserves, and changes in estimated discounted future net cash flows.

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TABLE I — Total costs incurred in oil and natural gas acquisition, exploration and development activities (in thousands):
             
  Venezuela  China  Total 
Year Ended December 31, 2006
            
Development costs $501  $—  $501 
Exploration costs  —   35   35 
          
  $501  $35  $536 
          
             
Year Ended December 31, 2005
            
Development costs $8,912  $—  $8,912 
Exploration costs  —   42   42 
          
  $8,912  $42  $8,954 
          
             
Year Ended December 31, 2004
            
Development costs $39,161  $—  $39,161 
Exploration costs  10   53   63 
          
  $39,171  $53  $39,224 
          
TABLE II — Capitalized costs related to oil and natural gas producing activities (in thousands):
             
  Venezuela(a)  China(b)  Total 
Year Ended December 31, 2006
            
Proved property costs $—  $13,532  $13,532 
Costs excluded from amortization  —   2,900   2,900 
Oilfield inventories  —   —   — 
Less accumulated depletion and impairment  —   (13,532)  (13,532)
          
  $—  $2,900  $2,900 
          
             
Year Ended December 31, 2005
            
Proved property costs $617,137  $13,497  $630,634 
Costs excluded from amortization  —   2,900   2,900 
Oilfield inventories  8,150   —   8,150 
Less accumulated depletion and impairment  (473,496)  (13,497)  (486,993)
          
  $151,791  $2,900  $154,691 
          
             
Year Ended December 31, 2004
            
Proved property costs $608,225  $13,454  $621,679 
Costs excluded from amortization  —   2,900   2,900 
Oilfield inventories  6,503   —   6,503 
Less accumulated depletion and impairment  (432,302)  (13,454)  (445,756)
          
  $182,426  $2,900  $185,326 
          
(a)Reclassified to provisional equity affiliate effective April 1, 2006.
(b)SeeNotes to the Consolidated Financial Statements Note 8 – China Operations.

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TABLE III — Results of operations for oil and natural gas producing activities (in thousands):
     
  Venezuela 
Year ended December 31, 2006(a)
    
Oil and natural gas revenues $59,506 
Expenses:    
Operating, selling and distribution expenses and taxes other than on income  9,451 
Depletion  9,904 
Income tax expense  20,076 
    
Total expenses(b)
  39,431 
    
Results of operations from oil and natural gas producing activities $20,075 
    
     
Year ended December 31, 2005
    
Oil and natural gas revenues $236,941 
Expenses:    
Operating, selling and distribution expenses and taxes other than on income  39,969 
Depletion  41,175 
Income tax expense  65,943 
    
Total expenses  147,087 
    
Results of operations from oil and natural gas producing activities $89,854 
    
     
Year ended December 31, 2004
    
Oil and natural gas revenues $186,066 
Expenses:    
Operating, selling and distribution expenses and taxes other than on income  33,297 
Depletion  34,108 
Income tax expense  38,968 
    
Total expenses  106,373 
    
Results of operations from oil and natural gas producing activities $79,693 
    
(a)Reflects oil and natural gas deliveries through March 31, 2006.
(b)Excludes taxes of $50.3 million recorded in 2006 due to the settlement of the SENIAT tax assessments.
TABLE IV — Quantities of Oil and Natural Gas Reserves
          Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. All Venezuelan reserves are attributable to the OSA between Harvest Vinccler and PDVSA, under which all mineral rights are owned by the government of Venezuela. The Venezuelan government unilaterally terminated the OSA in April 2006.
          The SEC requires the reserve presentation to be calculated using year-end prices and costs and assuming a continuation of existing economic conditions. Proved reserves cannot be measured exactly, and the estimation of reserves involves judgmental determinations. Reserve estimates must be reviewed and adjusted periodically to reflect additional information gained from reservoir performance, new geological and geophysical data, economic changes and other relevant developments. The estimates are based on current technology and economic conditions, and we consider such estimates to be reasonable and consistent with current knowledge of the characteristics and extent of production. The estimates include only those amounts considered to be proved reserves and do not include additional amounts which may result from new discoveries in the future, or from application of secondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contracts are not in place.

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          Proved developed reserves are reserves which can be expected to be recovered through existing wells with existing equipment and existing operating methods. This classification includes: a) proved developed producing reserves which are reserves expected to be recovered through existing completion intervals now open for production in existing wells; and b) proved developed nonproducing reserves which are reserves that exist behind the casing of existing wells which are expected to be produced in the predictable future, where the cost of making such oil and natural gas available for production should be relatively small compared to the cost of a new well.
          Any reserves expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing primary recovery methods are included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.
          Proved undeveloped reserves are proved reserves which are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units, which are reasonably certain of production when drilled. Estimates of recoverable reserves for proved undeveloped reserves may be subject to substantial variation and actual recoveries may vary materially from estimates.
          Proved reserves for other undrilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. No estimates for proved undeveloped reserves are attributable to or included in this table for any acreage for which an application of fluid injection or other improved recovery technique is contemplated unless proved effective by actual tests in the area and in the same reservoir.
          Changes in previous estimates of proved reserves result from new information obtained from production history and changes in economic factors.
          The evaluations of the oil and natural gas reserves as of December 31, 2005 and 2004 were prepared by Ryder Scott Company L.P., independent petroleum engineers. The 2005 reserve information shown below has been reduced to exclude reserves formerly classified as proved undeveloped. Under SEC standards for the reporting of oil and natural gas reserves, proved reserves are estimated quantities of crude oil and natural gas “which geological data and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirsunder existing economic and operating conditions.” (Emphasis added). Our quantities of proved reserves were reduced to remove undeveloped reserves because the actions taken by the Venezuelan government beginning in 2005 under our OSA have created uncertainty as to whether those reserves will be recovered under the economic and operating conditions which currently exist in Venezuela. For ease of reference, the reclassified reserves are hereafter referred to as “Contractually Restricted Reserves”. In April 2006, the OSA was unilaterally terminated by the Venezuelan government and we are currently awaiting the conversion to Petrodelta. SeeNote 1 – Organization. Until we complete the conversion to Petrodelta, we will not have reserves to report under SEC guidelines and, accordingly, no reserves are reported as of December 31, 2006.
          The tables shown below represent our interests in Venezuela in each of the years.

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      Minority  
      Interest in  
  Venezuela Venezuela Net Total
  (in thousands)
Proved Reserves-Crude oil, condensate, and natural gas liquids (MBbls)
            
             
Year ended December 31, 2006
            
Proved Reserves at beginning of the year  35,311   (7,062)  28,249 
Revisions of previous estimates(a)
  (33,417)  6,683   (26,734)
Production  (1,894)  379   (1,515)
             
Proved Reserves at end of the year  —   —   — 
             
(a)All reserves have been removed pending conversion to Petrodelta.
             
Year ended December 31, 2005
            
Proved Reserves at beginning of the year  78,142   (15,628)  62,514 
Revisions of previous estimates(a)
  (34,068)  6,813   (27,255)
Production  (8,763)  1,753   (7,010)
             
Proved Developed Reserves at end of the year  35,311   (7,062)  28,249 
             
(a)Includes primarily Contractually Restricted Reserves as well as other minor revisions.
             
Year ended December 31, 2004
            
Proved Reserves at beginning of the year  87,872   (17,574)  70,298 
Revisions of previous estimates  (1,578)  316   (1,262)
Production  (8,152)  1,630   (6,522)
             
Proved Reserves at end of the year  78,142   (15,628)  62,514 
             
             
Proved Developed Reserves-Crude oil, condensate, and natural gas liquids (MBbls) at:
            
December 31, 2005  35,311   (7,062)  28,249 
December 31, 2004  45,488   (9,098)  36,390 
January 1, 2004  45,860   (9,172)  36,688 
Proved Reserves-Natural gas (MMcf)
             
Year ended December 31, 2006
            
Proved Reserves beginning of the year  58,918   (11,784)  47,134 
Revisions of previous estimates(a)
  (54,412)  10,883   (43,529)
Production  (4,506)  901   (3,605)
             
Proved Reserves end of the year  —   —   — 
             
(a)All reserves have been removed pending conversion to Petrodelta.
             
Year ended December 31, 2005
            
Proved Reserves beginning of the year  164,282   (32,856)  131,426 
Revisions of previous estimates(a)
  (79,687)  15,937   (63,750)
Production  (25,677)  5,135   (20,542)
             
Proved Developed Reserves end of the year  58,918   (11,784)  47,134 
             
(a)Includes primarily Contractually Restricted Reserves as well as other minor revisions.

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Year ended December 31, 2004
            
Proved Reserves beginning of the year  195,500   (39,100)  156,400 
Revisions of previous estimates  (159)  32   (127)
Production  (31,059)  6,212   (24,847)
             
Proved Reserves end of the year  164,282   (32,856)  131,426 
             
             
Proved Developed Reserves-Natural gas (MMcf) at:
            
December 31, 2006            
December 31, 2005  58,918   (11,784)  47,134 
December 31, 2004  80,897   (16,179)  64,718 
January 1, 2004  106,147   (21,229)  84,918 
TABLE V — Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Natural Gas Reserve Quantities
          The standardized measure of discounted future net cash flows is presented in accordance with the provisions of SFAS 69. In preparing this data, assumptions and estimates have been used, and we caution against viewing this information as a forecast of future economic conditions.
          Future cash inflows were estimated by applying year-end prices, adjusted for fixed and determinable escalations provided by contract, to the estimated future production of year-end proved reserves. Future cash inflows were reduced by estimated future production and development costs to determine pre-tax cash inflows. Future income taxes were estimated by applying the year-end statutory tax rates to the future pre-tax cash inflows, less the tax basis of the properties involved, and adjusted for permanent differences and tax credits and allowances. The resultant future net cash inflows are discounted using a ten percent discount rate.
          The tables shown below represent our interest in Venezuela in each of the years. Until we complete the conversion to Petrodelta, we will not have reserves to report under SEC guidelines and, accordingly, no reserves are reported as of December 31, 2006. We report the results of Ryder Scott Company L.P. independent engineering evaluation at December 31 to provide comparability with our Venezuelan reserves.
             
      Minority    
      Interest in    
  Venezuela  Venezuela  Net Total 
      (in thousands)     
December 31, 2005(a)
            
Future cash inflows from sales of oil and gas $1,029,630  $(205,926) $823,704 
Future production costs  (227,079)  45,416   (181,663)
Future development costs  (27,917)  5,583   (22,334)
Future income tax expenses  (239,386)  47,877   (191,509)
          
Future net cash flows  535,248   (107,050)  428,198 
Effect of discounting net cash flows at 10%  (123,451)  24,691   (98,760)
          
Standardized measure of discounted future net cash flows $411,797  $(82,359) $329,438 
          
             
December 31, 2004
            
Future cash inflows from sales of oil and gas $1,852,045  $(370,409) $1,481,636 
Future production costs  (342,373)  68,475   (273,898)
Future development costs  (141,565)  28,313   (113,252)
Future income tax expenses  (428,833)  85,767   (343,066)
          
Future net cash flows  939,274   (187,854)  751,420 
Effect of discounting net cash flows at 10%  (258,049)  51,609   (206,440)
          
Standardized measure of discounted future net cash flows $681,225  $(136,245) $544,980 
          
(a)Proved reserves do not include Contractually Restricted Reserves.

S-27

TABLE VI — Changes in the Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves
             
  Net Venezuela 
  2006(a)  2005  2004 
  (in thousands) 
Standardized Measure at January 1 $329,438  $544,980  $366,770 
Sales of oil and natural gas, net of related costs  (40,361)  (124,638)  (122,215)
Revisions to estimates of proved reserves            
Net changes in prices, development and production costs  —   262,852   333,237 
Quantities  —   (365,565)  (7,597)
Extensions, discoveries and improved recovery, net of future costs  —   —   — 
Accretion of discount  —   80,202   54,531 
Net change in income taxes  —   109,030   (78,504)
Development costs incurred  501   7,130   31,329 
Changes in timing and other  (289,578)  (184,553)  (32,571)
          
Standardized Measure at December 31 $—  $329,438  $544,980 
          
(a)All reserves have been removed pending conversion to Petrodelta.

S-28

SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 HARVEST NATURAL RESOURCES, INC.
(Registrant)
 		 
Date: March 13, 2007April 11, 2008 By:  /s/James A. Edmiston   
  James A. Edmiston  
  Chief Executive Officer  
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on the 13th11th day of March, 2007,April, 2008, on behalf of the registrant and in the capacities indicated:
   
Signature Title
/s/ James A. Edmiston
James A. Edmiston		 Director, President and Chief Executive Officer
/s/ Steven W. Tholen
Steven W. Tholen
(Principal Financial Officer)		Senior Vice President - Finance, Chief Financial Officer and Treasurer
/s/ Kurt A. Nelson
Kurt A. Nelson
(Principal Accounting Officer)		Vice President-Controller, Chief Accounting Officer
/s/ Stephen D. Chesebro’
Stephen D. Chesebro’		Chairman of the Board and Director
/s/ John U. Clarke
John U. Clarke		Director
/s/ Igor Effimoff
Igor Effimoff		Director
/s/ H. H. Hardee
H. H. Hardee		Director
/s/ R. E. Irelan
R. E. Irelan		Director
/s/ Patrick M. Murray
Patrick M. Murray		Director
/s/ J. Michael Stinson
J. Michael Stinson		Director

6

SCHEDULE III
Financial Statements and Notes
for Petrodelta, S.A.

7

Petrodelta, S.A.
Report of Independent Accountants
and Financial Statements
Prepared in Accordance with International
Financial Reporting Standards (IFRS)
December 31, 2007 and 2006

This is a free translation into English of a report issued in the Spanish language and is provided solely
for the convenience of the English speaking readers. This report should be read in conjunction with,
and construed in accordance with, Venezuelan law and professional International auditing standards
and International financial reporting standards.

1

Independent Auditor’s Report
To the Shareholders and Board of Directors of
Petrodelta, S.A.
Report on the financial statements
We have audited the accompanying financial statements of Petrodelta, S.A. (the Company), which comprise the balance sheets as of December 31, 2007 and 2006, and the income statement, statement of changes in equity and cash flow statement for the year ended December 31, 2007 and the initial nine-month period ended December 31, 2006, and a summary of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

2

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Petrodelta, S.A. as of December 31, 2007 and 2006, and its financial performance and its cash flows for the year ended December 31, 2007 and the initial nine-month period ended December 31, 2006, in accordance with International Financial Reporting Standards.
Other significant matters
Without qualifying our opinion, we draw attention to Note 7 of the financial statements. The Company belongs to a group of related companies and conducts transactions and maintains balances for significant amounts with other members of the group, with significant effects on the results of its operations and financial position. Because of those relationships, these transactions may have taken place on terms other than those that would characterize transactions between unrelated companies.
Espiñeira, Sheldon y Asociados


Víctor Hugo Nieto P.
CPC 16365
Puerto La Cruz, Venezuela
April 10, 2008

3

Petrodelta, S.A.
Balance sheet
December 31, 2007 and 2006
                   
    2007  2006 
        Nominal      Nominal 
(In thousands) Note U.S. dollars  bolivars  U.S. dollars  bolivars 
                   
Assets
                  
Non-current assets
                  
Property, plant and equipment, net 5  176,783   380,084,180   192,095   413,004,190 
Deferred income tax 9  38,738   83,286,903   23,415   50,342,336 
               
                   
Total non-current assets    215,521   463,371,083   215,510   463,346,526 
               
                   
Current assets
                  
Deferred income tax 9  6,025   12,954,296   —   — 
Inventories 4  13,830   29,734,431   8,281   17,803,706 
Prepaid expenses    873   1,873,249   —   — 
Trade accounts receivable 7  444,737   956,184,237   203,717   437,991,291 
Other accounts receivable    6,292   13,528,976   3,190   6,859,253 
Cash at banks    6,977   15,000,000   —   — 
               
                   
Total assets    694,255   1,492,646,272   430,698   926,000,776 
               
                   
Equity and Liabilities
                  
Equity
                  
Capital stock 8  465   1,000,000   —   — 
Contributions for future capital increases 8  6,512   14,000,000   —   — 
Share premium 8  212,451   456,769,911   212,451   456,769,911 
Legal reserve 8  47   100,000   —   — 
Distributable retained earnings 8  181,325   389,847,848   89,931   193,350,942 
               
                   
Total equity    400,800   861,717,759   302,382   650,120,853 
               
                   
Liabilities
                  
Non-current liabilities
                  
Provision for abandonment costs 6  5,964   12,823,531   5,420   11,653,500 
               
                   
Current liabilities
                  
Taxes 9  153,037   329,028,853   67,188   144,453,138 
Accruals and other payables 10  49,906   107,297,579   20,339   43,730,346 
Trade accounts payable 7  84,548   181,778,550   35,369   76,042,939 
               
                   
Total current liabilities    287,491   618,104,982   122,896   264,226,423 
               
                   
Total liabilities    293,455   630,928,513   128,316   275,879,923 
               
                   
Total equity and liabilities    694,255   1,492,646,272   430,698   926,000,776 
               
The accompanying notes are an integral part of the financial statements

4


Petrodelta, S.A.
Income statement
Year ended December 31, 2007 and
initial nine-month period ended December 31, 2006
                   
    2007  2006 
        Nominal      Nominal 
(In thousands) Note U.S. dollars  bolivars  U.S. dollars  bolivars 
                   
Income
                  
Income from sale of crude oil and gas 11  335,717   721,790,141   283,421   609,354,791 
Production royalties 12  (101,929)  (219,146,456)  (85,880)  (184,641,012)
               
                   
Total income    233,788   502,643,685   197,541   424,713,779 
               
                   
Cost of goods sold
                  
Production costs 13  (23,752)  (51,068,878)  (22,729)  (48,868,099)
Depletion, depreciation and amortization 5  (17,956)  (38,604,664)  (16,616)  (35,724,507)
               
                   
Total cost of goods sold    (41,708)  (89,673,542)  (39,345)  (84,592,606)
               
                   
Gross income    192,080   412,970,143   158,196   340,121,173 
                   
Expenses
                  
General and administrative expenses 14  (23,220)  (49,922,967)  (13,582)  (29,203,182)
Special advantage royalties 9  (12,918)  (27,773,418)  (10,910)  (23,456,247)
               
                   
Income before tax    155,942   335,273,758   133,704   287,461,744 
               
                   
Income tax
                  
Current 9  (85,849)  (184,575,715)  (67,188)  (144,453,138)
Deferred 9  21,348   45,898,863   23,415   50,342,336 
               
                   
     (64,501)  (138,676,852)  (43,773)  (94,110,802)
               
                   
Net income    91,441   196,596,906   89,931   193,350,942 
               
The accompanying notes are an integral part of the financial statements

5


Petrodelta, S.A.
Statement of changes in equity
Year ended December 31, 2007 and
initial nine-month period ended December 31, 2006
                           
                Retained earnings    
    Capital  Shareholder  Share  Legal       
(In thousands of U.S. dollars) Note stock  contribution  premium  reserve  Distributable  Total 
                           
Balances at April 1, 2006
    —   —   —   —   —   — 
                           
Initial capital contribution 8  —   —   212,451   —   —   212,451 
Net income 8  —   —   —   —   89,931   89,931 
                     
                           
Balances at December 31, 2006
    —   —   212,451   —   89,931   302,382 
                           
Initial capital contribution 8  465   —   —   —   —   465 
Contributions for future capital increases 8  —   6,512   —   —   —   6,512 
Net income 8  —   —   —   —   91,441   91,441 
Appropriation to legal reserve 2-q  —   —   —   47   (47)  — 
                     
                           
Balances at December 31, 2007
    465   6,512   212,451   47   181,325   400,800 
                     
                           
                Retained earnings    
    Capital  Shareholder  Share  Legal       
(In thousands of nominal bolivars) Note stock  contribution  premium  reserve  Distributable  Total 
                           
Balances at April 1, 2006
    —   —   —   —   —   — 
                           
Initial capital contribution 8  —   —   456,769,911   —   —   456,769,911 
Net income 8  —   —   —   —   193,350,942   193,350,942 
                     
                           
Balances at December 31, 2006
    —   —   456,769,911   —   193,350,942   650,120,853 
                           
Initial capital contribution 8  1,000,000   —   —   —   —   1,000,000 
Contributions for future capital increases 8  —   14,000,000   —   —   —   14,000,000 
Net income 8  —   —   —   —   196,596,906   196,596,906 
Appropriation to legal reserve 2-q  —   —   —   100,000   (100,000)  — 
                     
                           
Balances at December 31, 2007
    1,000,000   14,000,000   456,769,911   100,000   389,847,848   861,717,759 
                     
The accompanying notes are an integral part of the financial statements

6


Petrodelta, S.A.
Cash flow statement
Year ended December 31, 2007 and
initial nine-month period ended December 31, 2006
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) U.S. dollars  Bolivars  U.S. dollars  Bolivars 
                 
Cash flows from operating activities
                
Net income  91,441   196,596,906   89,931   193,350,942 
Adjustments to reconcile net income to net cash provided by operating activities                
Depletion, depreciation and amortization  18,550   39,881,397   17,076   36,713,507 
Deferred income tax  (21,348)  (45,898,863)  (23,415)  (50,342,336)
Net change in provision for abandonment costs  544   1,170,031   388   11,653,500 
Net change in operating assets and liabilities                
Trade and other accounts receivable  (244,122)  (524,862,669)  (206,907)  (444,850,544)
Prepaid expenses  (873)  (1,873,249)  —   — 
Inventories  (5,549)  (11,930,725)  830   1,784,561 
Trade accounts payable  49,179   105,735,611   35,369   76,042,939 
Accruals and other payables  29,567   63,567,233   20,339   43,730,346 
Taxes  85,849   184,575,715   67,188   144,453,138 
             
                 
Net cash provided by operating activities  3,238   6,961,387   799   12,536,053 
             
                 
Net cash used in investing activities
                
Property, plant and equipment  (3,238)  (6,961,387)  (799)  (12,536,053)
             
                 
Net cash provided by financing activities
                
Initial and additional capital contributions  6,977   15,000,000   —   — 
             
                 
Net cash increase  6,977   15,000,000   —   — 
             
                 
Cash
                
At the beginning of the period  —   —   —   — 
             
                 
At the end of the period  6,977   15,000,000   —   — 
             
                 
Supplementary information on non-cash activities
                
Initial contribution of shareholders of property, plant and equipment  —   —   212,451   456,769,911 
             
The accompanying notes are an integral part of the financial statements

7


Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
1.Incorporation and Activities
Activities
Petrodelta, S.A. (the Company) was incorporated in Venezuela in October 2007, as published in Official Gazette No. 38,786. Its business objective is primarily exploration to discover hydrocarbon reserves, extraction of oil in its natural state, and its subsequent gethering, transportation and storage, pursuant to Article No. 9 of the Venezuelan Hydrocarbon Law (LOH). The Company operates within an area of approximately 1,000 square kilometers in the Uracoa, Bombal and Tucupita fields (formerly the Monagas Sur Unit) and in the El Salto, El Isleño and Temblador fields in the Monagas and Delta Amacuro states in Venezuela (the operating area).
The Company was created as a result of the process for conversion into mixed-capital companies of the Operating Agreement signed on July 31, 1992 between PDVSA Petróleo, S.A. (PDVSA Petróleo) (formerly Lagoven, S.A.), Harvest Natural Resources, Inc. (Harvest) (formerly Benton Oil and Gas Company) and Venezolana de Inversiones y Construcciones Clérico, C.A. (Vinccler). As part of this process, on March 31, 2006, PDVSA Petróleo, S.A., Corporación Venezolana del Petróleo (CVP) and Harvest Vinccler, S.C.A. (HVSCA), the agreement operator and a related company of Harvest and Vinccler, signed a memorandum of understanding for conversion into a mixed company. In June 2007, the National Assembly of the Bolivarian Republic of Venezuela approved the incorporation of the mixed company Petrodelta, S.A. In August 2006, the National Assembly approved the inclusion of the Temblador, El Isleño and El Salto areas into the Monagas Sur Unit for further development of the Company’s primary activities. An Agreement for Conversion into a Mixed Company was signed between CVP and HNR Finance B.V. (HNR Finance) in September 2007. The Company will operate for 20 years as from October 2007 when the decree for transfer of operations to the mixed company was published in the Official Gazette.
Petrodelta, S.A. is 60%-owned by CVP, a wholly owned subsidiary of Petróleos de Venezuela, S.A. (PDVSA), and 40%-owned by HNR Finance.
Petróleos de Venezuela, S.A. is owned by the Bolivarian Republic of Venezuela, as the sole Shareholder, and is controlled by the People’s Power Ministry for Energy and Oil (MENPET). PDVSA is responsible for the development of the hydrocarbon industry in Venezuela, as well as planning, coordinating, supervising and controlling its companies’ activities in Venezuela and abroad.
The Company was incorporated and is domiciled in Venezuela. Its legal address is: Avenida Veracruz con Calle Cali, Urbanización Las Mercedes, Edificio Pawa, Piso 5, Caracas, Distrito Capital. Its main offices are located at Avenida Alirio Ugarte Pelayo, Edificio Harvest Vinccler, Ala Norte, Planta Baja in Maturín, Monagas State.
On March 6, 2008, the Board of Directors of the Company approved the issuance of the financial statements under International Financial Reporting Standards and submitted said financial statements
to the Shareholders of the Company for approval purposes. Once the aforementioned financial statements are duly approved and issued, no amendment of which applies.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

8

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
During the transition period from April 1, 2006 to December 31, 2007, HVSCA was in charge of managing and developing the Company’s activities and provided its financial and operational structure for this purpose. The Company’s operating costs during this period were paid by HVSCA and CVP and subsequently charged to PDVSA Petróleo, which, in turn, will bill the Company for these expenses during the first half of 2008. Such costs were recognized in the results for the corresponding periods. These costs include, but are not limited to, general, administrative and operating expenses in order to continue operations within the operating area.
During the year ended December 31, 2007 and the initial nine-month period ended December 31, 2006, the Company has operated with employees assigned by its shareholders or their related companies since it has no direct employees. At December 31, 2007, the Company has 255 employees assigned by its shareholders or their related companies. During the first quarter of 2008, 238 employees were transferred to PDVSA from HVSCA.
Applicable regulations
The Company’s main activities are regulated by the Venezuelan Hydrocarbon Law (LOH), effective from January 2002. Gas-related operations are regulated by the Venezuelan Gaseous Hydrocarbon Law of September 1999 and its Regulations of June 2000.
Below are the main regulations included in the LOH:
a)A royalty of 30% on volumes of hydrocarbon extracted.
b)A Partial Reform of the Extraction Tax was enacted and published in Official Gazette No. 38,443 of May 24, 2006 establishing a rate equivalent to one-third of the value of all liquid hydrocarbons extracted from any reservoir, calculated on the same basis as royalties. The taxpayer has the right to deduct from the extraction tax any sum payable as royalties (30%), including the additional royalty paid for special advantages taxes (3.33%). At December 31, 2007 and 2006, this tax was lower than that paid and accrued by the Company for royalties and special advantages.
c)A surface tax equivalent to 100 tax units for each square kilometer or fraction thereof per year for licensed areas that are not under production. This tax will increase by 2% during the first five years, and by 5% during all subsequent years. Company management considers that there are no nonproductive areas.
d)An internal consumption tax equivalent to 10% of the value of each cubic meter of oil products produced and consumed as fuel in internal operations, calculated on the final selling price. Company management considers that, other than associated gas, no oil products are consumed.
Hydrocarbon sales agreement
The Company signed a hydrocarbon sales agreement with PDVSA Petróleo, whereby the Company undertakes to sell to the latter all hydrocarbons produced within the delimited operating area that are not being used in its operations. The Company may assign or transfer this agreement, or any rights
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

9

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
and obligations thereunder, to another company in accordance with Article No. 27 of the LOH. This agreement is for 20 years.
2.Summary of Significant Accounting Principles
Below are the most significant accounting principles and practices used in the preparation of the Company’s financial statements. These practices and policies have been applied consistently throughout all periods presented, except when otherwise indicated.
a) Bases of measurement and presentation The financial statements for the initial nine-month period ended December 31, 2006 have been prepared and are presented for purposes of comparison with the financial statements for the year ended December 31, 2007 since, as described in Note 1, the Company was formally incorporated in October 2007 through a decree authorizing transfer of operations, however, the financial statements reflect the historical operations of the entity.
Presentation and functional currency
The main economic environment for Company operations is the international market for crude oil. The Company presents its financial statements in U.S. dollars since a significant portion of its income, as well as a significant portion of its costs, expenses and capital investments are denominated in this currency.
The Company’s financial statements are presented in U.S. dollars and have been prepared in conformity with IFRS issued by the International Accounting Standards Board ( IASB), which comprise: i) IFRS, ii) International Accounting Standards (IAS) and iii) interpretations issued by the International Financial Reporting Interpretations Committee — IFRIC — of the IASB. However, in order to comply with Venezuelan mercantile legislation, the Company is required to maintain its statutory books in bolivars and prepare its financial statements in accordance with accounting principles generally accepted in Venezuela, which constitute the basis for declaring dividends.
Transactions in currencies other than the U.S. dollar
Transactions in currencies other than the U.S. dollar are translated at the exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars using the exchange rate in effect at the balance sheet date. Exchange gains or losses resulting from translation are recognized in the income statement.
New accounting standards and IFRIC interpretations
The following new standards, amendments and interpretations to existing standards, which have been published but were not effective for the year ended December 31, 2007, have not been applied in the preparation of the Company’s financial statements:
On November 30, 2006, the IASB issued IFRS 8, Operating Segments, effective for accounting periods beginning on or after January 1, 2009. This standard requires the disclosure of operating segments based on internal reports that are reviewed regularly by the Operations Committee for
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

10

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
   Exploration and Production, the Operations Committee for Refining and the Operations Committee for Trade and Supplies, for purposes of assessing each segment.
James A. Edmiston
• IFRIC 12, Service Concession Arrangements (IFRIC 12) was issued by the IASB in 2006. This interpretation provides guidance for recognition and measurement of public-to-private service concession arrangements. IFRIC 12 will be in effect for years beginning on or after January 1, 2008.
•Revised IAS 23, Borrowing Costs, issued in March 2007, eliminates the option to expense borrowing costs and requires capitalization of borrowing costs directly attributable to the respective acquisition. This standard will be in effect for years beginning on or after January 1, 2009.
•IFRIC 11, Treasury Share Transactions. Applies to transactions in which an entity or an entity’s shareholders have granted equity instruments or incurred a liability to transfer cash or other assets for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity. This Interpretation applies to such transactions when the identifiable consideration received (or to be received) by the entity, including cash and the fair value of identifiable non-cash consideration (if any), appears to be less than the fair value of the equity instruments granted or liability incurred. However, this Interpretation does not apply to transactions excluded from the scope of IFRS 2 in accordance with paragraphs 3–6 of that IFRS. IFRIC 11 will be in effect for years beginning on or after March 1, 2007.
•In July 2007, the IASB issued Interpretation No. 14 (IFRIC 14), IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, which explains when to increase or reduce future contributions in relation to a defined benefit asset considered available, and also provides guidance on the impact of minimum funding requirements on these assets. Likewise, it clarifies when a minimum funding requirement may give rise to a liability. This interpretation will be in effect for years beginning on or after January 1, 2008.
The Company is evaluating the new standards issued and, based on its analysis to date, considers that they will not significantly affect its financial statements.
Standards and interpretations to existing standards that have been recently adopted by the Company
IFRS 7, Financial Instruments: Disclosures and Complementary Amendment to IAS 1, Presentation of Financial Statements – Capital Disclosures (effective from January 1, 2007). IFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

11

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. IFRS 7 replaces IAS 30. The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it is managed. Company management is analyzing the impact of IFRS 7 on the Company’s operations and will apply IFRS 7 and the amendment to IAS 1 for annual periods beginning January 1, 2008.
•IFRIC 9, Reassessment of Embedded Derivatives, requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the original terms of the contract.
•IFRIC 10, Interim Financial Reporting and Impairment (effective from November 1, 2006). IFRIC 10 sets out that the impairment losses recognized in a previous interim period on goodwill, investments in equity instruments and investments in financial assets should not be reversed. The Company has not recognized impairment losses in respect of goodwill, investments in equity instruments or investments in financial assets. Therefore, adoption of this interpretation does not have an impact on the Company’s financial statements.
Interpretations to existing standards that are not relevant for the Company’s operations
The following interpretations to existing standards have been published and are mandatory for the Company’s accounting periods beginning on or after May 1, 2006, but are not relevant for the Company’s operations:
IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies.
The Company’s accounting policies have been reviewed and modified, when necessary, to adopt the requirements established in these new standards or interpretations. Adoption of these standards and interpretations did not significantly affect the Company’s financial statements.
b) Estimates, risks and uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the amounts of assets and liabilities at the balance sheet date, the amounts of income, costs and expenses for the year ended on that date, and the disclosure of contingent assets and liabilities. The Company applies its best estimates and judgments; however, actual results may differ from initial estimates.
Estimates and assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and any future periods affected.
Significant areas of uncertainty affecting management’s estimates and judgment in the application of accounting policies, which significantly affect financial statement amounts, are:
Note 5 — depletion, depreciation and amortization.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

12

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
•Note 6 — provision for abandonment costs.
•Note 9 — deferred income tax.
•Note 2-k — measurement of retirement benefit obligations defined in the collective labor agreement and other post-retirement benefits other than pensions.
The Company’s operations may be affected by the political, legislative, regulatory and legal environment, both at the national and international level. In addition, significant changes in prices or availability of crude oil and its by-products may have an impact on the Company’s results of operations in a given year.
c) Recognition of revenue, costs and expenses
Income is recognized at fair value of products sold, net of sales taxes, returns or discounts.
Sales of hydrocarbons Income from sales of hydrocarbons is recognized in the income statement when risks and rights of ownership are transferred to PDVSA Petróleo at the delivery point as stipulated in the hydrocarbon sales agreement signed between the Company and PDVSA Petróleo. Income is calculated and recorded at the transaction date based on the agreement. Income is recognized when it can be reasonably measured and it is probable that future economic benefits will flow to the Company.
Oil and gas extraction royalties
Royalties paid are recognized as a reduction of income from sales of hydrocarbons since they do not represent an increase of the economic benefits received by the Company.
Interest income
Interest income is calculated based on past due balances receivable at LIBOR under the effective interest method. At December 31, 2007 and 2006, the Company has not billed PDVSA Petróleo and, therefore, no interest income has been generated.
Costs and expenses
Costs and expenses are recognized in the income statement as incurred, based on the value of the good or service received.
d) Local third-party accounts receivable
Local third-party accounts receivable are shown at their estimated or billed value, which is reduced to their recoverable amount through estimates of doubtful accounts, which represent losses that may be incurred in respect of accounts receivable. The provision for doubtful accounts is determined based on the review of all balances receivable at period end and the amount so determined is charged to the results for the period. At December 31, 2007 and 2006, the Company considers that no losses will be incurred in respect of uncollectible accounts and, therefore, has not set aside any provision in this connection.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

13

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
e)Inventories
Inventories of spare parts and supplies for drilling are valued at the lower of cost and net realizable value. The net realizable value is represented by the estimated selling price in the normal course of operations, less applicable costs of sales.
f) Property, plant and equipment
Exploration and evaluation disbursements
Exploration and evaluation disbursements are recorded under the successful efforts method. Exploration disbursements, including the cost of license purchases, are capitalized as intangible assets when incurred and other disbursements, such as geology and geophysics disbursements, are recorded in the income statement. Management evaluates the discovery of proved reserves annually. When proved reserves are determined, the relevant disbursements, including the cost of license purchases, are transferred to oil property accounts and depreciated under the units of production method. Non-successful exploration disbursements are recorded in the income statement. Management evaluates the impairment in the value of exploration assets when events indicate that their carrying value exceeds their recoverable value.
Development disbursements
Disbursements for construction, installation or completion of infrastructure facilities, such as platforms, pipelines and drilling of proved developed oil wells, are capitalized as part of development accounts included as part of property, plant and equipment. When development activities are completed in a specified field, disbursements are transferred to production asset accounts. Depreciation and amortization are not recorded during the development phase.
Production disbursements
Petroleum properties are represented, as a whole, by disbursements related to development, exploration and evaluation for production of proved reserves. Oil and gas properties related to production activities are recorded at cost and shown net of accumulated depreciation and any loss recognized for impairment in the value of assets.
Investments capitalized according to the previous criteria are amortized over the field’s useful life on the basis of the annual production to proved developed reserves. Any amount not amortized represents non-proved or probable reserves that are still being developed. The amount of this factor related to non-proved or probable reserves is evaluated annually and is amortized as these reserves are developed.
Other
Other fixed assets not related to hydrocarbon exploration, development and production (mainly office furniture and equipment, and vehicles) are recorded at cost and shown net of accumulated depreciation.
Additions, renewals and significant improvements are capitalized when it is probable that future economic benefits will flow to the Company from these assets and the cost of assets may be reasonably measured. Disbursements for maintenance, repairs and minor renewals of property, plant and equipment, mainly operating facilities, are recorded in the income statement as incurred. Gains and losses on sale are determined by comparing the amount of the sale with the asset’s book value and are recognized in the income statement as obtained or incurred.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

14

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
Depreciation and amortization
Property, plant and equipment related to hydrocarbon production activities is depreciated by the units of production method based on proved developed reserves. Changes in estimates used are recorded prospectively.
Other fixed assets are depreciated using the straight-line method over their estimated useful lives as follows:
   
  Years
/s/ Steven W. Tholen
Steven W. Tholen
Senior Vice President — Finance, Chief Financial Officer and Treasurer 
(Principal Financial Officer)   
Office furniture and equipment 3-5
Vehicles 5
g) Impairment in the value of long-lived assets
The Company assesses possible impairment in the value of its assets at each balance sheet date when events indicate that their recorded value may not be recoverable. Recoverability of assets held and used is measured by comparing their carrying amount with income from net discounted future cash flows expected to be generated by these assets. If the carrying amount of the assets exceeds the estimated value of income from discounted future cash flows, an impairment loss is recognized in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The asset cost is shown net of this impairment charge. Impairment is determined by the Company based on cash-generating units, represented by oil reservoirs in the production area assigned to the Company. At December 31, 2007 and 2006, Company management considers, in conformity with generally accepted accounting principles, that none of its long-lived assets is impaired.
h) Fair value of financial instruments
Financial instruments are recorded in the balance sheet as either assets or liabilities at their respective fair values. The carrying value of cash, accounts receivable, accounts payable and accruals approximates their fair value due to the short-term maturities of these instruments. The Company has identified no derivative financial instruments. The Company recognizes transactions with financial instruments at their transaction date.
i) Income tax
Income tax comprises current and deferred tax. Current tax is the estimated amount to be paid based on taxable income for the period, using the tax rate and the methodology established in current regulations. Deferred income tax is recognized using the balance sheet method and arises from temporary differences between the tax base of assets and liabilities and their amounts in the financial statements. Recognition as an asset is given only to those tax benefits that are considered realizable in future periods.
Income tax related to dividend distribution, determined based on legal regulations of each fiscal jurisdiction, is recognized as a liability when the obligation to pay such dividends arises.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

15

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
j) Accrual for employee termination benefits
Termination benefits
The Company accrues for its liability in respect of employee termination benefits based on the provisions of the Venezuelan Labor Law and the prevailing oil-sector collective labor agreement. Under certain circumstances, the Law provides for an additional indemnity for unjustified dismissals.
Profit sharing and bonuses
Venezuelan Labor Law also requires a mandatory distribution to employees (profit-sharing bonus) of up to 15% of a company’s pre-tax income. The established minimum and maximum amounts for distribution are 15 and 120 days of salary, respectively.
During the year ended December 31, 2007 and the initial nine-month period ended December 31, 2006, the Company has not had direct employees and, therefore, has not recorded liabilities derived from these labor-related benefits.
k) Retirement plan and other employee benefits
As described in Note 1, during the first quarter of 2008, employees were transferred from HVSCA to PDVSA and, as of that date, are eligible for retirement plans and other labor benefits granted by PDVSA. These plans are based, among other conditions, on length of service, age and salary. During 2008 the Company will record past service costs arising from adoption of these plans on the basis of the actuarial study to be made in 2008 for this purpose, in conformity with IAS 19.
As described in Note 1, these employees have been assigned to the Company by PDVSA; consequently, all costs related to their employment will be billed to the Company by PDVSA.
l) Environmental expenditures
In conformity with the Company’s environmental policy and current applicable regulations, a liability is recognized when costs are likely and can be reasonably estimated. Environmental expenditures that relate to income from current or future operations are recorded as expenses or assets, as applicable. Expenditures that relate to past operations that do not contribute to current or future revenue generation are expensed. These provisions are set aside when an obligation related to environmental remediation is identified, in respect of which the Company has the necessary information to determine a reasonable estimate of the related cost. Subsequent adjustments, if required, will be made upon receipt of additional information.
m) Costs related to obligations from asset withdrawal
Estimated abandonment costs at the end of a field’s useful life are regularly reviewed and recorded based on estimates and internal engineering reports. A provision for estimated abandonment costs is recorded at the balance sheet date. Additionally, the Company recognizes an asset in the property, plant and equipment accounts, which is depreciated as part of the related assets. Changes in the present value of estimated future disbursements are recorded against the provision and the property, plant and equipment accounts (Notes 5 and 6).
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

16

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
n) Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for future operating losses.
o) Capital stock
Common shares are classified as equity. At December 31, 2007 and 2006, the Company has no preferred shares (Note 8).
p) Share premium
The Company recognizes as share premium any excess in the value of contributions made by shareholders for Company incorporation over the par value at the incorporation date (Note 8).
q) Legal reserve
The Venezuelan Code of Commerce requires companies to set aside 5% of their net income each year to a legal reserve until it reaches an amount equivalent to at least 10% of their capital stock in bolivars.
r) Dividend distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders. The Company did not declare any dividend distribution in 2007 or 2006.
s) Exchange agreement with the Central Bank of Venezuela (BCV) and currency availability
In conformity with Article No. 5 of Exchange Agreement No. 9, “Companies incorporated by virtue of the joint venture agreements entered into between PDVSA, under the superseded Law Reserving Hydrocarbon Trade and Industry to the State, and the mixed companies referred to under the Hydrocarbon Law and the LOHG, may maintain accounts in foreign currency at banks or similar institutions abroad, to deposit income received for the purpose of making payments and disbursements abroad. These transactions will be followed up by BCV, the entity in charge of publishing applicable regulations. Any remaining currency must be sold to BCV at the official exchange rate in conformity with Article No. 6 of Exchange Agreement No. 1 of February 5, 2003.
Companies referred to in this article are not entitled to receive foreign currency from BCV to cover their obligations and payments in foreign currency, and are subject, under the provisions thereof, to the monitoring mechanisms applied by regulatory entities in conformity with applicable laws.”
Exchange agreement No. 2 of February 9, 2004 was amended on March 2, 2005, according to Official Gazette No. 38,138, establishing exchange rates of Bs 2,144,60/US$1 (purchase) and
Bs 2,150/US$1 (sale).
According to Article 2, Paragraph 4 of the agreement by which the National Assembly approved the Company’s incorporation, payments for sales of hydrocarbon liquids made to the Company in U.S. dollars can be maintained by the Company in bank accounts abroad and used to pay all obligations that must be settled abroad.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

17

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
The Currency Exchange Offenses Law became effective in 2004 whereby any demand, offer, purchase or sale of U.S. dollars failing to comply with CADIVI requirements is considered illegal. Similarly, transactions exceeding US$10,000 a year at the free exchange market are also illegal. Imports or exports in foreign currency over US$10,000 should be declared to CADIVI. In addition, exporters of goods and services not related to the oil industry are required to sell their income from business transactions in foreign currency to BCV. Transactions with securities, as well as government bonds denominated in U.S. dollars and issued in local currency are tax exempt. Therefore, all individuals that do not comply with the aforementioned Law will be subject to fines of two to three times the
amount of the transaction, reimbursement of foreign currency and imprisonment for two to seven years. On December 28, 2007, the Venezuelan government enacted a reform of this Law effective January 28, 2008 (Note 15-b).
t) Financial risk management
Local and international conditions, i.e. recession periods, inflation, interest rates and devaluation, and hydrocarbon price volatility, may have a significant effect on the Company’s financial position. The Company is exposed to a variety of financial risks: market risk (including exchange rate fluctuation risk, interest rate risk and price risk), liquidity risk and capital risk. Financial instruments exposed to concentration of credit risk consist primarily of cash and trade accounts receivable. At December 31, 2007, the Company’s cash is placed with a local financial institution. In addition, there is some concentration of credit risk in trade accounts receivable of its crude oil and all of its gas production are sold to PDVSA Petróleo (Note 7).
Market risk
The Company’s general risk management focuses on the uncertainty surrounding financial markets and seeks to minimize the potential adverse effects on the Company’s performance. At December 31, 2007 and 2006, the Company is exposed to the following market risks:
Exchange rate fluctuation risk
The Company operates in Venezuela and is exposed to foreign exchange risk from variations in the exchange rate of the Venezuelan bolivar relative to the U.S. dollar. Foreign exchange risk is mainly derived from future commercial operations and assets and liabilities shown in bolivars.
Price risk
The Company is exposed to significant sales price risks for the sale of hydrocarbons, which depend on external market factors. At December 31, 2007 and 2006, hydrocarbon sales prices are calculated based on predetermined formulas that consider the price of hydrocarbons in different international markets. Price fluctuations may have a significant impact on the Company’s income. At December 31, 2007 and 2006, the Company has no mechanisms in place to protect against exposure to hydrocarbon sales price fluctuations.
Interest rate fluctuation risk
The Company has no assets or liabilities for significant amounts that could be exposed to interest rate fluctuation risk.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

18

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
Capital risk management
The objectives of the Company are focused on safeguarding the Company’s ability to continue as a going concern in order to provide returns for the shareholders and maintain an optimal capital structure to reduce capital costs. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.
u) Accounting estimates requiring a high degree of judgment
The Company continually evaluates judgments used to record its accounting estimates, which are recorded based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances. Significant future changes to assumptions established by management may significantly affect the carrying value of assets and liabilities.
Below is a summary of the most significant accounting estimates made by the Company:
Estimates of oil reserves
Oil and gas reserves are key elements in the Company’s decision-making process. They are also important in evaluating impairment in the carrying amount of long-lived assets. Calculation of depreciation, amortization and depletion of property, plant and equipment accounts related to hydrocarbon production requires quantification of proved developed hydrocarbon reserves expected to be recovered by the Company in the future. Reserve estimates are only approximate amounts due to the high degree of judgment and specialization required to develop the information. Reserves are calculated by specialized technical departments at PDVSA (related company that owns the Company’s main shareholder) and results are subject to the approval of MENPET in order to guarantee the reasonableness of the information. Additionally, reserve studies are regularly updated to guarantee that any change in estimates is timely recorded in the Company’s financial statements (Note 5).
Assessment of impairment in the value of property, plant and equipment
Management has assessed impairment in the value of property, plant and equipment during the year. The main key assumptions considered by management to determine the recoverable amount of property, plant and equipment were income projections, prices of oil, royalties, operating and capital costs and the discount rate. Projections include proved developed reserves to be produced during the development period of production activities in the assigned fields. At December 31, 2007 and 2006, the Company has not identified an impairment in the carrying value of property, plant and equipment as a result of these estimates.
Abandonment cost calculation
The Company’s financial statements include an asset and a provision for property, plant and equipment used in hydrocarbon production that is expected to be abandoned in the future and in relation to which the Company will make future disbursements. Assumptions considered for the calculation of this asset and the provision for abandonment (asset abandonment costs, date of abandonment, and inflation and discount rates) may vary depending on factors such as performance in the field, changes in technology and legal requirements. Assumptions made by the Company are recorded based on technical studies and management’s experience and are regularly reviewed (Notes 5 and 6).
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

19

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
v) Cash
Cash includes cash on hand and at banks, and deposits with original maturities of three months or less.
w) Transactions with government entities
The Company does not disclose, as part of balances and transactions with related companies (Note 7), transactions with government entities conducted in the normal course of business, the terms and conditions of which are consistently applied to other public and private entities and for which there are no other suppliers, i.e. electricity, telecommunications, taxes, etc.
/s/ Kurt A. Nelson3. Vice President-Controller, Chief Accounting OfficerBalances and Transactions in Currencies Other than the U.S. Dollar
Kurt A. Nelson
(Principal Accounting Officer) 
  At December 31, 2007 and 2006, the Company has the following monetary assets and liabilities denominated in currencies other than the U.S. dollar, which are translated into U.S. dollars at the exchange rate in effect at the balance sheet date:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Monetary assets
                
Bolivars  6,977   15,000,000   —   — 
                 
Monetary liabilities
                
Bolivars  (259,526)  (557,981,654)  (108,214) ��(232,660,988)
             
                 
Net monetary liabilities  (252,549)  (542,981,654)  (108,214)  (232,660,988)
             
/s/ Stephen D. Chesebro’
Stephen D. Chesebro’
Chairman of the Board and Director 
  The year-end exchange rate, the average exchange rate for the year and the interannual increase in the exchange rate and the Consumer Price Index (CPI) with respect to the U.S. dollar, as published by BCV, were as follows:
         
  2007  2006 
         
Exchange rate at year end (Bs/US$1)  2,150.00   2,150.00 
Average exchange rate for the year (Bs/US$1)  2,150.00   2,150.00 
Interannual increase in the exchange rate (%)  —   — 
Interannual increase in the CPI (%)  22.46   16.97 
4. 
/s/ John U. Clarke
John U. Clarke
Director 
/s/ H. H. Hardee
H. H. Hardee
Director 
/s/ Patrick M. Murray
Patrick M. Murray
Director 
/s/ J. Michael Stinson
J. Michael Stinson
Director 

S-29

SCHEDULE II
HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands)
                     
      Additions    
  Balance at     Charged Deductions Balance
  Beginning Charged to to Other From at End of
  of Year Income Accounts Reserves Year
At December 31, 2006
                    
Amounts deducted from applicable assets                    
Accounts receivable $2,757  $—  $—  $—  $2,757 
Deferred tax valuation allowance  27,363   5,446           32,809 
Investment at cost  1,350   —   —   —   1,350 
At December 31, 2005
                    
Amounts deducted from applicable assets                    
Accounts receivable $2,757  $—  $—  $—  $2,757 
Deferred tax valuation allowance  40,492   (13,129)  —   —   27,363 
Investment at cost  1,350   —   —   —   1,350 
At December 31, 2004
                    
Amounts deducted from applicable assets                    
Accounts receivable $3,355  $—  $—  $598  $2,757 
Deferred tax valuation allowance  48,365   (7,873)  —   —   40,492 
Investment at cost  1,350   —   —   —   1,350 

S-30

Index to Exhibits
Exhibits:
3.1Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762.)Inventories
 
 3.2Inventories at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Materials and supplies, net  13,830   29,734,431   8,281   17,803,706 
             
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

20

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
5. AmendedProperty, Plant and Restated Bylaws as of April 6, 2006. (Incorporated by reference to Exhibit 3.2 to our Form 10-Q filed on April 20, 2006, File No. 1-10762.)Equipment, Net
 
 4.1Property, plant and equipment, net at December 31 comprise the following:
             
      Office furniture,    
      equipment and    
(Thousands of U.S. dollars) Production  vehicles  Total 
             
Cost
            
Balances at April 1, 2006  200,778   2,562   203,340 
Additions   678   58   736 
Obligations from asset disposal  5,095   —   5,095 
          
             
Balances at December 31, 2006  206,551   2,620   209,171 
             
Accumulated depletion, depreciation and amortization
            
Balances at April 1, 2006  —   —   — 
Depletion, depreciation and amortization expense  (16,154)  (460)  (16,614)
Obligations from asset disposal  (462)  —   (462)
          
             
Balances at December 31, 2006  (16,616)  (460)  (17,076)
          
             
Net cost at December 31, 2006
  189,935   2,160   192,095 
          
             
Cost
            
             
Balances at December 31, 2006  206,551   2,620   209,171 
Additions  3,052   201   3,253 
Obligations from asset disposal  (15)  —   (15)
          
             
Balances at December 31, 2007  209,588   2,821   212,409 
          
             
Accumulated depletion, depreciation and amortization
            
Balances at December 31, 2007  (16,616)  (460)  (17,076)
Depletion, depreciation and amortization expense  (17,412)  (594)  (18,006)
Obligations from asset disposal  (544)  —   (544)
          
             
Balances at December 31, 2007  (34,572)  (1,054)  (35,626)
          
             
Net cost at December 31, 2007
  175,016   1,767   176,783 
          
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

21

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
             
      Office furniture,    
      equipment and    
(Thousands of nominal bolivars) Production  vehicles  Total 
             
Cost
            
Balances at April 1, 2006  431,673,344   5,508,300   437,181,644 
Additions  1,457,425   124,700   1,582,125 
Obligations from asset disposal  10,953,928   —   10,953,928 
          
             
Balances at December 31, 2006  444,084,697   5,633,000   449,717,697 
             
Accumulated depletion, depreciation and amortization
            
Balances at April 1, 2006  —   —   — 
Depletion, depreciation and amortization expense  (34,731,100)  (989,000)  (35,720,100)
Obligations from asset disposal  (993,407)  —   (993,407)
          
             
Balances at December 31, 2006  (35,724,507)  (989,000)  (36,713,507)
          
             
Net cost at December 31, 2006
  408,360,190   4,644,000   413,004,190 
          
             
Cost
            
Balances at December 31, 2006  444,084,697   5,633,000   449,717,697 
Additions  6,561,643   431,994   6,993,637 
Obligations from asset disposal  (32,250)  —   (32,250)
          
             
Balances at December 31, 2007  450,614,090   6,064,994   456,679,084 
          
             
Accumulated depletion, depreciation and amortization
            
Balances at December 31, 2006  (35,724,507)  (989,000)  (36,713,507)
Depletion, depreciation and amortization expense  (37,435,432)  (1,276,733)  (38,712,165)
Obligations from asset disposal  (1,169,232)  —   (1,169,232)
          
             
Balances at December 31, 2007  (74,329,171)  (2,265,733)  (76,594,904)
          
             
Net cost at December 31, 2007
  376,284,919   3,799,261   380,084,180 
          
 FormIn 2007 oil assets depreciated under the units of Common Stock Certificate. (Incorporated by referenceproduction method resulted in depletion, depreciation and amortization expense (obligations from asset disposal) of approximately US$18 million, equivalent to Bs 38,605 million (US$17 million, equivalent to Bs 35,725 million for the exhibits to our Registration Statement Form S-1 (Registration No. 33-26333).)initial nine-month period ended December 31, 2006), and is shown under Cost of goods sold.
 
 4.2In 2007 non-oil assets depreciated under the straight-line method resulted in depreciation expense of approximately US$0.6 million, equivalent to Bs 1,277 million in 2007 (US$0.5 million, equivalent to Bs 989 million for the initial nine-month period ended December 31, 2006), and is shown under General and administrative expenses.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

22

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
6. Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.)Provision for Abandonment Costs
 
 4.3Below is the movement of the provision for abandonment costs at December 31:
         
      Nominal 
(In thousands) US$  bolivars 
         
Balances at April 1, 2006
  —   — 
Additions  5,095   10,954,250 
Utilization and payments  (63)  (135,450)
Financing cost  388   834,700 
       
         
Balances at December 31, 2006
  5,420   11,653,500 
       
         
Additions  —   — 
Utilization and payments  —   — 
Financing cost  544   1,170,031 
       
         
Balance at December 31, 2007
  5,964   12,823,531 
       
 Second AmendedThe Company’s business plan at December 31, 2007 stipulates performing hydrocarbon drilling and Restated Rights Agreement, dated as of April 15, 2005, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 4.3 to our Form 10-Q filed on April 29, 2005, File No. 1-10762.)production activities until 2025; therefore, the provision for abandonment costs was calculated considering disbursements in this connection for existing oil wells during this period
 
 10.1At December 31, 2007, the Company’s dismantling plan includes a total of 166 oil wells to be dismantled during the term of the agreement. During the last quarter of 2006, an oil well located in the Uracoa field was dismantled at a cost of approximately US$63,000, equivalent to Bs 134 million. Furthermore, in 2007 an oil well was added to the dismantling plan.
7. Operating Service Agreement between Benton OilBalances and GasTransactions with Related Company and Lagoven, S.A., which has been subsequently combined into PDVSA Petroleo y Gas, S.A., dated July 31, 1992, (portions have been omitted pursuant to Rule 406 promulgated under the Securities Act of 1933 and filed separately with the Securities and Exchange Commission. (Incorporated by reference to the exhibits to our Registration Statement Form S-1 (Registration No. 33-52436).)
 
 10.3Alexander E. Benton SettlementThe Company belongs to a group of related companies and Release Agreement effective May 11, 2001 (Incorporated by reference to Exhibit 10.27 to our Form 10-Q, filed on August 13, 2001, File No. 1-10762.).conducts transactions and maintains balances for significant amounts with other members of the group, the effects of which are included in the income statement.
 
 10.5Balances with the related company PDVSA Petróleo at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Accounts receivable
                
PDVSA Petróleo, S.A.  444,737   956,184,237   203,717   437,991,291 
             
                 
Accounts payable
                
PDVSA Petróleo, S.A.  84,548   181,778,550   35,369   76,042,939 
             
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

23

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
 2001 Long Term Stock Incentive Plan. (IncorporatedAt December 31, 2007, accounts receivable from PDVSA Petróleo include approximately US$445 million, equivalent to Bs 956,184 million (US$204 million, equivalent to Bs 437,991 million in 2006) in respect of estimated billings for hydrocarbons produced and transferred to PDVSA Petróleo under the hydrocarbon sales agreement. Additionally, accounts payable of approximately US$82 million, equivalent to Bs 174,778 million (US$32 million, equivalent to Bs 69,042 million in 2006) are in respect of reimbursement of the Company’s capital costs and operating expenses, which were initially paid by referenceHVSCA on behalf of the Company and subsequently billed by HVSCA to Exhibit 4.1PDVSA Petróleo, which will, in turn, bill the Company; and approximately US$3 million, equivalent to our S-8 (Registration Statement No. 333-85900).)Bs 7,001 million, is in respect of payments of special advantage royalties to municipalities for the second and third quarters of 2006, paid by PDVSA Petróleo on behalf of the Company.
 
 10.6Addendum No. 2The most significant transaction conducted with PDVSA Petróleo for the year ended December 31, 2007 and for the initial nine-month period ended December 31, 2006 relates to Operating Service Agreement Monagas SUR dated 19th September, 2002. (Incorporated by referencecrude oil and gas sales amounting to Exhibit 10.4 to our Form 10-Q filed on November 8, 2002, File No. 1-10762.)approximately US$241 and US$204 million, respectively.
 
 10.7†Members of the Board of Directors of Petrodelta are appointed and remunerated by the shareholders of the Company. They do not receive any separate remuneration or benefits in their capacity as directors of the Company. Some Senior management positions are seconded with shareholders’ employees but their compensation is reimbursed by the Company. Salaries and wages for seconded senior management were approximately US$340,000 in 2007 and US$174,000 in 2006.
8. Harvest Natural Resources 2004 Long Term Incentive Plan. (Incorporated by reference to Exhibit 4.5 to our Registration Statement on Form S-8 filed on May 25, 2004 (Registration Statement No. 333-115841).)Shareholders’ Equity
 
 10.8†Capital stock
At December 31, 2007, the Company’s nominal capital stock is represented by 100,000 common shares, fully authorized and paid in, with a par value of Bs 10,000 each. The Company’s capital stock is divided into two types of shares: Class “A” and Class “B” shares. Only the Venezuelan government or Venezuelan state-owned companies can own Class “A” shares. In October 2007, when the Company was incorporated, shareholders made the initial capital contribution of approximately Bs 1,000 million (equivalent to US$465,000). Capital stock has been fully subscribed and paid in as follows:
                 
  Type of Number of     Share of
Shareholders shares shares US$ equity
                 
Corporación Venezolana del Petróleo, S.A. (CVP)  A   60,000   279,070   60%
HNR Finance B.V. (HNR Finance)  B   40,000   186,046   40%
                 
       100,000   465,116   100%
                 
 Indemnification Agreement between Harvest Natural Resources, Inc. andIn November 2007, the Directors and Executive Officersshareholders made contributions for future capital increases of approximately US$6.5 million, equivalent to Bs 14,000 million. In 2008 this contribution will be capitalized once the minutes of the Company. (Incorporated by referencerelated shareholders’ meeting have been signed to Exhibit 10.19 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)comply with Article 1, Paragraph 1.4 of the Agreement for Conversion into a Mixed Company.
 
 10.9†Share premium
Share premium is in respect of contributions of fixed assets and inventories made by shareholders in conformity with the Agreement for Conversion into a Mixed Company, whose value exceeds the par value of common shares issued. At December 31, 2007 and 2006, the share premium amounts to approximately US$212 million, equivalent to Bs 456,770 million, included in shareholders’ equity.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

24

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
 FormClass “A” share premiums are in respect of 2004 Long Term Stock Incentive Plan Stock Option Agreement. (Incorporatedfixed assets contributed by referenceCVP. The value of these shares amounts to approximately US$191 million, equivalent to Bs 410,650 million, pursuant to Exhibit 10.20 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)H of the Agreement for Conversion into a Mixed Company.
 
 10.10†FormClass “B” share premiums are in respect of 2004 Long Term Stock Incentive Plan Director Restricted Stock Agreement. (Incorporatedfixed assets and inventories contributed by referenceHNR Finance. The value of these shares amounts to approximately US$21 million, equivalent to Bs 46,117 million, pursuant to Exhibit 10.21 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)G of the Agreement for Conversion into a Mixed Company.
 
 10.11†FormIn conformity with the Company’s bylaws, in case of 2004 Long Term Stock Incentive Plan Employee Restricted Stock Agreement. (Incorporated by referenceCompany liquidation, all assets will be transferred only to Exhibit 10.22 to our Form 10-K filed on February 23, 2005, File No. 1-10762.)

S-31

10.12The Transitory Agreement between Harvest Natural Resources, Inc. and PDVSA Petroleo S.A., dated August 4, 2005. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)Class “A” shareholders.
 
 10.13†At December 31, 2007, the Company set aside a legal reserve of approximately Bs 100,000, equivalent to US$47,000, equivalent to 10% of its capital stock.
9. Employment Agreement dated September 12, 2005Taxes
a) Income tax
The Company’s tax year ends on December 31. However, the period from April 1, 2006 to December 31, 2007 is considered the Company’s first tax year because the Company was incorporated in October 2007, as indicated in Note 1, but had rights and obligations over income, costs and expenses as of April 1, 2006.
Venezuelan Income Tax Law allows tax losses to be carried forward for three years, except those losses arising from the annual inflation adjustment, which may be carried forward for only one year.
Venezuelan Income Tax Law requires taxpayers to make an initial restatement of their nonmonetary assets and liabilities (mainly property, plant and equipment and inventories, as applicable to the Company) at the end of its first tax period. This restatement will give rise to a variation in the net equity amount at that date.
This initial restatement must be registered with the Restated Assets Registry (RAA), in which all taxpayers must be registered. It gives rise to a 3% tax on the increase of the initial inflation adjustment value of depreciable fixed assets. The Company calculated the increase in its depreciable fixed assets for the year ended December 31, 2007, giving rise to an expense of approximately Bs 42 million, equivalent to US$19,000, shown as part of the income tax expense.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

25

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
The estimated tax expense for the year ended December 31, 2007 and for the initial nine-month period ended December 31, 2006 comprises the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Income tax
                
Current  (85,830)  (184,534,203)  (67,188)  (144,453,138)
Restated Assets Registry (RAA)  (19)  (41,512)  —   — 
Deferred  21,348   45,898,863   23,415   50,342,336 
             
                 
   (64,501)  (138,676,852)  (43,773)  (94,110,802)
             
Below are the main differences between Harvest Natural Resources, Inc.income tax computed at the 50% statutory rate and Steven W. Tholen. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)the effective rate for the year ended December 31, 2007:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Book income before tax  155,942   335,273,758   133,704   287,461,744 
             
                 
Income tax calculated at the statutory rate of 50%  77,971   167,636,879   66,852   143,730,872 
                 
Tax effect of reconciling items
                
Deferred income tax  (21,348)  (45,898,863)  (23,415)  (50,342,336)
Restated Assets Registry (RAA)  19   41,512   —   — 
Nondeductible provisions and accruals  7,859   16,897,324   336   722,266 
             
                 
Tax expense for the year at the effective rate  64,501   138,676,852   43,773   94,110,802 
             
                 
Total income tax for the year  64,501   138,676,852   43,773   94,110,802 
             
                 
Effective tax rate (%)  41%  41%  33%  33%
             
b) Deferred income tax
Deferred income tax at December 31 mainly comprises the effect of temporary differences for the following items:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Deferred tax asset
                
Difference in value of inventories  2,303   4,950,862   3,387   7,281,454 
Property, plant and equipment  33,453   71,924,276   13,798   29,665,866 
Accruals and other payables  9,007   19,366,061   6,230   13,395,016 
             
                 
Total deferred tax asset  44,763   96,241,199   23,415   50,342,336 
                 
Short-term portion  (6,025)  (12,954,296)  —   — 
             
                 
Long-term portion  38,738   83,286,903   23,415   50,342,336 
             
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

26

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
c) Special advantage taxes
The Company is subject to special advantage taxes, which are determined based on: a) an additional royalty of 3.33% on the volume of hydrocarbons extracted in the delimited area, distributing 2.22% to municipalities within the delimited area and 1.11% to finance endogenous development projects in these municipalities; and b) an amount equivalent to the difference, if any, between (1) 50% of the value of the hydrocarbons extracted in the delimited area during each calendar year and (2) the sum of payments made by the Company to the Venezuelan government related to activities developed by the former during the calendar year, in respect of royalties applicable to hydrocarbons and investments in endogenous development projects of 1% of pre-tax income. The amount of special advantages determined by subtracting (1) from (2) must be paid every year on April 20, pursuant to Exhibit F of the Agreement for Conversion into a Mixed Company.
During 2007 the Company recorded expenses of approximately US$7.6 million, equivalent to
Bs 16,241 million (US$6.4 million, equivalent to Bs 13,692 million in 2006) in respect of special advantage royalties paid to municipalities, and expenses of approximately US$5.4 million, equivalent to Bs 11,532 million (US$4.5 million, equivalent to Bs 9,764 million in 2006) in respect of special advantage royalties for investments in endogenous and social development projects, shown in the income statement under Special advantage royalties. The Company determined that the sum of taxes, royalties and other contributions is greater than 50% of the value of hydrocarbons extracted in the delimited area.
d) Value added tax (VAT)
This tax is based on a tax credit system; it is payable based on the value added at each stage of production or sales. During the initial nine-month period ended December 31, 2006, the applicable tax rate was 14%. A Partial Reform of the Value Added Tax Law was published in Official Gazette No. 38,632 on February 26, 2007, changing the applicable tax rate from 14% to 11% as from March 1, 2007 and to 9% as from July 1.
The Company is not subject to VAT withholdings because LOH-regulated mixed companies selling natural hydrocarbons to PDVSA, or to any of its subsidiaries, are subject to a zero tax rate under the current VAT Law.
This Law also establishes that mixed companies regulated by the LOH will be treated as ordinary exporting taxpayers for purposes of application of the regime for recovery of tax credits from the sales of natural hydrocarbons in the country to PDVSA or any of its subsidiaries.
At December 31, 2007, the Company has not recognized recoverable value added tax credits in connection with disbursements made by PDVSA Petróleo and CVP on behalf of the Company because it has not received any related billings.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

27

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
e) Occupation Hazard and Injury Prevention and Employment and Workplace Safety and Health Law
The Occupational Hazard and Injury Prevention and Employment and Workplace Safety and Health Law became effective in July 2005. This Law establishes new employer contribution percentages at between 0.75% and 10% of each employee’s salary. This percentage is determined by the type and degree of risk classification for each company. The type and degree of risk will be based on Regulations which classify activities according to the degree of danger to which employees are exposed. However, to date, the respective regulation has not been issued.
f) Law for the Advancement of Science, Technology and Innovation
The Law for the Advancement of Science, Technology and Innovation was enacted in August 2005. This Law establishes that, beginning January 1, 2006, the country’s major corporations will annually earmark 0.5% of gross income generated in Venezuela to support activities which, according to the Law, relate to investments in science, technology and innovation. This Law defines major corporations as those whose annual gross income exceeds 100,000 tax units. In addition, Article No. 35 of the aforementioned Law requires major corporations in the country engaged in activities covered by the Hydrocarbon and Gaseous Hydrocarbon Law to contribute 2% a year of their gross income generated in Venezuela from any of the activities specified in Article No. 42 of this Law. This Law’s Regulations will establish the mechanisms, methods and procedures for mandatory contributions from major corporations, as well as the timeframe and procedures that must be complied with for the purpose of determining which activities will be considered by the Ministry of Science and Technology in connection with these contributions. At December 31, 2007, management of the Company, per the opinion issued by the corporate legal advisor of one of its shareholders, concluded that since in 2006 the Company was not a duly incorporated entity for fiscal purposes, it did not generate any gross income during that period. Based on the aforementioned statement, the management considers that in 2007 the Company does not have a calculation basis for this contribution. Therefore, the Company has not recorded any amount in this connection in its financial statements at that date.
g) Law on Narcotic and Psychotropic Substances (LOCTICSEP)
The Law on Narcotic and Psychotropic Substances was published in Official Gazette No. 38,287 on December 16, 2005. This Law repeals the previous Law of September 30, 1993 and requires all companies, public or private, with 50 or more employees to earmark 1% of their annual net income for social programs for the prevention of illegal drug consumption and traffic, one-half of which will be set aside for child welfare protection programs. However, at the issue date of this report, the collection agency for this contribution has not been created. At December 31, 2007, the Company has set aside a provision of approximately US$2 million to cover liabilities arising from application of this Law.
In addition, Company management is evaluating the effects, if any, of the aforementioned Laws on the financial statements and awaiting issuance of the related Regulations and creation of the collection agency to complete its assessment.
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

28

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
h) Law for the Tax on Financial Transactions
On October 3, 2007, the Venezuelan government enacted by Decree the Tax on Financial Transactions for Incorporated and Unincorporated Entities. This tax is levied upon debits or withdrawals made from current and savings accounts, custody deposits or any other type of demand deposits, liquid asset funds, trust funds and other financial market funds or financial instruments transacted by incorporated and unincorporated entities with Venezuelan banks and other financial institutions. The tax rate was set at 1.5% as from November 1, 2007.
10.Accruals and Other Payables
 
 10.14†Accruals and other payables at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Accruals and other payables
                
Royalties for gas production (Note 12)  13,408   28,826,772   6,176   13,277,512 
Special advantages (Note 9)  10,666   22,932,136   6,368   13,692,001 
Social development  9,905   21,296,585   4,542   9,764,246 
LOCTICSEP (Note 9)  1,832   3,938,867   672   1,444,531 
Accrued expenses  14,095   30,303,219   2,581   5,552,056 
             
                 
Total accruals and other payables  49,906   107,297,579   20,339   43,730,346 
             
 Employment Agreement dated September 12, 2005 between Harvest Natural Resources, Inc.Certain capital costs and Kerry R. Brittain. (Incorporatedoperating expenses in the transition period paid by referencethe related company HVSCA on behalf of the Company have been accrued since they have not been billed by PDVSA Petróleo to Exhibit 10.3the Company. Management expects to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)receive billings during the first semester of 2008.
 
 10.15†Bellow are the movements of provisions at December 31, 2007:
                 
  Balance at      Balance at    
  December 31,      December 31,  Current 
(Thousands of U.S. dollars) 2006  Increase  2007  portion 
 
Accruals and other payables
                
Royalties for gas production  6,176   7,232   13,408   13,408 
Special advantages  6,368   4,298   10,666   10,666 
Social development  4,542   5,363   9,905   9,905 
LOCTICSEP (Note 9)  672   1,160   1,832   1,832 
Accrued expenses  2,581   11,514   14,095   14,095 
             
                 
Total accruals and other payables  20,339   29,567   49,906   49,906 
             
                 
Accruals and other payables
                
Royalties for gas production  13,277,512   15,549,260   28,826,772   28,826,772 
Special advantages  13,692,001   9,240,135   22,932,136   22,932,136 
Social development  9,764,246   11,532,339   21,296,585   21,296,585 
LOCTICSEP (Note 9)  1,444,531   2,494,336   3,938,867   3,938,867 
Accrued expenses  5,552,056   24,751,163   30,303,219   30,303,219 
             
                 
Total accruals and other payables  43,730,346   63,567,233   107,297,579   107,297,579 
             
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

29

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
11. Employment Agreement dated September 12, 2005 between Harvest Natural Resources, Inc. and Karl L. Nesselrode. (Incorporated by reference to Exhibit 10.4 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)Income from Sales
 
 10.16†Income from sales of hydrocarbons for the period ended at December 31 comprises the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Crude oil sales  314,928   677,094,363   265,625   571,094,303 
Natural gas sales  20,789   44,695,778   17,796   38,260,488 
             
                 
Total income from sales  335,717   721,790,141   283,421   609,354,791 
             
 Employment Agreement dated September 15, 2005 between Harvest Natural Resources, Inc.During 2007 and James A. Edmiston. (Incorporated by reference2006, crude oil production totaled 5,373,623 barrels (Bbls) and 5,210,759 barrels (Bbls), respectively (unaudited production data). During 2007 the Company sold 70% of its crude oil production to Exhibit 10.5PDVSA Petróleo for approximately US$220 million, equivalent to our Form 10-Q filedBs 473,497 million (US$186 million, equivalent to Bs 399,731 million for the initial nine-month period ended December 31, 2006) and the remaining 30% amounting to approximately US$95 million, equivalent to
Bs 203,597 million (US$80 million, equivalent to Bs 171,364 million for the initial nine-month period ended December 31, 2006) was delivered to MENPET as payment in kind for royalties on October 27, 2005, File No. 1-10762.)hydrocarbon production.
 
 10.17†During 2007 and 2006, gas production totaled 17,338,070 thousand cubic feet (Mcf) and 14,804,976 Mcf, respectively (unaudited production data). During 2007 the Company sold 13,456,164 Mcf of gas to PDVSA Petróleo for approximately US$21 million, equivalent to Bs 44,696 million (11,518,748 Mcf for approximately US$18 million, equivalent to Bs 38,260 million in 2006). The difference between gas produced and gas sold relates to the portion used by the Company to generate energy and compress gas in the fields. At December 31, 2007, the Company has not received the forms for settlement of royalties from MENPET in respect of gas produced in 2007 and 2006.
12. Employment Agreement dated September 26, 2005 between Harvest Natural Resources, Inc. and Byron A. Dunn. (Incorporated by reference to Exhibit 10.6 to our Form 10-Q filed on October 27, 2005, File No. 1-10762.)Production Royalties
 
 10.18†Royalties on production of hydrocarbons for the period ended at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Crude oil production  94,696   203,597,195   79,704   171,363,500 
Gas production  7,233   15,549,261   6,176   13,277,512 
             
                 
Total production royalties  101,929   219,146,456   85,880   184,641,012 
             
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

30

Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
 Stock Option Agreement dated September 15, 2005, between Harvest Natural Resources, Inc.The Company is required to pay a 30% royalty in kind for crude oil produced and James A. Edmiston. (Incorporatedtransferred to PDVSA Petróleo. Gas production is taxed with a 30% royalty calculated based on gas volumes produced in any field multiplied by reference to Exhibit 10.24 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)the market value of natural gas less a 10% discount. Crude oil and gas are taxed by MENPET.
 
 10.19†In 2007 royalty expenses for crude oil and gas produced amount to approximately US$102 million, equivalent to Bs 219,146 million (US$86 million, equivalent to Bs 186,641 million for the initial nine-month period ended December 31, 2006).
13. Stock Option Agreement dated September 15, 2005, between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.25 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)Production Costs
 
 10.20†Production costs for the period ended at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Maintenance and repair expenses  10,666   22,933,762   13,558   29,150,054 
Electric energy  6,315   13,577,250   5,252   11,291,800 
Materials and consumables used  6,212   13,355,585   3,531   7,591,650 
Other   559   1,202,281    388   834,595 
             
                 
Total production costs  23,752   51,068,878   22,729   48,868,099 
             
14. Stock Option Agreement dated September 26, 2005, between Harvest Natural Resources, Inc.General and Byron A. Dunn. (Incorporated by reference to Exhibit 10.26 to our Form 10-K filed on February 27, 2006, File No. 1-10762.)Administrative Expenses
 
 10.21†General and administrative expenses for the period ended at December 31 comprise the following:
                 
  2007  2006 
      Nominal      Nominal 
(In thousands) US$  bolivars  US$  bolivars 
                 
Costs of personnel assigned  10,453   22,473,950   6,534   14,048,100 
Insurance  2,646   5,688,900   1,878   4,037,700 
Service and professional fees  2,236   4,807,400   318   683,700 
LOCTICSEP (Note 9)  1,160   2,494,336   672   1,444,531 
Depreciation (office furniture and equipment, and vehicles)  594   1,276,733   460   989,000 
Other  6,131   13,181,648   3,720   8,000,151 
             
                 
Total general and administrative expenses  23,220   49,922,967   13,582   29,203,182 
             
15. Employment Agreement dated February 10, 2006 between Harvest Natural Resources, Inc. and Kurt A. Nelson. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on April 20, 2006, File No. 1-10762.)
10.22Memorandum of Understanding dated March 31, 2006, between Corporación Venezolana del Petroleo, S.A., PDVSA Petroleo, S.A. and Harvest Vinccler, C.A. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on April 20, 2006, File No. 1-10762.)
10.23Harvest Natural Resources 2006 Long Term Incentive Plan. (Incorporated by reference to Exhibit 4.5 to our Registration Statement on Form S-8 filed on June 1, 2006 [Registration Statement No. 333-134630].)
10.24Form of 2006 Long Term Incentive Plan Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
10.25Form of 2006 Long Term Incentive Plan Director Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.3 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)Subsequent Events
a) Monetary reconversion
In March 2007, the Venezuelan government established that, as from January 1, 2008, the unit of the Venezuelan monetary system (Venezuelan bolivar) was redenominated at a conversion rate of one thousand current bolivars to one new bolivar (“bolívar fuerte”). Therefore, any amount expressed in local currency before January 1, 2008 will be converted to the new unit (“bolívar fuerte”) on that date
This is a free translation into English of a report issued in the Spanish language and is provided solely for the convenience of the English
speaking readers. This report should be read in conjunction with, and construed in accordance with, Venezuelan law and professional
International auditing standards and International financial reporting standards.

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10.26Form of 2006 Long Term Incentive Plan Employee Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.4 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
10.27Stock Unit Award Agreement dated September 15, 2005 between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.5 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
10.28Stock Unit Award Agreement dated March 2, 2006 between Harvest Natural Resources, Inc. and James A. Edmiston. (Incorporated by reference to Exhibit 10.6 to our Form 10-Q filed on August 9, 2006, File No. 1-10762.)
10.29Note Payable agreement dated September 28, 2006 between Harvest Vinccler, C.A. and Banco Mercantil, C.A. Banco Universal related to a principal amount of 105 billion Bolivars with interest at 10.02 percent, for financing of the SENIAT assessments. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q filed on October 26, 2006, File No. 1-10762.)
10.30Note Payable agreement dated October 3, 2006 between Harvest Vinccler, C.A. and Banco Mercantil, C.A. Banco Universal related to a principal amount of 20 billion Bolivars with interest at 10.02 percent, for financing of the SENIAT assessments. (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on October 26, 2006, File No. 1-10762.)
10.31Amendment to Original Memorandum of Understanding dated August 16, 2006, between Corporación Venezolana del Petroleo, S.A. and Harvest Vinccler, C.A. (Incorporated by reference to Appendix C to our Definitive Proxy filed on November 6, 2006, File No. 1-10762.)
10.32Note Payable agreement dated November 20, 2006 between Harvest Vinccler, C.A. and Banesco Banco Universal C.A. related to a principal amount of 120 billion Bolivars with interest at 10.0 percent, for refinancing of the SENIAT assessments and operating requirements.
10.33Form of 2006 Long Term Incentive Plan Stock Option Agreement – Five Year Vesting, Seven Year Term.
21.1List of subsidiaries.
23.1Consent of PricewaterhouseCoopers LLP – Houston
23.2Consent of Ryder Scott Company, LP
31.1Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by James A. Edmiston, President and Chief Executive Officer.
31.2Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.
32.1Certification accompanying Annual Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by James A. Edmiston, President and Chief Executive Officer.
32.2Certification accompanying Annual Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.
Petrodelta, S.A.
Notes to the financial statements
December 31, 2007 and 2006
 
†Identifies management contracts or compensating plans or arrangements required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
by dividing it by one thousand and rounding it to the nearest cent. In addition, by January 1, 2008, companies in general, both public and private, shall have adapted their information systems to accommodate the new monetary unit. Rounding effects resulting from this process should be recorded in the results for the period in which the conversion is performed. Costs incurred from adaptation of systems and processes to comply with this regulation have been recorded in the results for 2007 under General and administrative expenses.
b) Currency Exchange Offenses Law
On December 28, 2007, the Venezuelan government published a Reform of the Currency Exchange Offenses Law, effective as of January 27, 2008. This reform, among other things, establishes that companies or individuals that offer, announce or divulge foreign currency exchange rates other than the official exchange rates through written, audiovisual, radio, or any other media will be fined with 1,000 tax units for the first offense and 2,000 tax units for every repeat offense.

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