HARVEST NATURAL RESOURCES, INC.

FORM 10-K

TABLE OF CONTENTS

Explanatory Note



PART I

Cautionary Notice Regarding Forward-Looking Statements

Harvest Natural Resources, Inc. (“Harvest”Harvest,” the “Company,” “we,” “us,” or “our”) cautions that any forward-looking statements, as that term is filingdefined in Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) contained in this Amendment No. 2report 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,” “forecast,” “expect,” “believes,” “goals,” “projects,” “plans,” “expects,” “anticipates,” “estimates,” “should,” “could,” “assume” and similar expressions are intended to identify forward-looking statements. In accordance with the provisions of the Securities Act and the Exchange Act, we caution you that important factors could cause actual results to differ materially from those in any forward-looking statements. These factors include, among other factors, the possibility that the closing conditions to the proposed sale of our Gabon interests may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval; delay in closing the proposed sale of our Gabon interests or the possibility of non-consummation of the proposed sale of our Gabon interests or the proposed dissolution and liquidation; the occurrence of any event that could give rise to termination of the Gabon sale and purchase agreement; risks related to the disruption of the proposed sale of our Gabon interests or the proposed dissolution and liquidation of Harvest and its Annual Reportoperations and management; the effect of announcement of the proposed sale of our Gabon interests or the proposed dissolution and liquidation on Form 10-K/A (this “Amendment”Harvest’s ability to retain and hire key personnel and maintain relationships with its suppliers and other third parties; difficult global economic and commodity and capital markets conditions; changes in the legal and regulatory environment; our concentration of operations in Gabon; political and economic risks associated with international operations; anticipated future development costs for undeveloped reserves; drilling risks; risk that actual results may vary considerably from reserve estimates; the dependence on the abilities and continued participation of our key employees; risks normally incident to the exploration, operation and development of oil and natural gas properties; permitting and drilling of oil and natural gas wells; availability of materials and supplies necessary to projects and operations; prices for oil and natural gas and related financial derivatives; changes in interest rates; availability and cost of drilling rigs and seismic crews; political stability; civil unrest; acts of terrorism; risks associated with third-party claims and litigation and the difficulty of controlling related outcomes or assessing ultimate liabilities; currency and exchange risks; currency controls; changes in existing or potential tariffs, duties or quotas; changes in taxes; changes in governmental policy; lack of liquidity; availability of sufficient financing; changes in weather conditions; our ability to continue as a going concern; and other risks, including those discussed in our public filings.

Item 1.    Business

Executive Summary

Harvest Natural Resources, Inc. is a petroleum exploration and production company incorporated under Delaware law in 1988.  Our historical focus has been on acquiring exploration, development and producing properties in geological basins with proven active hydrocarbon systems.  Our technical, business development and operating personnel have identified low entry cost exploration opportunities in areas with large hydrocarbon resource potential.  We hold exploration acreage offshore of Gabon and operate from our Houston, Texas headquarters. 

We owned and had developed significant interests in Venezuela until October 2016, when we sold these interests.  For more information about the sale of our Venezuela interests, see Sale of Venezuela Interests, below.  On February 23, 2017, our stockholders approved a proposal to sell our Gabon interests under a Sale and Purchase Agreement with BW Energy Gabon Pte. Ltd.  For more information about the proposed sale of our Gabon interests, see Proposed Sale of Gabon Interests, below.  Also on February 23, 2017, our stockholders approved the complete dissolution and liquidation of Harvest Natural Resources, Inc.  For more information about the proposed dissolution and liquidation, see Proposed Dissolution and Liquidation, below.

As of December 31, 2016, we had total assets of $107.1 million, cash of $63.4 million and no debt. For the year ended December 31, 2016, we had no revenues from continuing operations and net cash used in operating activities from continuing operations of $11.9 million. As of December 31, 2015, we had total assets of $47.8 million,  cash of $2.5 million and debt of $0.2 million, which has been recorded as liabilities associated with discontinued operations.  For the year ended December 31, 2015, we had no revenues from continuing operations and net cash used in operating activities from continuing operations of $19.4 million.    See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Discontinued Operations for more information.    

Proposed Dissolution and Liquidation

Following the successful sale of our Venezuelan interests in October 2016 and in light of the proposed sale of our Gabon interests, our board of directors (the “Board”) solelyconsidered dissolution and liquidation as a possible alternative.  On January 12, 2017, the Board unanimously determined that the dissolution and liquidation of Harvest was advisable, authorized the dissolution and liquidation and recommended that the proposed complete dissolution be submitted to a vote of Harvest’s stockholders.  Our Board

also adopted a plan of complete dissolution, liquidation, winding up and distribution (the “Plan of Dissolution”) on this date.  Harvest’s stockholders approved the proposed dissolution and liquidation at the special meeting on February 23, 2017.

Under the dissolution, liquidation and winding up process, which remains subject to the control of the Board and Company management, the proceeds from the Gabon transaction would be combined with other Harvest assets to be distributed to Harvest's stockholders, subject to the payment of certain costs and expenses.  The Company currently expects to commence dissolution proceedings as soon as practicable after the closing of the sale of its Gabon interests. 

For more information about the proposed dissolution and liquidation, see Item 1A. Risk Factors – Risk Factors Related to Our Proposed Dissolution and Part IV – Item 15 – Exhibits and Financial Statements Schedules, Note 18 – Plan of Dissolution.

Proposed Sale of Gabon Interests

On December 21, 2016, the Company and its wholly owned subsidiary, HNR Energia BV (“HNR Energia”), entered into a Sale and Purchase Agreement (the “Sale and Purchase Agreement”) with BW Energy Gabon Pte. Ltd, a private Singapore company (“BW Energy”), to sell all of Harvest's oil and gas interests in Gabon.  Harvest’s stockholders approved the proposed sale at a special meeting on February 23, 2017.  The sale remains subject to additional conditions before it can close.

Under the terms of the Sale and Purchase Agreement, BW Energy will acquire HNR Energia's 100 percent interest in Harvest Dussafu B.V. (“Harvest Dussafu”), which owns a 66.667 percent interest in the Dussafu production sharing contract covering a 210,000 acre area located in offshore Gabon.  BW Energy will pay HNR Energia $32.0 million in cash for the purposeinterest, subject to certain adjustments.  BW Offshore Singapore Pte. Ltd, an affiliate of adding as an exhibitBW Energy and BW Offshore Limited, a global provider of floating production services to the audited financial statementsoil and gas industry, has guaranteed the obligations of its 40 percent owned foreign equity affiliate, Petrodelta, S.A.BW Energy under the Sale and Purchase Agreement.  At the closing of the transaction, $2.5 million of the $32.0 million purchase price will be deposited in escrow, to be held for up to six months to satisfy any post-closing claims that were not availableBW Energy may have for inclusion with Harvest’s original Annual Reportany breaches of warranties made by Harvest and HNR Energia under the Sale and Purchase Agreement.

Based on Form 10-Kthe terms of the Sale and Purchase Agreement, it is the opinion of the Company that no impairment is needed for the Dussafu project for the year ended December 31, 2014,2016.  During the year ended December 31, 2016, the Company conducted an inventory analysis and based on the condition of the equipment, we lowered the value of inventory by $1.5 million.

For more information about the proposed sale of our Gabon interests, see Item 1A. Risk Factors – Risk Factors Related to the Proposed Sale of Our Gabon Interests and Part IV – Item 15 – Exhibits and Financial Statements Schedules, Note 8 – Gabon.

Reverse Stock Split

After the market closed on November 3, 2016, the Company completed a one-for-four reverse split of its issued and outstanding common stock.  In connection with the reverse stock split, the Company amended its amended and restated certificate of incorporation to reduce the authorized number of shares of common stock from 150,000,000 to 37,500,000.  The Company’s common stock began trading on a split-adjusted basis at market open on November 4, 2016.  All share, warrants, options, restricted stock, stock appreciation rights, restricted stock units and per share amounts in this report been reported on a post-split basis.

Sale of Venezuela Interests

On October 7, 2016, Harvest completed the sale of all of its interests in Venezuela.  The sale occurred pursuant to a June 29, 2016 share purchase agreement (the “Share Purchase Agreement”), under which HNR Energia sold its 51 percent interest in Harvest-Vinccler Dutch Holding B.V., a Netherlands company (“Harvest Holding”), to Delta Petroleum N.V., a limited liability company organized under the laws of Curacao (“Delta Petroleum”).  Harvest Holding indirectly owned a 40% interest in Petrodelta S.A. (“Petrodelta”), through which all of the Company’s interests in Venezuela were owned.  As a result of the sale, Harvest Holding’s effect on results of operations and other items directly related to the sale have been reported as discontinued operations.  See Part IV – Item 15 – Exhibits and Financial Statements Schedules, Note 5 – Dispositions and Discontinued Operations for further information. 

CT Energy Holding SRL, a private investment firm organized as a Barbados Society with Restricted Liability (“CT Energy”),  assigned all of its rights and obligations under the Share Purchase Agreement to its affiliate, Delta Petroleum, on September 26, 2016.  We have no control or ownership interest in Delta Petroleum.  For more information about CT Energy, see Sale of Securities to CT Energy, below.

At the closing, the Company received consideration consisting of:

To fund Harvest’s transaction expenses and operations until the closing under the Share Purchase Agreement, CT Energy loaned Harvest $2.0 million on each of June 21, 2016, July 20, 2016, August 24, 2016 and September 21, 2016 under the Additional Draw Note.  At the closing, the outstanding principal and accrued interest totaling $38.9 million and $1.4 million, respectively, under both the 15% Note and the Additional Draw Note (as defined below under Sale of Securities to CT Energy), were repaid, net of withholding tax and the 15% Note and Additional Draw Note were terminated.  The $69.4 million in cash referenced above is after the $10.6 million of adjustments.

The relationship between the Company and CT Energy effectively terminated upon the completion of the sale under the Share Purchase Agreement.  All Company securities held by CT Energy were terminated or relinquished, and Oswaldo Cisneros and Alberto Sosa resigned as CT Energy’s non-independent designees to the Company’s board of directors.  Additionally, all liens securing Company debt formerly owed to CT Energy were released at the closing.  Upon the closing, the Company’s primary assets were cash from the proceeds of the transaction and the Company’s oil and gas interests in Gabon.  For more information regarding our prior relationship with CT Energy, see Sale of Securities to CT Energy, below.

Sale of Securities to CT Energy

On June 19, 2015, the Company and certain of its domestic subsidiaries entered into a securities purchase agreement (the “Securities Purchase Agreement”) with CT Energy Holding SRL, a private investment firm organized as a Barbados Society with Restricted Liability, under which CT Energy purchased certain securities of the Company and acquired certain governance rights.  Harvest immediately received gross proceeds of $32.2 million from the sale of the securities.  

Key terms of the transaction included:

Upon the October 7, 2016 closing of the sale of all of the Company’s Venezuelan interests to an affiliate of CT Energy, the securities sold to CT Energy under the Securities Purchase Agreement, as well as CT Energy’s governance rights, the Securities Purchase Agreement, the Management Agreement and the Company’s relationship with CT Energy, generally, were terminated.  See Sale of Venezuela Interests, above, for more information.

Other Recent Events

Special Meeting of Stockholders

At our special meeting of stockholders on February 23, 2017, our stockholders voted to (1) authorize the sale by us, indirectly through a subsidiary, of all of our interests in Gabon upon the terms and conditions set forth in the Sale and Purchase Agreement; (2) approve, on an advisory basis, compensation that will or may become payable by us to our named executive officers in connection with the sale of our Gabon interests; and (3) authorize the complete liquidation and dissolution of Harvest.

Rights Agreement to Protect Net Operating Losses

On February 16, 2017, the Board adopted a Rights Agreement (the "Rights Plan") designed to preserve the Company’s tax assets.  As of December 31, 2016, the Company had cumulative net operating loss carryforwards ("NOLs") of approximately $56.0 million, which can be utilized in certain circumstances to offset possible future U.S. taxable income. 

Harvest's ability to use these tax benefits would be limited if it were to experience an "ownership change" as defined under Section 382 of the Internal Revenue Code. An ownership change would occur if stockholders that own (or are deemed to own) at least

five percent or more of Harvest's outstanding common stock increased their cumulative ownership in the Company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Rights Plan reduces the likelihood that changes in Harvest's investor base would limit Harvest's future use of its tax benefits.

In connection with the adoption of the Rights Plan, the Board declared a non-taxable dividend of one preferred share purchase right for each share of the Company's common stock outstanding as of February 17, 2017. Effective as of the close of business on February 17, 2017, if any person or group acquires five percent or more of the outstanding shares of the Company's common stock, or if a person or group that already owns five percent or more of the Company's common stock acquires additional shares ("acquiring person or group"), then, subject to certain exceptions, there would be a triggering event under the Rights Plan. The rights would then separate from the Company's common stock and entitle the registered holder to purchase from the Company one one-hundredth of a share of the Series D Preferred Stock of the Company at a price of $26, subject to adjustment. Rights held by the acquiring person or group will become void and will not be exercisable.

The Board has the discretion to exempt certain transactions, persons or entities from the operation of the Rights Plan if it determines that doing so would not jeopardize or endanger the Company's use of its tax assets or is otherwise in the best interests of the Company. The Board also has the ability to amend or terminate the Rights Plan prior to a triggering event. The rights issued under the Rights Plan will expire on February 17, 2020, or on an earlier date if certain events occur, as described more fully in the Rights Plan that the Company filed with the SEC on February 21, 2017.

Amendments to 15% Note

As discussed above under Sale of Securities to CT Energy, Harvest issued the 15% Note to CT Energy on June 19, 2015. 

Effective as of December 31, 2015, Harvest and CT Energy executed a first amendment to the 15% Note that increased the principal amount of the 15% Note to $26.1 million to reflect a loan back to Harvest equal to the amount of interest that otherwise would have been due to CT Energy on January 1, 2016, less applicable withholding tax.

Effective as of April 1, 2016, the Company and CT Energy executed a second amendment to the 15% Note. The second amendment converted the $1.0 million interest payment that was due and payable on April 1, 2016 and converted such amount, less applicable withholding tax, into additional principal, such that the current principal amount of the 15% Note as of April 1, 2016, was $27.0 million.

Effective as of May 3, 2016, the Company and CT Energy executed a third amendment to the 15% Note. The third amendment increased the principal amount of the 15% Note to $30.0 million to reflect an additional loan of $3.0 million by CT Energy to Harvest and converted the $1.1 million interest payment that was due and payable on July 1, 2016, less applicable withholding tax, into additional principal, such that the principal amount of the 15% Note immediately prior to October 7, 2016 was $30.9 million.

The 15% Note was terminated on October 7, 2016 upon the closing of the sale of all of the Company’s Venezuelan interests to an affiliate of CT Energy.  See Sale of Venezuela Interests, above, for more information.

CT Energia Note

On January 4, 2016, HNR Finance provided a loan to CT Energia of $5.2 million under an 11.0% promissory note due 2019 (the “CT Energia Note”).  The purpose of the loan was to provide CT Energia with collateral to obtain funds for one or more loans to Petrodelta. The loans to Petrodelta were to assist Petrodelta in satisfying its working capital needs and discharging its obligations. Interest on the CT Energia Note was due and payable on the first of each January and July, commencing July 1, 2016. The full amount outstanding, including any unpaid accrued interest, was due on January 4, 2019; however, HNR Finance’s sole recourse for payment of the principal amount of the loan was the payments of principal and interest from loans that CT Energia had made to Petrodelta. The source of funds for HNR Finance’s $5.2 million loan to CT Energia was a capital contribution from Harvest Holding, which, in return, received the same aggregate amount of capital contributions from its shareholders, pro rata according to their equity interests in Harvest Holding. Of that aggregate amount of capital contributions, HNR Energia contributed $2.6 million, which was a capital contribution from Harvest.

During the three months ended March 31, 2016, we recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the continued deteriorating economic conditions in Venezuela and our assessment relating to the probability that the CT Energia Note will not be collected.  As discussed above under “Sale of Venezuela Interests,” the Company sold its interest in the CT Energia Note upon the October 7, 2016 sale of its 51 percent interest in Harvest Holding, the parent company of HNR Finance, which held the CT Energia Note.

Elimination of Series C Preferred Stock

On February 19, 2016, the Company filed a Certificate of Elimination with the Delaware Secretary of State, which eliminated all matters set forth in the Certificate of Designations of Preferred Stock, Series C of Harvest Natural Resources, Inc. from the

Company’s Amended and Restated Certificate of Incorporation and returned all shares of the Series C Preferred Stock, to the status of authorized but unissued shares of preferred stock of the Company.  The Company had issued 69.75 shares of Series C Preferred Stock to CT Energy on June 19, 2015 together with the 9% Note.  All outstanding shares of Series C Preferred Stock were redeemed in connection with the September 15, 2015 conversion of the 9% Note.  See Sale of Securities to CT Energy, above, for more information.

Compliance Under NYSE Listing Standards

After the market closed on November 3, 2016, the Company completed a one-for-four reverse split of its issued and outstanding common stock.  The reverse stock split was conducted to correct a stock price deficiency under the listing standards of the New York Stock Exchange Commission(the “NYSE”), which provide, generally, that a listed company’s stock must exceed $1.00.  The Company’s common stock price increased significantly following the reverse stock split ($6.18 per share as of December 31, 2016), and the Company has now regained compliance with the NYSE’s minimum price listing standard.  See Reverse Stock Split, above, for more information.

On April 25, 2016, the Company received a notice from the NYSE stating that the Company was not in compliance with a second NYSE continued listing requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders’ equity is less than $50 million.   The Company believes that the sale of its Venezuelan interests on October 7, 2016 ultimately will allow it to regain compliance with this listing standard by increasing its stockholders’ equity.  However, the Company must demonstrate compliance for two consecutive financial quarters before the deficiency can be cured.

For more information regarding the Company’s NYSE listing, seeItem 1A. Risk Factors – Risks Related to the Proposed Sale of Our Gabon Interests – We expect to delist our common stock on the New York Stock Exchange after the consummation of the proposed sale of our Gabon interests.

Business Strategy

Following the October 7, 2016 sale of its Venezuelan interests, Harvest’s primary tangible, non-cash asset consists of its interests in Gabon.  These interests are owned through the Company’s wholly owned subsidiary, Harvest Dussafu, which owns a 66.667 percent interest in the Dussafu production sharing contract covering a 210,000 acre area located in offshore Gabon.  On February 23, 2017, the Company’s stockholders approved the sale of the Company’s interests in Gabon pursuant to a Sale and Purchase Agreement with BW Energy and HNR Energia.  See Proposed Sale of Gabon Interests, above, for more information.

In light of the successful sale of our Venezuelan interests in October 2016 and the proposed sale of our Gabon interests, our Board had considered dissolution and liquidation as a possible alternative.  After further consideration, on January 12, 2017, our Board unanimously determined that a proposed dissolution is advisable and in the best interests of us and our stockholders, adopted an initial plan of dissolution and liquidation, authorized the proposed dissolution, recommended that our stockholders authorize the proposed dissolution in accordance with the Plan of Dissolution and Liquidation, and generally authorized our officers to take all necessary actions to affect our dissolution.  Harvest’s stockholders approved the proposed dissolution and liquidation at the special meeting on February 23, 2017.    

If the proposed sale of our Gabon interests is completed, almost all of our assets will consist of cash.  We will use the proceeds from the sale of our Gabon interests to pay expenses and taxes, if any, associated with the sale and for other operating expenses. Subject to determinations to be made by our Board, the remaining proceeds will be used to provide reserves of funds for future or contingent liabilities as may be determined necessary by our Board pursuant to Delaware law, to pay or settle existing obligations, to pay costs (including taxes) associated with the liquidation and winding up of our business, and to distribute remaining assets to our stockholders. If we do not dissolve Harvest (because our directors decide to abandon the dissolution), then the proceeds may be used for the continued operation of our business, including the possible acquisitions of assets.

For more information about our business strategy, see Item 1A. Risk Factors – Risks Related to Our Proposed Dissolution and Liquidation and the Proposed Sale of Our Gabon Interests and Part IV – Item 15 – Exhibits and Financial Statements Schedules, Note 18 – Plan of Dissolution.

Available Information

We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). 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 20549-0213. 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.gov.

We also make available, free of charge 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 Exchange Act are also available on our 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 and principal financial and accounting officer. The text of the Code of Business Conduct and Ethics has been posted on the Corporate Governance section of our website. We 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., 1177 Enclave Parkway, Suite 300, Houston, Texas 77077, Attention: Investor Relations.

Operations

As of December 31, 2016, our only operations are conducted offshore of Gabon through the Dussafu Production Sharing Contract (“Dussafu PSC”). We have a 66.667 percent interest in the Dussafu PSC and we are the operator.

Dussafu Marin, Offshore Gabon

General

Our Gabon interests consist of our 66.667 percent ownership interest in the Dussafu PSC. We acquired this ownership interest in 2008 through two separate acquisitions. We are the operator of the Dussafu PSC. The other 33.333 percent ownership interest in the Dussafu PSC is currently held by Pan-Petroleum Gabon B.V. (“Pan-Petroleum”). In addition to the Sale and Purchase Agreement to acquire our interests in Gabon, BW Energy also has entered into a memorandum of understanding with Pan-Petroleum relating to the proposed acquisition of a further 25 percent interest in the Dussafu PSC. If both of these transactions close, BW Energy would own a 91.667 percent interest in the Dussafu PSC, Pan-Petroleum would own an 8.333 percent interest in the Dussafu PSC, and we would cease to have any interest in the Dussafu PSC.

Operations under the Dussafu PSC are located offshore Gabon, adjacent to the border with the Republic of Congo, and currently cover an area of 850.5 square kilometers, or approximately 210,163 acres, which is the area included in an exclusive exploitation authorization awarded by the government in July 2014 (“EEA”). All areas outside of the EEA were relinquished in 2016. Water depths in the EEA range from approximately 250 feet to 1,650 feet. Production and infrastructure exist in the blocks contiguous to the Dussafu PSC.

Pan-Petroleum, Harvest and Gabon, represented by the Ministry of Mines, Energy, Petroleum and Hydraulic Resources (the “Ministry”), entered into a third exploration phase of the Dussafu PSC with an effective date of May 28, 2012. On March 26, 2014, we approved a resolution that the discovered fields are commercial to exploit. On June 4, 2014, a declaration of commerciality was signed with Gabon pertaining to four discoveries on the Dussafu project. On July 17, 2014, the Direction Generale Des Hydrocarbures awarded the EEA for the development and exploitation of certain oil discoveries on the Dussafu project. On October 10, 2014, the field development plan (“FDP”) was approved. The third exploration phase expired on May 27, 2016. This expiration will have no effect on the previously discovered fields under the EEA, however, because we have four years from the date of the EEA (that is, until July 16, 2018) to begin production. We have met all funding commitments for the third exploration phase of the Dussafu PSC.  See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation, Contractual Obligations.

In December 2014, we recorded a $50.3 million impairment related to the unproved costs of the Dussafu PSC based on a qualitative analysis that considered our current liquidity needs, our inability to attract additional capital and the decrease in oil and natural gas prices. In December 2015, we reassessed the carrying value of the unproved costs related to the Dussafu PSC and recorded an additional impairment of $23.2 million based on an analysis of the value of the unproved costs that considered the value of the contingent and exploration resources and our ability to develop the project given its current liquidity situation and the depressed price of crude oil. We also impaired the oilfield inventory related to our Gabon interests by $1.0 million as of December 31, 2015. We recorded the oilfield inventory impairment based on the decrease in prices and demand for inventory due. During the year ended December 31, 2016, we also recorded an additional $1.5 million impairment related to the inventory, leaving $1.6 million related to this inventory.  We recorded the oilfield inventory impairment based on the condition of the inventory.

Activity

During 2011, we drilled our first exploratory well, Dussafu Ruche Marin-1 (“DRM-1”), and two appraisal sidetracks. We discovered oil of approximately 149 feet of pay within the Gamba and Middle Dentale Formations. DRM-1 and the sidetracks are currently suspended pending further exploration and development activities.

During the fourth quarter of 2012, our second exploration well commenced which was the Tortue prospect drilled to target stacked pre-salt Gamba and Dentale reservoirs. Dussafu Tortue Marin-1 (“DTM-1”) was spud on November 19, 2012 in a water depth of 380 feet. On January 4, 2013, we announced that DTM-1 had reached a vertical depth of 11,260 feet within the Dentale Formation.

Log evaluation and pressure data indicate that we have an oil discovery of approximately 42 feet of pay in a 72-foot column within the Gamba Formation and 123 feet of pay in stacked reservoirs within the Dentale Formation.

The first appraisal sidetrack of DTM-1 (“DTM-1ST1”) was spud on January 12, 2013. DTM-1ST1 was drilled to a total depth of 11,385 feet in the Dentale Formation, approximately 1,800 feet from DTM-1 wellbore, and found 65 feet of pay in the primary Dentale reservoir. Several other stacked sands with oil shows were encountered; however, due to a stuck downhole tool, logging operations were terminated before pressure data could be collected to confirm connectivity. The downhole tool was retrieved and the DTM-1 and DTM-1ST1 were suspended for future re-entry.

Operational activities during the year ended December 31, 2016 and 2015 included continued evaluation of development plans based on the 3D seismic data acquired in late 2013 and processed during 2014.

Central/inboard 3D seismic data acquired in 2011 has been processed and interpreted to evaluate prospectivity. We have also completed processing data from the 1,260 square kilometer 3D seismic survey acquired during the fourth quarter of 2013. This survey provides 3D coverage over the outboard portion of the block and has confirmed significant pre-salt prospectivity that had been inferred from 2D seismic data. The new 3D seismic data also covers the Ruche, Tortue and Moubenga discoveries and we expect will facilitate the effective placement of future development wells in the Ruche and Tortue development program, as well as allowing improved assessment of the numerous undrilled structures already identified on older 3D seismic surveys.

Since approval of the Field Development Plan (“FDP”) in October 2014, Harvest has continued the development of the Ruche Exclusive Exploitation Area. A tender for all necessary subsea equipment was concluded in January 2015 where prices exceeded the costs employed in the FDP. We continue to negotiate with the lowest priced vendors and continue to revise the development scheme to bring the projected cost back to the FDP levels. The depth volume from the 2013 3D seismic acquisition over the discovered fields and the outboard area of the license was received and interpreted. This data was incorporated into our reservoir models and optimization of well trajectories to maximize oil recovery continues. In addition, the prospect inventory was updated and several prospects have been high graded for drilling. To accommodate the drilling schedule, a site survey, including bathymetry and geophysical data gathering with respect to prospects A/B, 6/7 and 8/9, was completed in August 2015. A tender for a drilling rig and services were completed in March 2016.

Harvest and its joint venture partner engaged a third-party contractor to undertake a fixed-price, geophysical site survey over multiple potential well locations in the Dussafu block in August 2015. The survey was a pre-requisite for siting mobile drilling units and other installations required for continuing exploration and development activities over the license. The survey provided information regarding the seabed and shallow geological conditions, which is essential for safe siting and operation of these installations.

Drilling and Undeveloped Acreage

For acquisitions of leases, development and exploratory drilling, we spent approximately $0.3 million in 2016 ($0.9 million in 2015).

In Gabon, following the success in both the pre-salt Gamba and Dentale reservoirs in the two Harvest exploration wells, a new seismic survey commenced in October 2013 and we received the first high quality seismic products during the second quarter of 2014 and interpretation was completed in early 2015. The new 3D seismic data was extended over the two Harvest discoveries and should also enhance the placement of future development wells in the Ruche and Tortue development program. We continue to evaluate our prospects, but we have not drilled any additional wells.

All of our drilling activities are conducted on a contract basis with independent drilling contractors. We do not directly operate any drilling equipment.

Acreage

As of December 31, 2016, we held no developed acreage and 210,163 gross undeveloped acreage (140,109 acres net to our 66.67 percent interest) under concession in Gabon.

Regulation

Our operations and our ability to finance and fund our growth strategy 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:

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 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.

Our operations are subject to various federal, state, local and international laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. The cost of compliance could be significant. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial and damage payment obligations, or the issuance of injunctive relief (including orders to cease operations). Environmental laws and regulations are complex and have tended to become more stringent over time. We also are subject to various environmental permit requirements. Some environmental laws and regulations may impose strict liability, which could subject us to liability for conduct that was lawful at the time it occurred or conduct or conditions caused by prior operators or third parties. To the extent laws are enacted or other governmental action is taken that prohibits or restricts drilling or imposes environmental protection requirements that result in increased costs to the oil and natural gas industry in general, our business and financial results could be adversely affected.

Employees

At December 31, 2016, we employed 16 full-time employees. We augment our employees from time to time with independent consultants, as required.

Item 1A.  Risk Factors 

In addition to other information set forth elsewhere in this Annual Report on Form 10-K, the following factors should be carefully considered when evaluating us.

Risks Related to the Proposed Sale of Our Gabon Interests and Our Proposed Dissolution and Liquidation

Risks Related to the Proposed Sale of Our Gabon Interests

While the proposed sale of our Gabon interests is pending, it creates uncertainty about our future that could have a material adverse effect on our business, financial condition and results of operations.As a result of this uncertainty, our current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with us pending completion or termination of the proposed sale. In addition, while the proposed sale is pending, we are subject to a number of risks, including:

The occurrence of any of these events individually or in combination could have a material adverse effect on our business, financial condition and results of operations.

There is no assurance that the proposed sale of our Gabon interests will be completed.If the proposed sale is not completed for any reason, the market price of our common stock may decline.  Failure to complete the proposed sale will result in a reduction in the amount of cash otherwise available to us and, given that we do not currently have any operating cash inflows, may substantially limit our ability to implement any business strategy.

We cannot assure you that the proposed sale of our Gabon interests will be consummated despite receiving shareholder approval. The consummation of the proposed sale is subject to the satisfaction or waiver of a number of conditions, including, among others, (1) the requirement that we obtain approvals of the proposed sale from the Government of Gabon; (2) requirements with respect to the accuracy of the representations and warranties of the parties to the Sale and Purchase Agreement; and (3) requirements with respect to the satisfaction or waiver of the covenants and obligations of the parties to the Sale and Purchase Agreement. In addition, the Sale and Purchase Agreement may be terminated in certain circumstances under its terms.

We are required to obtain approvals of the sale of our Gabon interests from the Gabonese Minister in Charge of Economy and the Gabonese Minister in Charge of Petroleum.  There can be no assurances that we will be able to obtain these approvals, or that we

will be able to obtain these approvals on terms reasonably satisfactory to us and BW Energy. If these approvals are not obtained, then the Sale and Purchase Agreement may be terminated.

We cannot guarantee that all of the conditions to closing will be met.  We or BW Energy may not be able to meet all of the closing conditions, and other closing conditions within the control of other parties (such as the required governmental approvals) may not be met.  BW Energy would not be obligated to close the sale of our Gabon interests and could terminate the Sale and Purchase Agreement if we are not able to satisfy the closing conditions within our control or within the control of others.  We also cannot be sure that circumstances will not rise that would also allow BW Energy to terminate the Sale and Purchase Agreement before the closing.

If the proposed sale does not close for any reason, our Board will be forced to evaluate other options.  Our Board could decide to:

If the proposed sale does not close, our Board will make decisions regarding our future course based on their determination of what is in the best interests of our stockholders.  However, the choices may be limited and may be less favorable to our stockholders than the proposed sale of our Gabon interests to BW Energy under the Sale and Purchase Agreement and our proposed ensuing dissolution.

We will be required to pay a break-up fee of $1.12 million if the Sale and Purchase Agreement is terminated under certain circumstances. As disclosed in the Sale and Purchase Agreement, if the Sale and Purchase Agreement is terminated for certain reasons, we will be required to pay BW Energy a break-up fee of $1.12 million.

Our executive officers may have interests in the proposed sale that are different from, or in addition to, the interests they may have as stockholders. In accordance with the terms of pre-existing agreements, our executive officers may receive change of control payments as a result of the consummation of the proposed sale of our Gabon interests, or as a result of the combination of the consummation of the proposed sale and a termination event under the applicable agreement.  If we proceed with our proposed dissolution, it is very likely that the termination of employment of our executive officers will occur at some point in time after the dissolution.  Accordingly, our executive officers may have interests in the proposed sale that are different from, or in addition to, the interests of our stockholders generally. 

There is no guarantee that you will receive any of the net cash proceeds from the proposed sale of our Gabon interests in the form of distributions.The purchase price for the sale of our interests in Gabon will be paid to our wholly owned subsidiary, HNR Energia, which will distribute the proceeds to us in connection with its dissolution.  While we intend to dissolve after the closing of the sale of our Gabon interests, after the payment of expenses related to the proposed sale (including taxes, if any) and reservation of some of the proceeds for operating costs, contingent liabilities and taxes, any use of the remaining proceeds will be at the discretion of our Board and based on its determination of what is in the best interests of Harvest and its stockholders at the time of determination. Our Board could decide not to pursue the dissolution and that we should use all or a significant portion of the net cash proceeds from the sale for purposes other than to pay dividends or make liquidating distributionsto stockholders, including continuing our business.

We expect to delist our common stock on the New York Stock Exchange after the consummation of the proposed sale of our Gabon interests.If the proposed sale of our Gabon interests is consummated, our assets will consist primarily of cash.  The NYSE continued listing requirements provide that a listed company’s securities can be delisted if the company’s operating assets have been substantially reduced.  After the sale of our Gabon interests, we intend to delist our shares of common stock, after which they will no longer be tradable on the NYSE.  The delisting of our common stock from the NYSE would adversely affect liquidity and the trading price of our common stock. 

If the sale of our Gabon interests fails to close and the Sale and Purchase Agreement is terminated, the NYSE may seek to delist our common stock due to our operating asset base, stock price or for another reason. Under these circumstances, we may seek to be traded on an alternative trading market, including one operated by OTC Markets Group.

Risks Related to our Proposed Dissolution and Liquidation

We cannot assure you that any liquidating distribution will be made to our stockholders or, if made, the exact amount or timing of distributions. Our dissolution, liquidation and winding up process will be subject to uncertainties.  It is possible that there will be no liquidating distribution made to our stockholders.  The amount and timing of any liquidating distribution to our stockholders will depend on the following factors, among others:

If the sale of our Gabon interests is not consummated pursuant to the Sale and Purchase Agreement, there can be no assurances that any ultimate sale of those interests can be consummated and we may not be able to continue to fund our commitments under the associated Sale and Purchase Agreement and associated agreements.Our ability to realize value from our Gabon interests depends on our ability to sell those interests as soon as possible.  We have devoted substantial time and cost to try to market our Gabon interests over the last three years and we believe that the transaction described in the Sale and Purchase Agreement is in our best interests.  However, the consummation of that transaction is subject to several conditions, and there can be no assurances that those conditions will be satisfied or that the Sale and Purchase Agreement will not be terminated. 

If the currently proposed sale of our Gabon interests does not close, then we will need to try to find another buyer, and there can be no assurances that we will be able to do so on terms more favorable to us than the terms of the Sale and Purchase Agreement, or that we will be able to do so at all.  If we are not able to find another buyer within the near future, we will be faced with a decision as to whether we should fund additional substantial commitments to maintain our interests in the Sale and Purchase Agreement or to conserve our funds for ultimate distribution to our stockholders and relinquish our interests in the Sale and Purchase Agreement.  Either of these alternatives would have material adverse consequences to us and to our ability to provide our stockholders with liquidating distributions.

We will continue to incur expenses that will reduce any amounts available for distribution to our stockholders.Claims, liabilities and expenses from operations, such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal, accounting and consulting fees and offices expenses will continue to be incurred by us as we wind down.  We cannot estimate what the aggregate of these expenses will be, but they will reduce the amount of funds available for distribution to our stockholders.

Our stockholders could be held liable for our corporate obligations, up to the amount actually distributed to them in connection with our dissolution. We will continue to exist for three years after our dissolution, or for such longer period as the Delaware Court of Chancery may direct, for the purpose of continuing to close our business, dispose of our non-cash assets, resolve outstanding litigation, discharge our liabilities and distribute any remaining assets to our stockholders.  Under the Delaware General Corporation Law, if the amount we reserve to satisfy our obligations proves insufficient to satisfy all of our expenses and liabilities, a stockholder who receives a liquidating distribution could be held liable for payment to our creditors of the stockholder’s pro rata share of amounts we owe to our creditors in excess of the reserves, up to but not exceeding the amount actually distributed to the stockholder in connection with our dissolution.  This means that a stockholder could be required to return all liquidating distributions made to the stockholder and receive nothing from us in connection with our dissolution and liquidation.  If a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of those taxes could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.  There is no guaranty that the reserves established by us to satisfy our obligations will be adequate to cover all of our obligations.

Our Board may abandon implementation of our Plan of Dissolution. As permitted by the Delaware General Corporation Law, our directors have the right to abandon our dissolution even after our stockholders have authorized our dissolution.  While our

Board does not currently intend to do so, it will do so if it determines, based on intervening circumstances, that it is not in the best interest of our stockholders to continue with our dissolution.

Further stockholder approval will not be required in connection with the implementation of our Plan of Dissolution, including for the sale or disposition of all or substantially all of our assets. Our Plan of Dissolution provides that we may sell our Gabon interests as part of our liquidation process, if the sale of our Gabon interests is not consummated under the Sale and Purchase Agreement.  Our Plan of Dissolution also provides that we may sell our other assets after dissolution, as necessary to affect our Plan of Dissolution.  In either case, under our Plan of Dissolution, we will not seek and are not required to seek additional stockholder authorization of any other asset sale.

Our common stock will cease to be traded at the time of our dissolution. We intend to close our stock transfer books after our dissolution becomes effective.  As a result, from and after that time, we will not recognize any transfer of our common stock, other than transfers by operation of law as to which we have received adequate written notice.  The record date for determining which stockholders are eligible to receive liquidating distributions will be the date on which our dissolution becomes effective, except as may be necessary to reflect subsequent transfers by operation of law.

We may cease to file our annual, quarterly and current reports with the SEC. Because of the costs associated with preparing and filing our annual, quarterly and current reports under applicable securities laws, we intend to seek relief from all or some of our reporting obligations as soon as possible after the filing of our certificate of dissolution with the Delaware Secretary of State.  There can be no assurances that we will be able to obtain this kind of relief from the SEC.  However, if we receive relief, certain information about us (including audited financial information) currently reported to you and the public would no longer be available.  Regardless, we do intend to provide our stockholders with reports on the status of our dissolution procedures from time to time, as our Board deems appropriate, either through the filing of current or other reports with the SEC or through other means of communication.

Our officers may have interests in the dissolution that are different from those of our stockholders in general.In accordance with the terms of pre-existing agreements, such as our employment agreements with executive officers, our executive officers may receive certain benefits as a result of the termination of their employment as a result of our dissolution.  Our officers will likely receive the additional severance benefits to which they became eligible as a result of the sale of our Venezuelan interests on October 7, 2016, because we currently expect to terminate their employment within 730 days following that date.  If we proceed with our dissolution, it is expected that eventually and probably within this 730-day period, we will terminate the employment of all of our executive officers and we will be required to provide them with the severance benefits required by their employment agreements, including the additional severance benefits payable after a change of control.  We estimate that the cost of making these payments will be $12 million.

We may undergo, or may have already undergone, an “ownership change” within the meaning of section 382 of the Code, which could affect our ability to use our net operating losses and certain tax credits for U.S. federal income tax purposes.Section 382 of the Code contains rules that limit the ability of a corporation that undergoes an ownership change to use its net operating losses and tax credits existing as of the date of the ownership change. For these purposes, an ownership change is generally any change in ownership of more than 50 percent of a corporation’s stock within a rolling three-year period. The Treasury Regulations focus on changes in the ownership of significant stockholders, i.e., those owning, directly or indirectly, five percent or more of the stock of a corporation (“5% Stockholders”). Currently, we do not believe that we have undergone an ownership change in the 2014, 2015 or 2016 taxable years, years in which we incurred significant net operating losses. We intend to monitor future filings with the SEC to determine if additional 5% Stockholders arise or if the ownership percentages of existing 5% Stockholders change, either of which might indicate an ownership change under section 382 of the Code. However, the Treasury Regulations under section 382 of the Code are complex and we cannot assure you that we will be able to detect whether and when we might undergo an ownership change.

If Harvest were to undergo one or more “ownership changes” within the meaning of section 382 of the Code, or if one has already occurred, our net operating losses and certain of our tax credits existing as of the date of each ownership change may be unavailable, in whole or in part, to offset income or gain, if any, from the proposed dissolution and liquidation of our subsidiaries. If we are unable to fully offset any U.S. federal taxable income or gain that results from those proposed dissolutions and liquidation, we may be liable for U.S. federal income taxes that could reduce the assets available for distributions to our stockholders.

On February 16, 2017, our Board adopted the Rights Plan, which is designed to preserve the Company’s tax assets.  For more information, see Item 1. Business – Other Recent Events – Rights Agreement to Protect Net Operating Losses.

Stockholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from us. As a result of our dissolution and liquidation, for U.S. federal income tax purposes, our stockholders generally will recognize gain or loss, on a per share basis, equal to the difference between (1) the sum of the amount of cash and the fair market value (at the time of the distribution) of property, if any, distributed to them with respect to each share of common stock and (2) their tax basis in each share of our common stock.  A liquidating distribution pursuant to the Plan of Dissolution may occur at various times and in more than one tax year.  Any loss generally will be recognized by a stockholder only in the tax year in which the stockholder

receives our final liquidating distribution, and then only if the aggregate value of all liquidating distributions with respect to a share of our common stock is less than the stockholder’s tax basis for that share.  Stockholders are urged to consult with their own tax advisors as to the specific tax consequences to them of our dissolution, liquidation and winding up pursuant to the Plan of Dissolution.

The tax treatment of any liquidating distribution may vary from stockholder to stockholder. We have not requested a ruling from the IRS with respect to the anticipated tax consequences of our complete dissolution and liquidation, and we will not seek an opinion of counsel with respect to the anticipated tax consequences of any liquidating distributions. If any of the anticipated tax consequences prove to be incorrect, the result could be increased taxation at the corporate or stockholder level, thus reducing the benefit to our stockholders and us from our dissolution and liquidation. Tax considerations applicable to particular stockholders may vary with and be contingent on the stockholder’s individual circumstances. You should consult your own tax advisor for tax advice.

General Risks Related to Our Business and Industry

We have entered into a Sale and Purchase Agreement to sell our Gabon interests.  However, there can be no assurance that we will be able to consummate the sale of our Gabon interests.  For so long as we continue to operate our Gabon interests, we are subject to a number of risks related to our business and industry, including those discussed below.

Our business may be sensitive to market prices for oil and natural gas. We have made significant investments in our oil and natural gas properties.  To the extent market values of oil and natural gas decline, the valuation of the investments in these projects may be adversely affected.

Global market and economic conditions, including those related to the credit markets, could have a material adverse effect on our business, financial condition and results of operations. A general slowdown in economic activity could adversely affect our business by impacting our ability to access additional capital as well as the need to preserve adequate development capital in the interim.

Our portfolio of hydrocarbon assets in known hydrocarbon basins globally is exposed to greater deal execution, operating, financial, legal and political risks. The environments in which we operate are 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 operate oil and natural gas projects, as well as our ability to obtain adequate compensation for any resulting losses. Our business depends on our ability to have significant influence over operations and financial control.

Estimates of oil and natural gas reserves are uncertain and inherently imprecise. These estimates are based upon various assumptions, including assumptions required by the SEC relating to oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.

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. Any significant variance could materially affect the estimated quantities and present value of reserves set forth. Actual production, revenue, taxes, development expenditures and operating expenses with respect to our reserves will likely vary from the estimates used, and these variances may be material.

Our future operations and our development are subject to numerous risks of oil and natural gas drilling and production activities. Oil and natural gas exploration and development 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:

The prevailing price of oil also affects the cost of and availability for drilling rigs, production equipment and related services. We cannot give any assurance that 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.

We operate in international jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws. The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government and other officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. Despite our training and compliance programs, we cannot be assured that our internal control policies and procedures will always protect us from acts of corruption committed by our employees or agents. Any additional expansion outside the U.S., including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

Operations in areas outside the United States are subject to various risks inherent in foreign operations. 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 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 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 the 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.

We are subject to complex laws that can affect the cost, manner or feasibility of doing business. Exploration and development and the production and sale of oil and natural gas are subject to extensive federal, state, local and international regulation. We may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include:

Under these laws, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs, natural resource damages and other environmental damages. We also could be required to install expensive pollution control measures or limit or cease activities on lands located within wilderness, wetlands or other environmentally or politically sensitive areas. Failure to comply with these laws also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties as well as the imposition of corrective action orders. Moreover, these laws could change in ways that substantially increase our costs. Any such liabilities, penalties, suspensions, terminations or regulatory changes could have a material adverse effect on our financial condition, results of operations or cash flows.

The oil and natural gas business involves many operating risks that can cause substantial losses, and insurance may not protect us against all of these risks. We are not insured against all risks. Our oil and natural gas exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the risk of:

If any of these events occur, we could incur substantial losses as a result of:

If we experience any of these problems, our ability to conduct operations could be adversely affected.

We maintain insurance against some, but not all, of these potential risks and losses. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not insurable.

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.

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.

Potential regulations regarding climate change could alter the way we conduct our business. Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response to these studies, governments have begun adopting domestic and international climate change regulations that requires reporting and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a by-product of the burning of oil, gas and refined petroleum products, are considered greenhouse gases. Internationally, the United Nations Framework Convention on Climate Change and the Kyoto Protocol address greenhouse gas emissions, and several countries including the European Union have established greenhouse gas regulatory systems. Any laws or regulations that may be adopted to restrict or reduce emissions of greenhouse gases could require us to incur increased operating and compliance costs, and could have an adverse effect on demand for the oil and natural gas that we produce and as a result, negatively impact our financial condition, results of operations and cash flows.

Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls. The proper functioning of our internal business processes and information systems is critical to the efficient operation and management of our business. If these information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable to support the future growth of our business and may require modifications or upgrades that expose us to a number of operational risks. Our information technology systems, and those of third party providers, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic break-ins, unauthorized access and cyber-attacks. Any material disruption, malfunction or similar challenges with our business processes or information systems, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on our financial condition, results of operations and cash flows.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Our corporate headquarters are in Houston, Texas.  Our main corporate office is on a month-to-month lease.   The additional Houston office space leased for our technical support staff expired on February 28, 2017.  We vacated the space for the technical support staff by the end of February 2017.

See Item 1. Business, Operations for a description of our oil and natural gas properties.

Item 3.  Legal Proceedings

The following related class action lawsuits were filed on the dates specified in the United States District Court, Southern District of Texas: John Phillips v. Harvest Natural Resources, Inc., James A. Edmiston and Stephen C. Haynes (March 22, 2013) (the “Phillips Case”); Sang Kim v. Harvest Natural Resources, Inc., James A. Edmiston, Stephen C. Haynes, Stephen D. Chesebro’, Igor Effimoff, H. H. Hardee, Robert E. Irelan, Patrick M. Murray and J. Michael Stinson (April 3, 2013); Chris Kean v. Harvest Natural Resources, Inc., James A. Edmiston and Stephen C. Haynes (April 11, 2013); Prastitis v. Harvest Natural Resources, Inc., James A. Edmiston and Stephen C. Haynes (April 17, 2013); Alan Myers v. Harvest Natural Resources, Inc., James A. Edmiston and Stephen C. Haynes (April 22, 2013); and Edward W. Walbridge and the Edward W. Walbridge Trust v. Harvest Natural Resources, Inc., James A. Edmiston and Stephen C. Haynes (April 26, 2013). The complaints alleged that the defendants made certain false or misleading public statements and demanded that the defendants pay unspecified damages to the class action plaintiffs based on stock price declines. All of these actions were consolidated into the Phillips Case. On August 25, 2016, the court granted the defendants’ motion to dismiss the Phillips Case and entered a final judgment dismissing the Phillips Case in its entirety. The plaintiffs declined to file an appeal, and the time for the filing an appeal expired on September 26, 2016.

On February 27, 2015, Harvest US and Branta, LLC and Branta Exploration & Production Company, LLC   filed a complaint against Newfield Production Company (“Newfield”) in the United States District Court for the District of Colorado. The plaintiffs previously sold oil and natural gas assets located in Utah’s Uinta Basin to Newfield pursuant to two Purchase and Sale Agreements, each dated March 21, 2011. In the complaint, the plaintiffs allege that, prior to the sale, Newfield breached separate confidentiality agreements with Harvest US and Branta by discussing the auction of the assets with a potential bidder for the assets, which caused the potential bidder not to participate in the auction and resulted in a depressed sales price for the assets. The complaint seeks damages and fees for breach of contract, violation of the Colorado Antitrust Act, violation of the Sherman Antitrust Act and tortious interference with a prospective business advantage. In September 2015, plaintiffs amended their complaint to add Ute Energy, LLC and Crescent Point Energy Corporation as defendants. Subsequently, plaintiffs agreed to dismiss with prejudice all claims against Ute Energy, LLC and Crescent Point Energy Corporation. 

On May 31, 2011, the United Kingdom branch of our subsidiary, Harvest Natural Resources, Inc. (UK), initiated a wire transfer of approximately $1.1 million ($0.7 million net to our 66.667 percent interest) intending to pay Libya Oil Gabon S.A. (“LOGSA”) for fuel that LOGSA supplied to our subsidiary in the Netherlands, Harvest Dussafu, B.V., for the company’s drilling operations in Gabon. On June 1, 2011, our bank notified us that it had been required to block the payment in accordance with the U.S. sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011, and administered by OFAC, because the payee, LOGSA, may be a blocked party under the sanctions. The bank further advised us that it could not release the funds to the payee or return the funds to us unless we obtain authorization from OFAC. On October 26, 2011, we filed an application with OFAC for return of the blocked funds to us. Until that application is approved, the funds will remain in the blocked account, and we can give no assurance when OFAC will permit the funds to be released. On April 23, 2014, we received a notice that OFAC had denied our October 26, 2011 application for the return of the blocked funds.  During the year ended December 31, 2015 primarily due to the passage of time, we recorded a $0.7 million allowance for doubtful accounts to general and administrative costs associated with the blocked payment and $0.4 million receivable from our joint venture partner.   On October 13, 2015, we filed a request that OFAC reconsider its decision and on March 27,8, 2016 OFAC denied our October 13, 2015 request for the return of blocked funds; however, the Company will continue attempts to recover the funds from OFAC.

Uracoa Municipality Tax Assessments. Harvest Vinccler, a subsidiary of Harvest Holding, has received nine assessments from a tax inspector for the Uracoa municipality in which part of the Uracoa, Tucupita and Bombal fields are located.  Harvest Holding had filed claims in the Tax Court in Caracas against the Uracoa Municipality for the refund of all municipal taxes paid since 1997.  Any potential liability for these tax assessments was transferred by the Company upon the closing of the sale of the Company’s 51 percent interest in Harvest Holding on October 7, 2016, and remains the responsibility of Harvest Vinccler and not the Company.

Libertador Municipality Tax Assessments. Harvest Vinccler has received five assessments from a tax inspector for the Libertador municipality in which part of the Uracoa, Tucupita and Bombal fields are located.  Harvest Vinccler had filed claims in the Tax Court in Caracas against the Libertador Municipality for the refund of all municipal taxes paid since 2002.  Any potential liability for these tax assessments was transferred by the Company upon the closing of the sale of the Company’s 51 percent interest in Harvest Holding on October 7, 2016, and remains the responsibility of Harvest Vinccler and not the Company.

On January 26, 2015, Petroandina, which owns a 29 percent interest in Harvest Holding, filed a complaint for breach of contract against the Company and its subsidiary, HNR Energia, in the Court of Chancery of the State of Delaware (“Court of Chancery”).  The complaint alleged a January 15, 2015 Request for Arbitration filed by HNR Finance and Harvest Vinccler against the Government of Venezuela before the International Centre for Settlement of Investment Disputes regarding HNR Finance’s investment in Petrodelta (the “Original Filing”“Request for Arbitration”) constituted a breach of the Shareholders’ Agreement, dated December 16, 2013, which governed the rights of HNR Energia and Petroandina as shareholders of Harvest Holding (the “Shareholders Agreement”).  Specifically, the Shareholders’ Agreement required HNR Energia to provide advance notice of, and deposit $5.0 million into an escrow account, before bringing any claim against the Venezuelan government. On January 28, 2015, the Court of Chancery issued an injunction ordering the Company and HNR Energia to withdraw the Request for Arbitration and not take any action to pursue its claims against Venezuela until Harvest and HNR Energia have complied with the provisions of the Shareholders’ Agreement or otherwise reached an agreement

with Petroandina.  Accordingly, on January 28, 2015, HNR Finance B.V. and Harvest Vinccler withdrew without prejudice the Request for Arbitration.  On October 11, 2016, as described in the following paragraph, the Court of Chancery dismissed this claim with prejudice pursuant to a settlement agreement among the Company, HNR Energia, CT Energy and Petroandina. 

On July 12, 2016, Petroandina filed a second claim against the Company and HNR Energia in the Court of Chancery.  The claim alleged that, by entering into the Share Purchase Agreement to sell its Venezuelan interests to CT Energy, the Company and HNR Energia breached the Shareholders’ Agreement.  The claim requested an injunction to prevent the Company and HNR Energia from completing the proposed transaction with CT Energy.  On August 16, 2016, the Court of Chancery granted Petroandina’s motion for a preliminary injunction.  On September 8, 2016, the Company, HNR Energia, CT Energy and Petroandina entered into a settlement agreement (the “Settlement Agreement”) intended to resolve the claim.  On September 8, 2016, the Court of Chancery granted an order amending its August 16, 2016 order and permitting Harvest and HNR Energia to effect the HNR Energia transaction, provided that the parties complied with the Settlement Agreement.  On October 7, 2016, as contemplated in the Settlement Agreement, Petroandina completed the sale of its 29 percent interest in Harvest Holding to Delta Petroleum, the assignee of CT Energy’s rights and obligations under the Settlement Agreement (the “Petroandina Sale”).  On October 11, 2016, in accordance with the Settlement Agreement, the Court of Chancery issued an order dismissing with prejudice Petroandina’s claims against the Company and HNR Energia.  As part of the Settlement Agreement and effective upon closing of the Petroandina Sale, HNR Energia paid $1,000,000 as part of the October 7, closing of the sale of Harvest Holding as cost as reimbursement for expenses incurred by Petroandina in connection with the litigation related to the Shareholders’ Agreement.  This was included as transaction costs netted with Gain on Sale of Harvest Holding on our consolidated condensed statement of operations and comprehensive income (loss) in discontinued operations during the year ended December 31, 2016.  Additionally, effective upon the closing of the Petroandina Sale, the Company, HNR Energia and CT Energy released Petroandina and its affiliates, and Petroandina released the Company, HNR Energia, CT Energy and their respective affiliates, from all claims or liabilities in connection with the Shareholders’ Agreement, the Share Purchase Agreement or the sale of the Company’s interests in Venezuela arising up to the date of the Settlement Agreement. 

On August 9, 2016, Robert Garfield, a stockholder of the Company, filed a lawsuit in the 215th Civil District Court of Harris County, Texas against the members of the Company’s Board and CT Energy (and the Company, as a nominal defendant).  The lawsuit asserts several class action and derivative claims, including that (i) the Board members breached their fiduciary duties to the Company’s stockholders by negotiating and causing the execution of the Share Purchase Agreement with CT Energy, (ii) CT Energy aided and abetted the Board members in breaching their fiduciary duties and (iii) the proxy statement relating to the transaction contained inadequate disclosures about the proposed transaction.  Among other relief, the lawsuit requested that the court grant an injunction to prevent the completion of the proposed transaction, in addition to unspecified rescissory and compensatory damages and attorneys’ fees and other costs.  On September 14, 2016 plaintiff’s motion for a temporary injunction was denied.  On November 15, 2016, this lawsuit was dismissed without prejudice.



This Amendment does not change the results as reportedOn October 14, 2016, Saltpond Offshore Producing Co., Ltd. (“Saltpond”) filed a petition in the Original Filing334th Judicial District Court of Harris County, Texas under Rule 202 of the Texas Rules of Civil Procedure to take a pre-suit deposition of the Company’s general counsel.  Counsel for Saltpond also represents the Possible Plaintiffs in Item 11.  The petition alleges that Alessandro Bazzoni, a representative of CT Energy, obtained proceeds from oil allegedly misappropriated from Saltpond and used these funds to consummate the June 19, 2015 Securities Purchase Agreement between CT Energy and the Company.  The petition “seeks information to pursue a claim under the Uniform Fraudulent Transfer Act.”  A hearing had been scheduled for November 11, 2016 as to whether Saltpond should be entitled to seek information from the Company but the hearing was postponed at the request of Saltpond’s lawyers.  The Company denies the allegations in the petition and intends to mount a vigorous defense.  Because the petition is requiredin its preliminary stages, it is not possible to be filed as an Amendment within six months after Harvest’s calendar year endingestimate the likelihood or magnitude of any potential liability at this time.

We are a defendant in or otherwise involved in other litigation incidental to our business. In the opinion of management, there is no such incidental litigation that will have a material adverse effect on December 31, 2014 if the 50 percent or less owned person is a foreign person.our financial condition, results of operations and cash flows.

Item  4.  Mine Safety Disclosures

Not applicable.