UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2014~~2015


☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from _____ to _____

Commission File No. 1-10762

Harvest Natural Resources, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		77-0196707
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

1177 Enclave Parkway, Suite 300
Houston, Texas		77077
(Address of Principal Executive Offices)		(Zip Code)

(281) 899-5700

(Registrant's Telephone Number, Including Area Code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~November 3, 2014,~~August 5, 2015, the Registrant had ~~42,428,298~~ 42,747,567shares of its ~~Common Stock~~common stock, par value $0.01 per share, outstanding.



	September 30,		December 31,		June 30,		December 31,
	2014		2013		2015		2014
	(Unaudited)				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,950	$	120,897	$	18,880	$	6,585
Restricted cash		25		148		—		25
Accounts receivable, net		670		1,962		491		339
Deferred income taxes		53		81		118		53
Prepaid expenses and other		812		2,030		368		353
TOTAL CURRENT ASSETS		10,510		125,118		19,857		7,355
LONG-TERM RECEIVABLE – EQUITY AFFILIATE		13,908		15,097
INVESTMENT IN EQUITY AFFILIATE		520,350		485,401
INVESTMENT IN AFFILIATE						164,700		164,700
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)		104,012		108,013		54,544		54,290
Other administrative property, net		219		378		161		217
TOTAL PROPERTY AND EQUIPMENT, NET		104,231		108,391		54,705		54,507
EMBEDDED DERIVATIVE ASSET						2,627		—
OTHER ASSETS		943		873		643		1,484
TOTAL ASSETS	$	649,942	$	734,880	$	242,532	$	228,046
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other	$	973	$	4,398	$	2,205	$	1,697
Accrued expenses		11,802		22,659		4,442		4,617
Accrued interest		97		380		150		97
Income taxes payable		40		2,178		10		5
Current deferred tax liability		37,561		43,162		40		45
Current portion – long term debt		—		77,480
Notes payable to noncontrolling interest owners		8,109		6,109		—		13,709
Warrant derivative liability		1,953		—
Other current liabilities		128		419		165		128
TOTAL CURRENT LIABILITIES		60,663		156,785		7,012		20,298
LONG-TERM DEBT						145		—
LONG-TERM DEFERRED TAX LIABILITY		36,863		29,787		15,860		14,655
EMBEDDED DERIVATIVE LIABILITY						13,015		—
WARRANT DERIVATIVE LIABILITY		—		1,953		37,595		—
OTHER LONG-TERM LIABILITIES		257		558		375		215
COMMITMENTS AND CONTINGENCIES (Note 12)
MEZZANINE EQUITY, Series C preferred stock, par value $0.01 per share; authorized 69.75 shares; outstanding, 69.75 shares (2015)						—		—
EQUITY
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.01 per share; authorized 5,000 shares; outstanding, none		—		—		—		—
Common stock, par value $0.01 per share; authorized 80,000 shares at September 30, 2014 (December 31, 2013: 80,000 shares); issued 49,000 shares at September 30, 2014 (December 31, 2013: 48,666 shares)		490		487
Common stock, par value $0.01 per share; shares authorized 80,000 (2015 and 2014); shares issued 49,320 (2015 and 2014); shares outstanding 42,748 (2015 and 2014)						493		493
Additional paid-in capital		279,389		276,083		287,902		280,757
Retained earnings		78,483		92,282
Treasury stock, at cost, 6,572 shares at September 30, 2014 (December 31, 2013: 6,551 shares)		(66,316)		(66,222)
Accumulated deficit						(132,250)		(101,208)
Treasury stock, at cost, 6,572 shares (2015 and 2014)						(66,316)		(66,316)
TOTAL HARVEST STOCKHOLDERS’ EQUITY		292,046		302,630		89,829		113,726
NONCONTROLLING INTERESTS		260,113		243,167		78,701		79,152
TOTAL EQUITY		552,159		545,797		168,530		192,878
TOTAL LIABILITIES AND EQUITY	$	649,942	$	734,880	$	242,532	$	228,046



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

EXPENSES:
Depreciation and amortization	$	27	$	58	$	56	$	134
Exploration expense		575		1,648		2,507		3,481
Impairment expense - unproved property costs		—		3,150		—		7,610
General and administrative		5,517		4,903		9,675		11,204
		6,119		9,759		12,238		22,429
LOSS FROM OPERATIONS		(6,119)		(9,759)		(12,238)		(22,429)
OTHER NON-OPERATING INCOME (EXPENSE):
Investment earnings and other		—		—		—		4
Loss on sale of interest in Harvest Holding		—		(391)		—		(1,357)
Warrant liability income		2,418		—		2,418		—
Derivative income		557		—		557		—
Interest expense		(614)		(15)		(851)		(62)
Loss on issuance of debt		(20,402)		—		(20,402)		—
Loss on extinguishment of long-term debt		—		—		—		(4,749)
Foreign currency transaction gains (losses)		77		259		80		(210)
Other non-operating expenses		—		—		—		(220)
		(17,964)		(147)		(18,198)		(6,594)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(24,083)		(9,906)		(30,436)		(29,023)
INCOME TAX EXPENSE (BENEFIT)		1,604		(88)		1,220		(1,042)
LOSS FROM CONTINUING OPERATIONS BEFORE EARNINGS FROM INVESTMENT AFFILIATE		(25,687)		(9,818)		(31,656)		(27,981)
EARNINGS FROM INVESTMENT AFFILIATE		—		16,062		—		34,949
INCOME (LOSS) FROM CONTINUING OPERATIONS		(25,687)		6,244		(31,656)		6,968
DISCONTINUED OPERATIONS		—		(230)		—		(361)
NET INCOME (LOSS)		(25,687)		6,014		(31,656)		6,607
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS		(262)		7,665		(614)		16,266
NET LOSS ATTRIBUTABLE TO HARVEST [COMPREHENSIVE LOSS]	$	(25,425)	$	(1,651)	$	(31,042)	$	(9,659)
BASIC LOSS PER SHARE:
Loss from continuing operations	$	(0.60)	$	(0.03)	$	(0.73)	$	(0.22)
Discontinued operations		—		(0.01)		—		(0.01)
Basic loss per share	$	(0.60)	$	(0.04)	$	(0.73)	$	(0.23)
DILUTED LOSS PER SHARE:
Loss from continuing operations	$	(0.60)	$	(0.03)	$	(0.73)	$	(0.22)
Discontinued operations		—		(0.01)		—		(0.01)
Diluted loss per share	$	(0.60)	$	(0.04)	$	(0.73)	$	(0.23)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2014

2013

2014

2013
EXPENSES:




Depreciation and amortization

$
34

$
83

$
168

$
257
Exploration expense


1,065


1,533


4,546


5,270
Impairment expense


—


—


7,610


—
General and administrative


3,878


7,900


15,082


18,813



4,977


9,516


27,406


24,340
LOSS FROM OPERATIONS


(4,977)

(9,516)


(27,406)

(24,340)
OTHER NON-OPERATING INCOME (EXPENSE):




Investment earnings and other


1


116


5


280
Loss on sale of interest in Harvest Holding


(59)

—


(1,416)

—
Gain on sale of oil and gas properties

2,865

—

2,865

—
Unrealized loss on derivatives


—

(6,559)


—

(2,774)
Interest expense


(25)

(1,152)


(87)

(3,417)
Loss on extinguishment of debt


—

—


(4,749)

—
Foreign currency transaction gains (losses)


285

(131)


75

(222)
Other non-operating expenses


—

(38)


(220)

(651)



3,067

(7,764)


(3,527)

(6,784)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES


(1,910)

(17,280)


(30,933)

(31,124)
INCOME TAX EXPENSE (BENEFIT)


2,361

(765)


1,319

(2,141)
LOSS FROM CONTINUING OPERATIONS BEFORE EARNINGS FROM EQUITY AFFILIATE


(4,271)

(16,515)


(32,252)

(28,983)
EARNINGS FROM EQUITY AFFILIATE


—

25,747


34,949

82,820
INCOME (LOSS) FROM CONTINUING OPERATIONS


(4,271)

9,232


2,697

53,837
DISCONTINUED OPERATIONS


(142)

(2,586)


(503)

(4,077)
NET INCOME (LOSS)


(4,413)


6,646


2,194


49,760
LESS: NET INCOME (LOSS)  ATTRIBUTABLE TO NONCONTROLLING INTERESTS


(273)


4,693


15,993


16,176
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HARVEST

$
(4,140)

$
1,953

$
(13,799)

$
33,584
BASIC EARNINGS (LOSS) PER SHARE:




Income (loss) from continuing operations

$
(0.10)

$
0.12

$
(0.32)

$
0.96
Discontinued operations


—

(0.07)


(0.01)

(0.10)
Basic earnings (loss) per share

$
(0.10)

$
0.05

$
(0.33)

$
0.86
DILUTED EARNINGS (LOSS) PER SHARE:




Income (loss) from continuing operations

$
(0.10)

$
0.12

$
(0.32)

$
0.96
Discontinued operations


—

(0.07)


(0.01)

(0.10)
Diluted earnings (loss) per share

$
(0.10)

$
0.05

$
(0.33)

$
0.86

Table of Contents



	Six Months Ended June 30,
	2015		2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(31,656)	$	6,607
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		56		134
Impairment expense - unproved property costs		—		7,610
Amortization of debt financing costs		283		—
Amortization of discount on debt		145		—
Loss on debt issuance		20,402		—
Loss on sale of interest in Harvest Holding		—		1,357
Foreign currency transaction loss		—		1,468
Loss on extinguishment of long-term debt		—		4,749
Earnings from investment affiliate		—		(34,949)
Share-based compensation-related charges		988		1,589
Warrant liability income		(2,418)		—
Deferred income tax expense (benefit)		1,135		(1,070)
Derivative income		(557)		—
Changes in operating assets and liabilities:
Accounts receivable		(152)		1,438
Prepaid expenses and other		(15)		(249)
Other assets		583		(8)
Accounts payable		508		(2,996)
Accrued expenses		(474)		(11,229)
Accrued interest		100		(306)
Income taxes payable		5		(2,133)
Other current liabilities		37		(261)
Other long-term liabilities		160		(450)
NET CASH USED IN OPERATING ACTIVITIES		(10,870)		(28,699)
CASH FLOWS FROM INVESTING ACTIVITIES:
Transaction costs from sale of interest in Harvest Holding		—		(3,540)
Additions of property and equipment		(353)		(521)
Advances to investment affiliate, net		—		(262)
Decrease in restricted cash		—		123
NET CASH USED IN INVESTING ACTIVITIES		(353)		(4,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment		(8,900)		(79,750)
Debt extinguishment costs		—		(760)
Gross proceeds from issuance of debt		33,500		—
Contributions from noncontrolling interest owners		163		717
Treasury stock purchases		—		(94)
Financing costs		(1,245)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		23,518		(79,887)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		12,295		(112,786)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6,585		120,897
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	18,880	$	8,111

Nine Months Ended September 30,


2014

2013



CASH FLOWS FROM OPERATING ACTIVITIES:


Net income

$
2,194

$
49,760
Adjustments to reconcile net income to net cash used in operating activities:


Depreciation and amortization


168

270
Impairment expense


7,610

2,277
Amortization of debt financing costs


—

1,102
Amortization of discount on debt


—

1,954
Loss on sale of interest in Harvest Holding


1,416

—
Gain on sale of oil and gas properties

(2,865)

—
Foreign currency transaction loss


1,586

436
Loss on extinguishment of debt


4,749

—
Earnings from equity affiliate


(34,949)

(82,820)
Share-based compensation-related charges


2,131

2,097
Unrealized loss on derivatives


—

2,774
Changes in operating assets and liabilities:


Accounts and notes receivable


1,292

1,095
Prepaid expenses and other


(61)

570
Other assets


29

468
Accounts payable


(3,425)

(512)
Accrued expenses


(12,318)

(6,248)
Accrued interest


(283)

(147)
Income taxes payable


(2,138)

(17)
Deferred tax asset and liabilities


1,503

—
Other current liabilities


(291)

(2,329)
Other long-term liabilities


(301)

(468)
NET CASH USED IN OPERATING ACTIVITIES


(33,953)

(29,738)
CASH FLOWS FROM INVESTING ACTIVITIES:


Transaction costs from sale of interest in Harvest Holding


(3,660)

—
Net proceeds from sale of oil and gas properties

2,865

—
Additions of property and equipment


(603)

(39,177)
Advances to equity affiliate


(397)

(381)
Release of restricted cash


123

916
NET CASH USED IN INVESTING ACTIVITIES


(1,672)

(38,642)
CASH FLOWS FROM FINANCING ACTIVITIES:


Debt repayment


(79,750)

—
Debt extinguishment costs

(760)

—
Proceeds from issuance of note payable to noncontrolling interest owner

2,000

—
Contributions from noncontrolling interest owners


953

—
Net proceeds from issuances of common stock


1,353

122
Treasury stock purchases


(94)

(72)
Financing costs


(24)

(371)
NET CASH USED IN FINANCING ACTIVITIES


(76,322)

(321)
NET DECREASE IN CASH AND CASH EQUIVALENTS


(111,947)

(68,701)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


120,897

72,627
CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
8,950

$
3,926

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~Notes to Consolidated Condensed Financial Statements

In our opinion, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position as of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013,~~2014, results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013,~~2014, and the cash flows for ~~the nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013.~~2014. The unaudited consolidated condensed financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). ~~Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not affect our consolidated financial results.~~ The consolidated condensed financial statements included in this report should be read with our consolidated condensed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2013 (“2013 Financial Statements”),~~2014, which include certain definitions and a summary of significant accounting policies. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

~~As discussed further in the 2013 Financial Statements, on December 16, 2013,~~

Harvest Natural Resources, Inc. (“Harvest” or the “Company”) is a petroleum exploration and production company incorporated under Delaware law in 1988. We have acquired and developed significant interests in the Bolivarian Republic of Venezuela (“Venezuela”). In addition to our interests in Venezuela, we hold exploration acreage mainly offshore of the Republic of Gabon (“Gabon”) through the Dussafu Marin Permit (“Dussafu PSC”). See Note 8 – Gabon.

Our Venezuelan interests are owned through our 51 percent ownership interest in Harvest-Vinccler Dutch Holding B.V., a Dutch private company with limited liability (“Harvest Holding”). Our ownership of Harvest Holding is through HNR Energia B.V. (“HNR Energia”) ~~entered into~~, in which we have a ~~Share Purchase Agreement (the” SPA”~~direct controlling interest. The remaining 49 percent ownership interest of Harvest Holding is owned by Oil & Gas Technology Consultants (Netherlands) Cooperatie U.A. (“Vinccler”) ~~with~~(20 percent) and Petroandina Resources Corporation N.V. ~~(“Petroandina”,~~("Petroandina") (29 percent); Petroandina is a wholly owned subsidiary of Pluspetrol Resources Corporation B.V. (“Pluspetrol”)) and Pluspetrol to sell all of our 80 percent equity interest in Harvest-Vinccler Dutch Holding, B.V. (“Harvest Holding”) to Petroandina in two closings for an aggregate cash purchase price of $400 million.. Harvest Holding owns ~~indirectly through wholly owned subsidiaries,~~100 percent of HNR Finance B.V. (“HNR Finance”), and HNR Finance owns a 40 percent ~~equity~~ interest in Petrodelta, S.A. (“Petrodelta”). Petrodelta is the Venezuelan mixed company formed in 2007 for the purpose of owning and operating certain oil and gas interests in Venezuela. The ~~first closing occurred on December 16, 2013 contemporaneously with~~other 60 percent of Petrodelta is owned by CorporacionVenezolana del Petroleo A.S. (“CVP”) and PDVSA Social S.A., both companies owned and controlled by the ~~signing~~Government of ~~the SPA, when~~Venezuela through Petroleos de Venezuela S.A. (“PDVSA”). Thus, we ~~sold a 29~~own an indirect 20.4 percent ~~equity~~of Petrodelta (51 percent of 40 percent). In addition to its 40 percent interest in Petrodelta, Harvest Holding ~~for $125 million. Prior to December 16, 2013, we~~also indirectly ~~owned 80~~owns 100 percent of Harvest ~~Holding, and we had one partner, Oil & Gas Technology Consultants (Netherlands) Coöperatie U.A.~~Vinccler, S.C.A. (“Harvest Vinccler”), which ~~owned~~currently assists us in the ~~remaining noncontrolling interest~~oversight of our investment in Petrodelta and in negotiations with PDVSA.

On June 19, 2015, the Company and certain of its domestic subsidiaries entered into a securities purchase agreement (the “Purchase Agreement”) with CT Energy Holding SRL (“CT Energy”), a Venezuelan-Italian consortium organized as a Barbados Society with Restricted Liability, under which CT Energy purchased certain securities of the Company and acquired certain governance rights. Certain aspects of the transactions contemplated by the Purchase Agreement are subject to approval by the Company’s stockholders. Harvest ~~Holding~~immediately received gross proceeds of 20 percent. As a result of this first sale, we indirectly own 51 percent of Harvest Holding beginning December 16, 2013 and the noncontrolling interest owners hold the remaining 49 percent with Petroandina having 29 percent and Vinccler continuing to own 20 percent. The second closing, for$32.2 million from the sale of the remaining 51 percent equity interest in Harvest Holding for a cash purchase price of $275 million, is subject to, among other things, approval by the Ministerio del Poder Popular de Petroleo y Mineria representing the Government of Venezuela (which indirectly owns the other 60 percent interest in Petrodelta).securities, as described below.

Through our indirect 51 percent ownership in Harvest Holding, we indirectly own a net 20.4 percent interest in Petrodelta for the period from December 16, 2013 to date, and prior to December 16, 2013 we indirectly owned a 32 percent interest in Petrodelta through our indirect 80 percent interest in Harvest Holding.

On May 7, 2014, Harvest’s stockholders voted to authorize the sale of the remaining interests in Harvest Holding. Once stockholders’ approval was obtained, the SPA allowed for 120 days, or until September 7, 2014, for consummation of the sale, extension of the SPA or termination of the SPA. Petroandina has the right to extend the SPA beyond the termination date in increments of one month, but not beyond December 31, 2014, in exchange for our right to borrow up to $2.0 million, not to exceed $7.6 million in the aggregate, from Petroandina per each monthly extension. Repayments of these loans are subject to certain conditions, one of which states that all outstanding loans (along with interest accrued and other amounts) shall become due upon the final closing date of the SPA, with the second tranche proceeds being reduced by such outstanding amounts. If the SPA is terminated by either party any outstanding loans will become due one year from the date of the termination.

~~On August 28, 2014 and again onSeptember 29, 2014~~, Petroandina exercised its right to extend for one month the termination date of the SPA with the Company borrowing $2.0 million per occurrence. We expect that Petroandina will continue to exercise such extensions until the consummationTerms of the transaction ~~or termination~~include:

Also announced on June 19, 2015, The Company entered into a strategic relationship with CT Energy and CT Energia Holding, Ltd., an international energy trading firm (“CT Energia”), designed to maximize the long‑term success and value of Harvest’s Venezuelan operations and its 20.4% investment in Petrodelta. Under the terms of this strategic relationship the Company entered into a term sheet with PDVSA for the repositioning and growth of Petrodelta's business. The Company agreed to appoint two of CT Energy's designees as the Company’s representatives on the Petrodelta board of directors. CT Energia has entered into a management contract to oversee the day-to-day operations of the ~~SPA, on or before December 31, 2014.~~

Petrodelta and to assist in the development of a plan for the business operations and financing for Petrodelta and the negotiation of definitive documents to implement such plan.

Historically, prior to the transaction pursuant to the Purchase Agreement, our primary ongoing source of cash ~~has~~had been dividends from Petrodelta, ~~(prior to 2011),~~issuance of debt and the sale of oil and gas ~~properties and accessing debt and/or equity markets.~~properties. Our primary use of cash has been to fund oil and gas exploration projects, principal payments on debt, interest, and general and administrative costs. We require capital principally to fund the exploration and

development of new oil and gas properties. As is common in the oil and gas industry, we have various contractual commitments pertaining to exploration, development and production activities. ~~See the 2013 Financial Statements for our contractual commitments.~~

On May 11, 2015, the Company borrowed $1.3 million from CT Energy to fund certain corporate expenses. The Company issued a note payable bearing an interest rate of 15% per annum, with a maturity date of January 1, 2016. On June 19, 2015, the Company repaid the note payable and accrued interest.

On June 3, 2015, the Company entered into an unsecured and prepayable promissory note with James A. Edmiston, President and Chief Executive Officer of the Company, for $50,000. The note carried interest at 11% per year and was to mature upon the earlier to occur of June 30, 2016 or the date on which the Loan Obligations (as defined in that certain Loan Agreement, dated as of September 11, 2014, ~~we used $80.0~~by and among the Company, HNR Energia B.V. and Petroandina Resources Corporation N.V.) are paid in full. On June 19, 2015, the Company repaid the note payable and accrued interest.

On June 19, 2015, CT Energy purchased from the Company certain securities consisting of 9% and 15% notes and the CT warrant to purchase 34.1 million common shares. Upon closing the Company immediately received gross proceeds of ~~the $125~~$32.2 million ~~in proceeds~~ from the sale of the ~~29 percent~~9% and 15% notes. The Company used $9.7 million of these proceeds to repay its existing debt plus accrued interest and certain financing fees. The remaining proceeds will be used to position the Company for long-term growth, both in ~~Harvest Holding that we received on December 16, 2013~~Venezuela and Gabon as well as to ~~redeem all of our 11% Senior Notes due 2014,~~fund general and ~~the accrued unpaid interest.~~

On July 2, 2014, we completed the sale of our rights under a petroleum contract with China National Offshore Oil Corporation (“CNOOC”) for the WAB-21 area for net proceeds of $2.9 million. This area is locatedJune 19, 2015, in ~~the South China Sea and is the subject of a border dispute between People’s Republic of China and Socialist Republic of Vietnam.~~

~~On July 10, 2014, we filed a shelf registration statement on Form S-3~~connection with the ~~Securities and Exchange Commission. Under~~transaction with CT Energy, the ~~shelf registration statement, we could offer and sell~~Company also issued the “additional draw note”, under which CT Energy may elect to provide $2.0 million of additional funds to the Company per month for up to ~~$300.0~~six months following the one-year anniversary of the closing date of the transaction (up to $12.0 million ~~of various types of securities, including unsecured debt securities, common stock, preferred stock, warrants and units. Additionally,~~in aggregate). If funds are loaned under the shelf registration statement will allow selling stockholders to resell up to an aggregate of 686,761 common shares upon the exercise of currently outstanding warrants. The Company will not receive any proceeds from common shares offered by these selling stockholders. There can be no assurances that any future offeringsadditional draw note, interest will be ~~conducted under~~compounded quarterly at a rate of 15% per annum and will be payable quarterly on the ~~shelf registration statement,~~first business day of each January, April, July and October, commencing October 1, 2016. If by Claim Date, the terms of any future offering would be determined at the time of the offering and would be subject to market conditions and approval by the Company's Board of Directors. This disclosure shall not constitute an offer to sell or the solicitation of the offer to buy, nor shall there be any sale of these securities in any state where such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

~~On September 4, 2014, we entered into a Distribution Agreement (the “Agreement”) with a sales agent (the “Agent”) to sell shares~~volume weighted average price of the Company’s common stock ~~(the “ATM Shares”), for up~~over any consecutive 30-day period has not equaled or exceeded $2.50 per share, the maturity date of the additional draw note will be extended by two years and the interest rates on the additional draw note will adjust to ~~$75.0 million aggregate gross sale proceeds, from time to time in “at-the-market” offerings (the “ATM offering”)~~8.0%. During an event of default, the ~~quarterly period ended September 30, 2014 we issued 334,563 shares under the ATM offering~~outstanding principal amount will bear additional interest at a ~~weighted average sale price~~rate of ~~$4.45~~2% per ~~share resulting~~annum higher than the rate otherwise applicable.

On June 19, 2015, in ~~proceeds~~connection with the transaction with CT Energy, the Company also issued 69.75 shares of its newly created Series C preferred stock, par value $0.01 per share. The primary purpose of the Series C preferred stock is to usprovide the holder of ~~approximately $1.4 million, net of fees paid~~the 9% Note with voting rights equivalent to the ~~Agent and other costs associated with~~common stock underlying the Agreement. Under the terms of the ATM offering, sales are to be made primarily in transactions that are deemed to be “at-the-market” offerings, including sales made directly on the New York Stock Exchange at market prices or as otherwise agreed by the Company and the Agent. The Company may also sell the ATM Shares from time to time to the Agent as principal for its own account at a price to be agreed upon at the time of the sale. Any sale of ATM Shares to the Agent as principal would be pursuant to the terms of a separate agreement between the Company and the Agent.

We anticipate that we will need to fund estimated cash general operating and capital expenditures of $14.0 million for the remainder of 2014. The majority of these costs will be paid with cash on hand, with any shortfalls to be made up with funds from the anticipated second closing under the SPA, loans from Petroandina related to the monthly extensions of the closing, accessing debt markets or additional equity sales. However, there can be no assurances that any of these events will occur or that funds will be available to the Company on terms that are acceptable. Based upon our ongoing analysis of seismic data, we believe that it may be in the best interest of our stockholders to further develop our remaining property in Gabon which would require additional capital expenditures. We also intend to continue our consideration of a possible sale or other transaction that our Board of Directors believes is in the best interests of the Company and of its stockholders. Our cash balance as of September 30, 2014 was $9.0 million.

If the proposed sale of our remaining Harvest Holding interests is completed during the fourth quarter, a significant portion of our assets at year end will be cash from the proceeds of this transaction. However, the timing of the sale of our remaining 51 percent interest in Harvest Holding is beyond our control, and we will continue to have operating and capital requirements in the interim time period. Depending on the timing of these events, we anticipate using aunconverted portion of the ~~proceeds from this sale~~9% Note. Shares of the Series C preferred stock are entitled to ~~pay for expenses and other costs related~~vote on certain matters submitted to a vote of the ~~transaction, which we estimate will be approximately $3.1~~stockholders on an “as converted” basis.

As of December 31, 2014, HNR Energia had a note payable to Petroandina of $7.6 million. Principal was due by January 1, 2016. Interest payments are quarterly beginning on December 31, 2014. On June 23, 2015 the Company repaid the note payable of $7.6 million ~~$1.5 million~~plus accrued interest of ~~which has been incurred as of September 30, 2014; and to pay taxes related to the transaction, which we estimate will be approximately $48.2~~$0.4 million. We also anticipate making a cash settlement payment related to the warrant derivative liability of approximately $2.0 million (see Note 11 – Warrant Derivative Liability), along with severance costs and obligations under stock-based compensation agreements and employment agreements triggered by this sale, during the fourth quarter 2014. Based on outstanding stock-based compensation awards and salaries as of September 30, 2014, the cash settlement could be up to approximately $16.1 million.

The consolidated condensed financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Third-party interests in our majority-owned subsidiaries are presented as noncontrolling interests.

~~At September 30, 2014,~~On December 16, 2013, we ~~reviewed~~entered into a Share Purchase Agreement (the “SPA”) to sell all of our ~~investment~~interests in ~~Petrodelta taking into consideration the~~Venezuela to Petroandina in two closings for an aggregate cash purchase price of $400.0 million. At that time, we retained an 80 percent interest in Harvest Holding. Under the SPA, we sold a 29 percent interest in Harvest Holding to Petroandina for $125.0 million on December 16, 2013, and agreed to sell the ~~sale of our~~ remaining 51 percent interest in Harvest Holding to Petroandina for $275.0 million at a future closing. The second closing was subject to, among other things, authorization by the holders of a majority of our outstanding common stock and approval of the Ministerio del Poder Popular de Petroleo y Mineria representing the Government of Venezuela. Our shareholders approved the sale on May 7, 2014. By January 1, 2015, we concluded that the parties would not be able to obtain the approval of the Government of Venezuela and so we terminated the SPA in accordance with its terms.

Through December 31, 2014, we included the results of Petrodelta in our financial statements under the ~~terms~~equity method of ~~the SPA (see~~ ~~Note 1 – Organization – Share Purchase Agreement). Beginning~~accounting. We ceased recording earnings from Petrodelta in the second quarter 2014 due to the expected sales price of the second closing purchase agreement approximating the recorded value of our investment in Petrodelta. As discussed above, we terminated the SPA on January 1, 2015. Effective December 31, 2014, we determined that we ~~should~~no longer had significant influence within our investment in Petrodelta and in accordance with Accounting Standards Codification “ASC 323 – Investments – Equity Method” and as such, we decided to account for our investment in Petrodelta under the cost method (“ASC 320 – Investments – Debt and Investments Securities”). Under the cost method we will not recognize any ~~additional~~ equity in earnings from our investment in Petrodelta ~~as to do so would result~~ in ~~a balance~~our results of operations, but will recognize any cash dividends in the ~~related equity~~period they are received. We also performed an impairment analysis of the carrying value of our investment ~~account which would exceed~~at December 31, 2014. Based on this assessment we recorded a one-time pre-tax impairment charge of $355.7 million against the carrying value of our investment in the fourth quarter of 2014. We continue to monitor the carrying value of our investment and may record additional impairments if we believe that any future decrease in the estimated fair value of the investment are other than temporary.

The preparation of financial statements in conformity with U.S. 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. Actual results could differ from those estimates.

amount we would realize should the sale of our remaining 51 percent interest in Harvest Holding be completed under the terms of the SPA. Through September 30, 2014 we have excluded $30.9 million in earnings from equity affiliates from our results of operations.

~~We follow the successful efforts method of accounting for oil and gas properties.~~ The major components of property and equipment are as ~~follows:~~follows (in thousands):

Unproved property costs, excluding oilfield inventories, consist ~~of:~~ of (in thousands):

Furniture, fixtures and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are recorded at cost and amortized using the straight-line method over the life of the applicable lease. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, depreciation expense was $0.0 million and ~~$0.2~~$0.1 million, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2013,~~2014, depreciation expense was $0.1 million and ~~$0.3~~$0.1 million, respectively.

~~The~~at June 30, 2015 and December 31, 2014 include deposits, prepaid expenses expected to be realized in the next 12 to 24 months and deferred financing costs. Deferred financing costs relate to specific financings and are amortized over the life of the financings to which the costs relate using the interest rate method. Other assets at June 30, 2015 and December 31, 2014 also consisted of a blocked payment ~~of $0.7 million net to our 66.667 percent interest is~~ related to our drilling operations in Gabon ~~and was blocked as a result of~~in accordance with the United States (“U.S.”) sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011, and administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”). During the three months ended June 30, 2015, we recorded a $0.6 million allowance for doubtful accounts to general and administrative costs associated with the blocked payment. See Note 12 – Commitments and Contingencies.

We capitalize interest costs for qualifying oil and gas properties. The capitalization period begins when expenditures are incurred on qualified properties, activities begin which are necessary to prepare the property for production and interest costs have been incurred. The capitalization period continues as long as these events occur. The average additions for the period are used in the interest capitalization calculation. During the three and ~~nine~~six months ended ~~September~~June 30, 2015, we did not capitalize interest costs due to insufficient progress related to our oil and gas activities. During the three and six months ended June 30, 2014, we capitalized interest costs for qualifying oil and gas property additions related to our Dussafu project in Gabon of $0.0 million and $0.2 million, respectively. ~~During the three and nine months ended September 30, 2013, we capitalized interest costs for qualifying oil and gas property additions of $2.1 million and $6.2 million, respectively.~~

We measure and disclose our fair values in accordance with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, accounts receivable, stock appreciation rights, restricted stock units, debt, embedded derivatives and warrant derivative liabilities. We maintain cash and cash equivalents in bank deposit accounts with commercial banks with high credit ratings, which, at times may exceed the federally insured limits. We have not experienced any losses from such investments. Concentrations of credit risk with respect to accounts receivable are limited due to the nature of our receivables. In the normal course of business, collateral is not required for financial instruments with credit risk. The estimated fair value of cash ~~accounts receivable~~and cash equivalents and accounts ~~payable~~receivable approximates their carrying value due to their short-term nature (Level 1). The estimated fair value of advances to equity affiliate and dividend receivable approximates their carrying value as it is the estimated amount we would receive from a third party to assume the receivables (Level 2).

The following tables set forth by level within the fair value hierarchy our financial liabilities that were accounted for at fair value as of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013.~~2014.



	As of June 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring
Assets:
Embedded derivative asset	$	—	$	—	$	2,627	$	2,627
	$	—	$	—	$	2,627	$	2,627
Recurring
Liabilities:
Stock appreciation rights liability	$	—	$	633	$	—	$	633
Restricted stock units liability		—		562		—		562
Embedded derivative liability		—		—		13,015		13,015
Warrant derivative liability		—		—		37,595		37,595
	$	—	$	1,195	$	50,610	$	51,805

As of June 30, 2015, we had $0.6 million for our stock appreciation rights (“SARs”) and $0.2 million for our restricted stock units (“RSUs”) recorded in accrued expenses. Our remaining $0.4 million for the RSUs liability was in other long-term liabilities. As of December 31, 2014, we had $0.4 million for our SARs and $0.4 million for our RSUs recorded in accrued expenses. Our remaining $0.2 million for the RSUs liability was in other long-term liabilities.

As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value liabilities and their placement within the fair value hierarchy levels. See Note 11 – Warrant Derivative ~~Liability~~Liabilities for a description and discussion of our warrant derivative liabilities as well as a description of the valuation models and inputs used to calculate the fair value. See Note 10 – Notes Payable to Noncontrolling Interest Owners,

Debt and Financing for a description and discussion of our embedded derivatives related to our 9% Note and 15% Note as well as a description of the valuation models and inputs used to calculate the fair value. All of our embedded derivatives and warrants are classified as Level 3 within the fair value ~~of this derivative liability.~~hierarchy.

During the three and ~~nine~~six months ended ~~September~~June 30, 2015, there was a change in the fair value of warrant liability from the CT Energy transaction of $2.4 million as reflected in our consolidated condensed statement of operations and comprehensive loss as derivative income. During the three and six months ended June 30, 2014, there were no changes in the fair value of the warrants within each respective period. During the three and six months ended June 30, 2015, there was noa change in the fair value of embedded derivative liabilities of $0.5 million as derivative income and a change in the fair value of the ~~warrants,~~embedded derivative asset of $0.1 million of derivative income as reflected in our consolidated condensed statement of operations and ~~for the three and nine months ended September 30, 2013, an unrealized loss of $6.6 million and~~ ~~$2.8 million, respectively, was recorded to reflect the change in the fair value of this derivative liability.~~comprehensive loss.

The following table provides a reconciliation of financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).



	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013		2015		2014		2015		2014
	(in thousands)								(in thousands)				(in thousands)
Financial liabilities - warrant derivative liability:
Financial assets - embedded derivative asset
Beginning balance	$	1,953	$	1,685	$	1,953	$	5,470	$	—	$	—	$	—	$	—
Unrealized change in fair value		—		3,072		—		(713)
Additions - fair value at issuance										2,504		—		2,504		—
Change in fair value										123		—		123		—
Ending balance	$	1,953	$	4,757	$	1,953	$	4,757	$	2,627	$	—	$	2,627	$	—


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(in thousands)
Financial liabilities - embedded derivative debt:
Beginning balance	$	—	$	—	$	—	$	—
Unrealized change in fair value		—		3,487		—		3,487
Ending balance	$	—	$	3,487	$	—	$	3,487

During ~~the~~ three and ~~nine~~six months ended ~~September~~June 30, ~~2014 and 2013, there~~2015 no transfers were ~~no transfers~~made between Level 1, Level 2 and Level 3 ~~liabilities.~~

liabilities or investments. During three and six months ended June 30, 2014, no transfers were made between Level 1, Level 2 and Level 3 liabilities or investments.

We use a fair value based method of accounting for stock-based compensation. ~~During~~We utilize the ~~nine months ended September 30, 2014, we issued stock-based compensation awards~~Black-Scholes option pricing model to ~~certain employees in~~measure the ~~form of:~~fair value of stock options ~~to purchase 683,000 shares of common~~and SARs. Restricted stock and RSUs are measured at ~~an exercise price of $4.76 per share, vesting over three years from the date of grant; 578,500 shares of restricted~~their intrinsic values.

~~stock units vesting three years from the date of grant; and 107,142 shares of restricted stock units vesting one year from the date of grant to our outside directors.~~

During the nine months ended September 30, 2013, we issued stock-based compensation awards to certain employees and directors as follows: 920,004 stock options to purchase common shares at an exercise price of $4.80 per share, vesting over three years from date of grant; 213,996 stock appreciation rights at an exercise price of $4.80 per share, vesting over three years from date of grant; and 190,002 shares of restricted stock vesting at three years from date of grant.

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.

We ~~have recognized an~~classify interest related to income tax ~~expense of $2.4 million~~liabilities and ~~$1.3 million for the three and nine months ended September 30, 2014, respectively,~~penalties as ~~compared to an income tax benefit of $0.8 million and $2.1 million for the three and nine months ended September 30, 2013, respectively. Beginning in the fourth quarter~~applicable, as interest expense.

Since December of 2013 we ~~determined that we would~~ have ~~sufficient taxable~~provided deferred income ~~in the U.S. from the expected sale~~taxes on a portion of the remaining equity interest in Harvest Holding that caused us to remove the valuation allowance recorded against our net U.S. deferred tax assets. Consistent with that assumption we have recognized a current tax benefit associated with operating losses incurred in the U.S. for the three and nine months ended September 30, 2014. However during these same periods the recognized current tax benefit was offset by deferred tax expenses associated with additional undistributed earnings ~~from~~of our foreign subsidiaries ~~and~~as we are unable to assert that those earnings would be permanently reinvested, nor otherwise could be repatriated in a tax free manner, as part of our ongoing business.

As the ~~removal of deferred tax assets attributable to cancelled stock options. These transactions resulted in the recognition~~conversion feature of the 9% Note was reasonably expected to be exercised at the time of the note’s issuance due to the conversion price being in-the-money, the interest on the 9% Note is expected to be non-deductible to the Company under Internal Revenue Code (“IRC”) 163(l). The 15% note was issued, for income tax ~~expense noted above~~purposes, with original issue discount (“OID”). OID generally is deductible for income tax purposes. However, if the ~~three and nine months ended September 30, 2014.~~debt instrument constitutes an “applicable high-yield discount obligation” (“AHYDO”) within the meaning of IRC Section 163(i)(1), then a portion of the OID likely would be non-deductible pursuant to IRC Section 163(e)(5). Our analysis of on the 15% Note is that the note is likely to be an AHYDO; consequently, a portion of the OID likely will be non-deductible for income tax purposes.



	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013		2015		2014		2015		2014
	(in thousands)								(in thousands)
Balance at beginning of period	$	260,150	$	108,584	$	243,167	$	97,101	$	78,902	$	252,244	$	79,152	$	243,167
Contributions by noncontrolling interest owners		236		—		953		—		61		241		163		717
Net income (loss) attributable to noncontrolling interest		(273)		4,693		15,993		16,176		(262)		7,665		(614)		16,266
Balance at end of period	$	260,113	$	113,277	$	260,113	$	113,277	$	78,701	$	260,150	$	78,701	$	260,150

In February 2013, FASB issued ASU No. 2013-04, which is included in ASC 405, “Liabilities”, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date”. This update provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation with the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. Examples of obligations within the scope to ASU No. 2013-04 include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. ASU No. 2013-04 was effective for our fiscal years and interim periods beginning January 1, 2014. The implementation of this guidance on January 1, 2014 had no material impact on our consolidated financial position, results of operations or cash flows. See ~~Note 12 – Commitments and Contingencies~~ ~~for the new recurring disclosures required under this guidance.~~

In July 2013, FASB issued ASU No. 2013-11 which is included in ASC 740 “Income Taxes”, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This update provides guidance regarding the presentation of unrecognized tax benefits when net operating loss carryforward, a similar tax loss, or a tax credit carryforward are not available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. In such instances, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. As permitted under the guidance, we applied the amendment prospectively to all unrecognized tax benefits that exist at the effective date for the Company which is January 1, 2014. The implementation of this guidance on January 1, 2014 had no material impact on our consolidated financial position, results of operations or cash flows.

In April 2014, FASB issued ASU No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which is included in ASC 205 “Presentation of Financial Statements” and ASC 360 “Property, Plant, and Equipment.” This update changes the criteria for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the revised standard, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (2) an

acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. Under current U.S. GAAP, an entity is prohibited from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after the disposal. The new guidance eliminates these criteria. The guidance does not change the presentation requirements for discontinued operations in the statement where net income is presented. Also, the new guidance requires the reclassification of assets and liabilities of a discontinued operation in the statement of financial position for all prior periods presented. The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation, an entity’s continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation. The amendment should be applied prospectively; however, early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue. The amendment is effective for annual periods beginning on or after December 15, 2014 and interim periods within annual periods beginning on or after December 15, 2015. This guidance will not impact disposals (or classifications as held for sale) in periods prior to the period of adoption. We ~~have~~ elected an early adoption of this guidance at September 30, 2014, which we have applied to ~~our~~the treatment of our Indonesia interests. See Note 9 – Indonesia for further information.

In May 2014, FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers” which is included in ASC 606, a new topic under the same name. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The guidance supersedes the previous revenue recognition requirements and most industry-specific guidance. Additionally, the update supersedes some cost guidance related to construction type and production-type contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of

nonfinancial assets that are not in a contract with a customer are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this update.

The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The new guidance also provides for additional qualitative and quantitative disclosures related to: (1) contracts with customers, including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations); (2) significant judgments and changes in judgments which impact the determination of the timing of satisfaction of performance obligations (over time or at a point in time), the transaction price and amounts allocated to performance obligations; and (3) assets recognized from the costs to obtain or fulfill a contract.

For public entities such as the Company, the amendments in the update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.In July 2015, the FASB issued a decision to delay the effective date by one year. The new guidance is effective for annual and interim periods beginning after December 15, 2017. Early application is not permitted. An entity should apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application. We are currently evaluating the impact of this guidance. ~~During~~

In March 2015, the ~~period from May 2011,~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the ~~date we disposed~~Presentation of ~~our interest~~Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the ~~Antelope Project,~~balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The guidance is effective for interim periods and annual period beginning after December 15, 2015; however early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to ~~date,~~Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the provisions of ASU 2014-15 and assessing the impact, if any, it may have on our consolidated financial statements.

In November 2014, the FASB issued Accounting Standards Update No. 2014-16 (“ASU 2014-16”), Derivatives and Hedging (Topic 815):Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity, which requires the use of the “whole instrument approach,” to determine whether the host contract in an hybrid instrument in the form of a share is more akin to debt or equity. The ASU also provides examples and implementation guidance. It iseffective for fiscal years beginning after December 15, 2015; however we have ~~not had any revenues as our oil and gas properties have not had any production.~~elected to early adopt the provisions of ASU 2014-16.

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. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Three Months Ended

Nine Months Ended

September 30,

September 30,


2014

2013

2014

2013


(in thousands, except per share amounts)
Income (loss) from continuing operations(a)

$
(3,998)

$
4,539

$
(13,296)

$
37,661
Discontinued operations


(142)

(2,586)


(503)

(4,077)
Net income (loss) attributable to Harvest

$
(4,140)

$
1,953

$
(13,799)

$
33,584
Weighted average common shares outstanding


42,032

39,362


41,925

39,192
Effect of dilutive securities


—

56


—

126
Weighted average common shares, diluted


42,032

39,418


41,925

39,318
Basic earnings (loss) per share:




Income (loss) from continuing operations

$
(0.10)

$
0.12

$
(0.32)

$
0.96
Discontinued operations


—

(0.07)


(0.01)

(0.10)
Basic earnings (loss) per share

$
(0.10)

$
0.05

$
(0.33)

$
0.86
Diluted earnings (loss) per share:




Income (loss) from continuing operations

$
(0.10)

$
0.12

$
(0.32)

$
0.96
Discontinued operations


—

(0.07)


(0.01)

(0.10)
Diluted earnings (loss) per share

$
(0.10)

$
0.05

$
(0.33)

$
0.86



		Three Months Ended June 30,			Six Months Ended June 30,
	2015		2014		2015		2014

	(in thousands)
Loss from continuing operations(a)	$	(25,425)	$	(1,421)	$	(31,042)	$	(9,298)
Discontinued operations		—		(230)		—		(361)
Net loss attributable to Harvest	$	(25,425)	$	(1,651)	$	(31,042)	$	(9,659)
Weighted average common shares outstanding		42,663		41,861		42,663		41,854
Effect of dilutive securities		—		—		—		—
Weighted average common shares, diluted		42,663		41,861		42,663		41,854
Basic loss per share:
Loss from continuing operations(a)	$	(0.60)	$	(0.03)	$	(0.73)	$	(0.22)
Discontinued operations		—		(0.01)		—		(0.01)
Basic loss per share	$	(0.60)	$	(0.04)	$	(0.73)	$	(0.23)
Diluted loss per share:
Loss from continuing operations(a)	$	(0.60)	$	(0.03)	$	(0.73)	$	(0.22)
Discontinued operations		—		(0.01)		—		(0.01)
Diluted loss per share	$	(0.60)	$	(0.04)	$	(0.73)	$	(0.23)

~~The~~During the three months ended ~~September~~June 30, 2015 per share calculations above exclude 0.1 million unvested restricted shares, 3.7 million options and 36.9 million warrants because they were anti-dilutive. During the three months ended June 30, 2014 per share calculations above exclude ~~4.6~~0.2 million unvested restricted shares, 4.3 million options and 2.5 million warrants asbecause they were anti-dilutive. ~~The three~~

During the six months ended ~~September~~June 30, ~~2013~~2015 per share calculations above exclude ~~4.6~~0.1 million unvested restricted shares, 4.0 million options and ~~2.4~~36.9 million warrants asbecause they were anti-dilutive.

~~The nine~~ During the six months ended ~~September~~June 30, 2014 per share calculations above exclude ~~4.5~~0.3 million unvested restricted shares, 4.1 million options and 2.5 million warrants ~~as they were anti-dilutive. The nine months ended September 30, 2013 per share calculations above exclude 3.8 million options and 2.4 million warrants as~~because they were anti-dilutive.

The diluted per share calculation may also include the effect of the Company’s shares issuable under convertible debt agreements, except in periods in which there is a loss.

During the three and six months ended June 30, 2014, the nominal loss from Oman discontinued operations included general and administrative expenses. As we no longer have any interests in Oman, we have reflected the results ~~reported~~in discontinued operations.

In February 2013, we signed farm-out agreements on Block VSM14 and Block VSM15 in Colombia. Under the terms of the farm-out agreements, we had a 75 percent beneficial working interest and our partners had a 25 percent carried interest for the minimum exploratory work commitments on each block. We are in the ~~2013 Financial Statements,~~process of closing and exiting our Colombia venture. During the three and six months ended June 30, 2014, the loss from discontinued operation primarily included general and administrative expenses. As we no longer have any interests in Colombia, we have reflected the results in discontinued operations.

Oman operations and Colombia operations have been classified as discontinued operations. ~~Losses~~No revenues were recorded related to these projects for the periods presented. Expenses are shown in the table below:

The following table summarizes the changes in our investment in affiliate (Petrodelta) as of June 30, 2015 and December 31, 2014. Petrodelta’s reporting and functional currency is the U.S. Dollar.

Our 40 percent investment in Petrodelta is owned through our subsidiary, Harvest Holding. We have determined that we do not have significant influence within our investment in Petrodelta and, in accordance with Accounting Standards Codification “ASC 323 – Investments – Equity Method”, we account for our investment in Petrodelta under the cost method (“ASC 320 – Investments – Debt and Investments Securities”), effective December 31, 2014. Under the cost method we will not recognize any equity in earnings from our investment in Petrodelta in our results of operations, but will recognize any cash dividends in the period they are received.

At December 31, 2014, we performed an impairment analysis of the carrying value of our investment. The impairment analysis required us to estimate the fair value of our investment in Petrodelta and compare the estimated fair value to our carrying value. The estimated fair value of our investment was determined based on the estimated fair value of Petrodelta’s oil and gas properties and other net assets at December 31, 2014, discounted by a factor for the lack of marketability and control. Based on this analysis, we recorded a pre-tax impairment charge of $355.7 million in the fourth quarter 2014. In addition to the impairment charge, we recorded an allowance of $12.2 million in the fourth quarter 2014 to fully reserve the dividend receivable due from Petrodelta relating to the dividend approved in 2011. Harvest Vinccler has advanced certain costs on behalf of Petrodelta. These costs included consultants in engineering, drilling, operations, seismic interpretation, and employee salaries and related benefits for Harvest Vinccler employees seconded into Petrodelta. We also fully reserved the outstanding receivables of $1.6 million related to these advances as of December 31, 2014.

~~Harvest Holding indirectly owns a 40 percent interest in Petrodelta.~~ On ~~December 16, 2013, Harvest and HNR Energia~~June 19, 2015, the Company entered into a strategic relationship with CT Energy and CT Energia, designed to maximize the ~~SPA with Petroandina~~long‑term success and ~~Pluspetrol,~~value of the Company’s Venezuelan operations and its ~~parent, to sell our 80 percent equity interest~~20.4% investment in ~~Harvest Holding to Petroandina in two closings. The first closing occurred on December 16, 2013, in which we sold a 29 percent equity interest in Harvest Holding.~~Petrodelta. See Note 1 – Organization– for further information.

Current oil prices are similar to those that our valuation took into account at year-end, and while Petrodelta continues to incur high operating costs, which are driven mainly by exchange rate imbalances and inefficiencies of ongoing operations and should be addressed through a current term sheet with PDVSA. ~~Share Purchase Agreement~~The term sheet signed with PDVSA, through our strategic relationship with CT Energia Holding Ltd., shows a path toward resolving the operating cost situation and existing production problems. It is management’s belief that these problems will be eliminated once certain agreements are completed and in place which will provide for: (i) independent cash management of Petrodelta´s crude sales that will ensure timely payment of obligations to the government, vendors, debts and dividends , (ii) a financing plan to ensure funding of the capital expenditures that will drive the production growth, (iii) autonomy in drilling, purchasing and contracting functions and (iv) a technical assistance contract through which HNR Finance B.V. will provide critical services and expertise.

Petrodelta’s financial information is prepared in accordance with International Financial Reporting Standards (“IFRS”) which we adjust to conform to U.S. GAAP. All amounts through “Net Income under U.S. GAAP” as shown on the financials reported below, represent 100 percent of Petrodelta’s financial results. In addition to the adjustments to arrive at Petrodelta’s net income under U.S. GAAP, earnings from equity affiliate also reflect the amortization of the excess basis in equity affiliate using the unit-of-production method based on risk adjusted total current estimated reserves. Summary financial information is presented below for the three and nine months ended September 30, 2014 and 2013 and at September 30, 2014 and December 31, 2013:

With this new operating and financial framework in place, management believes that Petrodelta´s performance should dramatically improve due to structurally solving the overstated foreign exchange imbalance, obtaining control and management of drilling, procurement and contracting processes, as well having a ring fenced management of the cash generated and used by Petrodelta. If successfully completed, we have forecasted Petrodelta´s net income to significantly improve, thereby reversing the adverse financial trend.

Three Months Ended


Nine Months Ended

September 30,

September 30,


2014

2013


2014

2013


(in thousands, except percentages)

Results under IFRS:




Revenues:




Oil sales

$
323,212


$
358,692


$
1,013,010


$
990,104

Gas sales


1,132


923



3,048


3,046

Royalties


(108,567)

(119,259)



(339,072)

(329,021)



215,777


240,356



676,986


664,129

Expenses:




Operating expenses


56,584


25,641



162,190


88,310

Workovers


5,280


10,476



19,086


18,929

Depletion, depreciation and amortization


34,178


23,096



92,854


64,430

General and administrative


2,084


6,092



11,729


19,575

Windfall profits tax


37,386


67,751



135,811


185,725

Windfall profits tax  (credit) and reversal of credit


—


—



55,168


(55,168)



135,512


133,056



476,838


321,801

Income from operations


80,265


107,300



200,148


342,328

Gain (loss) on exchange rate


(293)

11,634



(125)

193,020

Investment earnings and other


308


7



922


1,409

Interest expense


(3,965)

(3,238)



(19,816)

(9,163)

Income before income tax


76,315


115,703



181,129


527,594

Current income tax expense


1,188


61,523



47,948


262,057

Deferred income tax expense (benefit)


1,717

(42,453)



(30,981)

(83,563)

Net income under IFRS


73,410

96,633



164,162

349,100

Adjustments to increase (decrease) net income under IFRS:




Deferred income tax expense


(8,515)


(26,337)



(32,563)


(65,160)

Depletion expense


(5,076)

(3,076)



(14,972)

(15,254)

Windfall profits tax credit and (reversal) of credit


—


—



55,168


(55,168)

Sports law over (under) accrual


441


(184)



1,181


4

Net income under U.S. GAAP


60,260


67,036



172,976


213,522

Equity interest in equity affiliate


40
%

40
%


40
%

40
%
Income before amortization of excess basis in equity affiliate


24,104


26,814



69,190


85,409

Amortization of excess basis in equity affiliate


(1,093)

(1,067)



(3,351)

(2,589)

Earnings from equity affiliate excluded from results of operations

(23,011)

—

(30,890)

—

Earnings from equity affiliate included in income

$
—


$
25,747


$
34,949


$
82,820

~~The sale of oil~~While there can be no assurance that we will be able to complete and ~~gas by Petrodelta to the Venezuelan government is pursuant to a Contract for Sale and Purchase of Hydrocarbons~~implement these new agreements with PDVSA Petroleo S.A. (“PPSA”) signed on January 17, 2008 (the “Sales Contract”). As discussed further in the 2013 Financial Statements, the Sales Contract is in the process of being amended to include the Boscan gravity and sulphur correction factors and crude pricing formula which are applicable to production from the El Salto field. The pricing formula in the draft amendment has been used to accrue revenue for El Salto field deliveries from October 1, 2011 to date. As of September 30, 2014 and December 31, 2013, receivables of $1,091.6 million and $756.7 million, net of royalty, respectively, for the El Salto field remained uninvoiced to and uncollected from PPSA pending execution of the amendment.

The April 2011 Windfall Profits Tax law included a provision that an exemption of the Windfall Profits Tax could be granted for the incremental production of projects and grass root developments until the specific investments are recovered. The projects deemed to qualify for the exemption have to be considered and approved on a case by case basis by the Ministry of the People’s Power for Petroleum and Mining (“MENPET”). In March 2013, Petroleos de Venezuela S.A. (“PDVSA”) requested from MENPET a Windfall Profits Tax exemption credit under provisions in the April 2011 Windfall Profits Tax law. The exemption was applied to several oil development projects, including Petrodelta. However, MENPET has not defined the projects qualifying for exemption or provided the guidance necessary to calculate the exemption. PDVSA issued to Petrodelta its estimated share of the exemption credit related to 2012 of $55.2 million ($36.4 million net of tax) based on PDVSA’s calculation and projects PDVSA deemed to qualify for the exemption. Petrodelta has not been provided supporting documentation indicating the properties have been appropriately qualified by MENPET, the specific details for the exemption credit, such as which fields, production period or production, or the supporting calculations. In July 2014, Petrodelta received confirmation that MENPET had denied PDVSA’s application for the exemption, and Petrodelta, ~~reversed its estimated share~~we believe that no further impairment of ~~the credit.~~ our investment is warranted at June 30, 2015.

We ~~determined that until MENPET either issues guidance on the exemption provisions in the law or issues payment forms including the exemption credit, or written approval from MENPET~~continue to account for ~~this exemption credit is received by Petrodelta or us, we would exclude the exemption credit from~~ our ~~equity earnings~~investment in Petrodelta under ~~U.S. GAAP. In March 2013,~~the cost method, as we ~~included an adjustment for~~have not seen sufficient progress under our new management agreement with CT Energia that would lead us to believe that we have regained significant influence over the ~~differences between IFRS and U.S. GAAP which reversed Petrodelta’s accrual for~~operations of Petrodelta. We will continue to monitor this situation in future periods.

Harvest Vinccler currently assists us in the ~~Windfall Profits Tax credit,~~oversight of our investment in Petrodelta and in ~~June 2014 we recorded an adjustment to Petrodelta’s reversal of the Windfall Profits Tax credit.~~

~~Petrodelta’s~~negotiations with PDVSA. Harvest Vinccler’s functional and reporting currency is the U.S. Dollar (“USD”). PPSA is obligated to make payments to Petrodelta in U.S. Dollars for crude oil and natural gas liquids delivered. In addition, major contracts for capital expenditures and lease operating expenditures are denominated in U.S. Dollars. Any dividend paid by Petrodelta will be made in U.S. Dollars.

~~Petrodelta has~~Dollar. They do not have currency exchange risk ~~from fluctuations of~~other than the official prevailing exchange rate that applies to their operating costs denominated in Venezuela Bolivars (“Bolivars”). During the three and six months ended June 30, 2015, Harvest Vinccler exchanged approximately $0.08 million for both periods, and received 199.80 Bolivars per U. S. Dollar. During the three and six months ended June 30, 2014 Harvest Vinccler exchanged approximately $0.1 million and $0.3 million, respectively, and received an average exchange rate of 52.4 Bolivars and 23.9 Bolivars, respectively per U.S. Dollar.

In January 2014, the Venezuelan government modified the currency exchange system whereby the official exchange rate of 6.3 Bolivars per USD would only apply to certain economic sectors related to purchases of “essential goods and services” while other sectors of the economy would be subject to a new exchange rate (“SICAD I”) determined by an auction process conducted by Venezuela's Complimentary System of Foreign Currency Administration. Participation in the SICAD I mechanism is controlled by the Venezuelan government and is limited to certain companies that operate in designated economic sectors. In March 2014, an additional currency exchange mechanism was established by the Venezuelan government that allows companies within other economic sectors to participate in an additional auction process (“SICAD II”).

On February 10, 2015, the Ministry of Economy, Finance, and Public Banking, and the Central Bank of Venezuela (BCV) published in the Extraordinary Official Gazette No.6.171 Exchange Agreement No.33 with two Official Notices. The first notice stated that the former auction process, SICAD II, would be no longer permitted. Secondly, a new exchange rate called the Foreign Exchange Marginal System (“SIMADI”) has been created. The SIMADI rate published as of June 30, 2015 is 197.30 Bolivars per U.S. Dollars. The SIMADI’s marginal system is available in limited quantities for individuals and companies to purchase and sell foreign currency via banks and exchange houses. Currently the SIMADI marginal system is the only exchange mechanism available to Harvest Vinccler. We are both eligible and have successfully participated in SIMADI auctions during 2015 and as a result we have adopted the SIMADI exchange rate of approximately 197.30 Bolivars per USD for the re-measurement of our Bolivar denominated assets and liabilities and revenue and expenses, as we believe the SIMADI rate is most representative of the economics in which Harvest Vinccler operates. Prior to this change, we were using the SICAD II rate of approximately of 50 Bolivars per USD.

The monetary assets that are exposed to exchange rate fluctuations are cash, accounts receivable, prepaid expenses and other current assets. The monetary liabilities that are exposed to exchange rate fluctuations are accounts payable, accruals, current and deferred income tax and other tax obligations and other current liabilities. All monetary assets and liabilities incurred at the official Bolivar exchange rate are settled at the official 6.3 Bolivar exchange rate. The official prevailing currency exchange rate was increased from 4.3 Bolivars per USD to 6.3 Bolivars per USD in February 2013. Petrodelta reflected a gain of approximately $169.6 million on revaluation of its non-income tax related assets and liabilities during the year ended December 31, 2013 primarily related to the February 2013 devaluation. The majority of Petrodelta’s transactions are subject to the fixed official exchange rate of 6.3 Bolivars per USD. The financial information is prepared using the official fixed exchange rate (6.3 Bolivars per USD from February 2013 to date). At ~~September~~June 30, 2014, the balances in Petrodelta’s Bolivar denominated monetary assets and liabilities accounts that are exposed to official currency exchange rate changes are 1,447 million Bolivars and 6,359 million Bolivars, respectively.

~~See also~~ ~~Note 6 – Investment in Equity Affiliate– Petrodelta~~ ~~for further information regarding our Venezuela operations.~~

In January 2014, the Venezuelan government modified the currency exchange system whereby the official exchange rate of 6.3 Bolivars per USD would only apply to certain economic sectors related to purchases of “essential goods and services” while other sectors of the economy would be subject to a new exchange rate, SICAD I, determined by an auction process conducted by Venezuela's Complimentary System of Foreign Currency Administration. Participation in the SICAD I mechanism is controlled by the Venezuelan government and is limited to certain companies that operate in designated economic sectors.

In March 2014, an additional currency exchange mechanism was established by the Venezuelan government that allows companies within other economic sectors to participate in an additional auction process (“SICAD II”).

We have determined that Harvest Vinccler S.C.A. (“Harvest Vinccler”) is not eligible to apply for exchanges at the official rate nor have we been allowed to participate in the SICAD I auctions. We are both eligible and have successfully participated in SICAD II auctions during 2014 and as a result we have adopted the SICAD II exchange rate of approximately 53 Bolivars per USD for the re-measurement of our Bolivar denominated assets and liabilities and revenue and expenses, as we believe the SICAD II rate is most representative of the economics in which Harvest Vinccler operates. Prior to this change, we were using the official exchange rate of 6.3 Bolivars per USD.

~~At September 30, 2014,~~2015, the balances in Harvest Vinccler’s Bolivar denominated monetary assets and liabilities accounts that are exposed to exchange rate changes are ~~13.6~~7.0 million Bolivars ($0.04 million) and ~~6.2~~3.8 million Bolivars ($0.02 million), respectively. During the three and nine months ended September 30, 2014, Harvest Vinccler exchanged approximately $0.1 million and $0.3 million, respectively $0.4 million and $1.3 million during the three and nine months ended September 30, 2013, respectively, and received an average exchange rate of 53.0 and 28.6 Bolivars, respectively (7.08 and 6.37 Bolivars, respectively, during the three and nine months ended September 30, 2013) per USD to fund Bolivar denominated operating expenses. A change in the SICAD II exchange rate is not expected to have a material impact on results of operations or our financial position due to the minimal amount of exposure to Bolivars.

We are the operator of the Dussafu PSC with a 66.667 percent ownership interest. Located offshore Gabon, adjacent to the border with the Republic of Congo, the Dussafu PSC covers an area of 680,000 acres with water depths up to 3,000 feet.

~~Operational activities during~~The Dussafu PSC partners and the ~~nine months ended September 30, 2014 included additional evaluation~~Republic of ~~development alternatives, preparation~~Gabon, represented by the Ministry of Mines, Energy, Petroleum and ~~a formal remittance~~Hydraulic Resources, entered into the third exploration phase of the Dussafu PSC with an effective date of May 28, 2012. The Direction Generale Des Hydrocarbures (“DGH”) agreed to lengthen the third exploration phase to four years until May 27, 2016. All expenditure commitments on this exploration phase have been completed.

Geoscience, reservoir engineering and economic studies have progressed and a field development plan ~~along with continued processing of~~was approved by the 3D seismic data acquired in 2013. On March 26, 2014, the joint venture partners approved a resolution that the discovered fields are commercial to exploit. On June 4, 2014, a Declaration of Commerciality (“DOC”) was signed with the Gabonese Republic (“Gabon”) pertaining to the four discoveries on the Dussafu Block offshore Gabon. Furthermore, on July 17, 2014, Gabon awarded an Exclusive Exploitation Authorization (“EEA”) for the development and exploitation of certain oil discoveries on the Dussafu Block andDGH on October 10, 2014, ~~the~~for a cluster field development ~~plan was approved.~~

of both the Ruche and Tortue discoveries along with existing pre-salt discoveries at Walt Whitman and Moubenga. Central/~~inboard~~Inboard 3D seismic data acquired in 2011 has been processed and interpreted to ~~review~~evaluate prospectivity. We ~~continue to process~~have also completed processing data from the 1,260 sq km of 3D seismic survey ~~performed~~acquired during the fourth

quarter of 2013. This survey provides 3D coverage over the outboard portion of the block ~~where~~and has confirmed significant pre-salt prospectivity ~~has~~which had been ~~recognized on~~inferred from 2D seismic ~~data.~~data from the 1980s. The ~~new~~ 3D seismic data also covers the Ruche, Tortue and Moubenga discoveries and ~~is expected to enhance~~will facilitate the effective placement of future development wells in the Ruche and Tortue development program, as well as ~~provide~~allowing improved assessment of the numerous undrilled structures already identified on older 3D seismic surveys. ~~The~~

Based upon the above noted activities and studies, the Company plans to either further develop, farm down, or sell (or a combination of these options) the Dussafu Production Sharing Contract (“Dussafu PSC”) represents $104.0 million of unproved oil and gas properties including inventory on our September 30, 2014 balance sheet ($103.4 million at December 31, 2013).

Project, while weighing the liquidity requirements necessary to maintain ongoing Company operations. See Note 12 – Commitments and Contingencies for a discussion ~~of legal matters~~ related to our Gabon operations.

The Dussafu PSC represents $54.5 million of unproved oil and gas properties including inventory on our June 30, 2015 balance sheet ($54.3 million at December 31, 2014).

In December 2014, we impaired the carrying value of our property in Gabon by $50.3 million. We recorded this impairment based on a qualitative analysis which considered our current liquidity needs, the recent decrease in oil and gas prices, and the marketability of our property and the limited time we have to develop this project.

Since approval of the Field Development Plan (FDP) in October 2014, Harvest has continued to move toward development of the Ruche Exclusive Exploitation Area. A tender for all the subsea equipment was concluded in January 2015 where prices exceeded the costs employed in the FDP. Efforts continue to negotiate with the lowest priced vendors and 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 has been received and interpreted. This new data was incorporated into our reservoir models and optimization of well trajectories to maximize oil recovery is ongoing. In addition, the prospect inventory was updated and several prospects have been highgraded for drilling in the first half of 2016. 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, will be mobilized in August 2015. A tender for a drilling rig for the planned well is in progress.

With the recent strategic alliance formed with CT Energia, Harvest now has access to sufficient capital in order to fund the interim exploration and development programs for 2015 and 2016, and therefore is it the opinion of the Company that any decline in value is temporary and do not see a need for further impairment of this investment as of June 30, 2015.

In December 2007, Harvest entered into a farm-out agreement with a partner to acquire a 47% equity interest in the Budong-Budong Production Sharing Contract (“Budong PSC”). During 2010 and 2011 certain options within the Budong PSC were exercised by Harvest that increased the participating equity interest to 64.4%.

~~During 2011 two exploratory wells were spud and drilled. Both wells were plugged and abandoned, due to either safety concerns or lack of commercially viable oil and gas reserves.~~

On December 5, 2012, we entered into a third farm-out agreement with our partner to acquire an additional 7.1% equity interest and to become operator of the Budong PSC. Closing of this agreement increased our participating equity interest to 71.5%. The consideration for the additional 7.1% equity interest was for Harvest to fund 100% of the costs of the first exploration well under a four-year extension to the Budong PSC that was granted in January 2013. In the instance that this well was not drilled within 18 months of the date of the Government of Indonesia approval to this transaction (by October 9, 2014), our partner would have the right to give notice that the consideration be paid in cash. The value of this obligation was calculated to be $3.2 million.

During 2013 management began marketing our interests in the Budong PSC. In December 2013 we signed an agreement with an outside third party to enter into exclusive negotiations for the possible sale of our interest in the Budong PSC. The indicated purchase price was $4.6 million. Based on the indicated fair value from these negotiations, we recognized an impairment expense of $0.6 million against property assets of $5.2 million and a $2.8 million charge in general and administrative expenses related to a

valuation allowance on value-added tax (“VAT”) that we do not expect to recover. By recognizing these charges in December 2013, our Budong investment was consistent with the $4.6 million implied value.

During the first quarter of 2014, the third party terminated the negotiations. Additional inquiries into our interest in the Budong PSC did not lead to any other prospective buyer; therefore we fully impaired our remaining property value of $4.4 million as of March 31, 2014.

In parallel with the activities to find a prospective buyer, we approached our partner with a proposal for them to acquire Harvest’s participating interest and operatorship in the joint venture and Budong PSC. This was reviewed by their senior management and declined. In June 2014, Harvest and our partner adopted a resolution to terminate the Budong ~~PSC; therefore no further drilling will occur.~~PSC. Harvest advised the Indonesian government of this decision ~~on June 4, 2014,~~ and ~~is now in~~submitted a request to terminate the ~~process~~Budong PSC. On February 5, 2015, the Company entered into a Share Purchase Agreement to transfer shares of ~~finalizing the relinquishment~~Harvest Budong-Budong B.V. to Stockbridge Capital Limited for a nominal amount. On February 17, 2015, a withdrawal request of the ~~interest. As a result~~earlier termination request was made to the Indonesian government and the withdrawal request was accepted on April 15, 2015. The transfer of these decisions, Harvest accrued a $3.2 million liability as of June 30, 2014 related to the December 5, 2012 farm-out agreement discussed above, thereby creating a total impairment expense of $7.6 million recorded in the nine months ended September 30, 2014. Harvest paid this $3.2 million liability in October 2014.

Harvest has elected an early adoption of FASB Accounting Standards Update No. 2014-08, which amended ASC 360 with regards to the definition of discontinued operations, and determined that the above actions surrounding the Budong PSC do not qualify as discontinued operations and therefore has accounted for all 2014 and 2013 financial activity within current operations.shares was completed on May 4, 2015.

Note 10 ~~–Debt~~– Notes Payable to Noncontrolling Interest Owners, Debt and Financing

~~Debt and notes payable to noncontrolling interest owners consists of the following:~~

~~As discussed in~~ ~~Note 2 – Liquidity~~, we used a portion of the $125 million in proceeds from the sale of the 29 percent interest in Harvest Holding that we received on December 16, 2013, to redeem all of our 11% Senior Notes due 2014. The notes were redeemed on January 11, 2014, for $80.0 million, including principal and accrued and unpaid interest. As a result of the redemption, we recorded a loss on extinguishment of debt of $4.7 million during the first quarter of 2014 which is included in the results for the nine months ended September 30, 2014. This loss includes the write off of the discount on debt ($2.3 million), the expensing of financing costs related to the term loan facility ($1.3 million) and for other costs related to the extinguishment ($1.1 million).

At ~~September 30, 2014 and~~ December 31, ~~2013,~~2014, HNR Energia had a note payable to Vinccler of $6.1 million. Principal and interest ~~are~~were payable upon the maturity date of ~~June 30, 2016.~~December 31, 2015. We ~~have~~had classified the note as a current liability as ~~we expect to settle this obligation within one year.~~of December 31, 2014. Interest ~~accrues~~accrued at a rate of U.S. dollar based ~~LIBOR~~on the three months London Interbank Offered Rate (“LIBOR”) plus 0.5%. On March 9, 2015, Vinccler forgave the note payable and accrued interest totaling $6.2 million. This was reflected as a contribution to stockholders’ equity.

On August 28, 2014, Petroandina exercised its right to a one month extension of the termination date of the SPA. In accordance with the extension the Company had the option to borrow $2.0 million from Petroandina, which it exercised. Petroandina again extended the SPA on September 29 and October 30, 2014, with the Company borrowing $2.0 million per ~~this occurrence. Principal~~extension. On November 27, 2014, Petroandina exercised their final extension and ~~interest are payable upon~~ the ~~date~~Company borrowed the final maximum amount allowed of ~~the second closing of the SPA. If the second closing has not occurred or terminated by December 31, 2014, quarterly~~$1.6 million. Quarterly interest payments ~~begin~~began on December 31, 2014 with the principal of $7.6 million due ~~one year after termination of the SPA.~~January 1, 2016. Interest ~~accrues~~accrued at a rate of 11%. ~~We expect that Petroandina will continue to exercise such extensions until the consummation of the transaction or termination of the SPA, on or before December 31, 2014. As of September 30, 2014,~~On June 23, 2015 the Company ~~had a~~repaid the note payable ~~to Petroandina~~ of ~~$2.0~~$7.6 million plus accrued interest of $0.4 million.

When multiple securities are issued in a single transaction, the proceeds are first allocated to the securities that are subsequently recorded at fair value. Any residual proceeds are then allocated to the debt and other securities not accounted for at fair value. During the second quarter of 2015, the Company issued debt along with warrants, as further described below, in addition to Series C Preferred Shares. Because the fair value of the Warrants, which were determined to be liabilities, and certain embedded derivatives in the related debt agreement, exceed the proceeds from the debt, the carrying value of the Notes has been reduced to zero, and no value has been assigned to the Series C Preferred Shares on the balance sheet at inception. The excess of the fair value of the Warrants and embedded derivatives over the proceeds received will be recognized immediately in net loss.

On June 3, 2015, the Company entered into an unsecured and prepayable promissory note with James A. Edmiston, President and Chief Executive Officer of the Company, for $50,000. The note carried interest at 11% per year and was to mature upon the earlier to occur of June 30, 2016 or the date on which the Loan Obligations (as defined in that certain Loan Agreement, dated as of September 11, 2014, by and among the Company, HNR Energia B.V. and Petroandina Resources Corporation N.V.) are paid in full. On June 19, 2015, the Company repaid the note and accrued interest.

On June 19, 2015, we issued a warrant, 9% and 15% Notes, a 15% additional draw note and Series C preferred stock in connection with the Purchase Agreement with CT Energy and received proceeds of $30.6 million, net of financing fees of $1.6 million. We identified embedded derivative assets and derivatives liabilities in the notes and determined that the warrant did not meet the required conditions to qualify for equity classification and is required to be classified as a warrant liability (see Note 11 – Warrant Derivative Liabilities). The estimated fair value, at issuance, of the embedded derivative asset, described below, was $2.5 million, the embedded derivative liability, described below, was $13.5 million and the warrant liability was $40.0 million. In accordance with ASC 815, the proceeds were first allocated to the fair value of the embedded derivatives and warrants, which resulted in no value being attributable to the Series C preferred stock and the 9% and 15% Notes. As a result of the allocation we recognized a loss on the issuance of these securities of $20.4 million in our consolidated condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2015.

The aggregate balance of the notes of $32.2 million has been recorded net of the discount related to the value allocated to the embedded derivatives and warrant. The unamortized discount was $32.1 million at June 30, 2015. The Company will accrete the discount over the life of the notes using the effective interest method. During the three and six months ended June 30, 2015 the Company recognized accretion on the discount of $0.1 million.

On June 19, 2015, in connection with the transaction with CT Energy described in Note 1 – Organization, we issued a five-year, 15% Note in the aggregate principal amount of $25.2 million with interest that is compounded quarterly at a rate of 15% per annum and is payable quarterly on the first business day of each January, April, July and October, commencing October 1, 2015. If by June 19, 2016, the volume weighted average price of the Company’s common stock over any consecutive 30-day period has not equaled or exceeded $2.50 per share, the maturity date of the 15% Note will be extended by two years and the interest rates on the 15% note will adjust to 8% (the “15 % Note Reset Feature”). During an event of default, the outstanding principal amount bears additional interest at a rate of 2% per annum higher than the rate otherwise applicable.

The Company may prepay all or a portion of the note at a prepayment price equal to a make-whole price, as of the prepayment date, with respect to the principal amount of the note being prepaid, plus accrued and unpaid interest. The make-whole price is defined as the greater of (i) 100% of such outstanding principal amount of the 15% note and (ii) the sum of the present values as of such date of determination of (A) such outstanding principal amount of the 15% note, assumed, for the purpose of determining the present value thereof, to be paid on the earlier of the stated maturity of this 15% note or the date that is two years after the date of determination, and (B) all remaining payments of interest (excluding interest accrued to the prepayment date) scheduled to become due and payable after the date of determination and on or before the date that is two years after the date of determination with respect to such outstanding principal amount of the 15% note, in the case of each of the foregoing clauses (ii)(A) and (B), computed using a discount rate equal to the Treasury Rate as of the date of determination plus 50 basis points.

If an event of default occurs (other than an event of default related to certain bankruptcy events), holders of at least 25% of the outstanding principal of the 15% Note and the 9% Note (as discussed below) may declare the principal, premium, if any, and accrued and unpaid interest of such notes immediately due and payable. If an event of default related to specified bankruptcy events occurs, an amount equal to the make-whole price for the 15% note plus accrued and unpaid interest is immediately due and payable. If stockholder approval of certain matters at the 2015 annual meeting of stockholders relating to the transaction with CT Energy is not obtained, holders of at least 25% of the outstanding principal of the 15% note may declare the principal, premium, if any, and accrued and unpaid interest of the 15% note immediately due and payable.

We have evaluated the 15% Note Reset Feature related to the interest rate and maturity date using ASC 815 Derivatives and Hedging. Because the interest rate and maturity date reset are linked to achievement of a certain stock price, the feature is not considered clearly and closely related to the debt host. In addition, the interest rate at the reset date is not tied to any approximation of the expected market rate at the date of the term extension as required by ASC 815. As a result, we are accounting for the 15% Note Reset Feature as an embedded derivative asset that has been measured at fair value with current changes in fair value reflected in our consolidated condensed statements of operations and comprehensive loss.

The embedded 15% Note Reset Feature in the 15% Note was valued using the ‘with’ and ‘without’ method. A Black-Derman-Toy (“BDT”) Model, which is a binomial interest rate lattice model, was used to value the 15% Note and the incremental value attributed to the embedded option was determined based on a comparison of the value of the 15% Note with the feature included and without the feature included. Key inputs into this valuation model are our current stock price, U.S. Treasury rate, our credit spread and the underlying yield volatility. As part of our overall valuation process, management employs processes to evaluate and validate the methodologies, techniques and inputs, including review and approval of valuation judgments, methods, models, process controls, and results. These processes are designed to help ensure that the fair value measurements and disclosures are appropriate, consistently applied, and reliable. We estimate the volatility for the 15% Note based on historical daily volatility of the U.S. Dollar denominated Venezuela Sovereign zero coupon yield over a look back period of 5.0, 6.0, and 7.0 years. The risk-free interest rate is based on the U.S. Treasury yield curve as of the valuation dates for a maturity similar to the expected remaining life of the 15% Note. The credit spread was estimated based on the implied option adjusted spread (“OAS”) for the transaction as of the date the term sheet was signed to capture the investor’s assessment of the risk in their investment in the Company. This model requires Level 3 inputs (see Note 3 – Summary of Significant Accounting Policies, Financial Instruments and Fair Value Measurements) which are based on our estimates of the probability and timing of potential future financings and fundamental transactions.

The assumptions summarized in the following table were used to calculate the fair value of the derivative asset associated with the 15% Note that was outstanding as of as of June 30, 2015 on our consolidated condensed balance sheets:

The fair value of the embedded derivative asset was $2.5 million at issuance and $2.6 million as of June 30, 2015. We recognized $0.1 million in derivative income related to this embedded derivative asset in our consolidated condensed statement of operations for the three and six month period ended June 30, 2015.

On June 19, 2015, in connection with the transaction with CT Energy described in Note 1 – Organization we issued a five-year, 9.0% Note in the aggregate principal amount of $7.0 million, which is immediately convertible into 8,506,097 shares of the Company’s common stock, par value $0.01 per share, at an initial conversion price of $0.82 per share (“Beneficial Conversion Feature”).

Interest on the 9% Note is compounded quarterly at a rate of 9% per annum and is payable quarterly on the first business day of each January, April, July and October, commencing October 1, 2015. If by June 19, 2016, the volume weighted average price of the Company’s common stock over any consecutive 30-day period has not equaled or exceeded $2.50 per share, the maturity date of the 9% Note will be extended by two years and the interest rates on the 9% Note will adjust to 8% (the “9% Note Reset Feature”. During an event of default, the outstanding principal amount bears additional interest at a rate of 2% per annum higher than the rate otherwise applicable.

The holder of the 9% Note may elect to convert all or part of the outstanding principal amount of the 9% Note into a number of shares of Common Stock equal to (1) the outstanding principal of the 9% Note, divided by (2) the conversion price then in effect.

On or after June 19, 2018, the Company may prepay all or a portion of the 9% Note, without premium or penalty, together with all accrued and unpaid interest.

Prior to approval by the Company’s stockholders to authorize and issue additional common stock, the 9% Note is not convertible to the extent the issuance of any portion of such shares would exceed the aggregate number of shares of Common Stock that the Company may issue under NYSE rules. In addition, the conversion price is subject to adjustment upon the occurrence of certain events, including a stock issuance, dividend, or stock split. If the Company completes an issuance of common stock at a price less than the current conversion price, then the conversion price will be fully reduced to the new issuance price for such below-price issuance (the “Convertible Down-Round Provision”). This is a full ratchet down round provision that could compensate the holder for an amount greater than dilution related to a stock issuance.

If an event of default occurs (other than an event of default related to certain bankruptcy events), holders of at least 25% of the outstanding principal of the 9% and 15% Notes (as discussed above) may declare the principal, premium, if any, and accrued and unpaid interest of such notes immediately due and payable. If stockholder approval of certain matters at the 2015 annual meeting of stockholders relating to the transaction with CT Energy is not obtained, holders of at least 25% of the outstanding principal of the 9% Note may declare the principal, premium, if any, and accrued and unpaid interest of the 9% Note immediately due and payable.

We have evaluated the Convertible Down-Round Provision and the 9% Note Reset Feature using ASC 815. The Convertible Down-Round Provision is not consistent with a fixed-price-for-fixed-number of shares instrument and therefore precludes the conversion option from being indexed to the Company’s own stock. As a result, the Convertible Down-Round Provision does not meet the scope exception in ASC 815 and should be bifurcated as separate liability that has been measured at fair value with current changes in fair value reflected in our consolidated condensed statements of operations and comprehensive loss.

Regarding the 9% Note Reset Feature, because the interest rate and maturity date reset are linked to achievement of a certain stock price, the feature is not considered clearly and closely related to the debt host. In addition, the interest rate at the reset date is not tied to any approximation of the expected market rate at the date of the term extension as required by ASC 815. As a result, we are also accounting the 9% Reset Feature as an embedded derivative asset that has been measured at fair value with current changes in fair value reflected in our consolidated condensed statements of operations and comprehensive loss.

The embedded 9% Down-Round Provision and the 9% Note Reset Feature were valued using the ‘with’ and ‘without’ method. A Binomial Lattice Model was used to value the 9% Note and the incremental value attributed to the embedded options was determined based on a comparison of the value of the 9% Note with the features included and without the features included. Key inputs into this valuation model are our current stock price, U.S. Treasury rate, our credit spread and the underlying stock price volatility. As part of our overall valuation process, management employs processes to evaluate and validate the methodologies, techniques and inputs, including review and approval of valuation judgments, methods, models, process controls, and results. These processes are designed to help ensure that the fair value measurements and disclosures are appropriate, consistently applied, and reliable. We estimate the volatility of our common stock based on historical volatility that matches the expected remaining life of the longest instrument in the transaction, seven years. The risk-free interest rate is based on the U.S. Treasury yield curve as of the valuation dates for a maturity similar to the expected remaining life of the 9% Note. The credit spread was estimated based on the implied option adjusted spread (“OAS”) for the transaction as of the date the term sheet was signed to capture the investor’s assessment of the risk in their investment in the Company. This model requires Level 3 inputs (see Note 3 – Summary of Significant Accounting Policies, Financial Instruments and Fair Value Measurements) which are based on our estimates of the probability and timing of potential future draws.

The assumptions summarized in the following table were used to calculate the fair value of the Beneficial Conversion Feature and related embedded derivatives associated with the 9% Note that were outstanding as of June 30, 2015 on our consolidated condensed balance sheets:

The fair value of the embedded derivative liabilities was $13.5 million at issuance and $13.0 million as of June 30, 2015. We recognized $0.5 million in derivative income related to this embedded derivative liability in our consolidated condensed statement of operations for the three and six month period ended June 30, 2015.

On June 19, 2015, in connection with the transaction with CT Energy described in Note 1 – Organization, the Company also issued the “additional draw note, under which CT Energy may elect to provide $2.0 million of additional funds to the Company per month for up to six months following the one-year anniversary of the closing date of the transaction (up to $12.0 million in aggregate). If funds are loaned under the additional draw note, interest will be compounded quarterly at a rate of 15% per annum and will be payable quarterly on the first business day of each January, April, July and October, commencing October 1, 2016. If by the Claim Date, the volume weighted average price of the Company’s common stock over any consecutive 30-day period has not equaled or exceeded $2.50 per share, the maturity date of the additional draw note will be extended by two years and the interest rates on the additional draw note will adjust to 8.0%. During an event of default, the outstanding principal amount will bear additional interest at a rate of 2% per annum higher than the rate otherwise applicable.

The Company may prepay all or a portion of the additional draw note at a prepayment price equal to the make-whole price, as of the prepayment date, with respect to the principal amount of the additional draw note being prepaid, plus accrued and unpaid interest. The make-whole price with respect to the additional draw note has the same meaning described above with respect to the 15% Note under Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing.

If an event of default occurs (other than an event of default related to certain bankruptcy events), holders of at least 25% of the outstanding principal of the 15% note (including the additional draw note, if outstanding) and the 9% Note may declare the principal, premium, if any, and accrued and unpaid interest of such notes immediately due and payable. If an event of default related to specified bankruptcy events occurs, an amount equal to the make-whole price for the additional draw note plus accrued and unpaid interest is immediately due and payable. If stockholder approval of certain matters at the 2015 annual meeting of stockholders relating to the transaction with CT Energy is not obtained, holders of at least 25% of outstanding principal of the 15% Note (including the additional draw note, if outstanding) may declare the principal, premium, if any, and accrued and unpaid interest of the 15% Note (and the additional draw note, if outstanding) immediately due and payable.

At issuance and at June 30, 2015, we have assigned no value to the additional draw note, as it does not meet the definition of a derivative in ASC 815 and there is no principal amount outstanding.

As of ~~September~~June 30, ~~2014, our~~2015, warrant derivative ~~liability~~financial instruments consisted of ~~1,835,519 (1,826,001 at~~2,179,167 warrants (1,846,088 warrants: December 31, ~~2013 ) warrants~~2014) issued as inducements under the warrant agreements dated ~~November~~October 2010 in connection with a $60 million term loan ~~facility.~~facility that was paid off in May 2011. The fair value of ~~the~~these warrants as of ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013~~2014 was ~~$1.07~~$0.00 per warrant. The Warrant Purchase Agreement dated as of October 28, 2010 includes certain anti-dilution provisions which adjust the number of warrants and the exercise price per warrant. The issuance of the 9% Note, because of the conversion feature, triggered the anti-dilution provisions which resulted in the issuance of 333,079 additional warrants during the six months ended June 30, 2015. No additional warrants were issued during the six months ended June 30, 2014. In addition, the exercise price per share for all warrants was repriced to $10.85 per warrant during the six months ended June 30, 2015. The warrants are classified as a liability on our consolidated condensed balance sheets and marked to market. The valuation for the warrants is based ~~upon certain provisions within~~primarily on our stock price of $1.75 at June 30, 2015, their remaining life of 0.33 years and their strike price of $10.85 as of June 30, 2015. We recognized $0.0 million in warrant liability income in our consolidated condensed statement of operations and comprehensive loss for the three and six months ended June 30, 2015 for these warrants. The assumptions summarized in the following table were used to calculate the fair value of the warrant ~~agreements~~derivative liability related to the MSD warrants that ~~would~~were outstanding as of the balance sheet dates presented on our consolidated condensed balance sheets:

On June 19, 2015, in connection with the transaction with CT Energy described in Note 1 – Organization, we issued a warrant exercisable for 34,070,820 shares of the Company’s common stock at an initial exercise price of $1.25 per share. The warrant may not be ~~triggered~~exercised until the volume weighted average price of the Company’s common stock over any consecutive 30-day period equals or exceeds $2.50 per share; however, the full exercisability is subject to approval of the issuance of additional shares by the ~~second closing~~Company’s stockholders.

As of June 30, 2015, the warrant issued in the CT Energy transaction at this time does not meet the conditions to obtain equity classification under ASC 815 as there are insufficient authorized and unissued shares to satisfy all contractual share obligations. The warrant is required to be carried as a derivative liability, at fair value, with current changes in fair value reflected in our consolidated condensed statements of operations and comprehensive loss.

The warrant can be exercised at the option of the ~~SPA.~~investor in cash or by effecting a reduction in the principal amount of the 15% Note (See Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing). If the warrant is exercised through the reduction in the principal amount of the 15% Note, the reduction will be equal to the amount obtained by multiplying the number of shares of common stock for which the warrant is exercised by (i) the exercise price then in effect divided by (ii) (A) the defined make-whole price with respect to the outstanding principal amount of such 15% Note divided by (B) the outstanding principal amount of such 15% Note. The exercise price of the warrant is subject to adjustment upon the occurrence of certain events, including stock issuance, dividend or stock split.

In addition, the holder of the warrant has certain registration rights regarding the warrant and the shares of common stock issuable upon exercise of the warrant.

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as the Monte Carlo model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair value, our income will reflect the volatility in these estimate and assumption changes. A Monte Carlo simulation model is used to value the warrant to determine if the Stock Appreciation Date is achieved, which is based on the average stock price over a 30 day period (21 trading days) reaching $2.50. This requires Level 3 inputs (see Note 3 – Summary of Significant Accounting Policies, Financial Instruments and Fair Value Measurements) which are based on our estimates of the probability and timing of potential future financings and fundamental transactions, as well as the probability of shareholder approval. The assumptions summarized in the following table were used to calculate the fair value of the warrant derivative liability that was outstanding as of ~~any of~~ the balance sheet dates presented on our consolidated condensed balance sheets:

Fair Value




Hierarchy

As of


Level

September 30, 2014

December 31, 2013
Significant assumptions (or ranges):



Stock price

Level 1 input

$
4.52


$
4.52

Term (years)

1.08


1.83

Volatility

Level 2 input


94
%

94
%
Risk-free rate

Level 1 input


0.34
%

0.34
%
Dividend yield

Level 2 input


0.0
%

0.0
%
Scenario probability (fundamental change event/debt raise/equity raise)

Level 3 input


60%/40%/0
%

60%/40%/0
%



	Fair Value
	Hierarchy	As of June 30,
	Level	2015
Significant assumptions (or ranges):
Stock price	Level 1 input	$	1.75
Exercise price	Level 1 input	$	1.25
Stock appreciation date price (hurdle)	Level 1 input	$	2.50
Term (warrants)			2.9706
Term (claim date)			0.9699
Term (claim date extended)			1.4720
Volatility	Level 2 input		90	%
Risk-free rate (warrants)	Level 1 input		1.11	%
Risk-free rate (claim date)	Level 1 input		0.26	%
Risk-free rate (claim date extended)	Level 1 input		0.47	%
Dividend yield	Level 2 input		0.0	%
Scenario probability (future draws/no future draws)	Level 3 input		50%/50	%
Scenario probability (shareholder approval)	Level 3 input		100	%

Inherent in the Monte Carlo valuation model are assumptions related to expected stock price volatility, expected life, risk-free interest rate and dividend yield. As part of our overall valuation process, management employs processes to evaluate and validate the methodologies, techniques and inputs, including review and approval of valuation judgments, methods, models, process controls, and results. These processes are designed to help ensure that the fair value measurements and disclosures are appropriate, consistently applied, and reliable. We estimate the volatility of our common stock based on historical volatility that matches the expected remaining life of the longest instrument in the transaction, seven years. The risk-free interest rate is based on the U.S. Treasury yield curve as of the valuation dates for a maturity similar to the expected remaining life of the warrant. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which we anticipate to remain at zero.

~~Our~~All our warrant derivative contracts are recorded at fair value and are classified as a warrant derivative ~~liability~~liabilities on the consolidated condensed balance ~~sheets.~~sheet. The ~~following table summarizes~~fair value of the ~~effect on~~warrant liability was $40.0 million at issuance and $37.6 million as of June 30, 2015. We recognized $2.4 million in warrant liability income in our ~~income associated with changes in~~consolidated condensed statement of operations for the ~~fair values of our warrant derivative financial instruments:~~three and six month period ended June 30, 2015.

We have various contractual commitments pertaining to exploration, development and production activities. Under the EEA granted for the Dussafu PSC on July 17, 2014, we are required to commence production within four years of the date of grant in order to preserve our rights to production under the EEA. We expect that significant capital expenditures will be required prior to commencement of production which is expected in 2016 under the approved field development plan. These work commitments are non-discretionary; however, we do have the ability to control the pace of expenditures.

In January 2013, the Budong PSC partners were granted a four year extension of the initial six year exploration term of the Budong PSC to January 15, 2017. The extension of the initial exploration term includes an exploration well, which if not drilled by January 2016, results in the termination of the Budong PSC. If we did not drill an exploration well before October 2014, our partner has the right to give us notice that the consideration for an additional 7.1 percent participating interest must be settled in cash for $3.2 million. In June 2014, we and our joint interest partner decided to relinquish our interest in Budong. As a result, we recognized a further charge of $3.2 million during the three months ended June 30, 2014 related to this drilling obligation which we paid in October 2014. See ~~Note 9 – Indonesia~~.

Under the agreements with our partners in the Dussafu PSC and ~~the~~ Budong PSC, we are jointly and severally liable to various third parties. As of ~~September~~June 30, ~~2014,~~2015, the gross carrying amount associated with obligations to third parties which were fixed at the end of the period was ~~$2.9~~$0.7 million ~~( $15.0~~($2.4 million as of December 31, ~~2013)~~2014) and is related to accounts payable to vendors, accrued expenses and withholding taxes payable to taxing authorities. As we are the operators for the Dussafu PSC and Budong PSC, the gross carrying amount related to accounts payable and withholding taxes ~~and the net amount related to other accrued expenses~~ are reflected in the consolidated condensed balance sheet in accounts ~~payable and~~payable. The net amount related to other accrued expenses ~~leaving $0.4~~is reflected in accrued expenses in the consolidated condensed balance sheet. Because we record the accrued expenses net to our ownership percentage, this leaves $0.0 million in fixed obligations as of ~~September~~June 30, ~~2014 ( $3.9~~2015 ($0.3 million as of December 31, ~~2013)~~2014) attributable to our joint partners’ share ~~which is~~ not accrued in our balance sheet. Our partners have advanced ~~$0.3~~$0.0 million ~~( $1.1~~($0.5 million as of December 31, ~~2013)~~2014) to satisfy their share of these obligations which was ~~$1.0~~$0.2 million as of ~~September~~June 30, ~~2014 ( $5.0~~2015 ($0.8 million as of December 31, ~~2013)~~2014). As we expect our

partners will continue to meet their obligations to fund their share of expenditures, we have not recognized any additional liability related to fixed joint interest obligations attributable to our joint interest partners.

Kensho Sone, et al. v. Harvest Natural Resources, Inc., in the United States District Court, Southern District of Texas, Houston Division. On July 24, 2013, 70 individuals, all alleged to be citizens of Taiwan, filed an original complaint and application for injunctive relief relating to the Company’s interest in the WAB-21 area of the South China Sea. The complaint ~~alleges~~alleged that the area ~~belongs~~belonged to the people of Taiwan and ~~seeks~~sought damages in excess of $2.9 million and preliminary and permanent injunctions to prevent the Company from exploring, developing plans to extract hydrocarbons from, conducting future operations in, and extracting hydrocarbons from, and the WAB-21 area. OnThe Company filed a motion to dismiss the suit, which was granted by the district court in August ~~8, 2014~~2014. The plaintiffs appealed the ~~court issued an order dismissing plaintiffs’ claims. Plaintiffs may~~dismissal. The Fifth Circuit Court of Appeals heard oral arguments on June 3, 2015 and affirmed the district court’s dismissal on June 4, 2015. The plaintiffs did not appeal ~~the dismissal.~~and this case has been dismissed.

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) (“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 allege that the Company made certain false or misleading public statements and demand that the defendants pay unspecified damages to the class action plaintiffs based on stock price declines. All of these actions have been consolidated into the Phillips case. The Company and the other named defendants have filed a motion to dismiss and intend to vigorously defend the consolidated lawsuits.

In June 2012, the operator of the Budong PSC received notice of a claim related to the ownership of part of the land comprising the Karama-1 drilling site. The claim asserts that the land on which the drill site is located is partly owned by the claimant. The operator purchased the site from local landowners in January 2010, and the purchase was approved by BPMIGAS, Indonesia’s oil and gas regulatory authority. The claimant is seeking compensation of 16 billion Indonesia Rupiah (approximately $1.4 million, $1.0 million net to our 71.61 percent cost sharing interest) for land that was purchased at a cost of $4,100 in January 2010. On March 8, 2013, the court ruled to dismiss the claim because the claim had not been filed against the proper parties to the claim. On March 19, 2013, the claimant filed an appeal against the judgment. We received notification on September 16, 2014 that claimant’s appeal had been dismissed. We have recently been notified that the claimant has not filed an appeal of this dismissal within the time frame set by the court.

In May 2012, Newfield Production Company (“Newfield”) filed notice pursuant to the Purchase and Sale Agreement between Harvest (US) Holdings, Inc. (“Harvest US”), a wholly owned subsidiary of Harvest, and Newfield dated March 21, 2011 (the “PSA”) of a potential environmental claim involving certain wells drilled on the Antelope Project. The claim asserts that locations constructed by Harvest US were built on, within, or otherwise impact or potentially impact wetlands and other water bodies. The notice asserts that, to the extent of potential penalties or other obligations that might result from potential violations, Harvest US must indemnify Newfield pursuant to the PSA. In June 2012, we provided Newfield with notice pursuant to the PSA (1) denying that Newfield has any right to indemnification from us, (2) alleging that any potential environmental claim related to Newfield’s notice would be an assumed liability under the PSA and (3) asserting that Newfield indemnify us pursuant to the PSA. We dispute Newfield’s claims and plan to vigorously defend against them. We are unable to estimate the amount or range of any possible loss.

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. We intend to request that OFAC reconsider its decision, and we continue to believe that the funds will ultimately be released to the Company. However, due to the passage of time during the three months ended June 30, 2015, we recorded a $0.6 million allowance for doubtful accounts to general and administrative costs associated with the blocked payment.

Robert C. Bonnet and Bobby Bonnet Land Services vs. Harvest (US) Holdings, Inc., Branta Exploration & Production, LLC, Ute Energy LLC, Cameron Cuch, Paula Black, Johnna Blackhair, and Elton Blackhair in the United States District Court for the

District of ~~Utah~~.Utah. This suit was served in April 2010 on Harvest and Elton Blackhair, a Harvest employee, alleging that the defendants, among other things, intentionally interfered with plaintiffs’ employment agreement with the Ute Indian Tribe – Energy & Minerals Department and intentionally interfered with plaintiffs’ prospective economic relationships. Plaintiffs seek actual damages, punitive damages, costs and attorney’s fees. ~~We dispute plaintiffs’ claims and plan to vigorously defend against them. On October 29, 2013,~~

~~we learned that the~~The court administratively closed the ~~case.~~case in 2013. The case was reopened ~~earlier this year~~in 2014 as a result of ~~the~~a Circuit Court of Appeals’ ~~ruling against Plaintiffs’ discovery request.~~ruling. We continue to dispute Plaintiffs’ 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~~.Assessments. Harvest Vinccler, ~~S.C.A.,~~ a subsidiary of Harvest Holding, ~~(“Harvest Vinccler”),~~ has received nine assessments from a tax inspector for the Uracoa municipality in ~~Venezuela in~~ which ~~parts~~part of the Uracoa, Tucupita and Bombal fields are located as follows:

Harvest Vinccler disputes the Uracoa tax assessments and believes it has a substantial basis for its positions based on the interpretation of the tax code by SENIAT (the Venezuelan income tax authority), as it applies to operating service agreements, Harvest Holding has filed claims in the Tax Court in Caracas against the Uracoa Municipality for the refund of all municipal taxes paid since 1997.

Libertador Municipality Tax ~~Assessments~~.Assessments. Harvest Vinccler has received five assessments from a tax inspector for the Libertador municipality in ~~Venezuela in~~ which part of the Uracoa, Tucupita and Bombal fields are located as follows:

Harvest Vinccler disputes the Libertador allegations set forth in the assessments and believes it has a substantial basis for its position. As a result of the SENIAT’s interpretation of the tax code as it applies to operating service agreements, Harvest Vinccler has filed claims in the Tax Court in Caracas against the Libertador Municipality for the refund of all municipal taxes paid since 2002.

On May 4, 2012, Harvest Vinccler learned that the Political Administrative Chamber of the Supreme Court of Justice issued a decision dismissing one of Harvest Vinccler’s claims against the Libertador Municipality. Harvest Vinccler continues to believe that it has sufficient arguments to maintain its position in accordance with the Venezuelan Constitution. Harvest Vinccler plans to present a request of Constitutional Revision to the Constitutional Chamber of the Supreme Court of Justice once it is notified officially of the decision. Harvest Vinccler has not received official notification of the decision. Harvest Vinccler is unable to predict the effect of this decision on the remaining outstanding municipality claims and assessments.

On ~~February 21, 2014, Tecnica Vial~~January 15, 2015, HNR Finance and ~~Flamingo, our partners~~Harvest Vinccler S.C.A submitted a Request for Arbitration against the Government of Venezuela before the International Centre for Settlement of Investment Disputes ("ICSID") regarding HNR Finance's interest in ~~Colombia~~Petrodelta. The Request for Arbitration set forth numerous claims, including (a) the failure of the Venezuelan government to approve the Company’s negotiated sale of its 51 percent interest in Petrodelta to Petroandina on ~~Blocks VSM14~~any reasonable grounds in 2013-2014, resulting in the termination of the SPA (b) the failure of the Venezuelan government to approve the Company’s previously negotiated sale of its interest in Petrodelta to PT Pertamina (Persero) on any reasonable grounds in 2012-2013, resulting in the termination of a purchase agreement entered into between HNR Energia and ~~VSM15, respectively,~~PT Pertamina (Persero); (c) the failure of the Venezuelan government to allow Petrodelta to pay approved and declared dividends for 2009; (d) the failure of the Venezuelan government to allow Petrodelta to

approve and declare dividends since 2010, in violation of Petrodelta’s bylaws and despite Petrodelta’s positive financial results between 2010 and 2013; (e) the denial of Petrodelta’s right to fully explore the reserves within its designated areas; (f) the failure of the Venezuelan government to pay Petrodelta for all hydrocarbons sales since Petrodelta’s incorporation, recording them instead as an ongoing balance in the accounts of Petroleos de Venezuela S.A. ("PDVSA"), the Venezuelan government-owned oil company that controls Venezuela’s 60 percent interest in Petrodelta, and as a result disregarding Petrodelta’s managerial and financial autonomy; (g) the failure of the Venezuelan government to pay Petrodelta in US dollars for the hydrocarbons sold to PDVSA, as required under the mixed company contract; (h) interference with Petrodelta’s operations, including PDVSA’s insistence that PDVSA and its affiliates act as a supplier of materials and equipment and provider of services to Petrodelta; (i) interference with Petrodelta’s financial management, including the use of low exchange rates Bolivars/US dollars to the detriment of the Company and to the benefit of the Venezuelan government, PDVSA and its affiliates; and (j) the forced migration of the Company’s investment in Venezuela from an operating services agreement to a mixed company structure in 2007.

On January 26, 2015, Petroandina filed a complaint for ~~arbitration~~breach of ~~claims~~contract against the Company and its subsidiary HNR Energia in Delaware court. The complaint states that HNR Energia breached provisions of the Shareholders Agreement between Petroandina and HNR Energia, which provisions require HNR Energia to provide advance notice of, and deposit $5.0 million into an escrow account, before bringing any claim against the Venezuelan government. Under those provisions, if Petroandina so requests, an appraisal of Petroandina's 29 percent interest in Harvest Holdings must be performed, and Petroandina has the right to require HNR Energia to purchase that 29 percent interest at the appraised value. Petroandina's claim requests that, among other things, the court (a) declare that HNR Energia has breached the Shareholders' Agreement by submitting the Request for Arbitration against the Venezuelan government on January 15, 2015 (which Request for Arbitration was subsequently withdrawn without prejudice); (b) declare that the Company has breached its guaranty of HNR Energia's obligations under the Shareholders' Agreement; (c) direct the Company and HNR Energia to refrain from prosecuting any legal proceeding against the Venezuelan government (including the previously filed Request for Arbitration) until such time as they have complied with the relevant provisions of the Shareholders' Agreement; (d) award Petroandina costs and fees related to the ~~farmout agreements~~lawsuit; and (e) award Petroandina such other relief as the court deems just and proper.

On January 28, 2015, the Delaware court issued an injunction ordering the Company and HNR Energia to withdraw the Request for ~~each block. We received notices of default from our partners for failing~~Arbitration and not take any action to ~~comply~~pursue its claims against Venezuela until Harvest and HNR Energia have complied with ~~certain terms~~the provisions of the ~~farmout~~Shareholders’ Agreement or otherwise reached an agreement with Petroandina. Accordingly, on January 28, 2015, HNR Finance B.V. and Harvest Vinccler S.C.A., withdrew without prejudice the Request for Arbitration. In the Delaware proceeding, the Company and HNR Energia have until August 25, 2015 to respond to Petroandina’s complaint.

On February 27, 2015, Harvest (US) Holdings, Inc. (“Harvest US”), a wholly owned subsidiary of Harvest, Branta, LLC and Branta Exploration & Production Company, LLC (together, “Branta,” and together with Harvest US, “Plaintiffs”) filed a complaint against Newfield Production Company (“Newfield”) in the United States District Court for the District of Colorado. 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, Plaintiffs allege that, prior to the sale, Newfield breached separate confidentiality agreements ~~followed~~with Harvest US and Branta by ~~notices~~discussing the auction of ~~termination on November 27, 2013. We determined~~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.

On June 19, 2015, the Company announced that ~~it was appropriate~~CT Energy purchased from the Company 9% and 15% Notes and a warrant. Harvest immediately received proceeds of $32.2 million from the sale of the 9% and 15% Notes. If stockholder approved is not obtained, CT Energy may elect to ~~fully impair~~accelerate full payment of the ~~costs associated with these interests,~~9% and we recorded an impairment charge of $3.2 million during the year ended December 31, 2013 which includes an accrual of $2.0 million related to this matter. We intend to vigorously defend the arbitration.

15% Notes upon 60 days’ notice. See Note 1 – Organization for further information.

We are a defendant in or otherwise involved in other litigation incidental to our business. In the opinion of management, there is no such ~~other~~incidental litigation that will have a material adverse effect on our financial condition, results of operations and cash flows.

We regularly allocate resources to and assess the performance of our operations by segments that are organized by unique geographic and operating characteristics. ~~Results~~The segments are organized in order to manage regional business, currency and tax related risks and opportunities. Operations included under the heading “United States” 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 ~~our segments are:~~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 segment and are not allocated to other operating segments.

Three Months Ended

Nine Months Ended

September 30,

September 30,


2014

2013

2014

2013


(in thousands)
Segment Income (Loss) Attributable to Harvest




Venezuela

$
(170)

$
20,507

$
16,862

$
64,875
Gabon


(1,096)

(1,104)


(3,578)

(3,510)
Indonesia


(274)

(1,255)


(9,206)

(3,708)
United States


(2,458)

(13,609)


(17,374)

(19,996)
Income (loss) from continuing operations(a)


(3,998)

4,539


(13,296)

37,661
Discontinued operations


(142)

(2,586)


(503)

(4,077)
Net income (loss) attributable to Harvest

$
(4,140)

$
1,953

$
(13,799)

$
33,584

The ~~related parties are the~~ noncontrolling interest owners in Harvest Holdings, Vinccler (currently owning ~~20%)~~20 percent) and Petroandina (currently owning ~~29%).~~29 percent) are both related parties. During the second quarter of 2015, CT Energy became a related party after we issued to CT Energy Series C preferred stock and two representatives of CT Energy were appointed to Harvest’s board of directors.

As of ~~September 30, 2014 and~~ December 31, 2013, HNR Energia had a note payable to Vinccler of $6.1 million. Principal and interest are payable upon the maturity date of June 30, 2016. We have classified the note as a current liability as we expect to settle this obligation within one year. Interest accrues at a rate of U.S. Dollar based LIBOR plus 0.5%.

~~As of September 30,~~ 2014, HNR Energia had a note payable to Petroandina of ~~$2.0~~$7.6 million. Principal ~~and interest~~is due by January 1, 2016. Interest payments are ~~payable upon the closing of the second closing of the SPA. If the second closing has not occurred or the SPA is terminated by December 31, 2014,~~due quarterly ~~interest payments begin~~beginning on December 31, 2014. On June 23, 2015 the Company repaid the note payable of $7.6 million plus accrued interest of $0.4 million.

On May 11, 2015, the Company borrowed $1.3 million to fund certain corporate expenses and issued a note payable to CT Energy bearing an interest rate of 15% per annum, with a maturity date of January 1, 2016. On June 19, 2015, the Company repaid the note payable and accrued interest.

On June 3, 2015, the Company entered into the note with James A. Edmiston, President and Chief Executive Officer of the Company, for $50,000. The note carried interest at 11% per year and was to mature upon the earlier to occur of June 30, 2016 or the date on which the Loan Obligations (as defined in that certain Loan Agreement, dated as of September 11, 2014, by and among the Company, HNR Energia B.V. and Petroandina Resources Corporation N.V.) are paid in full. On June 19, 2015, the Company repaid the note payable and accrued interest.

On June 19, 2015, CT Energy acquired a $25.2 million five year 15% Note and a $7.0 million five year 9% Note. The 9% Note is convertible into 8,506,097 shares of Harvest common stock at an initial conversion price of $0.82. Harvest also issued to CT Energy 69.75 shares of a newly created series of preferred stock that will entitle the holder voting rights equivalent to the shares of common stock underlying the unconverted portion of the 9% Note. The 15% Note bears interest of 15% per annum. The 9% Note bears interest of 9% per annum. Interest is compounded quarterly and due on the first business day of each January, April, July and October on both the 9% and 15% Notes. See Note 1 – Organization for further information. CT Energy also acquired a warrant to purchase up to 34,070,820 shares of Harvest's common stock at an initial exercise price of $1.25 per share. The warrant will become exercisable only after the 30-day volume weighted average price of Harvest's common stock equals or exceeds $2.50 per share and Harvest's stockholders approve the transaction with CT Energy by a majority of votes cast, as required by the NYSE shareholder approval rules. The warrant is cash-exercisable, but CT Energy may surrender the 15% note to pay for a portion of the aggregate exercise price.

On June 19, 2015, in connection with the ~~principal due one year after termination~~transaction with CT Energy described in Note 1 – Organization, the Company also issued 69.75 shares of its newly created Series C preferred stock, par value $0.01 per share. The primary purpose of the ~~SPA. We~~Series C preferred stock is to provide the holder of the 9% Note with voting rights equivalent to the common stock underlying the unconverted portion of the 9% Note. Shares of the Series C preferred stock are entitled to vote on certain matters submitted to a vote of the stockholders on an “as converted” basis.

The Series C preferred stock is not entitled to receive dividends, have ~~classified~~perpetual maturity, and has a $1.00 per share liquidation preference, which may be adjusted upon the ~~note~~occurrence of certain events. Upon conversion of all or a portion of the 9% Note, the Company shall redeem the Series C preferred stock in proportion to the converted portion of the 9% Note. Upon occurrence of a reorganization event, each Series C preferred stock shall be converted into a share of preferred stock in the surviving entity or acquirer with substantially equivalent provisions. Series C preferred stock is not subject to any mandatory redemption and the holders have no right to require redemption other than an described above.

As discussed in Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing, no value has been attributed to the Series C preferred stock. Shares of the Series C preferred stock will be recorded in temporary equity in accordance with ASC 480 – Distinguishing Liabilities from Equity, as ~~a current liability as we expect to settle this obligation within one year. Interest accrues at a rate~~the redemption of ~~11%.~~ the shares is outside of the control of the Company.

On ~~November 3, 2014~~July 22, 2015, we ~~announced that Petroandina has elected~~issued stock based compensation awards to ~~extend the SPA termination date for a period~~certain employees as follows: 847,000 stock options to purchase common shares at an exercise price of ~~one month,~~$1.13 per share, vesting ratably over three years from ~~November 7 to December 7, 2014. As a result of this extension and in accordance with the SPA, we have requested an additional $2.0 million loan from Petroandina. As of~~ the date of ~~this report these funds have~~grant; 5,062,000 SARs at an exercise price of $1.13 per share, vesting ratably over three years from the date of grant; and 1,571,000 restricted share units vesting at three years from the date of grant. Subject to the above vesting requirements, the options, SARs and RSUs awarded will not ~~been received.~~become exercisable until the first day on which the volume weighted average price of the common stock over any 30-day period, commencing on or after the award date, equals or exceeds $2.50 per share, as reported by the NYSE.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Harvest Natural Resources, Inc. (“Harvest” or the “Company”) cautions that any forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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”, “forecast”, “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 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 the effects of our new strategic relationship with CT Energy; the outcome of the voting at our 2015 annual meeting of stockholders, including on the proposals relating to the transaction with CT energy; our concentration of operations in Venezuela; political and economic risks associated with international operations (particularly those in Venezuela); the risk that ~~the sale of~~we may be unable to market and sell our remaining Venezuelan ~~interests will not be completed;~~interests; 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; risks incumbent to being a noncontrolling interest shareholder in a corporation; 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; our ability to acquire oil and natural gas properties that meet our objectives; availability and cost of drilling rigs and seismic crews; 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; lack of liquidity; availability of sufficient financing; estimates of amounts and timing of sales of securities; changes in weather conditions; and ability to hire, retain and train management and personnel. A discussion of these factors is included in our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 (“the ~~2013~~2014 Form 10-K”), which includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this report.

On ~~December 16, 2013, we~~February 5, 2015, the Company entered into a Share Purchase Agreement ~~(the “SPA”~~to transfer shares of Harvest Budong-Budong B.V. to Stockbridge Capital Limited. The transfer of shares was completed on May 4, 2015.

On May 11, 2015, the Company borrowed $1.3 million to fund certain corporate expenses. The Company issued a note payable to CT Energy bearing an interest rate of 15% per annum, with a maturity date of January 1, 2016. On June 19, 2015, the Company repaid the note payable.

On May 15, 2015, the Board of Directors of the Company adopted an amendment, effective immediately, to the Bylaws of the Company (as amended, the "Restated Bylaws"). The Restated Bylaws establish new requirements applicable to persons seeking to have the Company’s shareholders take corporate action by written consent without a meeting. Specifically, Section 1.8(a) of Article I was amended to (i) require such persons to submit a proper notice to the Company concerning the proposed shareholder action by written consent; and (ii) clarify that the Board is entitled to fix a record date for the proposed shareholder action by written consent following receipt of the notice. Under the Restated Bylaws, the Board has ten days to determine the validity of a notice and adopt a resolution fixing the record date, which record date shall not be more than ten days following the date of the resolution.

On June 1, 2015, Company received a notification from the New York Stock Exchange ("NYSE") to sell all of our 80 percent equity interest in Harvest-Vinccler Dutch Holding, B.V. (“Harvest Holding”) in two closings for an aggregate cash purchase price of $400 million. The first closing occurred on December 16, 2013 contemporaneouslythat the Company regained compliance with the ~~signing of~~NYSE’s continued listing requirements. Specifically, the ~~SPA, when we sold a 29 percent equity interest in Harvest Holding for $125 million. The second~~notification provided that the closing ~~for a cash purchase~~ price ~~of $275 million, is subject to, among other things, authorization by the holders of a majority~~ of the Company’s ~~outstanding~~ common stock was at least $1.00 per share on both the last trading day of the preceding calendar month (within the prescribed cure period) and ~~approval by~~over the ~~Ministerio del Poder Popular de Petroleo y Mineria representing~~30 trading days preceding the ~~Government~~end of ~~Venezuela (which indirectly owns a 60% interest in Petrodelta,S.A. (“Petrodelta”)).~~that month. As a result, the Company’s stock will no longer be traded with the notation ".BC" after its listing symbol "HNR." As previously disclosed, on February 13, 2015, the Company received a notice from the NYSE that the Company was not in compliance with the NYSE’s continued listing requirements because the Company had not maintained a minimum average closing price of ~~the first closing, we indirectly own 51 percent~~$1.00 per share of ~~Harvest Holding beginning December 16, 2013. On May 7, 2014, Harvest’s stockholders voted to authorize the sale of the remaining interests in Venezuela. See~~ ~~Note 1 – Organization – Share Purchase Agreement, for further discussion of this transaction. (“Note” used here and elsewhere in this report refers to the specified note contained in the~~ ~~Notes to the Consolidated Condensed Financial Statements~~ in ~~Part I. Item 1. Financial Statements~~.)

On ~~January 11, 2014, we used $80.0 million of~~June 3, 2015, the ~~$125 million in proceeds from the first closing that we received on December 16, 2013 to redeem all of our 11% Senior Notes due 2014 including principal~~Company entered into an unsecured and ~~accrued~~prepayable promissory note with James A. Edmiston, President and ~~unpaid interest.~~

On June 4, 2014, a Declaration of Commerciality (“DOC”) was signed with the Gabonese Republic (“Gabon”) pertaining to the Dussafu Block offshore Gabon. Furthermore, on July 17, 2014, Gabon awarded an Exclusive Exploitation Authorization (“EEA”) for the development and exploitation of certain oil discoveries on the Dussafu Block and on October 10, 2014, the field development plan was approved. See ~~Note 8 – Gabon,~~ ~~for further discussion of this transaction.~~

Based upon our ongoing analysis of seismic data, we believe that it may be in the best interest of our stockholders to further develop our remaining property in Gabon which would require additional capital expenditures. We also intend to continue our consideration of a possible sale of assets or other transaction that our Board of Directors believes is in the best interestsChief Executive Officer of the Company, for $50,000. The note carried interest at 11% per year and was to mature upon the earlier to occur of ~~its stockholders.~~June 30, 2016 or the date on which the Loan Obligations (as defined in that certain Loan Agreement, dated as of September 11, 2014, by and among the Company, HNR Energia B.V. and Petroandina Resources Corporation N.V.) are paid in full. On June 19, 2015, the Company repaid the note payable and accrued interest.

On June 19, 2015, the Company entered into a securities purchase agreement (“Purchase Agreement”) with CT Energy Holding SRL (“CT Energy”), a Venezuelan-Italian consortium organized as a Barbados Society with Restricted Liability, under which CT Energy purchased certain securities of the Company and acquired certain governance rights. Certain aspects of the transactions contemplated by the Purchase Agreement are subject to approval by the Company’s stockholders. See Part I – Financial Information, Item 1 – Financial Statements, Note 1 – Organization and Note 10 – Notes Payable to Noncontrolling Interest Owner, Debt and Financing for further information.

On June 19, 2015, Dr. Igor Effimoff, Mr. H. H. Hardee and Mr. J. Michael Stinson resigned as directors of the Company in connection with the transaction. CT Energy appointed Oswaldo Cisneros, Francisco D'Agostino and Edgard Leal as directors of the Company. Mr. Edgard Leal is independent under the NYSE and SEC rules.

On June 29, 2015, Company received a correspondence from the NYSE that the Company was not in compliance with the NYSE’s continued listing requirements. Specifically, Section 303A.07(a) of the NYSE Listed Company Manual requires NYSE-listed companies to maintain a minimum of three independent directors on its audit committee. As previously disclosed, on June 19, 2015, Dr. Igor Effimoff, Mr. H. H. Hardee and Mr. J. Michael Stinson resigned as directors of the Company in connection with the transaction between the Company and CT Energy. As a result of these resignations, only one independent director comprised the Company’s audit committee on the date of the NYSE notice. On June 30, 2015, the Company’s Board of Directors approved the appointment of Mr. Edgard Leal and Mr. Robert E. Irelan, both current independent directors, as new members of the Company’s audit committee to replace Dr. Effimoff, Mr. Hardee and Mr. Stinson. Mr. Patrick M. Murray remains on the Company’s audit committee as its financial expert and chair. Accordingly, the Company regained compliance with Section 303A.07(a) of the NYSE Listed Company Manual. The Company’s business operations, securities reporting requirements and debt obligations are unaffected by the notice.

InOn July ~~2014,~~14, 2015, HNR Finance B.V. (“HNR Finance”) entered into a non-binding term sheet with Corporacion Venezolana del Petroleo, S.A. (“CVP”) and Petroleos de Venezuela S.A. (“PDVSA”). The Company indirectly owns 51% of HNR Finance, which owns 40% of Petrodelta, S.A. (“Petrodelta”), in which the Company’s Venezuelan operations are concentrated. The other 60% of Petrodelta is owned by CVP and PDVSA, both companies owned and controlled by the Government of Venezuela. The term sets forth a framework for definitive agreements that would govern the restructuring of the management and operations of Petrodelta. Because the term sheet is non-binding and subject to several conditions precedent, we ~~completed~~cannot guarantee that HNR Finance will be able to consummate the ~~sale~~transactions contemplated by the term sheet. Given the concentration of our ~~rights under a petroleum contract with China National Offshore Oil Corporation for~~assets in Petrodelta, our results of operations and financial conditions could be adversely affected if we are unable to consummate the ~~WAB-21 area for net proceeds~~restructuring of ~~$2.9 million. This area is located in~~ the ~~South China Sea~~management and isoperations of Petrodelta, as contemplated by the ~~subject of a border dispute between China and the Socialist Republic of Vietnam.~~

During ~~the~~ three and ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, Petrodelta drilled and completed ~~three~~six and ten development wells, ~~and four and ten during the three and nine months ended September 30, 2013,~~ respectively. Currently, Petrodelta is operating six drilling rigs and one workover ~~rig. Infrastructure~~rig and is continuing with infrastructure enhancement projects in the El Salto and Temblador ~~fields continue.~~fields. During three and six months ended June 30, 2014, Petrodelta drilled and completed four and seven development wells, respectively.

Certain operating statistics for ~~the three and nine months ended September 30, 2014 and 2013 for the Petrodelta~~ fields operated by Petrodelta are set forth below. This information is provided at 100 ~~percent of Petrodelta’s operational and financial results and~~percent. The information may not be representative of future results.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2014		2013		2014		2013		2015		2014		2015		2014
Thousand barrels of oil sold		3,840		3,839		11,820		10,677		3,452		4,102		7,085		7,980
Million cubic feet of gas sold		735		598		1,979		1,973		1,104		682		2,067		1,244
Total thousand barrels of oil equivalent (“BOE”)		3,963		3,939		12,150		11,006		3,636		4,216		7,430		8,187
Average BOE per day		43,064		42,809		44,504		40,314		39,950		46,328		41,049		45,236
Average price per barrel	$	84.17	$	93.43	$	85.70	$	92.73	$	49.71	$	88.77	$	44.57	$	86.44
Average price per thousand cubic feet	$	1.54	$	1.54	$	1.54	$	1.54	$	1.54	$	1.54	$	1.54	$	1.54
Cash operating costs (thousands)	$	56,584	$	25,641	$	162,190	$	88,310
Capital expenditures (thousands)	$	106,520	$	57,801	$	287,112	$	168,201

Petrodelta continues to experience lower revenues due to oil prices, high operating costs due to operational inefficiencies and the exchange rate imbalance as well as production and drilling issues.

~~Petrodelta’s functional~~Current oil prices are similar to those that our valuation took into account at year-end, and ~~reporting currency~~while Petrodelta continues to incur high operating costs, which are driven mainly by exchange rate imbalances and inefficiencies of ongoing operations and should be addressed through a current term sheet with PDVSA. The term sheet signed with PDVSA, through our strategic relationship with CT Energia Holding Ltd., shows a path toward resolving the operating cost situation and existing production problems. It is management’s belief that these problems will be eliminated once certain agreements are completed and in place which will provide for: (i) independent cash management of Petrodelta´s crude sales that will ensure timely payment of obligations to the ~~U.S. Dollar; however, Petrodelta has currency exchange risk from fluctuations~~government, vendors, debts and dividends , (ii) a financing plan to ensure funding of the ~~official prevailing exchange rate~~capital expenditures that ~~applies to their operating costs denominated~~will drive the production growth, (iii) autonomy in ~~Venezuela Bolivars (“Bolivars”). As~~drilling, purchasing and contracting functions and (iv) a ~~result of legislation enacted in December 2013~~technical assistance contract through which HNR Finance B.V. will provide critical services and ~~January and March of 2014, Venezuela now has a multiple exchange rate system. See~~ ~~Note 6 – Investment in Equity Affiliate – Petrodelta,~~ ~~for further discussion of the impact of currency exchange risk on Petrodelta’s results.~~ expertise.

It is the Company’s stance that these agreements and the improved performance of Petrodelta are more likely than not of being obtained in the near future, and as such believe that no further impairment of our investment is warranted as of June 30, 2015.

We continue to account for our investment in Petrodelta under the cost method, as we have not seen sufficient progress under our new management agreement with CT Energia that would lead us to believe that we have regained significant influence over the operations of Petrodelta. We will continue to monitor this situation in future periods.

We have ~~met all funding commitments for~~a 66.667 percent ownership interest in the Dussafu PSC through two separate acquisitions, and we are the operator. The Dussafu PSC partners and Gabon, represented by the Ministry of Mines, Energy, Petroleum and Hydraulic Resources, is in the third exploration phase of the Dussafu ~~Production Sharing Contract (“Dussafu PSC”). The Dussafu Ruche Marin-1 well and two sidetracks,~~PSC which ~~were drilled in 2011, and the Dussafu Tortue Marin-1 well and one sidetrack, which were drilled in 2013,~~has been extended to May 27, 2016. All expenditure commitments on this exploration phase have been ~~suspended with casing set to approximately 1,750 meters on both wells, pending future appraisal and development activities.~~completed.

Operational activities during the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015, included ~~additional~~continued evaluation of development ~~alternatives, preparation and a formal remittance of a field development plan along with continued processing of~~plans, based on the 3D seismic data acquired in 2013. On March 26, 2014, the joint venture partners approved a resolution that the discovered fields are commercial to exploit. On June 4, 2014, a DOC was signed with Gabon pertaining to the four discoveries on the Dussafu Block offshore Gabon. Furthermore, on July 17, 2014, Gabon awarded an EEA for the developmentlate 2013 and ~~exploitation of certain oil discoveries on the Dussafu Block and on October 10, 2014, the field development plan was approved.~~

Central/~~inboard~~Inboard 3D seismic data acquired in 2011 has been processed and interpreted to ~~review~~evaluate prospectivity. We have ~~begun~~also completed processing data from the 1,260 ~~Sq Km of~~sq km 3D seismic survey ~~performed~~acquired during the fourth quarter of 2013. This survey provides 3D coverage over the outboard portion of the block ~~where~~and has confirmed significant pre-salt prospectivity ~~has~~which had been ~~recognized on~~inferred from 2D seismic ~~data.~~data from the 1980s. The new 3D seismic data also covers the Ruche, Tortue and Moubenga discoveries and ~~is expected to enhance~~we expect will facilitate the effective placement of future development wells in the Ruche and Tortue development program, as well as ~~provide~~allowing improved assessment of the numerous undrilled structures already identified on older 3D seismic surveys.

During the ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, we had cash capital expenditures of ~~$0.6~~$0.4 million for facility costs ($0.5 million for facility costs during the six months ended June 30, 2014). The 2015 budget for the Dussafu PSC is $4.8 million of which $1.3 million is nondiscretionary. We could delay the discretionary portion of our capital spending to future periods to maintain the liquidity required to run our operations, as warranted.

The Company is considering options to develop, sell or farm down the Dussafu PSC in order to obtain the maximum value from the asset, while maintaining the required liquidity to continue our current operations.

Since approval of the Field Development Plan (FDP) in October 2014, Harvest has continued to move toward development of the Ruche Exclusive Exploitation Area. A tender for all the subsea equipment was concluded in January 2015 where prices exceeded the costs employed in the FDP. Efforts continue to negotiate with the lowest priced vendors and 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 has been received and interpreted. This new data was incorporated into our reservoir models and optimization of well trajectories to maximize oil recovery is ongoing. In addition, the prospect inventory was updated and several prospects have been highgraded for drilling ~~planning.~~in the first half of 2016. 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, will be mobilized in August 2015. A tender for a drilling rig for the planned well is in progress.

In January 2013, the Budong-Budong Production Sharing Contract (the “Budong PSC”) partners were granted a four year extension of the initial six year exploration term of the Budong PSC to January 15, 2017. The extension of the initial exploration term includes an exploration well, which if not drilled by January 2016, results in the obligation of the joint venture to return the entire Budong PSC to the Government of Indonesia. Concurrently, we purchased an additional 7.1% equity interest from our partnerHarvest and became operator of the Budong PSC in exchange for agreeing to fund 100% of the costs of the first exploration well. Since this exploration well was not drilled within 18 months of the date of approval from the Government of Indonesia of this transaction (October 9, 2014), we are required to pay our partner in the Budong PSC $3.2 million. This charge was invoiced by and paid to ourits joint venture partner have engaged a contractor to undertake a fixed-price, geophysical site survey over multiple potential well locations in ~~October 2014.~~the Dussafu block in August 2015. The survey is a pre-requisite for siting mobile drilling units and other installations required for continuing exploration and development activities over the license. The survey will provide information about the seabed and shallow geological conditions, essential for the safe siting and operation of these installations.

In previous periods, we were actively discussing the sale of our interests in the Budong PSC and based on indications of interest received in December 2013, we determined that is it was appropriate to recognize an impairment expense of $0.6 million and a charge included in general and administrative expenses related to a valuation allowance on a value-added tax receivable we do not expect to recover of $2.8 million. ~~We fully impaired this property in the first quarter of 2014 resulting in a charge of $4.5 million which is reflected in the results for the nine months ended September 30, 2014. In~~ June 2014, weHarvest and our ~~joint interest~~ partner ~~decided~~adopted a resolution to ~~relinquish our interest in~~terminate the Budong PSC. ~~We are working with~~Harvest advised the Indonesian government of this decision and submitted a request to ~~complete~~terminate the ~~relinquishment which may take several months. As~~Budong PSC. On February 5, 2015, the Company entered into a ~~result~~Share Purchase Agreement to transfer shares of ~~these actions, we recognized~~Harvest Budong-Budong B.V. to Stockbridge Capital Limited for a further charge of $3.2 million, as noted above, during the three months ended September 30, 2014. Budong PSC represented $4.6 million of unproved oil and gas properties including inventory on our December 31, 2013 balance sheet. See ~~Note 9 – Indonesia~~ ~~for further discussion.~~

In ~~Item 1. Business~~ ~~and~~ ~~Item 1A. Risk Factors~~ nominal amount. On February 17, 2015, a withdrawal request of the ~~2013 Form 10-K~~, in ~~Note 1− Organization~~earlier termination request was made to the ~~Consolidated Financial Statements~~Indonesian government and ~~elsewhere in this report~~the withdrawal request was accepted on April 15, 2015, ~~we have discussed the situation in Venezuela and how the actions~~. The transfer of the Venezuelan government have adversely affected and continue to adversely affect our operations as well as the agreement with Petroandina and Pluspetrol to sell the remaining 51% of our Venezuelan interests.

Based upon our ongoing analysis of seismic data, we believe that it may be in the best interest of our stockholders to further develop our remaining property in Gabon which would require additional capital expenditures. We also intend to continue our consideration of a possible sale of assets or other transaction that our Board of Directors believes is in the best interests of the Company and of its stockholders. In the meantime, we intend to operate our business in the ordinary course and may ultimately decide to keep our non-Venezuelan assets and acquire additional assets. See ~~Item 1. Business, Business Strategy~~ ~~in the 2013 Form 10-K and~~ ~~Note 2 – Liquidity~~ ~~in this report for further discussion~~shares was completed on ~~our plan to operate the business in the near term.~~May 4, 2015.

~~You should read the~~The following discussion ~~of our~~on results of operations for the three ~~and nine~~ months ended ~~September~~June 30, 2015 and 2014 ~~and 2013, and our financial condition as of September 30, 2014 and December 31, 2013~~should be read in conjunction with our consolidated condensed financial statements and related notes ~~included in this report and the 2013 Form 10-K.~~

Three Months Ended ~~September~~June 30, 2015 and 2014 ~~Compared with Three Months Ended September 30, 2013~~

We reported a net loss attributable to Harvest of ~~$4.1~~$25.4 million, or ~~$0.10 diluted loss~~$0.60 per ~~share, for the three months ended September 30, 2014, compared with net income attributable to Harvest of $2.0 million, or $0.05~~ diluted earnings per share, for the three months ended ~~September~~June 30, ~~2013.~~

~~Total expenses~~Expenses and other non-operating (income) expense from continuing operations (in thousands) were:



	Three Months Ended
	September 30,				Increase		Three Months Ended June 30,				Increase
	2014		2013		(Decrease)		2015		2014		(Decrease)
Depreciation and amortization	$	34	$	83	$	(49)	$	27	$	58	$	(31)
Exploration expense		1,065		1,533		(468)		575		1,648		(1,073)
Impairment expense - oil and gas properties								—		3,150		(3,150)
General and administrative		3,878		7,900		(4,022)		5,517		4,903		614
Investment earnings and other		(1)		(116)		115
Loss on sale of interest in Harvest Holding		59		—		59		—		391		(391)
Gain on sale of oil and gas properties		(2,865)		—		(2,865)
Unrealized loss on derivatives		—		6,559		(6,559)
Warrant liability income								(2,418)		—		(2,418)
Derivative income								(557)		—		(557)
Interest expense		25		1,152		(1,127)		614		15		599
Foreign currency transaction (gains) losses		(285)		131		(416)
Other non-operating expenses		—		38		(38)
Loss on issuance of debt								20,402		—		20,402
Foreign currency transaction gains								(77)		(259)		182
Income tax expense (benefit)		2,361		(765)		3,126		1,604		(88)		1,692
Earnings from investment affiliate								—		(16,062)		16,062

Our accounting method for oil and gas properties is the successful efforts method. During the three months ended ~~September~~June 30, ~~2014,~~2015, we incurred ~~$1.1~~$0.4 million of exploration costs ~~related to~~for the processing and reprocessing of seismic data ~~and lease maintenance costs~~ related to ongoing ~~operations.~~operations in Gabon and $0.2 million related to other general business development activities. During the three months ended ~~September~~June 30, ~~2013,~~2014, we incurred ~~$1.2~~$1.5 million of exploration costs ~~related to~~for the processing and reprocessing of seismic data ~~and lease maintenance costs~~ related to ongoing operations and ~~$0.3~~$0.1 million related to other general business development activities.

During the three months ended June 30, 2015, we incurred no impairment expense. During the three months ended June 30, 2014, we impaired $3.2 million related to the Budong PSC in Indonesia.

The ~~decrease~~increase in general and administrative costs infor the three months ended ~~September~~June 30, ~~2014 from~~2015 compared to the three months ended ~~September~~June 30, ~~2013~~2014, was primarily due to ~~lower employee related costs~~higher general operations and overhead ($~~3.3~~1.1 million), professional fees and contract services ($~~0.4~~0.2 million) offset by lower employee related costs ($0.5 million), ~~general~~travel ($0.1 million) and taxes other than income ($0.1 million). General business and overhead ~~($0.2 million) and travel ($0.1 million).~~costs were higher due to higher cost recovery reimbursements billed to projects during the prior year’s quarter offset by the $0.6 million allowance for doubtful accounts associated with the $1.1 million blocked payment in Other Assets on our balance sheet during the three months ended June 30, 2015. Employee costs are lower between periods primarily due to a reduction in staffing in our foreign offices and a reduction in certain stock-based compensation expense impacted by the ~~change~~decrease in the Company’s stock price. ~~Contract services are~~Taxes other than income were lower between ~~periods as costs for~~ the ~~three months ended September 30, 2013 included higher legal fees associated with litigation and higher consulting fees.~~

~~The decrease in investment earnings and other in the three months September 30, 2014 from the three months September 30, 2013 was~~periods primarily due to ~~the receipt of income tax refunds from the Dutch Tax Administration during 2013.~~lower payroll taxes. See Part

I – Financial Information, Item 1 – Financial Statements, Note 3 – Summary of Significant Accounting Policies, Other Assets for further information.

The $0.4 million loss on the sale of interest in Harvest Holding induring the three months ended ~~September~~June 30, 2014 ~~includes costs incurred during the period related~~relates to the anticipated sale of a our remaining 51 percent equity interest in Harvest Holding ~~which has not yet been completed. These costs are primarily related~~ to ~~transaction fees associated with the sale.~~

The ~~decrease in unrealized loss on derivatives in~~$2.4 million warrant liability income during the three months ended ~~September~~June 30, ~~2014 from~~2015 related to the change in fair value of warrant issued on June 19, 2015 with a fair value of $1.17 per share that are exercisable for 34,070,820 shares of the Company’s common stock at an initial exercise price of $1.25 per share. These warrants had a fair value as of June 30, 2015 of $1.10 per warrant. See Part I – Financial Information, Item 1 – Financial Statements, Note 11 – Warrant Derivative Liabilities for further information.

The embedded derivative income of $0.6 million during three months ended ~~September~~June 30, ~~2013~~2015 was ~~because no adjustment~~related to the reduction in the fair value of the ~~derivatives was required~~embedded derivative asset and liabilities between the issuance date of June 19, 2015 and June 30, 2015. These embedded derivative asset and liabilities are related to the 9% and 15% Notes issued to CT Energy and the income results primarily from the decrease in our stock price between those dates. See Part I – Financial Information, Item 1 – Financial Statements, Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing for further information.

The increase in interest expense for the three months ended ~~September~~June 30, ~~2014 as the underlying valuation assumptions for our warrant derivative liability have not materially changed during the current quarter.~~

~~The decrease in interest expense in~~2015 compared to the three months ended ~~September~~June 30, 2014 ~~from~~was primarily due to higher outstanding debt during the three months ended ~~September~~June 30, ~~2013 was due to there being no principal balance outstanding during the period resulting from the repayment~~2015 which consisted of the note payable of $7.6 million with an interest rate of 13 % which was repaid on June 23, 2015 and the 9% and 15% Notes from CT Energy which we issued on June 19, 2015.

On June 19, 2015, we issued a warrant, 9% and 15% Notes, a 15% additional draw note and Series C preferred stock in connection with the Purchase Agreement with CT Energy and received proceeds of $30.6 million, net of financing fees of $1.6 million. We identified embedded derivative asset and liabilities in the notes and determined that the warrant did not meet the required conditions to qualify for equity classification and is required to be classified as a warrant liability (see Note 11 ~~% Senior Notes~~– Warrant Derivative Liabilities). The estimated fair value, at issuance, of the embedded derivative asset was $2.5 million, the embedded derivative liability was $13.5 million and the warrant was $40.0 million. In accordance with ASC 815, the fair value of the financial instruments was first allocated to the embedded derivatives and warrants, which resulted in no value being attributable to the Series C preferred stock, the 9% and 15% Notes. As a result of the allocation we recognized a loss on ~~January 11, 2014. No interest was capitalized to oil~~the issuance of these securities of $20.4 million in our consolidated condensed statements of operations and ~~gas properties in~~comprehensive loss for the three and six months ended June 30, 2015.

We recognized a $0.1 million gain on foreign currency transactions for the three months ended ~~September~~June 30, ~~2014 as~~2015 compared to ~~$2.1~~$0.3 million gain on foreign currency transactions for the three months ended June 30, 2014. The gains in 2015 and 2014 were primarily associated with a favorable change in the Bolivar denominated liabilities.

We had an income tax expense for the three months ended June 30, 2015 of $1.6 million compared to an income tax benefit of $0.1 million for the three months ended ~~September~~June 30, ~~2013.~~

~~We recognized a gain on foreign currency transactions~~2014. The expense at June 30, 2015 was primarily attributable to an increase in the ~~three months ended September 30, 2014 as compared to loss on~~deferred tax liability associated with the Company’s undistributed earnings from its foreign currency transactions in the three months ended September 30, 2013. The gain in the current quarter is primarily related to converting U.S. Dollars to Bolivars while the loss in the prior year’s quarter is primarily related to converting U.S. Dollars to Euros.

The decrease in other non-operating expense in the three months ended September 30, 2014 from the three months ended September 30, 2013 was due to costs incurred in 2013 related to our strategic alternative process and evaluation.

We recognized an income tax expense of $2.4 million during the three months ended September 30, 2014 as compared to income tax benefit of $0.8 million during the three months ended September 30, 2013. Beginning insubsidiaries. In the fourth quarter of ~~2013,~~2014, we reinstated a valuation allowance against the Company’s U.S. deferred tax assets as we determined that we would not have sufficient taxable income in the U.S. ~~from~~after the ~~expected~~termination of the sale of the remaining equity interest in Harvest ~~Holding that caused us to remove the valuation allowance recorded against our net U.S. deferred tax assets. Consistent with that assumption we~~Holdings. We have not recognized a ~~current~~ tax benefit ~~associated with operating~~on the Company’s losses ~~incurred~~arising during the three months ended June 30, 2015.

Through December 31, 2014, we included the results of Petrodelta in our financial statements under the equity method. We ceased recording earnings from Petrodelta in the ~~U.S.~~second quarter of 2014 due to the expected sales price of the second tranche under the SPA approximating the recorded value of our investment in Petrodelta. During the three months ended June 30, 2015 we recognized no equity in earnings from our investment in Petrodelta compared to $16.1 million during the three months ended June 30, 2014. We determined as of December 31, 2014 that we no longer have a significant degree of influence with this partnership. As a result of these conditions, we began reporting our investment in Petrodelta using the cost method of accounting effective December 31, 2014.

Net loss attributable to noncontrolling interest was $0.3 million for the three months ended June 30, 2015 compared to net income attributable to noncontrolling interest of $7.7 million for the three months ended June 30, 2014. The net loss attributable to noncontrolling interest in 2015 was related to our ongoing operations at Harvest Vinccler as they continue oversight of our investment in Petrodelta. The net income attributable to noncontrolling interest in 2014 was primarily related to recognizing equity in earnings from our investment in Petrodelta.

September 30, 2014. However during the same period the recognized current tax benefit was offset by deferred tax expenses associated with additional undistributed earnings from foreign subsidiaries and the removal of deferred tax assets attributable to cancelled stock options. These transactions resulted in the recognition of the income tax expense noted above for the three months ended September 30, 2014.

~~The tables below reflect certain operating results from our equity affiliate Petrodelta.~~

Three Months Ended


%

September 30,

Increase

Increase

Increase


2014

2013

(Decrease)

(Decrease)

(Decrease)


(dollars in thousands, except prices)
Revenues:






Crude oil

$
323,212

$
358,692

$
(35,480)

(10)
%

Natural gas


1,132


923


209

23
%

Total revenues before royalties

$
324,344

$
359,615

$
(35,271)

(10)
%

Price and Volume Variances:






Crude oil price variance (per Bbl)

$
84.17

$
93.43

$
(9.26)

(10)

$             (35,563)
Natural gas sales prices Variance (per Mcf)

1.54

1.54

—

—

—
Volume variances:






Crude oil volumes (MBbls)


3,840


3,839


1

0
%

81
Natural gas volumes (MMcf)


735


598


137

23
%

211
Total variance






$
(35,271)

Revenues were lower in the three months ended September 30, 2014 compared to the three months ended September 30, 2013, primarily due to a decrease in oil prices. The decrease in price primarily reflects an overall decrease in market oil prices, but also resulted from increased El Salto field production which is sold at the lower Boscan price.

~~Total expenses and other non-operating (income) expense, inclusive of all adjustments necessary to reconcile Net Income under IFRS from Petrodelta to Earnings from Equity Affiliate, were:~~

Three Months Ended

September 30,

Increase


2014

2013

(Decrease)


(in thousands)
Royalties

$
108,567

$
119,259

$
(10,692)
Operating expenses


56,584


25,641

30,943
Workovers


5,280


10,476

(5,196)
Depletion, depreciation and amortization (inclusive of U.S. GAAP adjustment)


39,254


26,172

13,082
General and administrative


2,084


6,092

(4,008)
Windfall profits tax


37,386


67,751

(30,365)
Gain on exchange rate


(293)


(11,634)

11,341
Interest expense


3,965


3,238

727
Income tax expense


11,420


45,407

(33,987)
Adjustment stated at our 40% equity interest related to amortization of excess basis


1,093


1,067

26
Earnings from equity affiliate excluded from results of operations

23,011

—

23,011

~~See~~ ~~Note 6 – Investment in Equity Affiliate – Petrodelta~~ ~~for additional information.~~

For the three months ended September 30, 2014 compared to the three months ended September 30, 2013, royalties, which is a function of revenue, decreased due to lower oil prices (net decrease in revenue of $35.3 million at 30 percent royalty). The increase in operating expense is due to higher personnel costs as a result of a new labor contract, higher maintenance costs and increased chemical costs. Depletion, depreciation and amortization increased as a result of higher capitalized costs, including wells and infrastructure placed in service during 2014. Windfall profits tax expense decreased from declining Venezuela crude basket prices in line with declining world oil prices in 2014. Income tax expense decreased between the quarters primarily due to a revision to inflation adjustments to fixed assets and by the decrease in pre-tax income.

Net income for noncontrolling interests during the three months ended September 30, 2013 is attributable to Vinccler’s 20 percent equity interest in Harvest Holding. In 2014 it is also includes Petroandina’s 29 percent equity interest in Harvest Holding. Earnings for Harvest Holding are primarily attributable to Petrodelta. Net income (loss) attributable to noncontrolling interests decreased from $4.7 million for the three months ended September 30, 2013 to $(0.3) million for the three months ended September 30, 2014 primarily as result of our decision to not recognize $23.0 million of equity earnings for Petrodelta in the current quarter. See ~~Note 3 – Summary of Significant Accounting Policies - Investment in Equity Affiliate~~.

~~As discussed further~~Consistent with the results in our ~~2013~~2014 Form 10-K, ~~operations in~~our Oman and Colombia operations have been classified as discontinued operations. ~~Net income (loss) is shown in the table below:~~

~~Nine~~Six Months Ended ~~September~~June 30, 2015 and 2014 ~~Compared with Nine Months Ended September 30, 2013~~

We reported a net loss attributable to Harvest of ~~$13.8~~$31.0 million, or ~~$0.33 diluted loss per share, for the nine months ended September 30, 2014, compared with net income attributable to Harvest of $33.6 million, or $0.86~~$0.73 diluted earnings per share, for the ~~nine~~six months ended ~~September~~June 30, ~~2013.~~

2015, compared with a net loss attributable to Harvest of $9.7 million, or $0.23 diluted earnings per share, for the six months ended June 30, 2014.

~~Total expenses~~Expenses and other non-operating (income) expense from continuing operations (in thousands) were:



	Nine Months Ended
	September 30,				Increase		Six Months Ended June 30,				Increase
	2014		2013		(Decrease)		2015		2014		(Decrease)
Depreciation and amortization	$	168	$	257	$	(89)	$	56	$	134	$	(78)
Exploration expense		4,546		5,270		(724)		2,507		3,481		(974)
Impairment expense		7,610		—		7,610		—		7,610		(7,610)
General and administrative		15,082		18,813		(3,731)		9,675		11,204		(1,529)
Investment earnings and other		(5)		(280)		275		—		(4)		4
Loss on sale of interest in Harvest Holding		1,416		—		1,416		—		1,357		(1,357)
Gain on sale of oil and gas properties		(2,865)		—		(2,865)
Unrealized loss on derivatives		—		2,774		(2,774)
Warrant liability income								(2,418)		—		(2,418)
Derivative income								(557)		—		(557)
Interest expense		87		3,417		(3,330)		851		62		789
Loss on extinguishment of debt		4,749		—		4,749
Loss on issuance of debt								20,402		—		20,402
Loss on extinguishment of long-term debt								—		4,749		(4,749)
Foreign currency transaction (gains) losses		(75)		222		(297)		(80)		210		(290)
Other non-operating expenses		220		651		(431)		—		220		(220)
Income tax expense (benefit)		1,319		(2,141)		3,460		1,220		(1,042)		2,262
Earnings from investment affiliate								—		(34,949)		34,949

Our accounting method for oil and gas properties is the successful efforts method. During the ~~nine~~six months ended ~~September~~June 30, ~~2014,~~2015, we incurred ~~$3.9~~$2.3 million of exploration costs ~~related to~~for the processing and reprocessing of seismic data related to ongoing operations in Gabon and ~~lease maintenance~~$0.2 million related to other general business development activities. During the six months ended June 30, 2014, we incurred $2.9 million of exploration costs for the processing and reprocessing of seismic data related to ongoing operations and $0.6 million related to other general business development activities.

During the ~~nine~~six months ended ~~September~~June 30, ~~2013,~~2015, we incurred ~~$4.1~~no impairment expense. During the six months ended June 30, 2014, we impaired $7.6 million ~~of exploration costs~~ related to the ~~processing and reprocessing of seismic data and lease maintenance costs related to ongoing operations and $1.2 million related to other general business development activities.~~

~~Impairment expense during the nine months ended September 30, 2014 was related to our~~ Budong ~~project~~PSC in Indonesia. ~~We incurred no impairment expense during the nine months ended September 30, 2013.~~

The decrease in general and administrative costs infor the ~~nine~~six months ended ~~September~~June 30, ~~2014 from~~2015 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014, was primarily due to lower employee related costs ($~~3.2~~1.9 million), travel ($0.2 million) and taxes other than income ($0.6 million) offset by higher general operations and overhead ($0.9 million), professional fees and contract services ($~~1.4 million), and travel ($~~0.3 ~~million) offset by higher general operating and overhead costs ($0.7 million) and taxes other than income ($0.5~~ million). Employee costs ~~are~~were lower between ~~the nine month~~ periods primarily due to a reduction in staffing in our foreign offices ~~during~~and a reduction in certain stock-based compensation expense impacted by the ~~nine months ended September 30, 2014.~~decrease in the Company’s stock price. Taxes other than income were lower between the periods primarily due to lower payroll taxes. General ~~office~~business and overhead costs ~~are~~were higher ~~between periods as costs~~due to higher cost recovery reimbursements billed to projects during the prior year offset by the $0.6 million allowance for the nine months ended September 30, 2013 benefited from higher costs reimbursements from partners in our joint ventures. Professional fees and contract services are lower between periods as costs for the nine months ended September 30, 2013 included higher legal feesdoubtful accounts associated with ~~litigation and higher consulting fees.~~the $1.1 million blocked payment in Other Assets on our balance sheet in 2015. See Part I – Financial Information, Item 1 – Financial Statements, Note 3 – Summary of Significant Accounting Policies, Other Assets for further information.

The decrease in investment earnings and other in the nine months ended September 30, 2014 from the nine months September 30, 2013 was primarily due to the receipt of income tax refunds from the Dutch Tax Administration during 2013.

~~The~~$1.4 million loss on the sale of interest in Harvest Holding induring the ~~nine~~six months ended ~~September~~June 30, 2014 ~~includes costs incurred during the period~~ related to the anticipated sale of a our remaining 51 percent equity interest in Harvest ~~Holding. These are primarily transaction costs associated with~~Holding to Petroandina that was subsequently terminated.

~~The decrease in unrealized loss on derivatives in the nine~~six months ended ~~September~~June 30, ~~2014~~2015 was related to the change in fair value of warrant issued to CT Energy on June 19, 2015 with a fair value of $1.17 per share that was exercisable for 34,070,820 shares of the Company’s common stock at an initial exercise price of $1.25 per share. The warrant had a fair value as of June 30, 2015 of $1.10 per warrant. See Part I – Financial Information, Item 1 – Financial Statements, Note 11 – Warrant Derivative Liabilities for further information.

The embedded derivative income of $0.6 million during six months ended June 30, 2015 was related from the ~~nine months ended September 30, 2013 was because no adjustment to~~reduction in the fair value of the ~~derivatives was required~~embedded derivative asset and liabilities between the issuance date of June 19, 2015 and June 30, 2015. These embedded derivative liabilities are related to the 9% and 15% Notes issued to CT Energy and the income results primarily from the decrease in ~~the nine months ended September 30, 2014 as the underlying valuation assumptions~~ our stock price between those dates. See Part I – Financial Information, Item 1 – Financial Statements, Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing for ~~our warrant derivative liability have not materially changed during the current period.~~further information.

The ~~decrease~~increase in interest expense infor the ~~nine~~six months ended ~~September~~June 30, 2015 compared to the six months ended June 30, 2014 ~~from~~was primarily due to higher debt during the ~~nine~~six months ended ~~September~~June 30, ~~2013 was due to the repayment~~2015 which consisted of the ~~11% Senior Notes on January~~note payable of $7.6 million with an interest rate of 11 % (January – March) and 13 % (April and May) for the six months ended June 30, 2015compared to lower debt during the six months ended June 30, 2014 which consisted of the note payable of $6.1 million with an interest rate of 0.7326 % for the six months ended June 30, 2014. We also did not capitalize interest for the six months ended June 30, 2015. Interest capitalized to oil and gas properties induring the ~~nine~~six months ended ~~September~~June 30, 2014 was $0.2 million.

On June 19, 2015, we issued a warrant, 9% and 15% Notes, a 15% additional draw note and Series C preferred stock in connection with the Purchase Agreement with CT Energy and received proceeds of $30.6 million, ~~(nine~~net of financing fees of $1.6 million. We identified embedded derivative asset and liabilities in the notes and determined that the warrant did not meet the required conditions to qualify for equity classification and is required to be classified as a warrant liability (see Note 11 – Warrant Derivative Liabilities). The estimated fair value, at issuance, of the embedded derivative asset was $2.5 million, the embedded derivative liability was $13.5 million and the warrant was $40.0 million. In accordance with ASC 815, the fair value of the financial instruments was first allocated to the embedded derivatives and warrants, which resulted in no value being attributable to the Series C preferred stock, the 9% and 15% Notes. As a result of the allocation we recognized a loss on the issuance of these securities of $20.4 million in our consolidated condensed statements of operations and comprehensive loss for the three and six months ended ~~September~~June 30, ~~2013: $6.2 million).~~

During the ~~nine~~six months ended ~~September~~June 30, 2014, we incurred a loss on extinguishment of debt of $4.7 million in connection with the repayment of the 11% Senior Notes.

We recognized a $0.1 million gain on foreign currency transactions infor the ~~nine~~six months ended ~~September~~June 30, ~~2014 as~~2015 compared to $0.2 million loss on foreign currency transactions infor the ~~nine~~six months ended ~~September~~June 30, ~~2013.~~2014. The gain in 2015 was primarily associated with a favorable change in the ~~current year is~~Bolivar denominated liabilities. The loss in 2014 was primarily related to ~~converting~~remeasurement of Bolivars denominated assets and liabilities from 6.3 to 23.9 Bolivars to U.S. ~~Dollars~~Dollars.

The decrease in other non-operating expense for the six months ended June 30, 2015 compared to ~~Bolivars while~~ the ~~loss~~six months ended June 30, 2014 was due to higher costs incurred in ~~the prior year is primarily~~2014 related to ~~converting U.S. Dollars to Euros.~~

~~Other non-operating expense in the nine months ended September 30, 2013 included the expensing of costs related to an equity distribution agreement which we can no longer access.~~

We ~~recognized~~had an income tax expense ~~of $1.3 million during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2014 as~~2015 of $1.2 million compared to an income tax benefit of ~~$2.1~~$1.0 million ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2013. Beginning~~2014. The expense for the six months ended June 30, 2015 was primarily attributable to an increase in the deferred tax liability associated with the Company’s undistributed earnings from its foreign subsidiaries. In the fourth quarter of ~~2013,~~2014, we reinstated a valuation allowance against the Company’s U.S. deferred tax assets as we determined that we would not have sufficient taxable income in the U.S. ~~from~~after the ~~expected~~termination of the sale of the remaining equity interest in Harvest ~~Holding that caused us to remove the valuation allowance recorded against our net U.S. deferred tax assets. Consistent with that assumption we~~Holding. We have not recognized a ~~current~~ tax benefit ~~associated with operating~~on the Company’s losses ~~incurred~~arising during the six months ended June 30, 2015.

Through December 31, 2014, we included the results of Petrodelta in our financial statements under the equity method. We ceased recording earnings from Petrodelta in the ~~U.S.~~second quarter of 2014 due to the expected sales price of the second tranche under the SPA approximating the recorded value of our investment in Petrodelta. During the six months ended June 30, 2015 we recognized no equity in earnings from our investment in Petrodelta compared to $34.9 million during the six months ended June 30, 2014. In December 2014 we determined that we no longer have a significant degree of influence with this partnership. As a result of these conditions, we began reporting our investment in Venezuela using the cost method of accounting effective December 31, 2014.

Net loss attributable to noncontrolling interest was $0.6 million for the ~~nine~~six months ended ~~September~~June 30, 2015 compared to net income attributable to noncontrolling interest of $16.3 million for the six months ended June 30, 2014. However during the same period the recognized current tax benefit was offset by deferred tax expenses associated with additional undistributed earnings from foreign subsidiaries and the removal of deferred tax assetsThe net loss attributable to ~~cancelled stock options. These transactions resulted~~noncontrolling interest in ~~the recognition~~2015 was related to our ongoing operations at Harvest Vinccler as they continue oversight of ~~the income tax expense noted above for the nine months ended September 30, 2014.~~

in Petrodelta. The ~~tables below reflect certain operating results from our equity affiliate Petrodelta.~~

Nine Months Ended


%

September 30,

Increase

Increase

Increase


2014

2013

(Decrease)

(Decrease)

(Decrease)


(dollars in thousands, except prices)
Revenues:






Crude oil

$
1,013,010

$
990,104

$
22,906

2
%

Natural gas


3,048


3,046


2

0
%

Total revenues before royalties

$
1,016,058

$
993,150

$
22,908

2
%

Price and Volume Variances:






Crude oil price variance (per Bbl)

$
85.70

$
92.73

$
(7.03)

(8)

$             (75,085)
Natural gas sales prices Variance (per Mcf)

1.54

1.54

—

—

—
Volume variances:






Crude oil volumes (MBbls)


11,820


10,677


1,143

11
%

97,984
Natural gas volumes (MMcf)


1,979


1,973


6

0
%

9
Total variance






$
22,908

Revenues were higher in the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily due to increases in sales volumes resulting from additional production from wells drilled since September 30, 2013 offset by a decrease in oil prices. The decrease in price primarily reflects an overall decrease in market oil prices, but also resulted from increased El Salto production which is sold at the lower Boscan price.

~~Total expenses and other non-operating (income) expense, inclusive of all adjustments necessary to reconcile Net Income under IFRS from Petrodelta to Earnings from Equity Affiliate, were:~~

Nine Months Ended

September 30,

Increase


2014

2013

(Decrease)


(in thousands)
Royalties

$
339,072

$
329,021

$
10,051
Operating expenses


162,190


88,310

73,880
Workovers


19,086


18,929

157
Depletion, depreciation and amortization (inclusive of U.S. GAAP adjustment)


107,826


79,684

28,142
General and administrative


11,729


19,575

(7,846)
Windfall profits tax (inclusive of U.S. GAAP adjustment)


135,811


185,725

(49,914)
Gain on exchange rate


125


(193,020)

193,145
Interest expense


19,816


9,163

10,653
Income tax expense (inclusive of U.S. GAAP adjustment)


49,530


243,654

(194,124)
Adjustment stated at our 40% equity interest related to amortization of excess basis


3,351


2,589

762
Earnings from equity affiliate excluded from results of operations

30,890

—

30,890

~~See~~ ~~Note 6 – Investment in Equity Affiliate – Petrodelta~~ ~~for additional information.~~

For the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, royalties, which is a function of revenue, increased due to the increase in production (net increase in revenue of $22.9 million at 30 percent royalty).The increase in operating expense is due to higher personnel costs as a result of a new labor contract, higher maintenance costs and increased chemical costs. The increase in workover expense is due to running between one and two workover rigs in 2014 versus one workover rig in 2013. Depletion, depreciation and amortization increased as a result of higher capitalized costs, including wells and infrastructure placed in service during 2014. Windfall Profits Tax, which is a function of volume and price received per barrel as well as pricing levels set for determining Windfall Profits Tax, decreased as a result of an increase in the threshold price per barrel from $70 to $80 in mid-February 2013 and lower Venezuela crude basket price used in determining this tax in 2014. The foreign currency transaction gain during the nine months ended September 30, 2013 is due to the Bolivar devaluation in February 2013 from 4.30 Bolivars/U.S. Dollar to 6.30 Bolivars/U.S. Dollar. Income tax expense decreased between the periods primarily due to the decrease in pre-tax income.

Net income for noncontrolling interests during the nine months ended September 30, 2013 is attributable to Vinccler’s 20 percent equity interest in Harvest Holding. Beginning in 2014 it also includes Petroandina’s 29 percent equity interest in Harvest Holding. Earnings for Harvest Holding are primarily attributable to Petrodelta. Netnet income attributable to noncontrolling ~~interests decreased from $16.2 million for the nine months ended September 30, 2013~~interest in 2014 was primarily related to ~~$16.0 million for the nine months ended September 30, 2014. During the period we did not recognize $30.9 million~~recognizing equity in earnings from ~~equity affiliates within~~ our ~~results of operations. See~~ ~~Note 6 – Investment~~investment in ~~Equity Affiliate~~.

~~As discussed further~~Consistent with the results in our ~~2013~~2014 Form 10-K, ~~operations in~~our Oman and Colombia ~~are~~operations have been classified as discontinued operations. ~~Net income (loss) is shown in the table below:~~

The following discussion on risks, uncertainties, capital resources and liquidity should be read in conjunction with our ~~2013 Form 10-K and our~~ consolidated condensed financial statements and related notes thereto.

Historically, prior to the transaction pursuant to the Purchase Agreement, our primary ongoing source of cash had been dividends from Petrodelta, issuance of debt and the sale of oil and gas properties. Our primary use of cash has been to fund oil and gas exploration projects, principal payments on debt, interest, and general and administrative costs. We require capital principally to fund the exploration and development of new oil and gas properties. As is common in the oil and gas industry, we have various contractual commitments pertaining to exploration, development and production activities. See the consolidated condensed financial statements and notes thereto included in ~~this report.~~our 2014 Form 10-K for our contractual commitments.

~~Liquidity~~On May 11, 2015, the Company borrowed $1.3 million from CT Energy to fund certain corporate expenses. The Company issued a note payable bearing an interest rate of 15% per annum, with a maturity date of January 1, 2016. On June 19, 2015, the Company repaid the note payable and accrued interest.

~~As discussed above under~~ ~~Recent Developments~~,On June 3, 2015, the Company entered into an unsecured and prepayable promissory note with James A. Edmiston, President and Chief Executive Officer of the Company, for $50,000. The note carried interest at 11% per year and was to mature upon the earlier to occur of June 30, 2016 or the date on ~~December 16, 2013, Harvest~~which the Loan Obligations (as defined in that certain Loan Agreement, dated as of September 11, 2014, by and among the Company, HNR Energia B.V. ~~entered into~~and Petroandina Resources Corporation N.V.) are paid in full. On June 19, 2015, the ~~SPA with Petroandina~~Company repaid the note and ~~Pluspetrol, its parent, to sell all~~accrued interest.

On June 19, 2015, CT Energy purchased from the Company 9% and 15% Notes and a warrant. The Company immediately received gross proceeds of ~~our 80 percent equity interest in Harvest Holding to Petroandina in two closings for an aggregate cash purchase price~~$32.2 million from the sale of ~~$400 million.~~the securities. The ~~first closing occurred on December 16, 2013 when we sold a 29 percent equity interest in Harvest Holding for $125 million. We~~Company used ~~$80.0~~$9.7 million of ~~the~~these proceeds to ~~redeem all of our 11% Senior Notes due 2014 on January 11, 2014 including principal~~repay its existing debt plus accrued interest and ~~accrued~~certain financing fees. The remaining proceeds will be used to position the Company for long-term growth, both in Venezuela and ~~unpaid interest. As of September 30, 2014, we had $9.0 million in cash~~Gabon as well as to fund general and ~~cash equivalents.~~administrative costs. See Note 1 – Organization for further information.

As of December 31, 2014, HNR Energia had a note payable to Petroandina of $7.6 million. Principal is due by January 1, 2016. Interest payments were to be paid quarterly beginning on December 31, 2014. On ~~July 2, 2014, we completed~~June 23, 2015 the ~~sale~~Company repaid the note payable of $7.6 million plus accrued interest of $0.4 million.

As of June 30, 2015, the book-tax outside basis difference in our foreign subsidiary, HNR Energia B.V., resulting from unremitted earnings was approximately $162.1 million. Prior to 2013, no U.S. taxes had been recorded on these earnings as it was our practice and intention to reinvest the earnings of our ~~rights under~~non-U.S. subsidiaries in those operations.

Under ASC 740-30-25-17, no deferred tax liability should be recorded if sufficient evidence shows that the subsidiary has invested or will invest these undistributed earnings or that these earnings will be remitted in a ~~petroleum contract with China National Offshore Oil Corporation (“CNOOC”)~~tax-free manner. Management must consider numerous factors in determining timing and amounts of possible future distribution of these earnings to the parent company and whether a U.S. deferred tax liability should be recorded for these earnings. These factors include the ~~WAB-21 area for net proceeds~~future operating and capital requirements of ~~$2.9 million. This area is located in~~both the ~~South China Sea and is the subject of a border dispute between the People’s Republic of China~~parent company and the ~~Socialist Republic of Vietnam.~~

On July 10, 2014, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission. Under the shelf registration statement, we could offer and sell up to $300.0 million of various types of securities, including unsecured debt securities, common stock, preferred stock, warrants and units. Additionally, the shelf registration statement will allow selling stockholders to resell up to an aggregate of 686,761 common shares upon the exercise of currently outstanding warrants. The Company will not receive any proceeds from common shares offeredsubsidiaries, remittance restrictions imposed by these selling stockholders. There can be no assurances that any future offerings will be conducted under the shelf registration statement, and the terms of any future offering would be determined at the time of the offering and would be subject to market conditions and approval by the Company's Board of Directors. This disclosure shall not constitute an offer to sellforeign governments or the solicitation of the offer to buy, nor shall there be any sale of these securities in any state where such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

On September 4, 2014, we entered into a Distribution Agreement (the “Agreement”) with a sales agent (the “Agent”) to sell shares of the Company’s common stock (the “ATM Shares”), for up to $75.0 million aggregate gross sale proceeds, from time to time in “at-the-market” offerings (the “ATM offering”). During the quarterly period ended September 30, 2014 we issued 334,563 shares under the ATM offering at a weighted average sale price of $4.45 per share resulting in proceeds to us of approximately $1.4 million, net of fees paid to the Agent and other costs associated with the Agreement. Under the terms of the ATM offering, sales are to be made primarily in transactions that are deemed to be “at-the-market” offerings, including sales made directly on the New York Stock Exchange at market prices or as otherwise agreed by the Company and the Agent. The Company may also sell the ATM Shares fromfinancial

~~time to time to the Agent as principal for its own account at a price to be agreed upon at the time~~agreements and tax consequences of the ~~sale. Any sale~~remittance, including possible application of ~~ATM Shares to~~U.S. foreign tax credits and limitations on foreign tax credits that may be imposed by the ~~Agent as principal would be pursuant to the terms of a separate agreement between the Company~~Internal Revenue Code and ~~the Agent.~~regulations.

~~If the proposed sale of our remaining Harvest Holding interests is completed, pursuant to the SPA, during~~During the fourth quarter ~~a significant portion~~ of ~~our assets at year end will be cash from the proceeds of such transactions. However,~~2013, management evaluated numerous factors related to the timing and amounts of possible future distribution of these earnings to the parent company, with consideration of the sale of non-U.S. assets. Because management was pursuing various alternatives, a determination was made that it was appropriate to record a deferred tax liability associated with the unremitted earnings of our foreign subsidiaries of $89.9 million in the fourth quarter of 2013. Primarily due to the recognition of the $355.7 million pre-tax impairment of our investment in Petrodelta in 2014, the balance decreased by $75.2 million to $14.7 million as of December 31, 2014. When the sale of the remaining ~~51 percent~~ interest in Harvest Holding ~~is beyond our control, and we will continue to have operating and capital requirements~~was terminated, the deferred tax liability was thereafter considered long term. As of June 30, 2015, the balance in long term deferred tax liability associated with the interim period. Depending on the timing of these events, we anticipate using a portion of the proceeds from this sale to pay for expenses and other costs related to the transaction, which we estimate will be approximately $3.1 million, $1.5 million of which has been incurred as of September 30, 2014; and to pay taxes related to the transaction, which we estimate will be approximately $48.2 million. We also anticipate making a cash settlement payment related to the warrant derivative liability of approximately $2.0 million, along with severance costs and obligations under stock-based compensation agreements and employment agreements triggered by this sale, during the fourth quarter of 2014. Based on outstanding stock-based compensation awards and salaries as of September 30, 2014, the cash settlement could be up to approximately $16.1 million.

~~In addition to payments resulting from the completion of the sale~~unremitted earnings of our remaining Venezuelan interests, we anticipate that we will need to fund estimated cash general operating and capital expenditures of $14.0 million for the remainder of 2014. The majority of these costs will be paid with cash on hand with any shortfalls to be made up with funds from anticipated second closing under the SPA, loans from Petroandina related to the monthly extensions of the closing, accessing debt markets or additional equity sales. However, there can be no assurances that any of these will occur or will be available to the Company on terms that are acceptable to the Company.Based upon our ongoing analysis of seismic data, we believe that it may be in the best interest of our stockholders to further develop our remaining property in Gabon which would require additional capital expenditures. We also intend to continue our consideration of a possible sale or other transaction that our Board of Directors believesforeign subsidiaries is ~~in the best interests of the company and of its stockholders. Our cash balance as of September 30, 2014 was $9.0~~$15.9 million. ~~See~~ ~~Note 2 –Liquidity, for further discussion.~~

~~The oil and gas industry is a highly capital intensive and cyclical business with unique operating and financial risks. In~~ ~~Part I.Item 1A. Risk Factors~~ of the 2013 Form 10-K, we discuss a number of variables and risks related to our exploration projects and our minority equity investment in Petrodelta that could significantly utilize our cash balances, affect our capital resources and liquidity.

The net funds raised or used in each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:

The ~~decrease~~increase in working capital of ~~$18.5~~$25.8 million between December 31, ~~2013~~2014 and ~~September~~June 30, ~~2014~~2015 was primarily to due tocash proceeds from issuance of debt in the CT Energy transaction offset by cash used to fund our loss from operations, ~~interest~~capital expenditures and payments ~~as well as~~on notes payable.

During the ~~extinguishment~~six months ended June 30, 2015, net cash used in operating activities was approximately $10.9 million ($28.7 million during the six months ended June 30, 2014). The $17.8 million decrease in use of cash was primarily due to decreases in accounts payable, accrued expenses, deferred income tax assets and liabilities and income taxes payable. During the six months ended June 30, 2014, we had certain ~~debt~~non-recurring payments for a seismic project in ~~January 2014.~~Gabon ($9.9 million), closing fees related to the sale of Harvest Holding ($2.9 million) and income taxes ($2.2 million).

During the nine months ended September 30, 2014, net cash used in operating activities was approximately $34 million ($29.7 million during the nine months ended September 30, 2013). The $4.3 million increase in use of cash was primarily due to an increase in cash paid for exploration expenses, general and administrative costs and income taxes.

Our cash capital expenditures for property and equipment are summarized in the following table:

In addition to cash capital expenditures, we incurred $3.7 million in transaction costs associated with the first closing in our sale of interest in Harvest Holding and received $2.9 million in net proceeds from the sale of WAB-21. We also advanced $0.4 million to Petrodelta for continuing operating costs during the ~~nine~~six months ended ~~September~~June 30, 2014, ~~($0.4~~we:

Our budgeted capital expenditures of $5.1 million ~~during~~for 2015, of which $1.3 million is non-discretionary, for U.S. and Gabon operations will be funded through our existing cash balances and accessing equity and debt markets. In addition, we could delay the ~~nine months ended September 30, 2013) for employee salaries and related benefits for three Harvest Vinccler employees seconded into Petrodelta~~discretionary portion of our capital spending to future periods or sell assets as ~~well~~necessary to maintain the liquidity required to run our operations, as other operational costs. Costs advanced are invoiced on a monthly basis to Petrodelta. We had returned to us $0.1 million in restricted cash associated with the Dussafu project ($0.9 million during the nine months ended September 30, 2013). warranted.

During the six months ended June 30, 2014, we repaid $79.8 million of our 11% Senior Notes and paid $0.8 million in debt extinguishment costs. We also received $2.0 million from issuance of a note payable to a noncontrolling interest owner, $1.0 million in contributions from noncontrolling interest owners and $1.4 million from the sale of common stock. There were no significant cash flows related to financing activities during the nine months ended September 30, 2013.we:

Our results of operations and cash flow are affected by ~~fluctuating~~changing oil ~~and natural gas~~ prices. ~~These fluctuations could~~Fluctuations in oil prices may affect our total planned development activities and capital ~~expenditures~~expenditure program.

Our net foreign exchange gain attributable to our international operations was $0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2014 and was a~~2015 compared to $0.2 million loss on foreign currency transactions for the ~~nine~~six months ended ~~September~~June 30, ~~2013.~~2014. The loss in 2014 is primarily related to remeasurement of Bolivars denominated assets and liabilities from 6.3 to 23.9 Bolivars per U.S. Dollars. There are many factors ~~that affect~~affecting foreign exchange rates and ~~the~~ resulting exchange gains and losses, most of which are beyond our control. ~~We are unable~~It is not possible for us to predict the extent ~~that~~to which we may be affected by future changes in exchange rates and ~~controls would affect our financial results.~~

~~Venezuela imposed currency~~ exchange ~~restrictions in February 2003, and has adjusted the official exchange rate numerous times in previous reporting periods, most recently in February of 2013.~~controls.

Harvest Vinccler’s ~~and Petrodelta’s~~ functional and reporting currency is the U.S. Dollar. They do not have currency exchange risk other than the official prevailing exchange rate that applies to their operating costs denominated in Venezuela Bolivars ~~(6.30~~(“Bolivars”) (197.30 Bolivars per U.S. Dollar). However, during the nine months ended September 30, 2014, Harvest Vinccler exchanged approximately $0.3 million (September 30, 2013: $1.3 million) and received an average exchange rate of 28.6 Bolivars (September 30, 2013: 6.08 Bolivars) per U.S. Dollar.

Within the United States and other countries in which we conduct business, inflation has had a minimal effect on ~~our financial results,~~us, but it is ~~potentially~~ an important factor with respect to certain aspects of the results of operations in Venezuela. The ~~annualized~~ inflation rate in Venezuela ~~was 58.5 percent during~~for the ~~eight months ended August 31, 2014 (the most recently published data,~~ year ended December 31, ~~2013: 56.2 percent).~~

Item 3. ~~Quantitative~~Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from adverse fluctuations in oil and natural gas prices and foreign currency exchange, as discussed in our ~~2013~~2014 Form 10-K. Our outlook with regards to market risk for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 does not differ materially from that discussed in the ~~2013~~2014 Form ~~10-K.~~10-K

We have established disclosure controls and procedures designed to ensure that the disclosure requirement in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms and that such information is accumulated and effectively communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management of the Company, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on their evaluation as of ~~September~~June 30, ~~2014,~~2015, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at such time.

There have been no changes in internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2014~~2015 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

See ~~Notes to Consolidated Condensed~~Part I – Information, Item 1- Financial Statements, Note 12 – Commitments and Contingencies and our ~~2013~~2014 Form 10-K for a description of certain legal proceedings, including material developments in such legal proceedings.

The following risk factors supplement the risk factors contained in Part I, Item 1A of our 2014 Form 10-K:

If our stockholders do not approve certain proposals at our 2015 annual meeting of stockholders, our liquidity position will be adversely affected, and we will be unable to realize the full potential of our strategic transaction with CT Energy. Three proposals to be considered at our 2015 annual meeting of stockholders concern aspects of our transaction with CT Energy, which is discussed in this report and other filings we have made under the Exchange Act. If any of these proposals are not approved at our 2015 annual meeting, holders of at least 25% of the outstanding principal amount of the 9% and 15% Notes (i.e., CT Energy and its permitted transferees) may elect to accelerate full repayment of the outstanding notes upon 60 days’ notice. If the notes are accelerated, we will be forced to quickly raise additional funds to avoid defaulting on our payment obligations, and we cannot guarantee that we would be able to raise sufficient funds. As a result, our liquidity position will be adversely affected. Additionally, on the date payment is due under the acceleration notice, the warrant, under which we could realize additional funds, and CT Energy’s governance rights would terminate, as would the management agreement we entered into with CT Energia concerning our Venezuelan operations. Effectively, our relationship with CT Energy and CT Energia would cease, and we would be unable to realize the full potential of our strategic transaction with CT Energy.

Our transaction with CT Energy may significantly dilute our existing stockholders. If our stockholders approve certain proposals relating to the transaction with CT Energy and certain other conditions precedent are satisfied, CT Energy may choose to fully convert and exercise the 9% Note and warrant. At the initial conversion and exercise prices, CT Energy would own approximately 49.9% of our outstanding common stock following full conversion and exercise. Our other stockholders would be diluted from an ownership standpoint. However, the warrant will not be exercisable until the volume weighted average price of our common stock over any 30-day period equals or exceeds $2.50 per share, which means that stockholders other than CT Energy will have experienced significant share price appreciation prior to such exercise when compared to the $0.69 price per share of our common stock on May 8, the last trading date before we entered into the term sheet with representatives of CT Energy.

As a significant stockholder of Harvest, CT Energy has significant influence over our actions and its presence may affect the ability of a third party to acquire control of us. For so long as CT Energy is a significant stockholder, CT Energy and its

affiliates may exercise significant influence or control over our management and affairs, including influence or control beyond what is expressly permitted under the CT Energy transaction documents. CT Energy and its affiliates also will be able to strongly influence all matters requiring stockholder approval, regardless of whether or not other stockholders believe that a potential transaction is in their own best interests. In any of these matters, the interests of CT Energy and its affiliates may differ or conflict with your interests. Further, the high concentration of stock ownership in one stockholder may directly or indirectly deter hostile takeovers, delay or prevent changes in control or changes in management, or limit the ability of our other stockholders to approve transactions that they may deem to be in our best interests. The trading price of our common stock may be adversely affected to the extent investors perceive a disadvantage in owning stock of a company with a significant stockholder.

Anti-dilution provisions in the securities we issued to CT Energy may make it more difficult and expensive for us to raise additional capital in the future and may result in further dilution to our stockholders. On June 19, 2015, we issued to CT Energy a 9% note, which contains anti-dilution provisions that will fully reduce the conversion price to any lower price at which we issue common stock (subject to certain exceptions) as well as customary anti-dilution provisions, and a warrant, which contains customary anti-dilution provisions. If triggered, these anti-dilution provisions will have the effect of lowering the prices at which shares of our common stock are issued upon conversion and exercise of these securities, thereby increasing the number of shares received upon such conversions and exercises. Accordingly, if we are unable to raise additional capital at an effective price per share that is higher than the conversion and exercise prices of the convertible note and warrant, the anti-dilution provisions will make it more difficult and expensive to raise additional capital in the future. If triggered, these anti-dilution provisions also would result in further dilution to our stockholders.

Changes in the fair value of financial instruments, particularly the securities we issued to CT Energy, may result in significant volatility in our reported operating results. We recorded an embedded derivative asset related to the non-convertible note, a derivative liability related to the warrant and an embedded derivative liability related to the convertible note that we issued to CT Energy on June 19, 2015. Please see Part I – Financial Information, Item 1 – Financial Statements, Note 10 – Notes Payable to Noncontrolling Interest Owners, Debt and Financing and Note 11 – Warrant Derivative Liabilities for further information. These financial instruments require us to “mark to market” (i.e., record the derivatives at fair value) as of the end of each reporting period as assets or liabilities, as applicable, on our balance sheet and to record the change in fair value during each period as a non-cash adjustment to our current period results of operations and in our income statement. These accounting classifications could significantly increase the volatility of our reported operating results, and the negative reporting implications may make it more difficult for us to raise capital in the future.

We may be unable to consummate the restructuring of Petrodelta as contemplated by the term sheet between HNR Finance and CVP and PDVSA. On July 14, 2015, HNR Finance, our majority-owned subsidiary, entered into a non-binding term sheet with Corporacion Venezolana del Petroleo, S.A. (“CVP”) and Petroleos de Venezuela S.A. (“PDVSA”). The term sets forth a framework for definitive agreements that would govern the restructuring of the management and operations of Petrodelta. Because the term sheet is non-binding and subject to several conditions precedent, we cannot guarantee that HNR Finance will be able to consummate the transactions contemplated by the term sheet. Given the concentration of our assets in Petrodelta, our results of operations and financial conditions could be adversely affected if we are unable to consummate the restructuring of the management and operations of Petrodelta, as contemplated by the term sheet.


2.1	Securities Purchase Agreement, dated as of June 19, 2015, between Harvest Natural Resources, Inc., Harvest (US) Holding, Inc., Harvest Natural Resources, Inc. (UK), Harvest Offshore China Company, and CT Energy Holding SRL. (Incorporated by reference to our Form 8-K filed on June 22, 2015)
3.1	Amended and Restated Certificate of Incorporation. (Incorporated by reference to ~~Exhibit 3.1 to~~ our Form 10-Q filed on November 9, ~~2010, File No. 1-10762.)~~2010)
3.2	Restated Bylaws as of May ~~17, 2007.~~15, 2015. (Incorporated by reference ~~to Exhibit 3.1~~ to our Form 8-K filed on May ~~23, 2007, File No. 1-10762.)~~15, 2015)
3.3	Certificate of Designations of Series C Preferred Stock of Harvest Natural Resources, Inc. filed on June 19, 2015. (Incorporated by reference to our Form 8-K filed on June 22, 2015)
4.1	Form of Common Stock Certificate. (Incorporated by reference to ~~Exhibit 4.1 to~~ our Form 10-K filed on March 17, ~~2008, File No. 1-10762.)~~2008)
4.2	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 4.2 to~~ our Form 10-Q filed on November 9, ~~2010, File No. 1-10762.)~~2010)
4.3	Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to ~~Exhibit 99.3 to~~ our Form 8-A filed on October 23, ~~2007, File No. 1-10762.)~~2007)

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4.4	Amendment to Third Amended and Restated Rights Agreement, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to ~~Exhibit 4.1 to~~ our Form 8-K filed on October 29, ~~2010, File No. 1-10762.)~~2010)
4.5	Second Amendment to Third Amended and Restated Rights Agreement, dated as of February 1, 2013, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A., as Rights Agent. (Incorporated by reference to ~~Exhibit 4.1 to~~ our Form 8-K filed on February 4, ~~2013, File~~2013)
4.6	Third Amendment to Third Amended and Restated Rights Agreement, dated as of April 24, 2015, between the Company and Wells Fargo Bank, N.A. (incorporated by reference to the Company’s Form 8-K filed with the SEC on April 24, 2015)
4.7	Fourth Amendment to Third Amended and Restated Rights Agreement, dated as of June 19, 2015, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A., as rights agent. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
4.8	Warrant Purchase Agreement, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and MSD Energy Investments Private II, LLC. (Incorporated by reference to our Form 8-K filed on October 29, 2010)
4.9	Common Stock Purchase Warrant No. ~~1-10762.)~~W-1, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and MSD Energy Investments Private II, LLC. (Incorporated by reference to our Form 8-K filed on October 29, 2010)
4.10	Common Stock Purchase Warrant No. W-2, dated as of October 28, 2010, between Harvest Natural Resources, Inc. and MSD Energy Investments Private II, LLC. (Incorporated by reference to our Form 8-K filed on October 29, 2010)
4.11	Warrant Agreement (including Form of Warrant), dated as of October 11, 2012, between the Company and U.S. Bank National Association (incorporated by reference to the Company’s Form 8-K filed with the SEC on October 15, 2012)
10.1*	Loan agreement, dated as of September 11, 2014, between Harvest Natural Resources, Inc., HNR Energia, BV. and Petroandina Resources Corporation N.V.
10.2	Loan agreement, dated as of June 3, 2015, between Harvest Natural Resources, Inc. and James A. Edmiston (Incorporated by reference to our Form 8-K filed on June 3, 2015)
10.3	15% Non-Convertible Senior Secured Promissory Note Due 2020 dated June 19, 2015 between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.4	9% Convertible Senior Secured Note Due 2020 dated June 19, 2015 between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.5	15% Additional Draw Senior Secured Note Due 2020 dated June 19, 2015 between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.6	Harvest Natural Resources, Inc. Common Stock Purchase Warrant dated as of June 19, 2015, issued to CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.7	Registration Rights Agreement, dated June 19, 2015, between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.8	Management Agreement, dated June 19, 2015, between Harvest Natural Resources, Inc., HNR Finance B.V., and CT Energia Holding Ltd. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.9	Investor Voting Agreement, dated June 19, 2015 between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
10.10*	Security Agreement, dated June 19, 2015, by and among the Company, Harvest (US) Holding, Inc., Harvest Natural Resources, Inc. (UK) and Harvest Offshore China Company in favor of CT Energy Holding SRL
10.11*	Guaranty Agreement, dated June 19, 2015, by and among the Company, Harvest (US) Holding, Inc., Harvest Natural Resources, Inc. (UK) and Harvest Offshore China Company in favor of CT Energy Holding SR
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.
31.2*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.
32.1**	Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 of Chief Executive Officer.

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32.2**

Certification accompanying Quarterly Report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350 of Chief Financial Officer.

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99.1	Form of Company Voting Agreement, between CT Energy Holding SRL and the individual named on the signature page thereto (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 22, 2015)
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101 DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

Pursuant to the requirements 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.


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets at ~~September~~June 30, ~~2014~~2015 (Unaudited) and December 31, ~~2013~~2014	2
	Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014	3
	Unaudited Consolidated Condensed Statements of ~~Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2014 and 2013~~	4
	~~Unaudited Consolidated Condensed Statements of~~ Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014	54
	Notes to Consolidated Condensed Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2229
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3339
Item 4.	Controls and Procedures	3339
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	3339
Item 1A	Risk Factors	39
Item 6.	Exhibits	3340
Signatures		35
		43



	As of September 30,		As of December 31,
	2014		2013		As of June 30,		As of December 31,
	(in thousands)				2015		2014
Unproved property costs	$	100,046	$	103,917	$	50,578	$	50,324
Oilfield inventories		3,966		4,096		3,966		3,966
Other administrative property		2,693		2,710		2,603		2,670
Total property and equipment		106,705		110,723		57,147		56,960
Accumulated depreciation		(2,474)		(2,332)		(2,442)		(2,453)
Total property and equipment, net	$	104,231	$	108,391	$	54,705	$	54,507



	As of
	September 30, 2014		December 31, 2013
	(in thousands)
Financial Position under IFRS:
Current assets	$	2,167,279	$	1,906,595
Property and equipment		912,903		717,449
Other assets		127,860		181,116
Current liabilities		1,916,491		1,652,806
Other liabilities		111,333		136,298
Net equity		1,180,218		1,016,056



	Nine Months Ended September 30,
	2014		2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,194	$	49,760
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		168		270
Impairment expense		7,610		2,277
Amortization of debt financing costs		—		1,102
Amortization of discount on debt		—		1,954
Loss on sale of interest in Harvest Holding		1,416		—
Gain on sale of oil and gas properties		(2,865)		—
Foreign currency transaction loss		1,586		436
Loss on extinguishment of debt		4,749		—
Earnings from equity affiliate		(34,949)		(82,820)
Share-based compensation-related charges		2,131		2,097
Unrealized loss on derivatives		—		2,774
Changes in operating assets and liabilities:
Accounts and notes receivable		1,292		1,095
Prepaid expenses and other		(61)		570
Other assets		29		468
Accounts payable		(3,425)		(512)
Accrued expenses		(12,318)		(6,248)
Accrued interest		(283)		(147)
Income taxes payable		(2,138)		(17)
Deferred tax asset and liabilities		1,503		—
Other current liabilities		(291)		(2,329)
Other long-term liabilities		(301)		(468)
NET CASH USED IN OPERATING ACTIVITIES		(33,953)		(29,738)
CASH FLOWS FROM INVESTING ACTIVITIES:
Transaction costs from sale of interest in Harvest Holding		(3,660)		—
Net proceeds from sale of oil and gas properties		2,865		—
Additions of property and equipment		(603)		(39,177)
Advances to equity affiliate		(397)		(381)
Release of restricted cash		123		916
NET CASH USED IN INVESTING ACTIVITIES		(1,672)		(38,642)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment		(79,750)		—
Debt extinguishment costs		(760)		—
Proceeds from issuance of note payable to noncontrolling interest owner		2,000		—
Contributions from noncontrolling interest owners		953		—
Net proceeds from issuances of common stock		1,353		122
Treasury stock purchases		(94)		(72)
Financing costs		(24)		(371)
NET CASH USED IN FINANCING ACTIVITIES		(76,322)		(321)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(111,947)		(68,701)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		120,897		72,627
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	8,950	$	3,926



	As of December 31, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring
Liabilities:
Stock appreciation rights liability	$	—	$	356	$	—	$	356
Restricted stock units liability		—		652		—		652
Warrant derivative liability		—		—		—		—
	$	—	$	1,008	$	—	$	1,008



	As of September 30, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities:
Warrant derivative liability	$	—	$	—	$	1,953	$	1,953



	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities:
Warrant derivative liability	$	—	$	—	$	1,953	$	1,953

		��

	Fair Value
	Hierarchy	As of June 30,
	Level	2015
Significant assumptions (or ranges):
Stock price	Level 1 input	$	1.75
Term (years)			4.97
Volatility	Level 2 input		90	%
Risk-free rate	Level 1 input		0.26	%
Dividend yield	Level 2 input		0.0	%
Scenario probability:
Claim date extended with Stock Appreciation Date threshold met	Level 3 input		23.2	%
Claim date extended with Stock Appreciation Date threshold not met	Level 3 input		26.8	%
Claim date not extended with Stock Appreciation Date threshold met	Level 3 input		20.4	%
Claim date not extended with Stock Appreciation Date threshold not met	Level 3 input		29.6	%
Scenario probability (future draws/no future draws)	Level 3 input		50%/50	%


Dated: ~~November 6, 2014~~August 7, 2015	By:	/s/ James A. Edmiston
	James A. Edmiston
	President and Chief Executive Officer


Dated: ~~November 6, 2014~~August 7, 2015	By:	/s/ Stephen C. Haynes
	Stephen C. Haynes
	Vice President - Finance, Chief Financial Officer and Treasurer