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 ~~June 30, 2015~~March 31, 2016


☐	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 ~~August 5, 2015,~~May 11, 2016, the Registrant had ~~42,747,567~~51,415,164 shares of its common stock, par value $0.01 per share, outstanding.

Table of Contents

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except per share data)



	June 30,		December 31,		March 31,		December 31,
	2015		2014		2016		2015
	(Unaudited)				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	18,880	$	6,585	$	1,417	$	7,761
Restricted cash		—		25
Accounts receivable, net		491		339
Deferred income taxes		118		53
Accounts receivable						351		2,461
Prepaid expenses and other		368		353		664		826
TOTAL CURRENT ASSETS		19,857		7,355		2,432		11,048
INVESTMENT IN AFFILIATE		164,700		164,700
LONG-TERM NOTE RECEIVABLE – RELATED PARTY, net of reserve for $5.2 million						—		—
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)		54,544		54,290
Oil and natural gas properties (successful efforts method)						30,910		31,006
Other administrative property, net		161		217		528		455
TOTAL PROPERTY AND EQUIPMENT, NET		54,705		54,507
TOTAL PROPERTY AND EQUIPMENT, net						31,438		31,461
EMBEDDED DERIVATIVE ASSET		2,627		—		5,001		5,010
OTHER ASSETS		643		1,484
LONG-TERM DEFERRED INCOME TAX ASSETS						85		120
OTHER ASSETS, net of allowance for $0.7 million (2016 and 2015)						141		142
TOTAL ASSETS	$	242,532	$	228,046	$	39,097	$	47,781
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other	$	2,205	$	1,697	$	825	$	370
Accrued expenses		4,442		4,617		4,791		3,327
Accrued interest		150		97
Income taxes payable		10		5
Current deferred tax liability		40		45
Notes payable to noncontrolling interest owners		—		13,709
Accrued interest - related party						975		954
Other current liabilities		165		128		107		165
TOTAL CURRENT LIABILITIES		7,012		20,298		6,698		4,816
LONG-TERM DEBT		145		—
LONG-TERM DEFERRED TAX LIABILITY		15,860		14,655
EMBEDDED DERIVATIVE LIABILITY		13,015		—
WARRANT DERIVATIVE LIABILITY		37,595		—
LONG-TERM DEBT DUE TO RELATED PARTY, net of discount						1,211		214
WARRANT DERIVATIVE LIABILITY WITH RELATED PARTY						9,564		5,503
OTHER LONG-TERM LIABILITIES		375		215		217		42
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
TOTAL LIABILITIES						17,690		10,575
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.01 per share; authorized 5,000 shares; outstanding, none		—		—
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
Preferred stock, par value $0.01 per share; authorized 5,000 shares; issued and outstanding, none						—		—
Common stock, par value $0.01 per share; shares authorized 150,000 (2016 and 2015); shares issued 57,987 (2016 and 2015); shares outstanding 51,415 (2016 and 2015)						580		580
Additional paid-in capital		287,902		280,757		302,937		302,273
Accumulated deficit		(132,250)		(101,208)		(213,874)		(199,778)
Treasury stock, at cost, 6,572 shares (2015 and 2014)		(66,316)		(66,316)
Treasury stock, at cost, 6,572 shares (2016 and 2015)						(66,316)		(66,316)
TOTAL HARVEST STOCKHOLDERS’ EQUITY		89,829		113,726		23,327		36,759
NONCONTROLLING INTERESTS		78,701		79,152
NONCONTROLLING INTEREST OWNERS						(1,920)		447
TOTAL EQUITY		168,530		192,878		21,407		37,206
TOTAL LIABILITIES AND EQUITY	$	242,532	$	228,046	$	39,097	$	47,781

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 March 31,
	2016		2015

EXPENSES:
Depreciation and amortization	$	26	$	29
Exploration expense		721		1,932
Impairment expense - oilfield inventories		128		—
Reserve for note receivable - related party		5,160		—
General and administrative		5,949		4,158
		11,984		6,119
LOSS FROM OPERATIONS		(11,984)		(6,119)
OTHER NON-OPERATING INCOME (EXPENSE):
Change in fair value of warrant liabilities		(4,061)		—
Change in fair value of embedded derivative assets		(9)		—
Interest expense		(1,096)		(237)
Foreign currency transaction gains, net		154		3
		(5,012)		(234)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(16,996)		(6,353)
INCOME TAX EXPENSE (BENEFIT)		8		(384)
LOSS FROM CONTINUING OPERATIONS		(17,004)		(5,969)
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST OWNERS		(2,908)		(352)
NET LOSS AND COMPREHENSIVE LOSS ATTRIBUTABLE TO HARVEST	$	(14,096)	$	(5,617)
LOSS PER SHARE:
Basic loss per share	$	(0.27)	$	(0.13)
Diluted loss per share	$	(0.27)	$	(0.13)

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



	Three Months Ended March 31,
	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(17,004)	$	(5,969)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		26		29
Impairment expense - oilfield inventories		128		—
Amortization of debt financing costs		—		221
Accretion of discount on debt		138		—
Reserve for note receivable - related party		5,160		—
Share-based compensation-related charges		664		512
Deferred income tax expense (benefit)		35		(465)
Change in fair value of warrant liabilities		4,061		—
Change in fair value of embedded derivative assets		9		—
Changes in operating assets and liabilities:
Accounts receivable		2,110		116
Prepaid expenses and other		162		47
Other assets		1		(21)
Accounts payable		455		390
Accrued expenses		1,508		117
Accrued interest		880		172
Other current liabilities		(58)		52
Other long-term liabilities		175		(141)
NET CASH USED IN OPERATING ACTIVITIES		(1,550)		(4,940)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment, net		(175)		(330)
Note receivable - related party		(5,160)		—
NET CASH USED IN INVESTING ACTIVITIES		(5,335)		(330)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from noncontrolling interest owners		541		102
NET CASH PROVIDED BY FINANCING ACTIVITIES		541		102
NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,344)		(5,168)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		7,761		6,585
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,417	$	1,417

Six Months Ended June 30,


2015

2014
Supplemental Cash Flow Information:

(in thousands)
Cash paid during the year for interest expense (net of capitalization)

$
470

$
—
Cash paid during the year for income taxes

4

2,203
Supplemental Schedule of Noncash Investing and Financing Activities:

Increase (decrease) in current liabilities related to additions of property and equipment

$
(99)

$
(190)
Increase in Stockholders' Equity from forgiveness of note payable and accrued interest

6,157

—
Increase in Warrant Derivative Liabilities

37,595

—



	Three Months Ended March 31,

	2016		2015
Supplemental Cash Flow Information:	(in thousands)
Cash paid during the period for interest expense	$	—	$	—
Cash paid during the period for income taxes		—		2
Supplemental Schedule of Noncash Investing and Financing Activities:
Decrease in current liabilities related to additions of property and equipment	$	(44)	$	(82)
Increase in Stockholders' Equity from forgiveness of note payable and accrued interest		—		6,157
Increase in long-term debt due to the capitalization of the accrued interest		859		—

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 ~~June 30, 2015 and December~~March 31, ~~2014,~~2016, results of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2016 and 2015, ~~and 2014,~~ and the cash flows for ~~six~~the three months ended ~~June 30,~~March 31, 2016 and 2015. The December 31, 2015 ~~and 2014.~~consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by United States of America generally accepted accounting principles (“U.S. GAAP”). 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”).~~GAAP. 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, ~~2014,~~2015, 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.

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 51 percent ownership of Harvest Holding is through HNR Energia B.V. (“HNR Energia”), in which we have a direct controlling interest. ~~The remaining 49 percent ownership interest of Harvest Holding is owned by~~We have partners, Oil & Gas Technology Consultants (Netherlands) ~~Cooperatie~~Coöperatie U.A., (“Vinccler”, a controlled affiliate of Venezolana de Inversiones y Construcciones Clerico, C.A.) ~~(20 percent)~~, which has a 20 percent noncontrolling interest in Harvest Holding and Petroandina Resources Corporation N.V. ~~("Petroandina") (29 percent); Petroandina is~~(“Petroandina”, a wholly owned subsidiary of Pluspetrol Resources Corporation B.V. (“Pluspetrol”). ), which has a 29 percent noncontrolling interest in Harvest Holdings. We do not have business relationships with Vinccler or Pluspetrol outside of Venezuela.

Harvest Holding owns 100 percent of HNR Finance B.V. (“HNR Finance”), and HNR Finance owns a 40 percent interest in Petrodelta, S.A. (“Petrodelta”). Petrodelta is ~~the Venezuelan mixed company formed~~our cost investment in ~~2007~~eastern Venezuela responsible for the ~~purpose~~exploration, development, production, gathering, transportation and storage of ~~owning and operating certain~~hydrocarbons in six oil ~~and gas interests in Venezuela. The other 60 percent of~~fields. Petrodelta is ~~owned~~governed by ~~CorporacionVenezolana~~its own charter and bylaws and the shareholders intend that the Petrodelta be self-funding and rely on internally-generated cash flows.

Corporación Venezolana del Petroleo ~~A.S.~~S.A. (“CVP”) and PDVSA Social S.A.~~, both companies owned~~ own the remaining 56 percent and ~~controlled by the Government~~4 percent, respectively, of ~~Venezuela through~~Petrodelta. Petroleos de Venezuela S.A. (“PDVSA”)~~. Thus,~~ owns 100 percent of CVP and PDVSA Social S.A. Through our indirect 51 percent in Harvest Holding, we indirectly own ~~an indirect~~a net 20.4 percent ofinterest in Petrodelta ~~(51 percent of 40 percent).~~ for the period from December 16, 2013 to date.

In addition to its 40 percent interest in Petrodelta, Harvest Holding also indirectly owns 100 percent of Harvest Vinccler, S.C.A. (“Harvest Vinccler”)~~, which currently assists~~. Harvest Vinccler’s main business purposes are to assist us in the ~~oversight~~management of ~~our investment in~~ Petrodelta and in negotiations with PDVSA.

In addition to our interests in Venezuela, we hold exploration acreage offshore of the Republic of Gabon (“Gabon”) through the Dussafu Marin Permit (“Dussafu PSC”). See Note 7 – Gabon.

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 immediately received gross proceeds of $32.2 million from the sale of the securities, as described below.

On January 4, 2016, HNR Finance provided a ~~strategic relationship with CT Energy and~~loan to CT Energia ~~Holding, Ltd.,~~in the amount of $5.2 million under an ~~international energy trading firm (“~~11.0% promissory note due 2019 (the “CT Energia Note”). The purpose of the loan is to provide CT ~~Energia”), designed~~Energia with collateral to ~~maximize the long‑term success~~obtain funds for one or more loans to Petrodelta that is 40% owned by HNR Finance and ~~value of~~through which Harvest’s Venezuelan ~~operations~~oil and natural gas interests are held. The loans to Petrodelta are to assist Petrodelta in satisfying its ~~20.4% investment~~working capital needs and discharging its obligations. Interest on the CT Energia Note is due and payable on the first of each January and July, commencing July 1, 2016. The full amount outstanding, including any unpaid accrued interest, is due on January 4, 2019; however, HNR Finance’s sole recourse for payment of the principal amount of the loan is the payments of principal and interest from loans that CT Energia has made to Petrodelta. If and when CT Energia receives payments of principal or interest from loans it has made to Petrodelta, then those proceeds must be used to pay unpaid interest and principal under the CT Energia Note. All payments made by CT Energia to HNR Finance under the CT Energia Note must be made in ~~Petrodelta. Under~~U.S. Dollars.

The source of funds for HNR Finance’s $5.2 million loan to CT Energia was a capital contribution from Harvest Holding, which, in return, received the ~~terms~~same aggregate amount of ~~this strategic relationship~~capital contributions from its shareholders, pro rata according to their equity interests in Harvest Holding. Of that aggregate amount of capital contributions, HNR Energia contributed $2.6 million, which was a capital contribution from Harvest. The management agreement 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~~also makes CT Energia a ~~management contract~~related party. During the three months ended March 31, 2016, we recorded a $5.2 million allowance to ~~oversee~~fully reserve the ~~day-to-day operations of~~CT Energia Note due to concerns related to the ~~Petrodelta~~continued deteriorating economic conditions in Venezuela and our assessment relating to ~~assist in~~ the ~~development of a plan for~~probability that the ~~business operations and financing for Petrodelta and the negotiation of definitive documents to implement such plan.~~CT Energia Note will be collected.

~~Historically, prior~~We expect that for 2016 we will not generate revenue, will continue to generate losses from operations, and our cash flows will not be sufficient to cover our operating expenses. Therefore, expected continued losses from operations, capital needs and uses of cash will be funded through debt or equity financings, farm-downs, delay of the ~~transaction pursuant~~discretionary portion of our capital spending to future periods or operating cost reductions. Our ability to continue as a going concern depends on our ability to negotiate the ~~Purchase Agreement,~~management and structure of our investment in Petrodelta and the success of our planned exploration and development activities in Gabon. There can be no guarantee of future capital acquisition, fundraising or exploration success or that we will realize the value of our exploration and exploitation acreage and suspended wells. We believe that we will continue to be successful in securing necessary funds to continue as a going concern. However, our current cash position and our inability to access additional capital may limit our available opportunities or not provide sufficient cash for operations.

Our primary ongoing ~~source~~sources of cash ~~had been dividends from Petrodelta, issuance~~are issuances of debt, equity sales and the sale or farm-down of oil and natural gas properties. Our primary use of cash has been to fund oil and natural gas exploration projects, principal payments on debt, interest payments, and general and administrative costs. We require capital principally to fund the exploration and development of new oil and natural gas properties. ~~As is common in the oil and gas industry, we~~We have various contractual commitments pertaining to exploration, development and production activities. See Note 10 – Commitments and Contingencies for our contractual commitments.

In January, April and May 2016, due to our liquidity position, the Company amended the 15% Note to increase the principal amount of the note equal to the amount of the interest, less withholding tax that was due to CT Energy. Additionally, the Company increased the principal amount of the 15% Note by $3.0 million in connection with additional funds received from CT Energy on May 3, 2016 under the 15% Note. As of May 3, 2016, the amount outstanding under the 15% Note was $30.0 million. There can be no assurance that we will be able to amend our loan agreement with CT Energy to increase the principal amount of the 15% Note if our liquidity position does not allow us to make future interest payments when due.

We are currently assessing alternatives for our Gabon asset and we intend to continue our consideration of a possible sale or farm-down of our Gabon asset if we are able to negotiate a sale or sales in transactions that our Board of Directors believes are in the best interests of the Company and its stockholders. Given that we do not currently have any operating cash inflows, we may also decide to access additional capital through equity or debt sales; however, there can be no assurance that such financing will be available to the Company or on terms that are acceptable to the Company.

On ~~May 11,~~December 2, 2015, the Company ~~borrowed $1.3 million~~received notification 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 New York Stock Exchange (“NYSE”) that 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~~not 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 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 $32.2 million from the sale of the 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 Venezuela and Gabon as well as to fund general and administrative costs. See ~~Note 1 – Organization~~ ~~for further information.~~

~~On June 19, 2015, in connection~~compliance with the ~~transaction with CT Energy,~~NYSE's continued listing standards, which require a minimum average closing price of $1.00 per share over 30 consecutive trading days. Under the ~~Company also issued the “additional draw note”, under which CT Energy may elect to provide $2.0 million~~NYSE's rules, Harvest has a period of ~~additional funds to the Company per month for up to~~ six months ~~following~~from the ~~one-year anniversary of the closing~~ date of the ~~transaction (up~~NYSE notice 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~~bring its share price and ~~will be payable quarterly on the first business day of each January, April, July and October, commencing October 1, 2016. If by Claim Date, the volume weighted~~30 trading-day average share price ofback above $1.00. During this period, the Company’s common stock ~~over any consecutive 30-day period has not equaled or exceeded $2.50 per share,~~will continue to be traded on the ~~maturity date of~~NYSE under the ~~additional draw note~~symbol “HNR”, subject to the Company’s compliance with other NYSE continued listing requirements, but will be ~~extended~~assigned the notation .BC after the listing symbol to signify that the Company is not currently in compliance with the NYSE’s continued listing standards. As required by ~~two years and~~ the ~~interest rates on~~NYSE, in order to maintain its listing, Harvest notified the ~~additional draw note will adjust~~NYSE that it intends to ~~8.0%. During an event of default,~~cure the ~~outstanding principal amount will bear additional interest at a rate of 2% per annum higher than the rate otherwise applicable.~~price deficiency.

On ~~June 19, 2015,~~April 25, 2016, the Company received a notice from the NYSE stating that the Company is not in ~~connection~~compliance with a second NYSE continued listing requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders’ equity is less than $50 million. As required by NYSE rules, the Company notified the NYSE that, within 45 days of receipt of the notice, the Company will submit a business plan that demonstrates its ability to regain compliance within 18 months. The NYSE will either accept the business plan, at which time the Company will be subject to quarterly monitoring for compliance with the ~~transaction with CT Energy,~~plan, or will not accept the plan. If the Company ~~also issued 69.75 shares~~fails to comply with the business plan or the NYSE does not accept the plan, the NYSE may commence suspension and delisting procedures.

Failure to generate sufficient cash flow, raise additional capital through debt or equity financings, farm-downs, or reduce operating costs could have a material adverse effect on our ability to meet our short- and long-term liquidity needs and achieve our intended long-term business objectives.

The above circumstances raise substantial doubt about our ability to continue as a going concern. While we believe the issuance of ~~its newly created Series C preferred stock, par value $0.01 per share. The primary purpose~~additional equity securities, short- or long-term debt financing, farm-downs, the delay of the ~~Series C preferred stock is to provide the holder of the 9% Note with voting rights equivalent to the common stock underlying the unconverted~~discretionary portion of ~~the 9% Note. Shares of the Series C preferred stock are entitled~~our capital spending to ~~vote on certain matters submitted to a vote of the stockholders on an “as converted” basis.~~ future periods or operating cost reductions could be put into place which would not jeopardize our operations and future growth plans, there can be no assurance that such events will be successful.

AsOur financial statements have been prepared under the assumption that we will continue as a going concern, which contemplates that we will continue in operation for the foreseeable future and will be able to realize assets and settle liabilities and commitments in the normal course of ~~December 31, 2014, HNR Energia had~~business. The accompanying consolidated condensed financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that could result should we be unable to continue as 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 plus accrued interest of $0.4 million.going concern.

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.~~interests owners.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not affect our consolidated condensed financial results.

A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Loans are reviewed for impairment and include loans that are past due, non-performing or in bankruptcy. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. Accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized interest income.

In January 2016, we loaned $5.2 million to CT Energia. During the three months ended March 31, 2016, the Company recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the continued deteriorating economic conditions in Venezuela and our assessment relating to the probability that the CT Energia Note will be collected. Due to the impairment of the CT Energia Note, recognition of interest income has been suspended. We recorded no loan impairments during the three months ended March 31, 2015.

On December 16, 2013, we entered into a Share Purchase Agreement (the “SPA”) to sell all of our interests in 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 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 equity method of 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 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 accountare accounting for our investment in Petrodelta under the cost method (“ASC ~~320~~325 – Investments – ~~Debt and Investments Securities”~~Other”). 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. ~~We also performed an impairment analysis~~

As of ~~the carrying value of our investment at~~ December 31, ~~2014. Based on this assessment~~2015, we ~~recorded a one-time pre-tax impairment charge of $355.7 million against~~fully impaired 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~~Petrodelta. See Note 5 – Investment in ~~the estimated fair value of the investment are other than temporary.~~Affiliate for further information.

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. Other important significant estimates are those included in the valuation of our assets and liabilities that are recorded at fair value on a recurring and non-recurring basis. Actual results could differ from those estimates.

The major components of property and equipment are as ~~follows (in thousands):~~

~~Unproved property costs, excluding oilfield inventories, consist 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 six~~ months ended ~~June 30,~~March 31, 2016 and 2015, depreciation expense was ~~$0.0 million~~$26 thousand and ~~$0.1 million, respectively. For the three and six months ended June 30, 2014, depreciation expense was $0.1 million and $0.1 million,~~$29 thousand, respectively.

Other assets at ~~June 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 include deposits ~~prepaid expenses expected to be realized in~~and retainers. During 2015 we fully reserved 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$1.1 million blocked payment related to our drilling operations in ~~Gabon~~Gabon. The payment was blocked 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 1210 – Commitments and Contingencies. At December 31, 2015, we recorded an allowance for doubtful accounts of $0.7 million and the remaining balance of the blocked payment was reclassified to a receivable from our joint venture partners for $0.4 million.

We capitalize interest costs for qualifying oil and natural 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 six~~ months ended ~~June 30,~~March 31, 2016 and 2015, we did not capitalize interest costs due to insufficient ~~progress~~on-going activity related to our oil and natural 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.

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 (“SARs”), restricted stock units (“RSUs”), debt, embedded derivatives and warrant derivative ~~liabilities.~~liability. 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 and cash equivalents and accounts receivable, ~~approximates~~prepaid costs, accounts payable, accrued expenses and other current liabilities approximate their carrying value due to their short-term nature (Level 1). The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value as of ~~June 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015. During the year ended December 31, 2015, we impaired the carrying value of our Dussafu project in Gabon by $23.2 million and our investment in affiliate by $164.7 million. See Note 5 – Investment in Affiliate and Note 7 – Gabon for more information.


									As of March 31, 2016

	As of June 30, 2015								Level 1		Level 2		Level 3		Total
	Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Recurring
Assets:
Embedded derivative asset	$	—	$	—	$	2,627	$	2,627	$	—	$	—	$	5,001	$	5,001
	$	—	$	—	$	2,627	$	2,627	$	—	$	—	$	5,001	$	5,001
Recurring

Liabilities:
Stock appreciation rights liability	$	—	$	633	$	—	$	633
Restricted stock units liability		—		562		—		562
Embedded derivative liability		—		—		13,015		13,015
SARs liability									$	—	$	79	$	120	$	199
RSUs liability										—		324		—		324
Warrant derivative liability		—		—		37,595		37,595		—		—		9,564		9,564
	$	—	$	1,195	$	50,610	$	51,805	$	—	$	403	$	9,684	$	10,087

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 December 31, 2015

	Level 1		Level 2		Level 3		Total

	(in thousands)
Non recurring
Assets:
Dussafu PSC	$	—	$	—	$	28,000	$	28,000
	$	—	$	—	$	28,000	$	28,000

Recurring
Assets:
Embedded derivative asset	$	—	$	—	$	5,010	$	5,010
	$	—	$	—	$	5,010	$	5,010

Liabilities:
SARs liability	$	—	$	46	$	50	$	96
RSUs liability		—		174		—		174
Warrant derivative liability		—		—		5,503		5,503
	$	—	$	220	$	5,553	$	5,773

As of ~~June 30, 2015, we had $0.6 million for~~March 31, 2016, the fair value of our ~~stock appreciation rights (“SARs”) and~~liability awards included $0.2 million for our ~~restricted stock units (“RSUs”)~~SARs which were recorded in accrued ~~expenses. Our remaining $0.4~~expenses and $0.3 million for the RSUs ~~liability was~~which were recorded in accrued expenses and other long-term liabilities. As of December 31, ~~2014, we had $0.4~~2015, the fair value of our liability awards included $0.1 million for our SARs which were recorded in accrued expenses and ~~$0.4~~$0.2 million for our RSUs which were recorded in accrued ~~expenses. Our remaining $0.2 million for the RSUs liability was in~~expenses and 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 assets and liabilities and their placement within the fair value hierarchy levels. See Note 119 – Warrant Derivative ~~Liabilities~~Liability for a description and discussion of our warrant derivative ~~liabilities~~liability as well as a description of the valuation models and inputs used to calculate the fair value. See Note 108 – ~~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 hierarchy.

During the three and six months ended 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 a 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 embedded derivative asset of $0.1 million of derivative income as reflected in our consolidated condensed statement of operations and 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 June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015
	(in thousands)				(in thousands)
Financial liabilities - embedded derivative liability
Financial liabilities - warrant derivative liability:
Beginning balance	$	—	$	—	$	—	$	—	$	5,503	$	—
Additions - fair value at issuance		13,449		—		13,449		—
Change in fair value		(434)		—		(434)		—		4,061		—
Ending balance	$	13,015	$	—	$	13,015	$	—	$	9,564	$	—

Three Months Ended June 30,

Six Months Ended June 30,


2015

2014

2015

2014


(in thousands)

(in thousands)
Financial liabilities -  warrant derivative liability:






Beginning balance

$
—

$
1,953

$
—

$
1,953
Additions - fair value at issuance


40,013


—

40,013


—
Change in fair value


(2,418)


—

(2,418)


—
Ending balance

$
37,595

$
1,953

$
37,595

$
1,953

Table of Contents


	Three Months Ended March 31,
	2016		2015

Financial liabilities - stock appreciation rights
Beginning balance	$	50	$	—
Change in fair value		70		—
Ending balance	$	120	$	—

During three ~~and six~~ months ended ~~June 30,~~March 31, 2016 and 2015, no transfers were made between Level 1, Level 2 and Level 3 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 athe fair value based method of accounting for ~~stock-based~~share-based compensation. We ~~utilize~~utilized the Black-Scholes option pricing model to measure the fair value of stock options and ~~SARs.~~SARs on their grant dates in years prior to 2015. Restricted stock and RSUs ~~are~~were measured at their ~~intrinsic~~fair values. During 2015, we issued options, SARs and RSUs with an additional market condition. To fair value these awards, we utilized a Monte Carlo simulation.

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 classify interest related to income tax liabilities and penalties as applicable, as interest expense. We recorded no penalties during the three months ended March 31, 2016.

Since December of 2013, we have provided deferred income taxes on ~~a portion of the~~ undistributed earnings of our foreign subsidiaries aswhere we are ~~unable~~not able to assert that ~~those~~such earnings ~~would be~~were permanently reinvested, ~~nor~~or otherwise could be repatriated in a tax free manner, as part of our ongoing business.

As of December 31, 2015 and through the ~~conversion feature~~first quarter of 2016, the ~~9% Note~~deferred tax liability provided on such earnings was ~~reasonably expected to be exercised at the time of the note’s issuance~~zero due to the ~~conversion price being in-the-money,~~impairment of the ~~interest on the 9% Note is expected to be non-deductible to the Company under Internal Revenue Code (“IRC”) 163(l).~~ underlying book investment in Petrodelta.

The 15% ~~note~~Note was issued, for income tax purposes, with original issue discount (“OID”). OID generally is deductible for income tax purposes. However, if the 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~~may be an AHYDO; consequently, a portion or all of the OID likely ~~will~~may be non-deductible for income tax purposes.

In ~~April 2014,~~February 2016, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which~~2016-02, “Leases”. It 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 elected an early adoption of this guidance at September 30, 2014, which we have applied to 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~~expected 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~~2018 for ~~annual and interim periods beginning after December 15, 2017.~~public entities. Early application is ~~not~~ permitted. ~~An entity should apply~~Under the ~~amendments either retrospectively~~new provisions, all lessees will report a right-of-use asset and a liability for the obligation to ~~each prior reporting period presented or retrospectively~~make payments for all leases with the ~~cumulative effect~~exception of ~~initially applying~~those leases with a term of 12 months or less. All other leases will fall into one of two categories: (1) Financing leases, similar to capital leases, will require the ~~update recognized~~recognition of an asset and liability, measured at the ~~date~~present value of ~~initial application. We are currently evaluating~~ the ~~impact~~lease payments. Interest on the liability will be recognized separately from amortization of ~~this guidance.~~

~~In March 2015,~~ the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying~~asset. Principal repayments will be classified as financing outflows and payments of interest as operating outflows on the ~~Presentation~~statement of ~~Debt Issuance Costs. The amendments~~cash flows. (2) Operating leases will also require the recognition of an asset and liability measured at the present value of the lease payments. A single lease cost, consisting of interest on the obligation and amortization of the asset, calculated such that the amortization of the asset will increase as the interest amount decreases resulting in ~~this update require that debt issuance costs related to~~ a ~~recognized debt liability~~straight-line recognition of lease expense. All cash outflows will be ~~presented in~~classified as operating on the ~~balance sheet as a direct deduction from the carrying amount~~statement 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.cash flows. 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,~~March 2016, the FASB issued ~~Accounting Standards Update~~ASU No. ~~2014-15,~~ ~~Disclosure~~2016-06, “Derivatives and Hedging (Topic 815: Contingent Put and Call Options in Debt Instruments)”. This amendment addresses how an entity should assess whether contingent call (put) options that can accelerate the payment of ~~Uncertainties about an Entity’s Ability~~debt instruments that are clearly and closely related to ~~Continue~~the debt hosts. This assessment is necessary to determine if the option(s) must be separately accounted for as a ~~Going Concern~~ (“derivative. The ASU ~~2014-15”). ASU 2014-15 requires management~~clarifies that an entity is required to assess ~~an entity’s ability~~the embedded call (put) options solely in accordance with the specific four-step decision sequence. This means entities are not also required to ~~continue as~~assess whether the contingency for exercising the option(s) is indexed to interest rates or credit risk. For example, when evaluating debt instruments puttable upon a ~~going concern and~~change in control, the event triggering the change in control is not relevant to ~~provide related footnote disclosures in certain circumstances.~~the assessment. Only the resulting settlement of debt is subject to the four-step decision sequence. The ~~standard~~amendment is effective for ~~annual periods ending~~public entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. However, if an entity early adopts the amendment in an interim period, any adjustments should be reflected as of the beginning of that fiscal year. 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 March 2016, the FASB issued ASU No. 2016-07, “Investments — Equity Method and Joint Ventures (Topic 323)”. This amendment simplifies the accounting for equity method of investments, the amendment in the update eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendment requires that the equity method investor add

the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendment in this update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendment should be applied prospectively upon the effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. We are currently evaluating the impact of this guidance.

In March 2016, the FASB issued ASU No 2016-09, “Compensation — Stock Compensation (Topic 718)”. It introduces targeted amendments intended to simplify the accounting for stock compensation. Specifically the ASU requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assesses the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. That is, off balance sheet accounting for net operating losses stemming from excess tax benefits would no longer be required and instead such net operating losses would be recognized, net of a valuation allowance if required, through an adjustment to opening retained earnings in the period of adoption. Entities will no longer need to maintain and track an Additional Paid In Capital pool. The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. The amendment is effective for public entities for annual periods beginning after December 15, 2016, ~~with early~~and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the ~~provisions~~impact of ~~ASU 2014-15 and assessing the impact, if any, it may have on our consolidated financial statements.~~this guidance.

~~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 is~~effective for fiscal years~~ ~~beginning after December 15, 2015; however we have 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 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)



		Three Months Ended March 31,
	2016		2015

	(in thousands)
Loss from continuing operations(a)	$	(14,096)	$	(5,617)
Net loss attributable to Harvest	$	(14,096)	$	(5,617)
Weighted average common shares outstanding		51,415		42,662
Weighted average common shares, diluted		51,415		42,662
Loss per share:
Basic loss per share(a)	$	(0.27)	$	(0.13)
Diluted loss per share(a)	$	(0.27)	$	(0.13)

During the three months ended ~~June 30,~~March 31, 2016 per share calculations above excluded 7.1 million options and 34.1 million warrants because we were in a loss position. During the three months ended March 31, 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 0.2 million unvested restricted shares,excluded 4.3 million options and 2.5 million warrants because ~~they~~we were ~~anti-dilutive.~~

During the six months ended June 30, 2015 per share calculations above exclude 0.1 million unvested restricted shares, 4.0 million options and 36.9 million warrants because they were anti-dilutive. During the six months ended June 30, 2014 per share calculations above exclude 0.3 million unvested restricted shares, 4.1 million options and 2.5 million warrants 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 in discontinued operations.~~ position.

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 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. 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.

On June 19, 2015, the Company entered into a strategic relationship with CT Energy and CT Energia, designed to maximize the long‑term success and value of the Company’s Venezuelan operations and its 20.4% investment in 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. 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.

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.

While there can be no assurance that we will be able to complete and implement these new agreements with PDVSA and Petrodelta, we believe that no further impairment of our investment is warranted at 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~~the 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.

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 as income in the period they are received.

Our carrying value of our investment in Petrodelta at March 31, 2016 and December 31, 2015 is nil.

Harvest Vinccler currently assists us in the oversight of our investment in Petrodelta and in negotiations with PDVSA. Harvest Vinccler’s functional and reporting currency is the ~~U.S. Dollar.~~USD. They do not have currency exchange risk other than the official prevailing exchange rate that applies to their operating costs denominated in ~~Venezuela~~Venezuelan 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~~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 be permitted. ~~Secondly,~~The second notice established 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 iswas available in limited ~~quantities~~situations for individuals and companies to purchase and sell foreign currency via banks and exchange houses. ~~Currently the~~The SIMADI marginal system ishad been the only exchange mechanism available to Harvest Vinccler. We ~~are~~were both eligible and ~~have~~had successfully participated in SIMADI auctions during 2015; however, during the three months ended March 31, 2015, Harvest Vinccler did not participate in any auctions.

On March 9, 2016, Venezuela Vice President for Economic Area announced a new exchange agreement No. 35 (the “Exchange Agreement No. 35”). Exchange Agreement No. 35 was published in Venezuela’s Official Gazette No. 40865 dated March 9, 2016, and asbecame effective on March 10, 2016. Exchange Agreement No. 35 will have a ~~result we have adopted the SIMADI~~dual exchange rate ~~of approximately 197.30 Bolivars per~~ for a controlled rate (named DIPRO) fixed at DIPRO 10 Bolivars/USD for priority goods and services and a complimentary rate (named DICOM) starting at 206.92 Bolivars/USD for travel and other non-essential goods. We are evaluating 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~~impact Exchange Agreement No. 35 has on Harvest Vinccler ~~operates. Prior to this change, we were using~~and Petrodelta. During the ~~SICAD II rate of~~three months ended March 31, 2016, Harvest Vinccler exchanged approximately ~~of 50 Bolivars per~~ $0.03 million and received 212.37 Bolivars/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~~DIPRO Bolivar exchange rate are settled at the ~~official 6.3 Bolivar~~10 Bolivar/USD exchange rate. At ~~June 30, 2015,~~March 31, 2016, the balances in Harvest Vinccler’s Bolivar denominated monetary assets and liabilities accounts that are exposed to exchange rate changes are ~~7.0~~10.8 million Bolivars ($~~0.04~~0.05 million) and ~~3.8~~5.3 million Bolivars ($0.02 million), respectively.

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~~1,650 feet.

The Dussafu PSC partners and the Republic of Gabon, represented by the Ministry of Mines, Energy, Petroleum and 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”)~~Ministry of Mines, Energy, Petroleum and Hydraulic Resources agreed to lengthen the third exploration phase to four years until May 27, 2016. ~~All expenditure commitments on this~~The Company has an option to extend for one year the exploration phase ~~have been completed.~~for a payment of $1.2 million. Failure to extend the exploration phase has no effect on the discovered fields under the Exclusive Exploitation Authorization (“EEA”) as discussed below.

~~Geoscience, reservoir engineering~~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 Gabon pertaining to four discoveries on the Dussafu Project offshore Gabon. Furthermore, on July 17, 2014, the Direction Generale Des Hydrocarbures (“DGH”) awarded an EEA for the development and ~~economic studies have progressed~~exploitation of certain oil discoveries on the Dussafu Project and aon October 10, 2014, the field development plan was ~~approved by~~approved. The Company has four years from the ~~DGH~~date of the EEA approval to begin production.

The Company is currently assessing alternatives to farm-down or sell the Dussafu project, while weighing the liquidity requirements necessary to maintain ongoing Company operations.

Operational activities during the three months ended March 31, 2016, included continued evaluation of development plans, based on ~~October 10, 2014, for a cluster field development of both~~ the ~~Ruche and Tortue discoveries along with existing pre-salt discoveries at Walt Whitman and Moubenga.~~ ~~Central/Inboard~~ 3D seismic data acquired in ~~2011 has been~~late 2013 and processed during 2014.

In March 2016, the Company conducted an impairment analysis of the unproved costs of the Dussafu PSC. The significant factors that impacted the evaluation were price forecasts, drilling costs and ~~interpreted~~the number of companies engaged in evaluating an investment in the property through either a farm-down or acquisition. Based on the March 2016 evaluation and our continuing operations, it is the opinion of the Company that the current carrying value is recoverable and no further impairment to ~~evaluate prospectivity.~~ this Dussafu project is warranted as of March 31, 2016. If oil and natural gas prices continue to deteriorate or we fail to obtain adequate financing, farm-down or sell the asset, additional impairments may be required on our prospect.

We ~~have~~ also ~~completed processing data from~~reviewed the ~~1,260 sq km 3D seismic survey acquired during~~value of our oilfield inventories that are in the ~~fourth~~country of Gabon, of which the majority is steel conductor and casing. We impaired the value of this inventory by approximately $1.0 million in 2015, leaving $3.0 million related to this

~~quarter~~inventory as of ~~2013. This survey provides 3D coverage over~~December 31, 2015. We impaired the ~~outboard portion~~value of the block and has confirmed significant pre-salt prospectivity which had been inferred from 2D seismic data from the 1980s. The 3D seismic data also covers the Ruche, Tortue and Moubenga discoveries and will facilitate the effective placementthis inventory by approximately $0.1 million in 2016, leaving $2.9 million related to this inventory as of ~~future development wells in the Ruche and Tortue development program, as well as allowing improved assessment of the numerous undrilled structures already identified on older 3D seismic surveys.~~

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 Project, while weighing the liquidity requirements necessary to maintain ongoing Company operations. See Note 1210 – Commitments and Contingencies for a discussion related to our Gabon operations.

The Dussafu PSC represents ~~$54.5~~$30.9 million of unproved oil and natural gas properties including inventory on our ~~June 30, 2015~~March 31, 2016 balance sheet ($~~54.3~~31.0 million at December 31, ~~2014)~~2015).

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 June 2014, Harvest and our partner adopted a resolution to terminate the Budong PSC. Harvest advised the Indonesian government of this decision and submitted a request to terminate the Budong PSC. On February 5, 2015, the Company entered into a Share Purchase Agreement to transfer shares of Harvest Budong-Budong B.V. to Stockbridge Capital Limited for a nominal amount. On February 17, 2015, a withdrawal request of the earlier termination request was made to ~~the~~ ~~Indonesian government and the withdrawal request was accepted on April 15, 2015. The transfer of shares was completed on May 4, 2015.~~

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

At December 31, 2014, HNR Energia had a note payable to Vinccler of $6.1 million. Principal and interest were payable upon the maturity date of December 31, 2015. We had classified the note as a current liability as of December 31, 2014. Interest accrued at a rate of U.S. dollar based 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 extension. On November 27, 2014, Petroandina exercised their final extension and the Company borrowed the final maximum amount allowed of $1.6 million. Quarterly interest payments began on December 31, 2014 with the principal of $7.6 million due January 1, 2016. Interest accrued at a rate of 11%. On June 23, 2015 the Company repaid the note payable of $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 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, 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,~~the CT Warrant, 9% and 15% Notes, ~~a 15% additional draw note~~the 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 iswas required to be classified as a warrant liability (see Note 119 – Warrant Derivative ~~Liabilities~~Liability). 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% Note 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.Note.

The ~~aggregate~~following table summarizes the movement of our long-term debt due to related party, net of discount:

The amended face value of the ~~notes~~15% Note of ~~$32.2~~$26.1 million ~~has been~~(including $0.9 million capitalized interest) was recorded net of the discount related to the value allocated to the embedded derivatives and warrant. The unamortized discount of the 15% Note was ~~$32.1~~$24.9 million at ~~June 30,~~March 31, 2016 and $25.0 million at December 31, 2015. The Company will accrete the discount over the life of the ~~notes~~15% Note using the interest method. Total interest expense associated with the 15% Note, from CT Energy, a related party, was $1.1 million, comprised of $1.0 million related to the stated rate of interest on the note and $0.1 million related to the accretion of the discount on the debt. The effective interest ~~method. During the three and six months ended June 30, 2015 the Company recognized accretion~~rate on the ~~discount~~15% Note is approximately 140%. The fair value of ~~$0.1~~the 15% Note at March 31, 2016 was $9.0 million. The fair value of the 15% Note was calculated using a Monte Carlo simulation.

On June 19, 2015, in connection with the transaction with CT Energy described in Note 1 – Organization, we issued athe 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~~Note will adjust to 8%8.0% (the ~~“15 %~~“15% Note Reset Feature”). During an event of default, the outstanding principal amount bears additional interest at a rate of 2%2.0% per annum higher than the rate otherwise applicable.

On January 4, 2016, Harvest entered into a first amendment to the 15% Note due to its liquidity position. The first amendment increased the principal amount of the 15% Note to $26.1 million to reflect a loan back to Harvest equal to the amount of interest that was due to CT Energy on January 1, 2016, less withholding tax due as a result of the interest owed as of January 1, 2016.

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

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~~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,~~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~~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,~~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~~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~~“ASC 815 Derivatives and ~~Hedging~~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 yield volatility for the 15% Note based on historical daily volatility of the ~~U.S. Dollar~~USD denominated Venezuela Sovereign zero coupon yield over a look back period of ~~5.0, 6.0, and 7.0~~4.22 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”) of the Venezuelan yield over the USD Treasury yield and the implied 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~~were based on our estimates of the probability and timing of potential future financings and fundamental transactions.

The embedded derivative asset related to the 15% Note contains a Level 3 input related to the probability of our investor lending us additional funds or not lending us funds according to the terms of the loan agreement for the additional draws, as discussed below. We have assumed a 90/10 scenario (50/50 scenario at December 31, 2015) of the draw or no draw for valuation of the embedded derivative.

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~~March 31, 2016 on our consolidated condensed balance ~~sheets:~~

		��

	~~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~~	%

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~~ sheet:~~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:



	Fair Value
	Hierarchy	As of ~~June 30,~~March 31,
	Level	~~2015~~2016
Significant assumptions (or ranges):
Stock price	Level 1 input	$	~~1.75~~0.60
Weighted Term (years)			~~4.97~~4.22
Yield Volatility	Level 2 input		9038	%
Risk-free rate	Level 1 input		~~0.26~~ 1.1% to 1.4	%
Dividend yield	Level 2 input		0.0	%
Scenario probability:
Claim date extended with Stock Appreciation Date threshold met	Level 3 input		55.6	%
Claim date extended with Stock Appreciation Date threshold not met	Level 3 input		35.3	%
Claim date not extended with Stock Appreciation Date threshold met	Level 3 input		55.6	%
Claim date not extended with Stock Appreciation Date threshold not met	Level 3 input		32.4	%
Scenario probability (future draws/no future draws)	Level 3 input		~~50%~~90%/5010	%

The fair value of the embedded derivative ~~liabilities~~assets was ~~$13.5~~$5.0 million at ~~issuance~~March 31, 2016 and ~~$13.0 million as of June 30,~~December 31, 2015. We recognized ~~$0.5 million~~$9 thousand in derivative ~~income~~expense related to this embedded derivative ~~liability~~asset in our consolidated condensed statement of operations and comprehensive loss for the three ~~and six month period~~months ended ~~June 30, 2015.~~March 31, 2016.

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,~~Additional Draw Note which, under ~~which~~certain circumstances, 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,~~Additional Draw Note, interest will be compounded quarterly at a rate of ~~15%~~15.0% 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~~Additional Draw Note will be extended by two years and the interest ~~rates~~rate on the ~~additional draw note~~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%2.0% per annum higher than the rate otherwise applicable.

The Company may prepay all or a portion of the ~~additional draw note~~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~~Additional Draw Note being prepaid, plus accrued and unpaid interest. The make-whole price with respect to the ~~additional draw note~~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~~.under.

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~~Note (including the ~~additional draw note,~~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~~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,~~March 31, 2016, we have assigned no value to the ~~additional draw note,~~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 June 30, 2015, warrant derivative financial instruments consisted of 2,179,167 warrants (1,846,088 warrants: December 31, 2014) issued as inducements under the warrant agreements dated October 2010 in connection with a $60 million term loan facility that was paid off in May 2011. The fair value of these warrants as of June 30, 2015 and December 31, 2014 was $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 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 derivative liability related to the MSD warrants that were outstanding as of the balance sheet dates presented on our consolidated condensed balance sheets:

Fair Value




Hierarchy

As of June 30,

As of December 31,


Level

2015

2014
Significant assumptions (or ranges):



Stock price

Level 1 input

$
1.75


$
1.81

Term (years)

0.33


0.83

Volatility

Level 2 input


67
%

67
%
Risk-free rate

Level 1 input


0.21
%

0.21
%
Dividend yield

Level 2 input


0.0
%

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

Level 3 input


0%/100%/0
%

0%/100%/0
%

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~~CT Warrant may not be 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 Company’s stockholders.~~share.

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~~CT Warrant can be exercised at the option of the investor in cash or by effecting a reduction in the principal amount of the 15% Note (See Note 108 – ~~Notes Payable to Noncontrolling Interest Owners,~~ Debt and Financing). If the ~~warrant~~CT 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~~CT 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~~CT 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~~CT Warrant has certain registration rights regarding the ~~warrant~~CT Warrant and the shares of common stock issuable upon exercise of the ~~warrant.~~CT Warrant.

We have analyzed the CT Warrant to determine whether it should be classified as a derivative liability or equity instrument. Provisions of the CT Warrant agreement allow for a change in the exercise price of the CT Warrant upon the occurrence of certain corporate events. These exercise price adjustments incorporate variables other than those used to determine the fair value of a fixed-for-fixed forward or option on equity shares therefore the CT Warrant is not considered to be “indexed to the issuer’s own stock” and does not meet the exception from derivative treatment in ASC 815. We continue to account for the CT Warrant as a derivative which was marked to market as of March 31, 2016.

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~~CT Warrant to ~~determine~~

estimate 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 fundamentally based on ~~our estimates~~market data but require complex modeling. The additional modeling is required in order to simulate future stock prices, to determine whether the Stock Appreciation Date is achieved and to model the projected exercise behavior of the ~~probability and timing of potential future financings and fundamental transactions, as well as the probability of shareholder approval.~~ warrant holders.

The assumptions summarized in the following table were used to calculate the fair value of the warrant derivative liability that was outstanding as of the balance sheet ~~dates~~date presented on our consolidated condensed balance ~~sheets:~~sheet:



	Fair Value
	Hierarchy	As of ~~June 30,~~March 31,
	Level	~~2015~~2016
Significant assumptions (or ranges):
Stock price	Level 1 input	$	~~1.75~~0.60
Exercise price	Level 1 input	$	1.25
Stock appreciation date price (hurdle)	Level 1 input	$	2.50
Term (warrants)			~~2.9706~~2.2172
Term (claim date)			~~0.9699~~0.2186
Term (claim date extended)			~~1.4720~~0.7186
Volatility	Level 2 input		90120.0	%
Risk-free rate (warrants)	Level 1 input		~~1.11~~0.82	%
Risk-free rate (claim date)	Level 1 input		~~0.26~~0.39	%
Risk-free rate (claim date extended)	Level 1 input		~~0.47~~0.49	%
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.~~CT Warrant. The expected life of the ~~warrants~~CT 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.

~~All our warrant derivative contracts are recorded at fair value and are classified as warrant derivative liabilities on the consolidated condensed balance sheet.~~ The fair value of the ~~warrant liability~~CT Warrant was ~~$40.0~~$9.6 million at ~~issuance~~March 31, 2016 and ~~$37.6~~$5.5 million ~~as of June 30,~~at December 31, 2015. We recognized ~~$2.4~~$4.1 million in warrant liability ~~income~~expense in our consolidated condensed statement of operations and comprehensive loss for the three ~~and six month period~~months ended ~~June 30, 2015.~~March 31, 2016.

We have various contractual commitments pertaining to leasehold, training, and development costs for the Dussafu PSC totaling $4.5 million. 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. These work commitments are non-discretionary; however, we do have the ability to control the pace of expenditures.

Under the agreements with our ~~partners~~partner in the Dussafu ~~PSC and Budong~~ PSC, we are jointly and severally liable to various third parties. As of ~~June 30, 2015,~~March 31, 2016, the gross carrying amount associated with obligations to third parties which were fixed at the end of the period was ~~$0.7~~$0.2 million ($~~2.4~~0.3 million as of December 31, ~~2014)~~2015) and is related to accounts payable to vendors, accrued expenses and withholding taxes payable to taxing authorities. As we are currently the ~~operators~~operator for the Dussafu ~~PSC and Budong~~ PSC, the gross carrying amount related to accounts payable and withholding taxes are reflected in the consolidated condensed balance sheet in accounts payable. The net amount related to other accrued expenses 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~~Our partners have obligations totaling $0.1 million ~~in fixed obligations~~ as of ~~June 30, 2015~~March 31, 2016 ($~~0.3~~0.1 million as of December 31, ~~2014) attributable~~2015) to ~~our joint partners’ share not accrued in our balance sheet. Our partners have advanced $0.0 million ($0.5 million as of December 31, 2014) to satisfy their share of~~us for these ~~obligations which was $0.2 million as of June 30, 2015 ($0.8 million as of December 31, 2014).~~liabilities. 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 alleged that the area belonged to the people of Taiwan and 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. The Company filed a motion to dismiss the suit, which was granted by the district court in August 2014. The plaintiffs appealed the 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 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. We are currently unable to estimate the amount or range of any possible loss.

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 currently 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~~During the ~~funds will ultimately be released to the Company. However,~~year ended December 31, 2015 primarily due to the passage of time, ~~during the three months ended June 30, 2015,~~ we recorded a ~~$0.6~~$0.7 million allowance for doubtful accounts to general and administrative costs associated with the blocked ~~payment.~~

~~Robert C. Bonnet~~payment and ~~Bobby Bonnet Land Services vs. Harvest (US) Holdings, Inc., Branta Exploration & Production, LLC, Ute Energy LLC, Cameron Cuch, Paula Black, Johnna Blackhair,~~$0.4 million receivable from our joint venture partner. On October 13, 2015, we filed a request that OFAC reconsider its decision and ~~Elton Blackhair in~~on March 8, 2016 OFAC denied our October 13, 2015 request for the ~~United States District Court for~~return of blocked funds; however, the

~~District of Utah. This suit was served in April 2010 on Harvest and Elton Blackhair, a Harvest employee, alleging that~~ Company will continue attempts to recover 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. The court administratively closed the case in 2013. The case was reopened in 2014 as a result of a Circuit Court of Appeals’ 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.funds from OFAC.

Uracoa Municipality Tax Assessments. Harvest Vinccler, a subsidiary of Harvest Holding, has received nine assessments from a tax inspector for the Uracoa municipality in which part of the Uracoa, Tucupita and Bombal fields are located 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. Harvest Vinccler has received five assessments from a tax inspector for the Libertador municipality in which part of the Uracoa, Tucupita and Bombal fields are located 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 January 15, 2015, HNR Finance and 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 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~~Harvest Holding to Petroandina on 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 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"),~~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 breach of contract against the Company and its subsidiary HNR Energia in the Court of Chancery of the State of Delaware ~~court.~~(“Court of Chancery”). 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 lawsuit; and (e) award Petroandina such other relief as the court deems just and proper.

On January 28, 2015, the ~~Delaware court~~Court of Chancery issued an injunction ordering the Company and HNR Energia to withdraw the Request for Arbitration and not take any action to pursue its claims against Venezuela until Harvest and HNR Energia have complied with the provisions of the Shareholders’ Agreement or otherwise reached an agreement with Petroandina. Accordingly, on January 28, 2015, HNR Finance B.V. and Harvest Vinccler S.C.A., withdrew without prejudice the Request for Arbitration. In the Delaware proceeding, the Company and HNR Energia have until ~~August 25, 2015~~May 23, 2016 to respond to Petroandina’s complaint. We are currently unable to estimate the amount or range of any possible loss.

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 with Harvest US and Branta by discussing the auction of the assets with a potential bidder for the assets, which caused the potential bidder not to participate in the auction and resulted in a depressed sales price for the assets. The complaint seeks damages and fees for breach of contract, violation of the Colorado Antitrust Act, violation of the Sherman Antitrust Act and tortious interference with a prospective business advantage.

O~~n June 19,~~In September 2015, Plaintiffs amended their complaint to add Ute Energy, LLC and Crescent Point Energy Corporation as defendants. Subsequently, the ~~Company announced that CT~~Plaintiffs agreed to dismiss with prejudice all claims against Ute Energy, ~~purchased from the Company 9%~~LLC 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~~Crescent Point Energy ~~may elect to accelerate full payment of the 9% and 15% Notes upon 60 days’ notice. See~~ ~~Note 1 – Organization~~ ~~for further information.~~Corporation.

We are a defendant in or otherwise involved in other litigation incidental to our business. In the opinion of management, there is no such incidental litigation that will have a material adverse effect on 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. 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 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. Segment loss and operating segment assets for prior periods have been adjusted to conform to the current presentation method in which intersegment items are eliminated from each segment’s results and assets.

Three Months Ended June 30,

Six Months Ended June 30,


2015

2014

2015

2014


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








Venezuela

$
(85)

$
7,897

$
(108)

$
17,032
Gabon


(934)


(1,331)


(2,848)


(2,482)
Indonesia


(2)


(3,697)


(55)


(8,932)
United States


(24,404)


(4,290)


(28,031)


(14,916)
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)



	Three Months Ended March 31,
	2016		2015

	(in thousands)
Segment Loss Attributable to Harvest
Venezuela	$	(2,562)	$	(23)
Gabon		(810)		(1,914)
Indonesia		—		(53)
United States and other		(10,724)		(3,627)
Net loss attributable to Harvest (a)	$	(14,096)	$	(5,617)

The noncontrolling interest owners in Harvest Holdings, Vinccler (currently owning 20 percent) and Petroandina (currently owning 29 percent) are both related ~~parties. During~~parties of the ~~second quarter of~~Company.

On June 19, 2015, ~~CT Energy became a related party after we issued~~Harvest sold to CT Energy the 15% Note, the 9% Note and the Series C preferred ~~stock and~~stock. Shortly after this transaction two representatives of CT Energy were appointed to Harvest’s board of ~~directors.~~

Asdirectors, Mr. Oswaldo Cisneros and Mr. Francisco D’Agostino. Mr. Cisneros is the sole owner 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 are due quarterly 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~~and Mr. D’Agostino is a controlling equity owner of ~~15% per annum, with a maturity date of January 1, 2016.~~CT Energia. 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,~~15, 2015, CT Energy ~~acquired a $25.2 million five year 15% Note and a $7.0 million five year 9% Note. The~~converted the 9% Note, ~~is convertible~~including accrued interest, into ~~8,506,097~~8,667,597 shares of ~~Harvest~~Harvest’s 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~~stock and Harvest redeemed the ~~transaction with CT Energy described in~~Series C preferred stock. See Note 1 – Organization for more information about the CT Energy transaction. CT Energy, which currently owns 16.6% of the Company’s common stock, is considered a related party of the Company.

On January 4, 2016, Harvest entered into a transaction that amended the five year, 15.0% non-convertible senior secured promissory note (“15% Note”). Harvest and CT Energy executed a first amendment of Harvest’s 15% non-convertible promissory note due 2020 (the “Original Note”), dated June 19, 2015, payable to CT Energy in the ~~Company also issued 69.75 shares~~original principal amount of ~~its newly created Series C preferred stock, par value $0.01 per share.~~$25.2 million. The ~~primary~~amendment increased the principal amount of the Original Note to $26.1 million to reflect a loan back to Harvest equal to the amount of interest that was due to CT Energy on January 1, 2016, less withholding tax due as a result of the interest owed as of January 1, 2016.

On January 4, 2016, HNR Finance provided a loan to CT Energia in the amount of $5.2 million under an 11.0% promissory note due 2019 (the “CT Energia Note”). The purpose of the ~~Series C preferred stock~~loan is to provide CT Energia with collateral to obtain funds for one or more loans to Petrodelta that is 40% owned by HNR Finance and through which Harvest’s Venezuelan oil and natural gas interests are held. The loans to Petrodelta are to assist Petrodelta in satisfying its working capital needs and discharging its obligations. Interest on the ~~holder~~CT Energia Note is due and payable on the first of each January and July, commencing July 1, 2016. The full amount outstanding, including any unpaid accrued interest, is due on January 4, 2019; however, HNR Finance’s sole recourse for payment of the 9%principal amount of the loan is the payments of principal and interest from loans that CT Energia has made to Petrodelta. If and when CT Energia receives payments of principal or interest from loans it has made to Petrodelta, then those proceeds must be used to pay unpaid interest and principal under the CT Energia Note. All payments made by CT Energia to HNR Finance under the CT Energia Note must be made in U.S. Dollars. The source of funds for HNR Finance’s $5.2 million loan to CT Energia was a capital contribution from Harvest Holding, which, in return, received the same aggregate amount of capital contributions from its shareholders, pro rata according to their equity interests in Harvest Holding. Of that aggregate amount of capital contributions, HNR Energia contributed $2.6 million, which was a capital contribution from Harvest. The management agreement the Company entered into with ~~voting rights equivalent~~CT Energia also makes CT Energia a related party. During the three months ended March 31, 2016, we recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the 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 perpetual maturity,~~continued deteriorating economic conditions in Venezuela and has a $1.00 per share liquidation preference, which may be adjusted upon the 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 proportionour assessment relating to the ~~converted portion of~~probability that 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~~ CT Energia 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 the redemption of the shares is outside of the control of the Company.~~ collected.

On July 22, 2015, we issued stock based compensation awards to certain employees as follows: 847,000 stock options to purchase common shares at an exercise price of $1.13 per share, vesting ratably over three years fromand effective April 1, 2016, the ~~date of grant; 5,062,000 SARs at an exercise price of $1.13 per share, vesting ratably over three years from the date of grant;~~Company and ~~1,571,000 restricted share units vesting at three years from the date of grant. Subject~~CT Energy executed a second amendment to the ~~above vesting requirements,~~15% Note. The second amendment eliminates the ~~options, SARs~~$1.0 million interest payment that would have been due and ~~RSUs awarded will not become exercisable until~~payable on April 1, 2016, and converts such amount, less applicable withholding tax, into additional principal, such that the ~~first day on which the volume weighted average price~~new principal amount of the ~~common stock over any 30-day period, commencing~~15% Note was $27.0 million as of April 1, 2016.

On May 3, 2016, the Company and CT Energy Holding executed and delivered a third amendment to the 15% Note. The third Amendment increased the principal amount of the 15% Note to $30.0 million to reflect an additional loan of $3.0 million by CT Energy Holding to Harvest. Additionally, the third amendment converts the $1.1 million interest payment that would have been due and payable on ~~or after~~July 1, 2016 less applicable withholding tax, into additional principal, such that the ~~award date, equals or exceeds $2.50 per share,~~new principal amount of the 15% Note will be $31.0 million effective 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 we may be unable to market and sell our remaining Venezuelan 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, ~~2014~~2015 (“the ~~2014~~2015 Form 10-K”), which includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this report.

On ~~February 5, 2015,~~January 4, 2016, HNR Finance B.V. (“HNR Finance”) provided a loan to CT Energia Holding Ltd. (“CT Energia”) in the ~~Company~~amount of $5.2 million under an 11.0% promissory note due 2019 (the “CT Energia Note”). The purpose of the loan was to provide CT Energia with collateral to obtain funds for one or more loans to Petrodelta, S.A. (“Petrodelta”) which is 40% owned by HNR Finance and through which Harvest’s Venezuelan oil and natural gas interests are held. The loans to Petrodelta were to assist Petrodelta in satisfying its working capital needs and discharging certain obligations. Interest on the CT Energia Note is due and payable on the first of each January and July, commencing July 1, 2016. The full amount outstanding, including any unpaid accrued interest, is due on January 4, 2019; however, HNR Finance’s sole recourse for payment of the principal amount of the loan is the payments of principal and interest from loans that CT Energia has made to Petrodelta. If and when CT Energia receives payments of principal or interest from loans it has made to Petrodelta, then those proceeds must be used to prepay unpaid interest and principal under the CT Energia Note. All payments made by CT Energia to HNR Finance under the CT Energia Note must be made in USD. The source of funds for HNR Finance’s $5.2 million loan to CT Energia was a capital contribution from Harvest-Vinccler Dutch Holding B.V., a Dutch private company with limited liability (“Harvest Holding”), which, in return, received the same aggregate amount of capital contributions from its shareholders, pro rata according to their equity interests in Harvest Holding. Of the aggregate amount of capital contributions, HNR Energia B.V. (“HNR Energia”) contributed $2.6 million, which it had received as a capital contribution from Harvest. During the three months ended March 31, 2016, we recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the continued deteriorating economic conditions in Venezuela and our assessment relating to the probability that the CT Energia Note will be collected.

On January 4, 2016, Harvest entered into a ~~Share Purchase Agreement to transfer shares~~transaction that amended the five year, 15.0% non-convertible senior secured promissory note (“15% Note”). Harvest and CT Energy executed a first amendment of ~~Harvest Budong-Budong B.V. to Stockbridge Capital Limited. The transfer of shares was completed on May 4, 2015.~~

~~On May 11,~~Harvest’s 15% non-convertible promissory note due 2020 (the “Original Note”), dated June 19, 2015, ~~the Company borrowed $1.3 million to fund certain corporate expenses. The Company issued a note~~ payable to CT Energy ~~bearing an~~in the original principal amount of $25.2 million. The amendment increased the principal amount of the Original Note to $26.1 million to reflect a loan back to Harvest equal to the amount of interest ~~rate~~that was due to CT Energy on January 1, 2016, less withholding tax due as a result of ~~15% per annum, with a maturity date~~the interest owed as of January 1, 2016.

On February 19, 2016, the Company filed a Certificate of Elimination with the Delaware Secretary of State, which eliminated all matters set forth in the Certificate of Designations of Preferred Stock, Series C of Harvest Natural Resources, Inc. from the Company’s Amended and Restated Certificate of Incorporation and returned all shares of the Company’s Series C Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”), to the status of authorized but unissued shares of preferred stock of the Company. The Company had issued 69.75 shares of Series C Preferred Stock to CT Energy on June 19, 2015 along with the ~~Company repaid~~five year, 9.0% convertible senior secured note (the “9% Note”). All outstanding shares of Series C Preferred Stock were redeemed in connection with the ~~note payable.~~

~~On May~~September 15, 2015 ~~the Board of Directors~~conversion 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") that the Company regained compliance with the NYSE’s continued listing requirements. Specifically, the notification provided that the closing price of the Company’s 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 over the 30 trading days preceding the end of 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 $1.00 per share of common stock over 30 consecutive trading days.

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 payable and accrued interest.9% Note.

On and effective as of April 1, 2016, the Company, and CT Energy, executed and delivered a second amendment (the "Second Amendment") to the 15% Note, dated June 19, 2015, as amended by the ~~Company entered into a securities purchase agreement (“Purchase Agreement”) with~~First Amendment, effective as of December 31, 2015, payable by Harvest to 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~~in the principal amount of $26.1 million. The Second Amendment converts the $1.0 million interest payment that was due and payable on April 1, 2016 and converts such amount, less applicable withholding tax, into additional principal, such that the current principal amount of the ~~Company and acquired certain governance rights. Certain aspects~~15% Note as of ~~the transactions contemplated by the Purchase Agreement are subject to approval by the Company’s stockholders. See~~ ~~Part I – Financial Information, Item~~April 1, ~~– Financial Statements, Note 1 – Organization and Note 10 – Notes Payable to Noncontrolling Interest Owner, Debt and Financing~~ 2016, is $27.0 million.~~for further information.~~

On ~~June 19, 2015, Dr. Igor Effimoff, Mr. H. H. Hardee and Mr. J. Michael Stinson resigned as directors of~~April 25, 2016, 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~~notice from the ~~NYSE~~New York Stock Exchange (“NYSE”) stating that the Company ~~was~~is not in compliance with ~~the NYSE’s~~a NYSE continued listing ~~requirements. Specifically, Section 303A.07(a)~~requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders’ equity is less than $50 million. As required by NYSE rules, the Company notified the NYSE that, within 45 days of receipt 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 ofnotice, the Company ~~in connection~~will submit a business plan that demonstrates its ability to regain compliance within 18 months. The NYSE will either accept the business plan, at which time the Company will be subject to quarterly monitoring for compliance with the ~~transaction between~~plan, or will not accept the plan. If the Company ~~and CT Energy. As a result of these resignations, only one independent director comprised~~fails to comply with the ~~Company’s audit committee on the date of~~business plan or the NYSE ~~notice. On June 30, 2015,~~does not accept 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) ofplan, the NYSE ~~Listed Company Manual. The Company’s business operations, securities reporting requirements~~may commence suspension and ~~debt obligations are unaffected by the notice.~~

On July 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 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.delisting procedures.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2016, Petrodelta sold approximately 3.96 million barrels of oil (MMBO) for a daily average of 43,507 barrels of oil per day (BOPD), an increase of nine percent over the same period in 2015 and three percent lower than the previous quarter.

During three months ended March 31, 2016, Petrodelta drilled and completed six ~~and ten~~ development wells, ~~respectively.~~five in the El Salto field and one in the Temblador field. Currently, Petrodelta is operating ~~six~~four drilling rigs and one workover rig and is continuing with infrastructure enhancement projects in the El Salto and Temblador fields. During three ~~and six~~ months ended ~~June 30, 2014,~~March 31, 2015, Petrodelta drilled and completed four ~~and seven~~ development wells, ~~respectively.~~one in the El Salto field and three in Isleño field.

~~Certain operating statistics for fields operated by Petrodelta are set forth below. This information is provided at 100 percent. The information may not be representative of future results.~~

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

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 throughWith 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 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.

~~With this~~ new operating and financial framework ~~in place,~~currently under negotiations, 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. We cannot guarantee that we will be able to complete these negotiations.

~~It is~~We performed an impairment analysis of 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~~carrying value of our investment ~~is warranted~~of Petrodelta as of ~~June 30,~~December 31, 2015 due to the continued decline in world oil prices and deteriorating economic conditions in Venezuela which have significantly impacted Petrodelta’s operations. During 2015, Petrodelta’s operating costs exceeded the price realized from the sale of its production due to the significant rate of inflation in Venezuela and the restrictive foreign currency exchange system which Petrodelta is required to operate under. While we believe that our relationship with CT Energy may allow us to restructure our relationship with PDVSA and Petrodelta and allow us to access the alternative foreign currency systems in Venezuela, there can be no assurances that we will be successful in these negotiations. Based on the existing economic environment in which Petrodelta is required to operate, we have concluded that the estimated fair value of our investment in Petrodelta is nil and we recorded a pre-tax impairment charge of $164.7 million to fully impair our investment in Petrodelta as of December 31, 2015. The estimated fair value of our investment was determined based on the estimated fair value of Petrodelta’s oil and natural gas properties and other net liabilities as of December 31, 2015 which exceeded the estimated fair value of the oil and natural gas properties.

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 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, isare in the third exploration phase of the Dussafu PSC which has been extended to May 27, 2016. The Company has an option to extend for one year the exploration phase for a payment of $1.2 million. Failure to extend the exploration phase has no effect on the discovered fields under the Exclusive Exploitation Authorization (“EEA”) as discussed below. All expenditure commitments on this exploration phase have been completed.

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 Gabon pertaining to four discoveries on the Dussafu Project offshore Gabon. Furthermore, on July 17, 2014, the Direction Generale Des Hydrocarbures (“DGH”) awarded an EEA for the development and exploitation of certain oil discoveries on the Dussafu Project and on October 10, 2014, the field development plan was approved. The Company has four years from the date of the EEA approval to begin production.

Operational activities during the ~~six~~three months ended ~~June 30, 2015,~~March 31, 2016, included continued evaluation of development plans, based on the 3D seismic data acquired in late 2013 and processed during 2014.

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

During the ~~six~~three months ended ~~June 30, 2015,~~March 31, 2016, we had cash capital expenditures of ~~$0.4~~$0.1 million for ~~facility costs~~site survey ($~~0.5~~0.3 million for facility costs during the ~~six~~three months ended ~~June 30, 2014)~~March 31, 2015). 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~~farm-down the Dussafu PSC in order to obtain the maximum value from ~~the~~this asset, while maintaining the required liquidity to continue our current operations.

Since approval of the Field Development Plan ~~(FDP)~~(“FDP”) in October 2014, Harvest has continued ~~to move toward~~the development of the Ruche Exclusive Exploitation Area. A tender for all ~~the~~necessary subsea equipment was concluded in January 2015 where prices exceeded the costs employed in the FDP. ~~Efforts~~We continue to negotiate with the lowest priced vendors and continue to revise the development scheme to bring the projected cost back to the FDP levels. The depth volume from the 2013 3D seismic acquisition over the discovered fields and the outboard area of the license ~~has been~~was received and interpreted. This ~~new~~ data was incorporated into our reservoir models and optimization of well trajectories to maximize oil recovery ~~is ongoing.~~continues. In addition, the prospect inventory was updated and several prospects have been ~~highgraded~~high graded for drilling in ~~the first half of 2016.~~2016 or 2017. 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~~was completed in August 2015. A tender for a drilling rig for the planned well is in progress.

Harvest and its joint venture partner ~~have~~ engaged a third-party contractor to undertake a fixed-price, geophysical site survey over multiple potential well locations in the Dussafu block in August 2015. The survey iswas 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~~provided information ~~about~~regarding the seabed and shallow geological conditions, which is essential for ~~the~~ safe siting and operation of these installations.

In ~~June 2014, Harvest~~March 2016, the Company conducted an impairment analysis of the unproved costs of the Dussafu PSC. The significant factors that impacted the evaluation were price forecasts, drilling costs and the number of companies engaged in evaluating an investment in the property through either a farm-down or acquisition. Based on the March 2016 evaluation and our ~~partner adopted a resolution to terminate~~continuing operations, it is the ~~Budong PSC. Harvest advised the Indonesian government~~opinion of ~~this decision and submitted a request to terminate the Budong PSC.~~ ~~On February 5, 2015,~~ the Company ~~entered into a Share Purchase Agreement~~that the current carrying value is recoverable and no further impairment to ~~transfer shares~~this Dussafu project is warranted as of ~~Harvest Budong-Budong B.V. to Stockbridge Capital Limited for a nominal amount. On February 17, 2015, a withdrawal request of the earlier termination request was made~~ to ~~the~~ ~~Indonesian government and the withdrawal request was accepted on April 15, 2015. The transfer of shares was completed on May 4, 2015.~~March 31, 2016.

The following discussion on results of operations for the three months ended ~~June 30,~~March 31, 2016 and 2015 ~~and 2014~~ should be read in conjunction with our consolidated condensed financial statements and related notes thereto.

We reported a net loss attributable to Harvest of ~~$25.4~~$14.1 million, or ~~$0.60 per diluted earnings~~$0.27 per share, for the three months ended ~~June 30, 2015,~~March 31, 2016, compared with a net loss attributable to Harvest of ~~$1.7~~$5.6 million, or ~~$0.04 per diluted earnings~~$0.13 per share, for the three months ended ~~June 30, 2014.~~March 31, 2015.

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



							Three Months Ended March 31,
							2016		2015		Change
	Three Months Ended June 30,				Increase
	2015		2014		(Decrease)		(in thousands)
Depreciation and amortization	$	27	$	58	$	(31)	$	26	$	29	$	(3)
Exploration expense		575		1,648		(1,073)		721		1,932		(1,211)
Impairment expense - oil and gas properties		—		3,150		(3,150)
Impairment expense - oilfield inventories								128		—		128
Reserve for note receivable – related party								5,160		—		5,160
General and administrative		5,517		4,903		614		5,949		4,158		1,791
Loss on sale of interest in Harvest Holding		—		391		(391)
Warrant liability income		(2,418)		—		(2,418)
Derivative income		(557)		—		(557)
Change in fair value of warrant liabilities								4,061		—		4,061
Change in fair value of derivative assets and liabilities								9		—		9
Interest expense		614		15		599		1,096		237		859
Loss on issuance of debt		20,402		—		20,402
Foreign currency transaction gains		(77)		(259)		182		(154)		(3)		(151)
Income tax expense (benefit)		1,604		(88)		1,692		8		(384)		392
Earnings from investment affiliate		—		(16,062)		16,062
Loss from continuing operations							$	17,004	$	5,969	$	11,035

Our accounting method for oil and natural gas properties is the successful efforts method. During the three months ended ~~June 30, 2015,~~March 31, 2016, we incurred ~~$0.4~~$0.6 million of exploration costs for the processing and reprocessing of seismic data related to ongoing operations in Gabon and ~~$0.2~~$0.1 million related to other general business development activities. During the three months ended ~~June 30, 2014,~~March 31, 2015, we incurred ~~$1.5~~$1.9 million of exploration costs for the processing and reprocessing of seismic data related to ongoing operations ~~and $0.1 million related to other general business development activities.~~in Gabon.

During the three months ended ~~June 30, 2015,~~March 31, 2016 we incurred no$0.1 million of impairment ~~expense.~~ expense for the oilfield inventory related to the Dussafu PSC.

During the three months ended ~~June 30, 2014,~~March 31, 2016, we ~~impaired $3.2~~recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the ~~Budong PSC~~continued deteriorating economic conditions in ~~Indonesia.~~Venezuela and our assessment relating to the probability that the CT Energia Note will be collected.

The increase in general and administrative costs for the three months ended ~~June 30, 2015~~March 31, 2016 compared to the three months ended ~~June 30, 2014,~~March 31, 2015 was primarily due to higher employee related costs ($1.3 million), general operations and overhead ($~~1.1~~0.7 million), and taxes other than income and travel ($0.1 million), offset by lower professional fees and contract services ($~~0.2~~0.3 million) ~~offset~~. Employee costs were higher between periods primarily due to an $1.1 million increase in certain stock-based compensation expense impacted by ~~lower employee related costs ($0.5 million), travel ($0.1 million) and taxes other than income ($0.1 million).~~the change in the Company’s stock price. General business and overhead costs were higher due to higher cost recovery reimbursements billed to projects during the prior year’s ~~quarter offset by~~quarter. Contract services were lower primarily related to legal fees.

The change in the ~~$0.6~~fair value of the warrant liability of $4.1 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 decrease in the Company’s stock price. Taxes other than income were lower between the periods primarily due to 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 during the three months ended June 30, 2014 relates to the anticipated sale of a our remaining 51 percent equity interest in Harvest Holding to Petroandina thatMarch 31, 2016 was ~~subsequently terminated.~~

~~The $2.4 million warrant liability income during the three months ended June 30, 2015~~ related to the ~~change~~increase in fair value of ~~warrant~~the CT 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.2015. See Part I – Financial Information, Item 1 – Financial Statements, Note 119 – Warrant Derivative ~~Liabilities~~Liability for further information.

The ~~embedded~~change in the fair value of the derivative ~~income~~assets and liabilities of ~~$0.6 million~~$9 thousand during three months ended ~~June 30, 2015~~March 31, 2016 was related to the ~~reduction~~decrease in the fair value of the 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~~assets 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.~~$5.0 million. See Part I – Financial Information, Item 1 – Financial Statements, Note 108 – ~~Notes Payable to Noncontrolling Interest Owners,~~ Debt and Financing for further information.

The increase in interest expense for the three months ended ~~June 30, 2015~~March 31, 2016 compared to the three months ended ~~June 30, 2014~~March 31, 2015 was primarily due to higher outstanding debt balances during the three months ended June 30, 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 – 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 June 30, 2015.March 31, 2016.

We recognized a ~~$0.1~~$0.2 million gain on foreign currency transactions for the three months ended ~~June 30, 2015~~March 31, 2016 compared to ~~$0.3 million~~a $3 thousand gain on foreign currency transactions for the three months ended ~~June 30, 2014.~~March 31, 2015. The ~~gains~~gain in ~~2015 and 2014 were~~2016 was 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~~March 31, 2016 of ~~$1.6 million~~$8 thousand compared to an income tax benefit of ~~$0.1~~$0.4 million for the three months ended ~~June 30, 2014.~~March 31, 2015. The expense ~~at June 30, 2015~~during the three months ended March 31, 2016 was primarily attributable to ~~an increase~~income tax owed to the Venezuelan taxing authorities. The benefit for the three months ended March 31, 2015 is primarily attributable to a reduction in the deferred tax liability associated with the Company’s undistributed earnings from its foreign subsidiaries. In the fourth quarter of 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. after the termination of the sale of the remaining equity interest in Harvest ~~Holdings. We have not recognized a~~Holdings to realize the deferred tax ~~benefit on~~asset. Through 2015 and the ~~Company’s losses 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 second~~first quarter of ~~2014 due to~~2016, the ~~expected sales price~~Company has continued recording a valuation allowance against its U.S. deferred tax assets.

Net loss attributable to noncontrolling ~~interest~~interests was ~~$0.3~~$2.9 million for the three months ended ~~June 30, 2015~~March 31, 2016 compared to net ~~income~~loss attributable to noncontrolling ~~interest~~interests of ~~$7.7~~$0.4 million for the three months ended ~~June 30, 2014.~~March 31, 2015. The net loss attributable to noncontrolling ~~interest in~~interests during the three months ended March 31, 2016 and 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.~~

~~Consistent with the results in our 2014 Form 10-K, our Oman and Colombia operations have been classified as discontinued operations. Losses from discontinued operations were:~~

We reported a net loss attributable to Harvest of $31.0 million, or $0.73 diluted earnings per share, for the six months ended June 30, 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.

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

Six Months Ended June 30,

Increase


2015

2014

(Decrease)
Depreciation and amortization

$
56

$
134

$
(78)
Exploration expense


2,507

3,481

(974)
Impairment expense


—

7,610

(7,610)
General and administrative


9,675

11,204

(1,529)
Investment earnings and other


—

(4)

4
Loss on sale of interest in Harvest Holding


—

1,357

(1,357)
Warrant liability income


(2,418)

—

(2,418)
Derivative income


(557)

—

(557)
Interest expense

851

62

789
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


(80)

210

(290)
Other non-operating expenses


—

220

(220)
Income tax expense (benefit)

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 six months ended June 30, 2015, we incurred $2.3 million of exploration costs for the processing and reprocessing of seismic data related to ongoing operations in Gabon and $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 six months ended June 30, 2015, we incurred no impairment expense. During the six months ended June 30, 2014, we impaired $7.6 million related to the Budong PSC in Indonesia.~~

The decrease in general and administrative costs for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, was primarily due to lower employee related costs ($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 ($0.3 million). Employee costs were 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 decrease in the Company’s stock price. Taxes other than income were lower between the periods primarily due to lower payroll taxes. General business and overhead costs were higher due to higher cost recovery reimbursements billed to projects during the prior year 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 in 2015. See ~~Part I – Financial Information, Item 1 – Financial Statements, Note 3 – Summary of Significant Accounting Policies, Other Assets~~ ~~for further information.~~

The $1.4 million loss on the sale of interest in Harvest Holding during the six months ended June 30, 2014 related to the anticipated sale of a our remaining 51 percent equity interest in Harvest Holding to Petroandina that was subsequently terminated.

The $2.4 million warrant liability income during the six months ended June 30, 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 reduction in the fair value of the 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 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 six months ended June 30, 2015 compared to the six months ended June 30, 2014 was primarily due to higher debt during the six months ended June 30, 2015 which consisted of the 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 during the six months ended June 30, 2014 was $0.2 million.

~~During the six months ended 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 for the six months ended June 30, 2015 compared to $0.2 million loss on foreign currency transactions for the six months ended June 30, 2014. The gain in 2015 was primarily associated with a favorable change in the Bolivar denominated liabilities. The loss in 2014 was primarily related to remeasurement of Bolivars denominated assets and liabilities from 6.3 to 23.9 Bolivars to U.S. Dollars.

The decrease in other non-operating expense for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 was due to higher costs incurred in 2014 related to our strategic alternative process and evaluation.

We had an income tax expense for the six months ended June 30, 2015 of $1.2 million compared to an income tax benefit of $1.0 million for the six months ended June 30, 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 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. after the termination of the sale of the remaining equity interest in Harvest Holding. We have not recognized a tax benefit on the Company’s losses 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 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 six months ended June 30, 2015 compared to net income attributable to noncontrolling interest of $16.3 million for the six 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.~~

~~Consistent with the results in our 2014 Form 10-K, our Oman and Colombia operations have been classified as discontinued operations. Losses from discontinued operations were:~~

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

We expect that in 2016 we will not generate revenues, we will continue to have losses from operations, and that our operating cash flows will not be sufficient to cover our operating expenses. While we believe that we may be able to raise additional capital through issuances of debt or equity or through sales or farm-downs of assets, our circumstances at such time raise substantial doubt about our ability to continue to operate as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Historically, prior~~Our current capital resources may not be sufficient to support our liquidity requirements through 2016. However, we believe certain cost reduction measures could be put into place which would not jeopardize our operations. In addition, we could delay the ~~transaction pursuant~~discretionary portion of our capital spending to future periods or sell or farm-down our interest in our Gabon asset as necessary to maintain the ~~Purchase Agreement,~~liquidity required to run our operations, as warranted. There are no assurances that we will be successful in selling or farming-down this asset.

Our ability to continue as a going concern depends upon the success of our planned exploration and development activities and the ability to secure additional financing as needed to fund our current operations. There can be no guarantee of future capital acquisition, fundraising or exploration success or that we will realize the value of our unevaluated exploratory well costs. We believe that we will continue to be successful in securing any funds necessary to continue as a going concern. However, our current cash position and our inability to access additional capital may limit our available opportunities or not provide sufficient cash for operations.

The long-term continuation of our business plan through 2016 and beyond is dependent upon the generation of sufficient cash flow to offset expenses. We will be required to obtain additional funding through public or private financing, farm-downs, further reduce operating costs, or possible sales of assets. Failure to generate sufficient cash flow by raising additional capital through debt or equity financings, reducing operating costs, or by farm-downs or selling of assets further could have a material adverse effect on our ability to meet our short- and long-term liquidity needs and achieve our intended long-term business objectives.

Our primary ongoing ~~source~~sources of cash ~~had been dividends from Petrodelta, issuance~~are issuances of debt and the sale of oil and natural gas properties. Our primary use of cash has been to fund oil and natural gas exploration projects, principal payments on debt, interest payments and general and administrative costs. We require capital principally to fund the exploration and development of new oil and natural gas properties. As is common in the oil and natural gas industry, we have various contractual commitments pertaining to exploration, development and production activities. ~~See the consolidated condensed financial statements~~

In January, April and ~~notes thereto included in~~May 2016, due to our ~~2014 Form 10-K for our contractual commitments.~~

~~On May 11, 2015,~~liquidity position, the Company ~~borrowed $1.3~~amended the 15% Note to increase the principal amount of the note equal to the amount of the interest, less withholding tax that was due to CT Energy. Additionally, the Company increased the principal amount of the 15% Note by $3.0 million in connection with additional funds received from CT Energy on May 3, 2016 under the 15% Note. As of May 3, 2016, the amount outstanding under the 15% Note was $30.0 million. There can be no assurance that we will be able to ~~fund certain corporate expenses. The Company issued a note payable bearing an interest rate of 15% per annum,~~amend our loan agreement with ~~a maturity date of January 1, 2016. On June 19, 2015,~~CT Energy to increase 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~~principal amount of the 15% Note if our liquidity position does not allow us to make future interest payments when due.

We are assessing alternatives to farm-down or sell our interest in the Dussafu Project, while weighing the liquidity requirements necessary to maintain ongoing Company ~~for $50,000.~~operations. The ~~note carried interest at 11% per year~~development of, or a transaction regarding, the Dussafu project and ~~was to mature upon~~ the ~~earlier to occur~~success 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.

O~~n June 19, 2015,~~negotiations between PDVSA, CT Energy, ~~purchased from~~CT Energia and HNR Finance for the ~~Company 9%~~management of Petrodelta will directly impact our future earnings, cash flows, and ~~15% Notes~~balance sheet. Without these transactions or additional financings or other sources of cash, we may not have sufficient liquidity for operations or capital requirements. There can be no guarantee of realizing the value of our exploration and ~~a warrant. The Company immediately received gross proceeds~~exploitation acreage or suspended wells in the Dussafu project or our investment in Petrodelta or that we can obtain further financings or sources of $32.2 million from the sale of the securities. 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 Venezuela and Gabon as well as to fund general and administrative costs. See cash.

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 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 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 future operating and capital requirements of both the parent company and the subsidiaries, remittance restrictions imposed by foreign governments or financial

agreements, and tax consequences of the remittance, including possible application of U.S. foreign tax credits and limitations on foreign tax credits that may be imposed by the Internal Revenue Code and regulations.

~~During~~As of March 31, 2016, the ~~fourth quarter of 2013, management evaluated numerous factors related~~book-tax outside basis difference in our foreign subsidiary resulting from unremitted earnings was zero due to the ~~timing and amounts of possible future distribution of these earnings to the parent company, with consideration~~pre-tax impairment of the ~~sale~~Company’s remaining investment in Petrodelta of ~~non-U.S. assets. Because management was pursuing various alternatives, a determination was made that it was appropriate to record a~~$164.7 million during the year ended December 31, 2015. Consequently, the deferred tax liability associated with the ~~unremitted~~foreign 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 interest in Harvest Holding 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 unremitted earnings of our foreign subsidiaries is $15.9 million.zero.

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 balance of the 15% Note of $26.1 million at March 31, 2016 (including $0.9 million capitalized interest) has been recorded net of the discount related to the value allocated to the embedded derivatives and warrant. The unamortized discount was $24.9 million at March 31, 2016. The Company will accrete the discount over the life of the notes using the interest method.

The ~~increase~~decrease in working capital of ~~$25.8~~$10.5 million between December 31, ~~2014~~2015 and ~~June 30, 2015~~March 31, 2016 was primarily to due ~~cash proceeds from issuance of debt in the CT Energy transaction offset by~~to cash used to fund our loss from operations and capital expenditures ~~and payments on notes payable.~~offset by the receipt of $1.7 million IRS income tax receivable accrued in prior periods.

During the ~~six~~three months ended ~~June 30, 2015,~~March 31, 2016, net cash used in operating activities was approximately ~~$10.9~~$1.6 million ($~~28.7~~4.9 million during the ~~six~~three months ended ~~June 30, 2014).~~March 31, 2015.) The ~~$17.8~~$3.3 million decrease in use of cash was primarily due to decreases in accounts receivable and prepaid costs offset by increases in accrued expense, accounts payable and accrued ~~expenses, deferred income tax assets and liabilities and income taxes payable~~. During the six months ended June 30, 2014, we had certain non-recurring payments for a seismic project in Gabon ($9.9 million), closing fees related to the sale of Harvest Holding ($2.9 million) and income taxes ($2.2 million).interest.

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

Our only investing activities during the three months ended March 31, 2015 were capital expenditures.

Our budgeted capital expenditures of $5.1 million 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 discretionary portion of our capital spending to future periods or sell assets as necessary to maintain the liquidity required to run our operations, as warranted.

Our results of operations and cash flow are affected by changing oil prices. Fluctuations in oil prices may affect our total planned development activities and capital expenditure program.

Our net foreign exchange gain attributable to our international operations was ~~$0.1~~$0.2 million for the ~~six~~three months ended ~~June 30, 2015~~March 31, 2016 compared to ~~$0.2 million loss~~a nominal gain on foreign currency transactions for the ~~six~~three months ended ~~June 30, 2014.~~March 31, 2015. The ~~loss~~gain in ~~2014~~2016 is primarily ~~related to remeasurement of Bolivars~~associated with favorable changes in the Bolivar denominated ~~assets and liabilities from 6.3 to 23.9 Bolivars per U.S. Dollars.~~liabilities. There are many factors affecting foreign exchange rates and resulting exchange gains and losses, most of which are beyond our control. It is not possible for us to predict the extent to which we may be affected by future changes in exchange rates and exchange controls.

Harvest Vinccler’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 (“Bolivars”) ~~(197.30 Bolivars per U.S. Dollar)~~.

Within the United States and other countries in which we conduct business, inflation has had a minimal effect on us, but it is an important factor with respect to certain aspects of the results of operations in Venezuela. The inflation rate in Venezuela for the year ended December 31, ~~2014~~2015 was ~~68.5~~180.9 percent.

Item 3. Q~~uantitative~~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 ~~2014~~2015 Form 10-K. Our outlook with regards to market risk for the ~~six~~three months ended ~~June 30, 2015~~March 31, 2016 does not differ materially from that discussed in the ~~2014~~2015 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~~has 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 ~~June 30, 2015,~~March 31, 2016, 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 ~~June 30, 2015~~March 31, 2016 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

See Part I – Information, Item 1- Financial Statements, Note 1210 – Commitments and Contingencies and our ~~2014~~2015 Form 10-K for a description of certain legal proceedings, including material developments in such legal proceedings.

~~The following risk factors supplement~~We face a number of significant risks and uncertainties in our business, which are detailed in the ~~risk factors contained in Part I, Item 1A~~“Risk Factors” sections of our ~~2014~~Annual Report on Form ~~10-K:~~

~~If our stockholders do not approve certain proposals at our~~10-K for the year ended December 31, 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~~as well as summarized in this report under “Management’s Discussion and ~~other filings we have made under the Exchange Act. If any~~Analysis of ~~these proposals are not approved at~~Financial Condition and Results of Operations.” These risks and uncertainties may affect our ~~2015 annual meeting, holders of at least 25% of the outstanding principal amount of the 9%~~current position and ~~15% Notes (i.e., CT Energy~~future prospects 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~~should be ~~forced to quickly raise additional funds to avoid defaulting on our payment obligations,~~considered carefully in evaluating us 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~~investment in 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.stock.


2.1	Securities Purchase Agreement, dated as of June 19, 2015, between ~~Harvest Natural Resources, Inc.,~~the Company, Harvest (US) Holding, Inc., Harvest Natural Resources, Inc. (UK), Harvest Offshore China Company, and CT Energy Holding ~~SRL. (Incorporated~~SRL (incorporated by reference to our Form 8-K filed on June 22, 2015).
3.1	Amended and Restated Certificate of ~~Incorporation. (Incorporated~~Incorporation (incorporated by reference to Exhibit 3.1 to our Form 10-Q filed on November 9, 2010).
3.1.1	Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to our Registration Statement on Form S-3 filed on September 29, 2015).
3.1.2	Certificate of Designations of Series C Preferred Stock of the Company filed on June 19, 2015 (incorporated by reference to our Form 8-K filed on June 22, 2015).
3.1.3	Certificate of Elimination of Preferred Stock, Series C of Harvest Natural Resources, Inc. dated February 19, 2016 (Incorporated by reference to our form 8-K filed on February 19, 2016.
3.2	Restated Bylaws as of May 15, ~~2015. (Incorporated~~2015 (incorporated by reference to our Form 8-K filed on May 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~~Certificate (incorporated by reference to Exhibit 4.1 to our Form 10-K filed on March 17, 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 our Form 10-Q filed on November 9, 2010)
~~4.3~~	Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between ~~Harvest Natural Resources, Inc.~~the Company and Wells Fargo Bank, N.A. ~~(Incorporated~~(incorporated by reference to Exhibit 99.3 to our Form ~~8-A~~8-A12G filed on October 23, 2007).

~~Table of Contents~~

~~4.4~~4.2.1	Amendment to Third Amended and Restated Rights Agreement, dated as of October 28, 2010, between ~~Harvest Natural Resources, Inc.~~the Company and Wells Fargo Bank, N.A. ~~(Incorporated~~(incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 29, 2010).
~~4.5~~4.2.2	Second Amendment to Third Amended and Restated Rights Agreement, dated as of February 1, 2013, between ~~Harvest Natural Resources, Inc.~~the Company and Wells Fargo Bank, N.A., as Rights ~~Agent. (Incorporated~~Agent (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on February 4, 2013).

Table of Contents

~~4.6~~4.2.3	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~~our Form 8-K filed with the SEC on April 24, 2015).
~~4.7~~4.2.4	Fourth Amendment to Third Amended and Restated Rights Agreement, dated as of June 19, 2015, between ~~Harvest Natural Resources, Inc.~~the Company and Wells Fargo Bank, N.A., as rights ~~agent. (Incorporated~~agent (incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed on June 22, 2015).
~~4.8~~4.3	Warrant Purchase Agreement, dated as of October 28, 2010, between ~~Harvest Natural Resources, Inc.~~the Company and MSD Energy Investments Private II, ~~LLC. (Incorporated~~LLC (incorporated by reference to Exhibit 4.2 to our Form 8-K filed on October 29, 2010).
~~4.9~~4.4	Common Stock Purchase Warrant No. W-1, dated as of October 28, 2010, between ~~Harvest Natural Resources, Inc.~~the Company and MSD Energy Investments Private II, ~~LLC. (Incorporated~~LLC (incorporated by reference to Exhibit 4.3 to our Form 8-K filed on October 29, 2010).
~~4.10~~4.5	Common Stock Purchase Warrant No. W-2, dated as of October 28, 2010, between ~~Harvest Natural Resources, Inc.~~the Company and MSD Energy Investments Private II, ~~LLC. (Incorporated~~LLC (incorporated by reference to Exhibit 4.4 to our Form 8-K filed on October 29, 2010).
~~4.11~~4.6	Indenture (including Form of Note), dated as of October 11, 2012, between the Company and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 15, 2012).
4.7	Warrant Agreement (including Form of Warrant), dated as of October 11, 2012, between the Company and U.S. Bank National Association, as Warrant Agent (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~~Exhibit 4.3 to our Form 8-K filed on ~~June 3, 2015)~~October 15, 2012).
~~10.3~~4.8	15% Non-Convertible Senior Secured Promissory Note Due 2020, dated June 19, 2015, between the Company and CT Energy Holding SRL (incorporated by reference to our Form 8-K filed with the SEC on June 22, 2015).
4.8.1	First Amendment to 15% Non-Convertible Senior Secured Promissory Note Due 2020, effective as of December 31, 2015, between the Company and CT Energy Holding SRL (incorporated by reference to our Form 8-K filed with the SEC on January 7, 2016).
4.8.2	Second Amendment to 15.0% Non-Convertible Senior Secured Promissory Note Due 2020, effective as of April 1, 2016, between Harvest Natural Resources, Inc. and CT Energy Holding SRL ~~(Incorporated~~(incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed with the SEC on ~~June 22, 2015)~~April 7, 2016).
~~10.4~~4.8.3	Third Amendment to 15.0% Non-Convertible Senior Secured Promissory Note Due 2020, effective as of May 3, 2016, between Harvest Natural Resources, Inc. and CT Energy Holding SRL (incorporated by reference to our Form 8-K filed with the SEC on May 9, 2016).
4.9	9% Convertible Senior Secured Note Due 2020, dated June 19, 2015, between ~~Harvest Natural Resources, Inc.~~the Company and CT Energy Holding SRL ~~(Incorporated~~(incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed with the SEC on June 22, 2015).
~~10.5~~4.10	15% Additional Draw Senior Secured Note Due 2020, dated June 19, 2015, between ~~Harvest Natural Resources, Inc.~~the Company and CT Energy Holding SRL ~~(Incorporated~~(incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed with the SEC on June 22, 2015).
~~10.6~~4.11	~~Harvest Natural Resources, Inc.~~ Common Stock Purchase Warrant, dated as of June 19, 2015, issued to CT Energy Holding SRL ~~(Incorporated~~(incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed with the SEC on June 22, 2015).
~~10.7~~10.1	~~Registration Rights Agreement,~~11.0% Senior Unsecured Promissory Note Due 2019, dated ~~June 19, 2015, between Harvest Natural Resources, Inc. and CT Energy Holding SRL (Incorporated~~January 4, 2016, executed 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~~and payable to HNR Finance B.V. (incorporated by reference to ~~the Company’s Current Report on~~our Form 8-K filed with the SEC 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~~January 7, 2016).
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.
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.

~~Table of Contents~~

~~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 ~~June 30, 2015~~March 31, 2016 (Unaudited) and December 31, ~~2014~~2015	2
	Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2016 and 2015 ~~and 2014~~	3
	Unaudited Consolidated Condensed Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2016 and 2015 ~~and 2014~~	4
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2924
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3930
Item 4.	Controls and Procedures	3931
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	3931
Item 1A	Risk Factors	3931
Item 6.	Exhibits	4031
Signatures		4333



	As of June 30,		As of December 31,
	2015		2014
Unproved property costs	$	50,578	$	50,324
Oilfield inventories		3,966		3,966
Other administrative property		2,603		2,670
Total property and equipment		57,147		56,960
Accumulated depreciation		(2,442)		(2,453)
Total property and equipment, net	$	54,705	$	54,507



	~~As of June 30,~~
~~Long-Term Debt~~	~~2015~~
	~~(in thousands)~~
~~Beginning balance~~	$	—
~~Proceeds from promissory notes and notes from CT Energy transaction~~		~~33,550~~
~~Repayments~~		~~(1,350)~~
~~Value assigned to derivatives~~		~~(32,200)~~
~~Accretion of discount on debt~~		~~145~~
	$	~~145~~



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Thousand barrels of oil sold		3,452		4,102		7,085		7,980
Million cubic feet of gas sold		1,104		682		2,067		1,244
Total thousand barrels of oil equivalent (“BOE”)		3,636		4,216		7,430		8,187
Average BOE per day		39,950		46,328		41,049		45,236
Average price per barrel	$	49.71	$	88.77	$	44.57	$	86.44
Average price per thousand cubic feet	$	1.54	$	1.54	$	1.54	$	1.54



	As of June 30,		As of December 31,
	2015		2014

	(in thousands, except ratios)
Working capital	$	12,845	$	(12,943)
Current ratio		2.8		0.4
Total cash, including restricted cash	$	18,880	$	6,610
Total debt	$	145	$	13,709



	As of March 31,		As of December 31,
	2016		2015
	(in thousands)
Unproved property costs - Dussafu PSC	$	28,032	$	28,000
Oilfield inventories		2,878		3,006
Other administrative property		3,036		2,937
Total property and equipment		33,946		33,943
Accumulated depreciation		(2,508)		(2,482)
Total property and equipment, net	$	31,438	$	31,461



	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



	Three Months Ended March 31,
Employee Stock-Based Compensation	2016		2015

	(in thousands)
Equity based awards:
Stock options	$	556	$	478
Restricted stock		34		34
RSUs		74		—
Total expense related to equity based awards		664		512

Liability based awards:
SARs		103		(326)
RSUs		150		(450)
Total expense (income) related to liability based awards		253		(776)
Total compensation expense (income)	$	917	$	(264)


Dated: ~~August 7, 2015~~May 16, 2016	By:	/s/ James A. Edmiston
	James A. Edmiston
	President and Chief Executive Officer


Dated: ~~August 7, 2015~~May 16, 2016	By:	/s/ Stephen C. Haynes
	Stephen C. Haynes
	Vice President - Finance, Chief Financial Officer and Treasurer