Note 1 – Organization

Interim Reporting

In our opinion, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position as of September 30, 2015 and December 31, 2014, results of operations for the three and nine months ended September 30, 2015 and 2014, and the cash flows for nine months ended September 30, 2015 and 2014. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by 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”). The consolidated condensed financial statements included in this report should be read with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, which include certain definitions and a summary of significant accounting policies. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

Organization

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

Our Venezuelan interests are owned through our 51 percent ownership interest in Harvest-Vinccler Dutch Holding B.V., a Dutch private company with limited liability (“Harvest Holding”). Our ownership of Harvest Holding is through HNR Energia B.V. (“HNR Energia”), in which we have a direct controlling interest. The remaining 49 percent ownership interest of Harvest Holding is owned by Oil & Gas Technology Consultants (Netherlands) Cooperatie U.A. (“Vinccler”) (20 percent) and Petroandina Resources Corporation N.V. ("Petroandina") (29 percent); Petroandina is a wholly owned subsidiary of Pluspetrol Resources Corporation B.V. (“Pluspetrol”). 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 in 2007 for the purpose of owning and operating certain oil and gas interests in Venezuela. The other 60 percent of Petrodelta is owned by CorporacionVenezolana del Petroleo A.S. (“CVP”) and PDVSA Social S.A., both companies owned and controlled by the Government of Venezuela through Petroleos de Venezuela S.A. (“PDVSA”). Thus, we own an indirect 20.4 percent of Petrodelta (51 percent of 40 percent). 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 us in the oversight of our investment in Petrodelta and in negotiations with PDVSA.

Purchase Agreement

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

Terms of the transaction include:

CT Energy acquired a $25.2 million, five year, 15.0% non-convertible senior secured promissory note (“15.0% Note”). CT Energy acquired a $7.0 million, five year, 9.0% convertible senior secured note (“9.0% Note”). The 9.0% Note face value of $7.0 million and associated accrued interest of $0.1 million was converted into 8,667,597 shares of Harvest common stock at a conversion price of $0.82 per share on September 15, 2015. Immediately after the conversion, CT Energy owned approximately 16.6% of Harvest’s common stock.

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 CT Warrant”). The CT 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 (“Stock Appreciation Date”). The warrant is cash-exercisable, but CT Energy may surrender the 15.0% Note to pay for a portion of the aggregate exercise price.

CT Energy also acquired a five-year 15.0% non-convertible senior secured note (the “additional draw note”), under which CT Energy may elect to provide $2.0 million of additional funds to the Company per month for up to six months following the one-year anniversary of the closing date of the transaction (up to $12.0 million in aggregate). If funds are loaned under the additional draw note, interest will be compounded quarterly at a rate of 15.0% per annum and is payable quarterly on the first business day of each January, April, July and October, commencing October 1, 2016. If by June 19, 2016 (the “Claim Date”), the volume weighted average price of the Company’s common stock over any consecutive 30-day period has not equaled or exceeded $2.50 per share, the maturity date of the additional draw note will be extended by two years and the interest rates on the additional draw note will adjust to 8.0%. During an event of default, the outstanding principal amount will bear additional interest at a rate of 2% per annum higher than the rate otherwise applicable.

CT Energy also acquired 69.75 shares of the Company’s newly created Series C preferred stock, par value $0.01 per share. The purpose of the Series C preferred stock was to provide the holder of the 9.0% Note with voting rights equivalent to the common stock underlying the unconverted portion of the 9.0% Note. Upon conversion of the 9.0% Note, the Series C preferred stock ceased to have voting rights and was redeemed.

At our annual shareholder meeting, which occurred on September 9, 2015, Harvest stockholders approved, among other proposals, 1) certain aspects of the transaction under NYSE shareholder approval requirements and Delaware law and 2) an amendment to Harvest's charter to increase the number of authorized shares of our common stock from 80,000,000 to 150,000,000, in part to have sufficient shares to issue upon conversion of the 9.0% Note and exercise of the CT Warrant.

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