e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgtryTL5cm79CcXbIBqwirdsPSt7X3B4IfPBDq1X90owxt2wwcOtsHZNtiOLAV+V V6VeLLOe9rr8LpRxUwbf4A== 0000950129-08-002561.txt : 20080501 0000950129-08-002561.hdr.sgml : 20080501 20080430174726 ACCESSION NUMBER: 0000950129-08-002561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080501 DATE AS OF CHANGE: 20080430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARVEST NATURAL RESOURCES, INC. CENTRAL INDEX KEY: 0000845289 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 770196707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10762 FILM NUMBER: 08791193 BUSINESS ADDRESS: STREET 1: 1177 ENCLAVE PARKWAY STREET 2: STE 300 CITY: HOUSTON STATE: TX ZIP: 77077 BUSINESS PHONE: 281-899-5700 MAIL ADDRESS: STREET 1: 1177 ENCLAVE PARKWAY STREET 2: STE 300 CITY: HOUSTON STATE: TX ZIP: 77077 FORMER COMPANY: FORMER CONFORMED NAME: HARVEST NATURAL RESOURCES INC DATE OF NAME CHANGE: 20020805 FORMER COMPANY: FORMER CONFORMED NAME: BENTON OIL & GAS CO DATE OF NAME CHANGE: 19920703 10-Q 1 h56162e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended March 31, 2008 or


o		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 (State or Other Jurisdiction of Incorporation or Organization)		77-0196707 (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 þ No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a 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 o No þ

At April 24, 2008, 35,267,766 shares of the Registrant’s Common Stock were outstanding.

HARVEST NATURAL RESOURCES, INC.

FORM 10-Q

TABLE OF CONTENTS


	Page
PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets at March 31, 2008 and December 31, 2007		3
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007		4
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007		5
Notes to Consolidated Financial Statements		6

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		18

Item 4. CONTROLS AND PROCEDURES		18

PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS		19

Item 1A. RISK FACTORS		19

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		19

Item 6. EXHIBITS		20

Signatures		21
Employment Agreement
Stock Option Agreement
Employee Restricted Stock Agreement
Certification of PEO Pursuant to Section 302
Certification of PFO Pursuant to Section 302
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	March 31,			December 31,
	2008			2007
	(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	117,412		$	120,841
Restricted cash		6,841			6,769
Accounts and notes receivable, net		9,450			9,418
Advances to equity affiliate		3,719			16,352
Prepaid expenses and other		1,084			1,032

TOTAL CURRENT ASSETS		138,506			154,412

OTHER ASSETS		850			4,301
INVESTMENT IN EQUITY AFFILIATES		258,731			251,173
PROPERTY AND EQUIPMENT:
Oil and gas properties (successful efforts method)		10,150			3,163
Other administrative property		1,575			1,481

		11,725			4,644
Accumulated depletion, depreciation and amortization		(1,089	)		(1,061	)

		10,636			3,583

	$	408,723		$	413,469


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable, trade and other	$	2,014		$	5,949
Accounts payable, related party		10,218			10,093
Accrued expenses		8,244			11,895
Accrued interest		5,595			5,136
Income taxes payable		228			503
Short-term debt		9,302			9,302

TOTAL CURRENT LIABILITIES		35,601			42,878

COMMITMENTS AND CONTINGENCIES		—			—
MINORITY INTEREST		57,882			56,825
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.01 a share; authorized 5,000 shares; outstanding, none		—			—
Common stock, par value $0.01 a share; authorized 80,000 shares at March 31, 2008 and December 31, 2007, respectively; issued 38,591 shares and 38,513 shares at March 31, 2008 and December 31, 2007, respectively		386			385
Additional paid-in capital		203,266			201,938
Retained earnings		148,138			147,934
Treasury stock, at cost, 3,726 shares and 3,719 shares at March 31, 2008 and December 31, 2007, respectively.		(36,550	)		(36,491	)

TOTAL STOCKHOLDERS’ EQUITY		315,240			313,766

	$	408,723		$	413,469

See accompanying notes to consolidated financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


	Three Months Ended March 31,
	2008			2007
	(in thousands, except per share data)
EXPENSES
Depreciation	$	45		$	281
Exploration expense		1,349			—
General and administrative		6,212			6,433
Taxes other than on income		263			237

		7,869			6,951


LOSS FROM OPERATIONS		(7,869	)		(6,951	)

OTHER NON-OPERATING INCOME (EXPENSE)
Gain on financing transactions		1,330			—
Investment earnings and other		1,131			2,443
Interest expense		(459	)		(2,481	)

		2,002			(38	)


LOSS FROM CONSOLIDATED COMPANIES BEFORE INCOME TAXES AND MINORITY INTERESTS		(5,867	)		(6,989	)
INCOME TAX EXPENSE		64			114

LOSS BEFORE MINORITY INTERESTS		(5,931	)		(7,103	)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY COMPANIES		1,423			(637	)

NET LOSS FROM CONSOLIDATED COMPANIES		(7,354	)		(6,466	)
NET INCOME (LOSS) FROM UNCONSOLIDATED EQUITY AFFILIATES		7,558			(39	)

NET INCOME (LOSS)	$	204		$	(6,505	)


NET INCOME (LOSS) PER COMMON SHARE:
Basic	$	0.01		$	(0.17	)

Diluted	$	0.01		$	(0.17	)

See accompanying notes to consolidated financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Three Months Ended March 31,
	2008			2007
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	204		$	(6,505	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		45			281
Gain on financing transactions		(1,330	)		—
Net (income) loss from unconsolidated equity affiliates		(7,558	)		39
Non-cash compensation-related charges		998			1,462
Minority interest in consolidated subsidiary companies		1,423			(637	)
Changes in Operating Assets and Liabilities:
Accounts and notes receivable		(32	)		2
Advances to equity affiliate		12,633			1,923
Prepaid expenses and other		(52	)		194
Accounts payable		(2,605	)		(1,707	)
Accounts payable, related party		125			114
Accrued expenses		(3,714	)		(4,927	)
Accrued interest		459			(915	)
Income taxes payable		(275	)		26

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		321			(10,650	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment		(3,284	)		(271	)
Investment in equity affiliates		—			(4,591	)
Decrease (Increase) in restricted cash		(72	)		13,142
Investment costs		(363	)		(26	)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(3,719	)		8,254


CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock		335			—
Purchase of treasury stock		(8	)		—
Payments of notes payable		—			(6,977	)
Dividends paid to minority interest		(358	)		—

NET CASH USED IN FINANCING ACTIVITIES		(31	)		(6,977	)


NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,429	)		(9,373	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		120,841			148,079

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	117,412		$	138,706

Supplemental Schedule of Noncash Investing and Financing Activities:

During the three months ended March 31, 2008, some of our employees elected to pay withholding tax on restricted stock grants on a cashless basis which resulted in 5,176 shares being added to treasury stock at cost. During the three months ended March 31, 2007, we issued 0.2 million shares of restricted stock valued at $2.1 million.

See accompanying notes to consolidated financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2008 and 2007 (unaudited)

Note 1 — Organization and Summary of Significant Accounting Policies

Interim Reporting

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of March 31, 2008, and the results of operations and cash flows for the three months ended March 31, 2008 and 2007. The unaudited consolidated 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 (“GAAP”). Reference should be made to our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007, which include certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. 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. is an independent energy company engaged in the acquisition, exploration, development, production and disposition of oil and natural gas properties since 1989, when it was incorporated under Delaware law. We have acquired and developed significant interests in the Bolivarian Republic of Venezuela (“Venezuela”) originally through our subsidiary Harvest Vinccler, S.C.A. (“Harvest Vinccler”) and subsequently through our 40 percent equity affiliate, Petrodelta, S. A. (“Petrodelta”) and have offshore undeveloped acreage in the People’s Republic of China (“China”). In October 2007, Harvest Vinccler contributed the Uracoa, Tucupita and Bombal fields (“SMU Fields”) and Corporación Venezolana del Petroleo S.A. (“CVP”) contributed the Isleño, El Salto and Temblador fields (“New Fields”) (collectively “Petrodelta Fields”) to Petrodelta. In March 2008, we executed an Area of Mutual Intent (“AMI”) agreement with a private third party for the Gulf Coast Region of the United States. In addition, we have also entered into a leasehold acquisition agreement in another area of the United States. See Note 7 – United States Operations. Operations in the United States will be conducted through a wholly-owned subsidiary.

Principles of Consolidation

The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. The equity method of accounting is used for companies in which we have significant influence. All intercompany profits, transactions and balances have been eliminated.

Investment in Equity Affiliates

The equity method of accounting is used for companies and other investments in which we have significant influence. We own a 45 percent equity interest in Fusion Geophysical, LLC (“Fusion”) and a 40 percent equity interest in Petrodelta. Petrodelta was formed in October 2007, and the net income from unconsolidated equity affiliates from April 1, 2006 to December 31, 2007 was reflected in the three months ended December 31, 2007 consolidated statement of operations. The three months ended March 31, 2008 is the first period that we have reported net income from unconsolidated equity affiliate for Petrodelta on a current basis. These investments are increased or decreased by earnings/losses and decreased by dividends paid. No dividends were declared or paid by Fusion or Petrodelta in the three months ended March 31, 2008 or year ended December 31, 2007.

Cash and Cash Equivalents

Cash equivalents include money market funds and short term certificates of deposit with original maturity dates of less than three months. At March 31, 2008, Harvest Vinccler had 15.1 million Venezuela Bolivares Fuertes (“Bolivars”) which are shown in the March 31, 2008 financial statements as $7.0 million in cash and cash equivalents.

Fair Value Measurements

We adopted Financial Accounting Standard (“FAS”) No. 157 – Fair Value Measurements (“FAS 157”) effective January 1, 2008, except for those provisions permitted to be delayed by FAS 157-2. Accordingly, we have not applied the provisions of FAS 157 to nonfinancial assets and liabilities initially measured at fair value. In general, fair value measurements and disclosures are made in accordance with the provisions of FAS 157. FAS 157, while not requiring any new fair value measurements, established a single definition of fair value in GAAP and expanded disclosures about fair value measurements. The adoption of FAS 157 had no impact on our consolidated financial position, results of operations or cash flows.

Restricted Cash

Restricted cash represents cash and cash equivalents held in a U.S. bank used as collateral for Harvest Vinccler’s loan agreement, and is classified as current based on the terms of the agreement. See Note 2 – Short-Term Debt.

Property and Equipment

Our accounting method for oil and gas exploration and development activities is the successful efforts method. During the three months ended March 31, 2008, we incurred $1.3 million of exploration costs related to the purchase of seismic related to our United States operations and reclassified $3.8 million of lease investigatory costs associated with our United States operations from other assets to oil and gas properties. See Note 7 – United States Operations.

Minority Interests

We record a minority interest attributable to the minority shareholder of our Venezuela subsidiary. The minority interest in net income and losses is subtracted or added to arrive at consolidated net income. In March 2008, we redeemed the 20 percent minority interest in our Barbados affiliate.

Earnings Per Share

Basic earnings per common share (“EPS”) are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 35.0 million and 37.4 million for the three months ended March 31, 2008 and 2007, respectively. 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. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 36.6 million and 37.4 million for the three months ended March 31, 2008 and 2007, respectively.

An aggregate of 0.8 million and 1.7 million options were excluded from the earnings per share calculations because their exercise price exceeded the average stock price for the three months ended March 31, 2008 and 2007, respectively.

Stock options of 39,000 were exercised in the three months ended March 31, 2008 resulting in cash proceeds of $0.3 million. No stock options were exercised in the three months ended March 31, 2007.

New Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued FAS 161 – Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”) which changes the disclosure requirements for derivative instruments and hedging activities. FAS 161 is intended to enhance the current disclosure framework in FAS 133 – Accounting for Derivative Instruments and Hedging Activities. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. FAS 161 will not have a material effect on our consolidated financial position, results of operations or cash flows.

In February 2008, the FASB issued FASB Staff Position (“FSP”) 140-3 – Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (“FSP 140-3”). The objective of FSP 140-3 is to provide guidance on accounting for a transfer of a financial asset and a repurchase financing. FSP 140-3 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. FSP 140-3 will not have a material effect on our consolidated financial position, results of operations or cash flows.

In February 2008, the FASB issued FASB FSP 07-1-1 which delays indefinitely the effective date of American Institute of Certified Public Accountant’s (“AICPA”) Statement of Position (“SOP”) 07-1 – Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (“SOP 07-1-1”). SOP 07-1-1 will not have a material effect on our consolidated financial position, results of operations or cash flows.

In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 110 (“SAB 110”) which expresses the views of the staff regarding the use of a “simplified” method, as discussed in SAB No. 107, in developing an estimate of expected term of “plain vanilla” share options in accordance with FAS 123 (revised) – Share Based Payment. The staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. SAB 110 is effective January 1, 2008. SAB 110 did not have a material effect on our consolidated financial position, results of operations or cash flows.

Reclassifications

Certain items in 2007 have been reclassified to conform to the 2008 financial statement presentation.

Note 2 – Short-Term Debt

Short-term debt consists of the following:


	March 31,		December 31,
	2008		2007
	(in thousands)
Note payable with interest at 20.0%	$	9,302	$	9,302

On November 20, 2006, Harvest Vinccler entered into a three-year term loan with a Venezuelan bank for 120 billion Bolivars (approximately $55.8 million). The first principal payment was due 180 days after the funding date in the amount of 20 billion Bolivars (approximately $9.3 million), and 20 billion Bolivars (approximately $9.3 million) every 180 days thereafter. The interest rate for the first 180 days was fixed at 10.0 percent and may be adjusted from time to time thereafter within the limits set forth by the Central Bank of Venezuela or in accordance with the conditions in the financial market. The interest rate was adjusted to 20.0 percent on February 1, 2008. The loan is collateralized by a $6.8 million deposit plus interest in a U.S. bank. The loan was used to meet the SENIAT income tax assessments and related interest, refinance a portion of the another Bolivar loan and to fund operating requirements.

Note 3 — Commitments and Contingencies

Excel Enterprises L.L.C. vs. Benton Oil & Gas Company, now known as Harvest Natural Resources, Inc., Chemex, Inc., Benton-Vinccler, C.A., Gale Campbell and Sheila Campbell in the District Court for Harris County, Texas. This suit was brought in May 2003 by Excel alleging, among other things, breach of a consulting agreement between Excel and us, misappropriation of proprietary information and trade secrets, and fraud. Excel seeks actual and exemplary damages, injunctive relief and attorneys’ fees. In April 2007, the Court set the case for trial. The trial date has been reset for the first quarter of 2009. We dispute Excel’s claims and plan to vigorously defend against them. We are unable to estimate the amount or range of any possible loss.

Uracoa Municipality Tax Assessments. Harvest Vinccler has received nine assessments from a tax inspector for the Uracoa municipality in which part of the SMU Fields are located as follows:

•

Three claims were filed in July 2004 and allege a failure to withhold for technical service payments and a failure to pay taxes on the capital fee reimbursement and related interest paid by PDVSA under

			the OSA. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss one of the claims and has protested with the municipality the remaining claims.

	•		Two claims were filed in July 2006 alleging the failure to pay taxes at a new rate set by the Municipality. Harvest Vinccler has filed a protest with the Tax Court in Barcelona, Venezuela, on these claims.

	•		Two claims were filed in August 2006 alleging a failure to pay taxes on estimated revenues for the second quarter of 2006 and a withholding error with respect to certain vendor payments. Harvest Vinccler has filed a protest with the Tax Court in Barcelona, Venezuela, on one claim and filed a protest with the municipality on the other claim.

	•		Two claims were filed in March 2007 alleging a failure to pay taxes on estimated revenues for the third and fourth quarters of 2006. Harvest Vinccler has filed a protest with the municipality on these claims.

Harvest Vinccler disputes the Uracoa tax assessments and believes it has a substantial basis for its positions. Harvest Vinccler is unable to estimate the amount or range of any possible loss. 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 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 SMU Fields are located as follows:

	•		One claim was filed in April 2005 alleging the failure to pay taxes at a new rate set by the Municipality. Harvest Vinccler has filed a protest with the Mayor’s Office and a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claim. On April 10, 2008, the Tax Court suspended the case pending a response from the Mayor’s Office to the protest. If the Municipality’s response is to confirm the assessment, Harvest Vinccler will defer to the competent Tax Court to enjoin and dismiss the claim.

	•		Two claims were filed in June 2007. One claim relates to the period 2003 through 2006 and seeks to impose a tax on interest paid by PDVSA under the OSA. The second claim alleges a failure to pay taxes on estimated revenues for the third and fourth quarters of 2006. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claims.

	•		Two claims were filed in July 2007 seeking to impose penalties on tax assessments filed and settled in 2004. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claims.

Harvest Vinccler disputes the Libertador allegations set forth in the assessments and believes it has a substantial basis for its position. Harvest Vinccler is unable to estimate the amount or range of any possible loss. 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.

In June 2007, the SENIAT issued an assessment in the amount of $0.4 million for Harvest Vinccler’s failure to withhold value added tax (“VAT”) from vendors during 2005. The SENIAT has recognized a payment made by Harvest Vinccler in 2006 for the underwithheld VAT and has partially confirmed that some of the affected vendors have remitted the underwithheld VAT. Harvest Vinccler has received credit, less penalties and interest, from the SENIAT for the VAT remitted by the vendors. Harvest Vinccler has filed claims against the SENIAT for the portion of VAT not recognized by the SENIAT and believes it has a substantial basis for its position.

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

Note 4 — Taxes Other Than on Income

The components of taxes other than on income were:


	Three Months Ended March 31,
	2008		2007
	(in thousands)
Franchise Taxes	$	41	$	53
Payroll and Other Taxes		222		184

	$	263	$	237

Note 5 — Operating Segments

We regularly allocate resources to and assess the performance of our operations by segments that are organized by unique geographic and operating characteristics. The segments are organized in order to manage regional business, currency and tax related risks and opportunities. As a result of the situation in Venezuela, our GAAP consolidated financial statements for the three months ended March 31, 2007 do not reflect the net results of our producing operations in Venezuela. See Note 6 – Investment in Equity Affiliates, Petrodelta. Costs included under the heading “United States and Other” include operations, exploration, corporate management, cash management, business development and financing activities performed in the United States and other countries which do not meet the requirements for separate disclosure. All intersegment revenues, other income and equity earnings, expenses and receivables are eliminated in order to reconcile to consolidated totals. Corporate general and administrative and interest expenses are included in the United States and Other segment and are not allocated to other operating segments:


	Three Months Ended March 31,
	2008			2007
	(in thousands)
Operating Segment Income (Loss)
Venezuela	$	6,860		$	(2,530	)
United States and other		(6,656	)		(3,975	)

Net income (loss)	$	204		$	(6,505	)


	March 31,			December 31,
	2008			2007
	(in thousands)
Operating Segment Assets
Venezuela	$	284,513		$	303,042
United States and other		142,210			126,766

		426,723			429,808
Intersegment eliminations		(18,000	)		(16,339	)

	$	408,723		$	413,469

Note 6 – Investment in Equity Affiliates

Petrodelta

HNR Finance B.V. (“HNR Finance”) owns a 40 percent interest in Petrodelta and recorded its share of the earnings of Petrodelta from April 1, 2006 to December 31, 2007 in the three months ended December 31, 2007. The three months ended March 31, 2008 is the first period that we have reported earnings from operations of Petrodelta on a current basis. Petrodelta’s financial information is prepared in accordance with International Financial Reporting Standards (“IFRS”) which we have adjusted to conform to GAAP. No dividends were declared or paid during the three months ended March 31, 2008 and 2007, respectively. All amounts represent 100 percent of Petrodelta. Summary financial information has been presented below at March 31, 2008 and December 31, 2007 and for the three months ended March 31, 2008 (in thousands, except per unit information):


	Three Months
	Ended
	March 31, 2008
Barrels of oil sold		1,209
Thousand cubic feet of gas sold		3,172
Total barrels of oil equivalent		1,738

Average price per barrel	$	79.02
Average price per thousand cubic feet	$	1.54

Revenues:
Oil sales	$	95,535
Gas sales		4,885
Royalty		(33,959	)

		66,461

Expenses:
Operating expenses		14,343
Depletion, depreciation and amortization		4,298
General and administrative		1,678
Taxes other than on income		3,486

		23,805


Income from operations		42,656

Investment Earnings and Other		53


Income before Income Tax		42,709

Current income tax expense		21,496
Deferred income tax benefit		(6,683	)

Net Income		27,896
Adjustment to reconcile to reported Net Income from
Unconsolidated Equity Affiliate:
Deferred income tax benefit		6,683

Net Income Equity Affiliate		21,213
Equity interest in unconsolidated equity affiliate		40	%

Income before amortization of excess basis in equity affiliate		8,485
Amortization of excess basis in equity affiliate		(275	)
Conform depletion expense to GAAP		(666	)

Net income from unconsolidated equity affiliate	$	7,544


	March 31,		December 31,
	2008		2007
Current assets	$	563,251	$	478,734
Property and equipment		173,924		176,783
Other assets		51,496		38,738
Current liabilities		353,870		287,491
Other liabilities		6,105		5,964
Net equity		428,696		400,800

Fusion Geophysical, LLC (“Fusion”)

Fusion is a technical firm specializing in the areas of geophysics, geosciences and reservoir engineering. The purchase of Fusion extends our technical ability and global reach to support a more organic growth and exploration strategy. Our minority equity investment in Fusion is accounted for using the equity method of accounting. Operating revenue and total assets represent 100 percent of Fusion. No dividends were declared or paid during the three months ended March 31, 2008 and 2007, respectively. Summarized financial information for Fusion follows (in thousands, except per unit information):


	Three Months			Three Months
	Ended			Ended
	March 31, 2008			March 31, 2007
Operating Revenues	$	2,692		$	1,573


Net Income (Loss)	$	395		$	(87	)
Equity interest in unconsolidated equity affiliate		45	%		45	%

Net income (loss) from unconsolidated equity affiliate		178			(39	)
Amortization of fair value of intangibles		(164	)		—

Net income (loss) from unconsolidated equity affiliate	$	14		$	(39	)


	March 31,		December 31,
	2008		2007
Current assets	$	5,236	$	3,995
Total assets		16,152		14,846
Current liabilities		2,972		2,100
Total liabilities		2,972		2,100

Note 7 – United States Operations

We have initiated a domestic exploration program in two different basins. We will be the operator of both exploration programs and have complemented our existing personnel with the addition of highly experienced engineering and technical personnel and with the acquisition of Fusion in 2007. Each of the agreements is located in highly competitive lease acquisition areas. In order to maximize our lease position, we elected to complete the lease acquisition phase prior to disclosure of the prospect location or the announcement of our drilling objectives.

Gulf Coast

We executed an AMI agreement with a private third party for the upper Gulf Coast Region of the United States. The AMI covers the coastal areas from Nueces County, Texas to Cameron Parish, Louisiana including state waters. We will be the operator and have an initial working interest of 55 percent in the AMI. We are committed to carry our partner through the acquisition of additional leases, seismic and the drilling of wells. The carry obligation is for the first $20.0 million of expenditures under the AMI. Through March 31, 2008, we have incurred $1.5 million of the carry obligation for the reimbursement of leasehold costs, seismic, as well as reprocessing of the seismic and additional leases. The parties have identified two prospects for evaluation and are in the process of finalizing the leasing of each prospect area. The other party is obligated to evaluate and present additional opportunities at their sole cost. As each prospect is accepted it will be covered by the AMI. All subsequent costs will be shared pursuant to the terms of the AMI.

Other United States

We have entered into an agreement to complete the leasing of acreage and drilling a prospect well in another United States basin. The leasing program is ongoing, and, for competitive purposes, the prospect area will not be disclosed prior to the completion of leasing. We will be the operator and have a working interest of 50 percent. We have incurred $6.9 million in the acquisition of leasehold and rights.

Note 8 – Indonesia

In February 2008, Indonesia’s oil and gas regulatory authority, BP Migas, approved the assignment to us of a 47 percent interest in the Budong-Budong production sharing contract (“Budong PSC”). Final government approval from the Ministry of Energy and Mineral Resources, Migas, was received in April 2008. The Budong PSC is located onshore West Sulawesi, Indonesia. We acquired our 47 percent interest in the Budong PSC by committing to fund the first phase of the exploration program including the acquisition of 2-D seismic and drilling of the first two exploration wells. This commitment is capped at $17.2 million. Prior to drilling the first exploration well, subject to the estimated cost of that well, our partner will have a one-time option to increase the level of the carried interest to $20.0 million, and as compensation for the increase, we will increase our participation to a maximum of 54.65 percent. The Budong PSC includes a ten-year exploration period and a 20-year development phase. For the initial three-year exploration phase, which began January 2007, we are in the process of acquiring, processing and interpreting approximately 500 kilometers of 2-D seismic and plan to drill two exploration wells. Our partner will be the operator through the exploration phase as required by the terms of the Budong PSC. We will have control of major decisions and financing for the project with an option to operate in the development and production phase if approved by BP Migas.

Note 9 – Gabon

In April 2008, we completed the purchase of a 50 percent interest in the production sharing contract related to the Dussafu Marin field offshore Gabon in West Africa (“Dussafu PSC’) for $4.5 million. We will be the operator of the Dussafu PSC. Located offshore Gabon, adjacent to the border with the Republic of Congo, the Dussafu PSC contains 680,000 acres with water depths to 1,000 feet. In the Dussafu PSC, we are committed to perform geological, geophysical and engineering studies and to shoot 500 kilometers of 2-D seismic.

Note 10 – Gain on Financing Transaction

In January 2008, Harvest Vinccler entered into a security exchange transaction to effectively convert U.S. Dollars to Bolívars as Harvest Vinccler has no source for Bolivars. In this exchange transaction, one of Harvest’s affiliates purchased U.S. government securities and exchanged them for U.S. Dollar indexed debt issued by the Venezuelan government. The U.S. Dollar indexed Venezuelan government securities can only be traded in Venezuela for Bolivars (“Southern Bonds” or “TICC’s”). The exchange was transacted through an intermediary at the securities transaction rate of Bolivars to U.S. Dollars. Harvest Vinccler at the same time purchased a like amount of U.S. government securities and exchanged those securities with the intermediary for the TICCs. Harvest Vinccler converted the TICCs to Bolivars at a local bank at the official exchange rate of 2.15 Bolivars to one U.S. Dollar and used the Bolivars for operating expenses. This security exchange transactions resulted in a $1.3 million gain on financing transactions for the three months ended March 31, 2008. There were no such financing transactions in the three months ended March 31, 2007.

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 the Private Securities Litigation Reform Act of 1995) contained in this report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. When used in this report, the words “budget”, “guidance”, forecast”, “anticipate”, “expect”, “believes”, “goals”, “projects”, “plans”, “anticipates”, “estimates”, “should”, “could”, “assume” and similar expressions are intended to identify forward-looking statements. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, we caution you that important factors could cause actual results to differ materially from those in the forward-looking statements. Such factors include our concentration of operations in Venezuela, the political and economic risks associated with international operations (particularly those in Venezuela), the anticipated future development costs for undeveloped reserves, drilling risks, the risk that actual results may vary considerably from reserve estimates, the dependence upon the abilities and continued participation of certain of our key employees, the risks normally incident to the exploration, operation and development of oil and natural gas properties, risks incumbent to being a minority shareholder in a corporation, the permitting and the drilling of oil and natural gas wells, the availability of materials and supplies necessary to projects and operations, the price for oil and natural gas and related financial derivatives, changes in interest rates, the Company’s ability to acquire oil and natural gas properties that meet its objectives, availability and cost of drilling rigs, 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, availability of sufficient financing, 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, 2007, which includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report.

Executive Summary

We are a global acquire and exploit producer, focused on exploration opportunities within proven active hydrocarbon systems. This technically-driven strategy provides us with low entry costs into areas with large hydrocarbon resource potential. To support our strategy, we supplemented our business development and technical expertise by expanding our London office, opening a Singapore office and purchasing a 45 percent equity interest in Fusion Geophysical, L.L.C. (“Fusion”). Harvest is building a portfolio of exploration prospects to complement its low technical risk Venezuelan development assets.

Venezuela

Certain operating statistics for the three months ended March 31, 2008 and 2007 for the Petrodelta fields operated by Petrodelta are set forth below. This information is provided at 100 percent. This information may not be representative of future results.


	Three Months Ended		Three Months Ended
	March 31, 2008		March 31, 2007
Oil production (million barrels)		1.2		1.5
Natural gas production (billion cubic feet)		3.2		3.3
Barrels of oil equivalent		1.7		2.1
Cash operating costs ($millions)		14.3		13.8
Capital expenditures ($millions)		13.2		0.3

Crude oil delivered from the Petrodelta fields to PDVSA is priced with reference to Merey 16 published prices, weighted for different markets and adjusted for variations in gravity and sulphur content, commercialization costs and distortions that may occur given the reference price and prevailing market conditions. Market prices for crude oil of the type produced in the fields operated by Petrodelta averaged approximately $79.02 and $44.43 a barrel for the three months ended March 31, 2008 and 2007, respectively. The activity from April 1, 2006 to December 31, 2007 was recorded in the three months ended December 31, 2007. The price for natural gas is $1.54 per thousand cubic feet.

On April 15, 2008, the Venezuelan government published in the Official Gazette the Law of Special Contribution to Extraordinary Prices at the Hydrocarbons International Market (“Windfall Profits Tax”). The Windfall Profits Tax is effective April 15, 2008, the date published. The Windfall Profits Tax establishes a special 50 percent tax to the Venezuelan government when the average price of Brent crude (“Brent”) exceeds $70 per barrel. In a similar manner, the percentage is increased from 50 to 60 percent when the average price of Brent exceeds $100 per barrel. It is our understanding that the Windfall Profits Tax will be a reduction in the price per barrel received by Petrodelta from PDVSA and, consequently, will be deductible for Venezuelan income tax purposes. There have been no regulations issued to indicate how the mechanics of the Windfall Profits Tax will work. As a result, Petrodelta is unable at this time to estimate the overall impact of the Windfall Profits Tax on its financial position, results of operations or cash flows.

Indonesia

Gabon

United States Operations

Gulf Coast

We executed an AMI agreement with a private third party for the upper Gulf Coast Region of the United States. The AMI covers the coastal areas from Nueces County, Texas to Cameron Parish, Louisiana including state waters. We will be the operator and have an initial working interest of 55 percent in the AMI. We are committed to carry our partner through the acquisition of additional leases, seismic and the drilling of wells. The carry obligation is for the first $20.0 million of expenditures under the AMI. The parties have identified two prospects for evaluation and are in the process of finalizing the leasing of each prospect area. The other party is obligated to evaluate and present additional opportunities at their sole cost. As each prospect is accepted it will be covered by the AMI. All subsequent costs will be shared pursuant to the terms of the AMI. Our commitment for 2008 is to complete the lease acquisition, seismic acquisition, reprocess well site seismic and drill the initial exploratory well. Our 2008 commitment is approximately $8.0 million.

Other United States

We have entered into an agreement to complete the leasing of acreage and drilling a prospect well in another United States basin. The leasing program is ongoing, and, for competitive purposes, the prospect area will not be disclosed prior to the completion of leasing. We will be the operator and have a working interest of 50 percent. Our commitment for 2008 is to complete the lease acquisition program and initiate well preparation work. Our 2008 commitment is approximately $8.0 million.

See the notes accompanying the financial statements in Item 1 Financial Statements of this Quarterly Report on Form 10-Q, and Item 1 Business, Item 1A Risk Factors and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2007 for a complete description of the situation in Venezuela and other matters.

Management Changes

Effective April 14, 2008, Patrick R. Oenbring was elected Vice President, Western Operations. Mr. Oenbring’s responsibilities will be the management of our U.S. operations.

Capital Resources and Liquidity

Debt Reduction. At March 31, 2008, Harvest Vinccler has debt of 20 million Bolivars (approximately $9.3 million) which is secured by $6.8 million in restricted cash deposited in a U.S. bank. We have no other debt obligations.

Working Capital. Our capital resources and liquidity are affected by the ability of Petrodelta to pay dividends. See Item 1A Risk Factors and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2007 for a complete description of the situation in Venezuela and other matters.

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


	Three Months Ended March 31,
	2008			2007
	(in thousands)
Net cash provided by (used in) operating activities	$	321		$	(10,650	)
Net cash provided by (used in) investing activities		(3,719	)		8,254
Net cash used in financing activities		(31	)		(6,977	)

Net decrease in cash	$	(3,429	)	$	(9,373	)

At March 31, 2008, we had current assets of $138.5 million and current liabilities of $35.6 million, resulting in working capital of $102.9 million and a current ratio of 3.9:1. This compares with a working capital of $111.5 million and a current ratio of 3.6:1 at December 31, 2007. The decrease in working capital of $8.6 million was primarily due to the payment of advances by PDVSA offset by payments of accounts payable trade and accrued expenses.

Cash Flow from Operating Activities. During the three months ended March 31, 2008, net cash provided by operating activities was approximately $0.3 million. During the three months ended March 31, 2007, net cash used in operating activities was approximately $10.7 million. The $11.0 million increase was primarily due to the payment of advances by PDVSA offset by payments of accounts payable trade and accrued expenses.

Cash Flow from Investing Activities. During the three months ended March 31, 2008, we had capital expenditures of approximately $3.3 million related to lease acquisition for our domestic exploration program. During the three months ended March 31, 2007, we had limited production-related expenditures due to the pending formation of Petrodelta. In January 2007, we purchased a 45 percent interest in Fusion for $4.6 million. Restricted

cash of $13.1 million was released and returned to us during the three months ended March 31, 2007. We incurred $0.4 million of investigatory costs related to various international and domestic exploration studies.

With the conversion to Petrodelta, Petrodelta’s capital commitments will be determined by their business plan. Petrodelta’s capital commitments will be funded by internally generated cash flow. Our budgeted capital expenditures for Gabon, Indonesia and United States operations will be funded through our existing cash balances and anticipated dividends from Petrodelta’s 2006 and 2007 operations.

Cash Flow from Financing Activities. In March 2008, we redeemed the 20 percent minority interest in our Barbados affiliate. During the three months ended March 31, 2007, Harvest Vinccler repaid 15 billion Bolivars (approximately $7.0 million) of its Bolivar denominated debt.

Results of Operations

You should read the following discussion of the results of operations for the three months ended March 31, 2008 and 2007 and the financial condition as of March 31, 2008 and December 31, 2007 in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Three Months Ended March 31, 2008 Compared with Three Months Ended March 31, 2007

We reported net income of $0.2 million, or $0.01 diluted earnings per share, for the three months ended March 31, 2008 compared with a net loss of $6.5 million, or $0.17 diluted earnings per share, for the three months ended March 31, 2007. Net income for the three months ended March 31, 2008 includes our 40 percent share of Petrodelta’s net earnings for the same period. Petrodelta was formed in October 2007, and we recorded our share of the earnings of Petrodelta from April 1, 2006 to December 31, 2007 in the three months ended December 31, 2007 consolidated statement of operations. The three months ended March 31, 2008 is the first period that we have reported the earnings of Petrodelta on a current basis.

Total expenses and other non-operating (income) expense (in millions):


	Three Months Ended
	March 31,						Increase
	2008			2007			(Decrease)
Exploration expense	$	1.3		$	—		$	1.3
General and administrative		6.2			6.4			(0.2	)
Taxes other than on income		0.3			0.2			0.1
Gain on financing transactions		(1.3	)		—			(1.3	)
Investment earnings and other		(1.1	)		(2.4	)		1.3
Interest expense		0.5			2.5			(2.0	)

General and administrative expenses and taxes other than on income for the three months ended March 31, 2008 were consistent with that of the three months ended March 31, 2007.

In December 2007, we changed our accounting method for oil and gas exploration and development activities to the successful efforts method from the full cost method. During the three months ended March 31, 2008, we incurred $1.3 million of exploration costs related to the purchase of seismic related to our United States operations. There were no exploration costs incurred in the three months ended March 31, 2007.

During the three months ended March 31, 2008, we entered into an exchange transaction exchanging U.S. government securities for U.S. Dollar indexed debt issued by the Venezuelan government. This security exchange transactions resulted in a $1.3 million gain on financing transactions for the three months ended March 31, 2008. There was no gain on financing transactions for the three months ended March 31, 2007.

Investment earnings and other decreased due to lower average cash balances. Interest expense decreased due to Harvest Vinccler’s reduced debt balances in the three months ended March 31, 2008 compared with March 31, 2007.

For the three months ended March 31, 2008, income tax expense, which is comprised of income tax on our foreign activities and withholding tax on interest income from Harvest Vinccler, was consistent with the three months ended March 31, 2007.

Effects of Changing Prices, Foreign Exchange Rates and Inflation

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

Venezuela imposed currency exchange restrictions in February 2003, and adjusted the official exchange rate in February 2004 and again in March 2005. We do not expect the currency conversion restrictions or the adjustment in the exchange rate to have a material impact on us at this time. Dividends from Petrodelta will be denominated in U.S. Dollars when paid. Within the United States, inflation has had a minimal effect on us, but it is potentially an important factor with respect to Petrodelta’s results of operations.

On January 1, 2008, the redenomination of Venezuela’s currency to the equivalent of 1,000 pre-2008 Bolivars became effective. This means that the Bolivar dropped three zeros effective January 1, 2008. From January 1, 2008, all amounts of money are denominated in the new and smaller scale of Bolivars under the temporary name of Bolívares Fuertes, which after a period of time will bear again the name of Bolivars.

During the three months ended March 31, 2008, our net foreign exchange gains attributable to our international operations were minimal.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from adverse changes of the situation in Venezuela, our recently initiated exploration program and adverse changes in oil prices, interest rates, foreign exchange and political risk, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2007. The information about market risk for the three months ended March 31, 2008 does not differ materially from that discussed in the Annual Report on Form 10-K for the year ended December 31, 2007.

Item 4. Controls and Procedures

The Securities and Exchange Commission (“SEC”) adopted rules requiring reporting companies to maintain disclosure controls and procedures to provide reasonable assurance that a registrant is able to record, process, summarize and report the information required in the registrant’s quarterly and annual reports under the Securities Exchange Act of 1934 (the “Exchange Act”). While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area. There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures. We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of March 31, 2008, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is 1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and 2) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Libertador Municipality Tax Assessments. Harvest Vinccler has received five assessments from a tax inspector for the Libertador municipality in which part of the SMU Fields are located as follows:

	•		One claim was filed in April 2005 alleging the failure to pay taxes at a new rate set by the Municipality. Harvest Vinccler has filed a protest with the Mayor’s Office and a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claim. On April 10, 2008, the Tax Court suspended the case pending a response from the Mayor’s Office to the protest. If the Municipality’s response is to confirm the assessment, Harvest Vinccler will defer to the competent Tax Court to enjoin and dismiss the claim.

	•		Two claims were filed in June 2007. One claim relates to the period 2003 through 2006 and seeks to impose a tax on interest paid by PDVSA under the OSA. The second claim alleges a failure to pay taxes on estimated revenues for the third and fourth quarters of 2006. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claims.

	•		Two claims were filed in July 2007 seeking to impose penalties on tax assessments filed and settled in 2004. Harvest Vinccler has filed a motion with the Tax Court in Barcelona, Venezuela, to enjoin and dismiss the claims.

See our Annual Report on Form 10-K for the year ended December 31, 2007 for a description of other certain legal proceedings. There have been no material developments in such legal proceedings since the filing of such Annual Report.

Item 1A. Risk Factors

See our Annual Report on Form 10-K for the year ended December 31, 2007 under Item 1A Risk Factors for a description of risk factors. There has been no material changes during the quarter ended March 31, 2008 to those risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits

(a)

Exhibits

	3.1		Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762.)

	3.2		Restated Bylaws as of May 17, 2007. (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on April 23, 2007, File No. 1-10762.)

	4.1		Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to our Form 10-K filed on March 17, 2008, File No. 1-10762

	4.2		Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.)

	4.3		Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 99.3 to our Form 8-A filed on October 23, 2007, File No. 1-10762.)

	10.1		Employment Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	10.2		Stock Option Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	10.3		Employee Restricted Stock Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	31.1		Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	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 executed by James A. Edmiston, President and 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 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.

SIGNATURES

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.


	HARVEST NATURAL RESOURCES, INC.
Dated: May 1, 2008	By:	/s/ James A. Edmiston
		James A. Edmiston
		President and Chief Executive Officer



Dated: May 1, 2008	By:	/s/ Steven W. Tholen
		Steven W. Tholen
		Senior Vice President - Finance, Chief Financial Officer and Treasurer

Exhibit Index


Exhibit
Number		Description

	3.1	Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1(i) to our Form 10-Q filed on August 13, 2002, File No. 1-10762).

	3.2	Restated Bylaws as of May 17, 2007. (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on April 23, 2007, File No. 1-10762.)

	4.1	Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to our Form 10-K filed on March 17, 2008. File No. 1-10762.)

	4.2	Certificate of Designation, Rights and Preferences of the Series B. Preferred Stock of Benton Oil and Gas Company, filed May 12, 1995. (Incorporated by reference to Exhibit 4.1 to our Form 10-Q filed on May 13, 2002, File No. 1-10762.)

	4.3	Third Amended and Restated Rights Agreement, dated as of August 23, 2007, between Harvest Natural Resources, Inc. and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 99.3 to our Form 8-A filed on October 23, 2007, File No. 1-10762.)

	10.1	Employment Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	10.2	Stock Option Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	10.3	Employee Restricted Stock Agreement dated April 14, 2008 between Harvest Natural Resources, Inc. and Patrick R. Oenbring.

	31.1	Certification of the principal executive officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of the principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	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 executed by James A. Edmiston, President and 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 executed by Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer.

EX-10.1 2 h56162exv10w1.htm EMPLOYMENT AGREEMENT exv10w1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Employment Agreement”), effective April 14, 2008 is between Harvest Natural Resources, Inc. (the “Company”) and Patrick R. Oenbring, a resident of Texas, (“Employee”), the terms and conditions of which are as follows:

WHEREAS, the Company desires to secure the experience, abilities and service of Employee by employing the Employee in the position of Vice President, Western Operations upon the terms and conditions specified herein;

WHEREAS, the Company and Employee acknowledge that if Employee’s employment with the Company terminates for any reason, Employee may inevitably disclose trade secrets of, and other proprietary and confidential information about, the Company’s business, operations and prospects; and

WHEREAS, Employee wishes to enter into this Employment Agreement to receive the benefit of the provisions contained in it.

NOW THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are acknowledged, the Company and Employee agree as follows:

1. TERM OF EMPLOYMENT.

Subject to the terms and conditions set forth in this Employment Agreement, the Company agrees to employ Employee and Employee agrees to be employed by the Company for the term which started on April 14, 2008, and ends on May 31, 2009. On May 31, 2009, and on each anniversary thereafter (an “Extension Date”) the term of this Employment Agreement shall automatically be extended for a one-year period unless and until either party has given written notice to the other at least one year before any Extension Date that it or he wishes to terminate this Employment Agreement as of such Extension Date.

2. POSITION AND DUTIES.

(a) Position. Subject to annual election by the Company’s Board of Directors, Employee’s position shall be Vice President Western Operations, Harvest Natural Resources, Inc.

(b) Duties and Responsibilities. Employee’s duties and responsibilities initially shall be those normally associated with Employee’s position, plus any additional duties and responsibilities the Company initially may assign orally or in writing to Employee. Employee shall undertake to perform all Employee’s duties and responsibilities for the Company and its affiliates in good faith and on a full-time basis and shall at all times act in the course of Employee’s employment under this Employment Agreement in the best interest of the Company and the Company’s affiliates.

- 1 -

(c) The Company’s Right to Change Position or Duties. Subject to the terms of this Employment Agreement, the Company shall have the right, to the extent the Company from time to time reasonably deems necessary or appropriate, to change Employee’s position, or to expand or reduce Employee’s duties and responsibilities.

3. COMPENSATION AND BENEFITS.

(a) Base Salary. During the term of this Employment Agreement, Employee’s yearly base salary shall be not less than $300,000.00 US, which yearly base salary shall be payable from the Company’s Houston offices to Employee in accordance with the Company’s standard payroll practices and policies, and shall be subject to such withholdings as required by U.S. Federal law and the State of Texas or as otherwise permissible under such practices or policies. The Company shall annually review Employee’s base salary.

(b) Annual Bonus. Employee shall be eligible for such annual bonus as may be determined by the Human Resources Committee of the Company’s Board of Directors and the Company’s Board of Directors, which bonus shall be based upon Employee’s performance under the guidelines adopted by the Company, the Company’s performance and any special circumstances the Human Resources Committee and the Company’s Board of Directors deem appropriate. Any such bonus is to be determined at the discretion of the Company’s Human Resources Committee and the Company’s Board of Directors. Employee acknowledges that the Company is not obligated to award him any bonus in any year.

(c) Employee Benefit Plans. Employee shall be eligible to participate in the employee benefit plans, programs and policies maintained by the Company for similarly situated employees in accordance with the terms and conditions to participate in such plans, programs, and policies as in effect from time to time.

(d) Stock Options and Restricted Stock. Employee has been granted certain stock options and restricted stock and is eligible for future stock awards. Except as provided in Section 4(a), this Employment Agreement neither increases nor decreases the number of stock options and shares of restricted stock previously granted, nor does it change the terms under which they were granted.

(e) Vacation. Employee shall be entitled to four (4) weeks annual vacation.

(f) Expenses. In accordance with and subject to the terms of the Company’s expense reimbursement policy, the Company shall pay or reimburse Employee for reasonable expenses actually incurred or paid by Employee in the performance of his services hereunder upon the presentation of expense statements or vouchers or such other supporting information as the Company may reasonably require of Employee.

(g) Office Facilities and Services. Employee shall be accorded such benefits and support services, including without limitation, office facilities, administrative assistant, communications as would normally be accorded by a corporation of the size and at the stage of development in the industry in which the Company is, to its Vice President of Western Operations.

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(h) Indemnification. Employee shall be entitled to the benefit of the indemnification provisions contained in the bylaws of the Company, as the same may be amended.

4. TERMINATION OF EMPLOYMENT.

(a) Termination By The Company Other Than For Cause Or By Employee For Good Reason.

(1) The Company shall have the right to terminate Employee’s employment other than for Cause at any time and Employee shall have the right to quit or resign for Good Reason at any time.

(2) If (a) the Company or its successors terminate Employee’s employment with the Company other than (i) for Cause or (ii) pursuant to a notice of termination delivered in accordance with Section 1 of this Employment Agreement or (b) Employee resigns for Good Reason, then (v) the Company shall pay to Employee an amount equal to twenty-four months of Employee’s base salary as in effect immediately before Employee’s termination of employment or resignation, (w) the Company shall pay to Employee an amount equal to twenty-four months of the maximum contribution the Company may make for Employee under the Company’s 401(k) profit sharing plan as in effect immediately before Employee’s termination of employment or resignation, (x) any outstanding stock option(s) granted by the Company to Employee shall become fully vested and shall remain exercisable for twelve (12) months following Employee’s termination pursuant to this Section 4(a)(2), or the expiration of the general term(s) of the option(s) specified in the relevant option agreement(s), whichever is the shorter period, (y) the restriction period on restricted shares of stock granted by the Company to Employee will lapse upon the date of Employee’s termination of employment and a certificate(s) representing such shares will be delivered to Employee within thirty (30) days after the termination or resignation, and (z) Employee shall be reimbursed for up to $20,000 of outplacement services with an outplacement service approved by the Company provided that the expenses for the outplacement services are reasonable and are incurred no later than the last day of the second taxable year of Employee in which Employee’s Separation From Service (as defined below) occurs. The Company shall make such outplacement services expense reimbursement payments no later than the close of the third taxable year of Employee following the taxable year of Employee in which Employee’s Separation From Service occurs. The Company shall make the lump sum cash payments described in clauses (v) and (w) on the date that is six months following the date of the Employee’s Separation From Service. For purposes of this Agreement “Separation From Service” has the meaning ascribed to that term in section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the rules and regulations issued thereunder by the Department of Treasury and the Internal Revenue Service.

(3) If the termination or resignation described in Section 4(a)(2) occurs within 730 days after or 240 days before a Change of Control, or if the Company or its successors terminate Employee’s employment with the Company pursuant to a notice of termination delivered in accordance with Section 1 of this Employment Agreement within 730 days after or 240 days before a Change of Control, then (s) the Company shall pay to Employee an amount equal to twenty-four months of Employee’s base salary as in effect immediately before

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Employee’s termination of employment or resignation, (t) the Company shall pay to Employee the Bonus Amount (as defined in Section (4)(d)), (u) the Company shall pay to Employee an amount equal to twenty-four months of the maximum contribution the Company may make for Employee under the Company’s 401(k) profit sharing plan as in effect immediately before Employee’s termination of employment or resignation, (v) if the date of the Change of Control coincides with or follows the date of Employee’s termination of employment, any outstanding stock option(s) granted by the Company to Employee shall become fully vested and shall remain exercisable for twelve (12) months following Employee’s termination or resignation, or the expiration of the general term(s) of the option(s) specified in the relevant option agreement(s), whichever is the shorter period, (w) if the date of the Change of Control coincides with or follows the date of Employee’s termination of employment, the restriction period on restricted shares of stock granted by the Company to Employee will lapse upon the date of the Employee’s termination of employment and a certificate(s) representing such shares will be delivered to Employee within thirty (30) days after the end of the termination or resignation, (x) Employee shall be reimbursed for up to $20,000 of outplacement services with an outplacement service approved by the Company, provided that the expenses for the outplacement services are reasonable and are incurred no later than the last day of the second taxable year of Employee in which Employee’s Separation From Service occurs, (y) for a period of twenty-four months following the later to occur of the termination, resignation or Change of Control, the Company shall continue to provide Employee and Employee’s dependents with the same level of life, disability, accident, dental and health insurance benefit coverages Employee and Employee’s dependents were receiving immediately before Employee’s termination or resignation, and (z) the Company will pay Employee an additional amount such that the net amount retained by Employee pursuant to the benefits described in this Section 4(a)(3) after any excise tax imposed under section 4999 of the Code shall be equal to the amount that Employee would have received pursuant to those benefits before payment of any such excise tax. The Company shall make the lump sum cash payments described in clauses (s), (t) and (u) on the later of (1) the date that is six months following the date of Employee’s Separation From Service or (2) the date of the Change of Control. The Company shall make outplacement services reimbursement payments specified in this Section 4(a)(3) no later than the close of the third taxable year of Employee following the taxable year of Employee in which Employee’s Separation From Service occurs. If the dental, accident or health insurance benefits specified in this Section 4(a)(3) are not provided through an arrangement that is fully insured by a third party the following provisions shall apply to the reimbursement of such benefits. The benefits eligible for reimbursement shall be the benefits that were available to the Employee and his dependents under the provisions of the Company’s group medical, accident and dental benefits plans as in effect immediately prior to the earlier of Employee’s Separation From Service or the date on which the Change of Control occurs. Employee shall be eligible for reimbursement for covered dental, accident or health insurance expenses incurred during the period commencing on the later to occur of the termination, resignation or Change of Control and ending on the date that is 24 months later. The amount of dental, accident and health insurance expenses eligible for reimbursement during Employee’s taxable year will not affect the expenses eligible for reimbursement in any other taxable year (with the exception of applicable lifetime maximums specified in the plans). The Company shall reimburse an eligible dental, accident and health insurance expense that is an insured benefit on or before the last day of Employee’s taxable year following the taxable year in which the expense was incurred. Employee’s right to reimbursement is not subject to liquidation or

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exchange for another benefit. Any tax gross-up payment made pursuant to clause (z) of this Section 4(a)(3) shall be made by the Company by the end of Employee’s taxable year next following Employee’s taxable year in which Employee remits the related taxes to the Internal Revenue Service.

(4)

Employee shall not be entitled to payments and benefits under Section 4(a)(2) if he is entitled to payments and benefits under Section 4(a)(3).

(b) Termination By The Company For Cause Or By Employee Other Than For Good Reason.

(1) The Company shall have the right to terminate Employee’s employment at any time for Cause, and Employee shall have the right to quit or resign at any time other than for Good Reason.

(2) If the Company terminates Employee’s employment for Cause or pursuant to a notice of termination delivered in accordance with Section 1 of this Employment Agreement that is not delivered within 730 days after or 240 days before a Change of Control, or Employee quits or resigns other than for Good Reason, the Company’s only obligation to Employee under this Employment Agreement shall be to pay Employee’s base salary (including accrued vacation) actually earned up to the date Employee’s employment terminates.

(1) The Company shall have the right to terminate Employee’s employment on or after the date Employee has a Disability, and Employee’s employment shall terminate upon the Employee’s death.

(2) If Employee’s employment terminates under this Section 4(c), the Company shall pay Employee or, if Employee dies, Employee’s estate, the amount provided for under Section 4(a)(2)(v) and, in addition, Employee or, if Employee dies, Employee’s estate, shall be entitled to the provisions of Sections 4(a)(2)(w), (x) and (y) with respect to the Company’s 401(k) profit sharing plan, Employee’s stock options and Employee’s restricted stock. In the event of the death of Employee the cash payments described in Sections 4(a)(2)(v) and 4(a)(2)(w) shall be made within 30 days after the date of Employee’s death. In the event of the Disability of Employee the cash payments described in Sections 4(a)(2)(v) and 4(a)(2)(w) shall be made on the date that is six months following the date of Employee’s Separation From Service.

(d) Bonus Amount. The term “Bonus Amount” means twice the amount of the higher of (i) the highest annual bonus earned by Employee for the last three fiscal years ending prior to the termination date, and (ii) (A) the target bonus percentage as established by the Company’s Board of Directors for the fiscal year in which the Change of Control occurs, multiplied by (B) Employee’s annual base salary for that fiscal year (whether or not paid or accrued for the full year at the time of Employee’s termination or resignation).

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(e) Cause. The term “Cause” shall mean (1) Employee’s final conviction of a felony by a trial court, (2) Employee’s material breach of this Employment Agreement or (3) Employee’s material violation of any policy or code of conduct of the Company, all as reasonably determined by the Company.

(f) Good Reason. The term “Good Reason” shall mean any of the following, unless Employee shall have given his express written consent thereto: (1) a material breach of the terms and conditions of this Employment Agreement by the Company which remains uncorrected for thirty (30) days after Employee delivers written notice of such breach to the Company; (2) failure to maintain or reelect Employee to the position described in Section 2(a); (3) a significant reduction of Employee’s duties, position or responsibilities relative to Employee’s duties, position or responsibilities in effect immediately prior to such reduction, unless Employee is provided with comparable duties and responsibilities; (4) a substantial reduction, without good business reasons, of the facilities and services available to Employee immediately prior to such reduction; (5) a reduction by the Company of Employee’s monthly base salary in effect immediately prior to such reduction; (6) the Company fails to continue Employee’s participation in any bonus, incentive, profit sharing, performance, savings, retirement or pension policy, plan, program or arrangement on substantially the same or better basis, both in terms of the amount of benefits provided to Employee and the level of Employee’s participation, relative to other participants; (7) the relocation of Employee more than fifty (50) miles from the location of the Company’s principal office on the date hereof; or (8) the failure of the Company to obtain a satisfactory agreement from a successor to assume and agree to perform this Employment Agreement as contemplated by Section 6(d).

(g) Disability. Employee shall have a “disability” under this Employment Agreement on the date the Company receives written notice from a physician selected by the Company that Employee no longer can perform one or more of the essential functions of Employee’s job even with reasonable accommodation.

(h) Change of Control. A “Change of Control” means the occurrence of any of the following:

(1) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 50 percent or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”); provided, however, that for purposes of this subsection (1) of this Section 4(g) the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (iii) any acquisition by any entity pursuant to a transaction which complied with clauses (i), (ii) and (iii) of subsection (3) of this Section 4(g); or

(2) individuals who, as of the date of this Employment Agreement, constitute the board of directors of the Company (the “Incumbent Board”) cease for any reason to

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constitute at least a majority of the board of directors of the Company; provided, however, that any individual becoming a director after the date of this Employment Agreement whose election, or nomination for election, by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors; or

(3) the consummation of a reorganization, merger or consolidation or sale of the Company, or a disposition of at least 50 percent of the assets of the Company, together with its subsidiaries, including goodwill (a “Business Combination”), provided, however, that for purposes of this subsection (3), a Business Combination will not constitute a change of control if the following three requirements are satisfied:

following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company’s voting securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent of the ownership interests of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the assets of the Company, together with its subsidiaries, either directly or through one or more subsidiaries or other affiliated entities) in substantially the same proportions as their ownership immediately prior to such Business Combination, (ii) no Covered Person (excluding any employee benefit plan (or related trust) of the Company or its subsidiaries or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50 percent or more of, respectively, the ownership interests in the entity resulting from such Business Combination, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the board of directors of the Company, providing for such Business Combination. For this purpose any individual who becomes a director after the date of this Employment Agreement, and whose election, or nomination for election, by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors.

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(i) Benefits. Employee shall have the right to receive any benefits payable under the Company’s employee benefits plans, programs and policies (other than the Company’s Policy for Termination and Separation of Employment (the “Severance Plan”)) which Employee otherwise has a non-forfeitable right to receive under the terms of such plans, programs and policies (other than severance benefits) independent of Employee’s rights under this Employment Agreement upon a termination of employment in addition to any other benefits under this Section 4 without regard to the reason for such termination of employment. Employee acknowledges and agrees that until the termination of this Employment Agreement, he shall not be entitled to participate in or receive benefits under the Severance Plan.

(j) Notice of Termination. Any termination by the Company or by Employee for any reason shall be communicated by a notice of termination to the other party hereto and shall be given in accordance with Section 6(a). Such notice shall state the specific termination provision in this Employment Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated.

(k) No Mitigation. Employee shall not be required to mitigate the amount of any severance payment contemplated by this Employment Agreement, nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

(l) Stock Award Agreements. In the event of a conflict adverse to Employee between the terms of this Employment Agreement and the terms of any agreement granting Employee stock options or restricted stock, the terms of this Employment Agreement shall govern.

5. COVENANTS BY EMPLOYEE

(a) Property of the Company.

(1) Employee covenants and agrees that upon the termination of Employee’s employment for any reason or, if earlier, upon the Company’s request Employee shall promptly return all Property which had been entrusted or made available to Employee by the Company or any of its subsidiaries.

(2) The term “Property” shall mean all records, files, memoranda, reports, price lists, drawing, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by Employee during Employee’s employment by the Company (and any duplicates of any such property) together with any and all information, ideas, concepts, discoveries, and inventions and the like conceived, made, developed or acquired at any time by Employee individually or with others during Employee’s employment which relate to the business, products or services of the Company or any of its subsidiaries.

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(b) Trade Secrets.

(1) In consideration for the promises made in Section 5(d) of this Employment Agreement, the Company promises that it shall provide and make available to Employee certain confidential, proprietary information and trade secrets.

(2) Employee covenants and agrees that Employee shall hold in a fiduciary capacity for the benefit of the Company and each of its affiliates, and shall not directly or indirectly use or disclose, any Trade Secret that Employee may have acquired pursuant to Section 5(b)(1) above during the term of Employee’s employment by the Company for so long as such information remains a trade secret.

(3) The term “Trade Secret” shall mean information, including, but not limited to, technical or non-technical data, a formula, a patent, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or that (a) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by other persons who can obtain economic value from its disclosures or use and (b) is the subject of reasonable efforts by the Company and its affiliates to maintain its secrecy.

(4) This Section 5(b) is intended to provide rights to the Company and its subsidiaries which are in addition to those rights the Company and its subsidiaries have under the common law or applicable statutes for the protection of trade secrets.

(1) Employee covenants and agrees while employed under this Employment Agreement and thereafter during the Restricted Period he shall hold in a fiduciary capacity for the benefit of the Company and each of its affiliates, and shall not directly or indirectly use or disclose, any of the Company’s or the Company’s affiliates’ Confidential or Proprietary Information that Employee may have acquired (whether or not developed or compiled by Employee and whether or not Employee is authorized to have access to such information) during the term of, and in the course of, or as a result of Employee’s employment by the Company or its affiliates.

(2) The term “Confidential or Proprietary Information” shall mean any secret, confidential or proprietary information of the Company or an affiliate (not otherwise included in the definition of a Trade Secret under this Employment Agreement) that has not become generally available to the public by the act of one who has the right to disclose such information without violation of any right of the Company or its affiliates.

(d) Non-Competition. During the period of Employee’s employment with the Company and thereafter during the Restricted Period, Employee covenants and agrees that, in connection with the business operations and prospective interests of the Company on the date of Employee’s termination as an employee of the Company, which prospective interests are disclosed to Employee prior to or on the date of Employee’s termination as an employee of the Company, he shall not, directly or indirectly, own any interest in, manage, control, participate

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in, consult with, render services for, or in any manner engage in any businesses in competition with the Company or materially adverse to the Company (unless the Company’s Board of Directors shall have authorized such activity and the Company shall have consented thereto in writing). Investments in less than 5% of the outstanding securities of any class of the Company subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, shall not be prohibited by this section. For purposes of this Section 5(d), the term “Company” shall include Harvest Natural Resources, Inc. and any of its affiliates or subsidiaries or any company in which it is a minority shareholder or a joint venture partner. For purposes of this Section 5(d), the term “businesses” shall mean any enterprise, commercial venture, or project involving oil and gas exploration or production activities in the same geographic areas as the Company’s activities during the period of Employee’s employment.

Further, during the period of Employee’s employment with the Company and thereafter during the Restricted Period, Employee covenants and agrees that he will not directly or indirectly through another entity induce or otherwise attempt to influence any employee of the Company to leave the Company’s employment or in any way interfere with the relationship between the Company and any employee thereof. Further, Employee will not induce or attempt to induce any customer, supplier, licensee, joint venture partner, shareholder, licensor or other business relation of the Company to cease doing business with the Company or in any way interfere with the relationship between any such customer, supplier, licensee, joint venture partner, shareholder, licensor or business relation of the Company.

If (i) pursuant to the arbitration process described in Section 6(c) of this Employment Agreement (or such other process as to which the Company and Employee may agree upon in writing), it is determined that Employee has violated the provisions of this Section 5(d), and (ii) Employee has received a payment from the Company pursuant to Section 4(a)(2)(v), Section 4(a)(3)(s), Section 4(a)(3)(t), Section 4(a)(4)(s) or Section 4(a)(4)(t) of this Employment Agreement (the “Lump Sum Severance Amount”), then, in addition to any other remedies that the Company may have, Employee shall be obligated, and hereby agrees, to pay the Company, as liquidated damages, an amount (but not less than zero) equal to the product of (x) the Lump Sum Severance Amount and (y) a fraction whose numerator is the excess of twenty-four (24) over the number of calendar months that have elapsed since the last day of Employee’s termination of employment under Section 4 of this Employment Agreement and whose denominator is twenty-four (24).

(e) Employment Restriction — Conflict of Interest. Employee covenants and agrees that he will not receive and has not received any payments, gifts or promises and Employee will not engage in any employment or business enterprises that in any way conflict with his service and the interests of the Company or its affiliates. In addition, Employee agrees to comply with the laws or regulations of any country, including, without limitation, the United States of America, having jurisdiction over Employee, the Company or any of the Company’s subsidiaries.

Employee shall not make any payments, loans, gifts or promises or offers of payments, loans or gifts, directly or indirectly, to or for the use or benefit of any official or employee of any government or to any other person if Employee knows, or has reason to believe, that any part of

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such payments, loans or gifts, or promise or offer, would violate the laws or regulations of any country, including, without limitation, the United States of America, having jurisdiction over Employee, the Company or any of the Company’s subsidiaries.

By signing this Employment Agreement, Employee acknowledges that he has not made and will not make any payments, loans, gifts, promises of payments, loans or gifts to or for the use or benefit of any official or employee of any government or to any other person which would violate the laws or regulations of any country, including, without limitation, the United States of America, having jurisdiction over Employee, the Company or any of the Company’s subsidiaries.

(f) Restricted Period. The term “Restricted Period” shall mean the two-year period which starts on the date Employee’s employment terminates with the Company without regard to whether such termination comes before or after the end of the term of this Employment Agreement.

(g) Reasonable and Continuing Obligations. Employee agrees that Employee’s obligations under this Section 5 are obligations which will continue beyond the date Employee’s employment terminates and that such obligations are reasonable and necessary to protect the Company’s legitimate business interests. The Company additionally shall have the right to take such other action as the Company deems necessary or appropriate to compel compliance with the provisions of this Section 5.

6. MISCELLANEOUS.

(a) Notices. Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to 1177 Enclave Parkway, Suite 300, Houston, Texas 77077. Notices and communications to Employee shall be sent to Employee’s home address as indicated by the records of the Company.

(b) No Waiver. Except for the notice described in Section 4(f), no failure by either the Company or Employee at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Employment Agreement shall be deemed a waiver of any provisions or condition of this Employment Agreement.

(c) Arbitration and Governing Law. ANY UNRESOLVED DISPUTE OR CONTROVERSY BETWEEN EMPLOYEE AND THE COMPANY ARISING UNDER OR IN CONNECTION WITH THIS EMPLOYMENT AGREEMENT SHALL BE SETTLED EXCLUSIVELY BY ARBITRATION, CONDUCTED IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. THE COMPANY WILL BEAR THE ADMINISTRATIVE COSTS OF ANY ARBITRATION UNDER THIS EMPLOYMENT AGREEMENT, INCLUDING THE ARBITRATOR’S FEES. THE ARBITRATOR SHALL NOT HAVE THE AUTHORITY TO ADD TO, DETRACT FROM, OR MODIFY ANY PROVISION HEREOF. THE ARBITRATOR SHALL HAVE THE AUTHORITY TO ORDER REMEDIES WHICH EMPLOYEE COULD OBTAIN IN A COURT OF COMPETENT JURISDICTION. A DECISION BY THE ARBITRATOR SHALL

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BE IN WRITING AND WILL BE FINAL AND BINDING. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR’S AWARD IN ANY COURT HAVING JURISDICTION. THE ARBITRATION PROCEEDING SHALL BE HELD IN HOUSTON, TEXAS, UNITED STATES OF AMERICA. NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL BE ENTITLED TO SEEK INJUNCTIVE OR OTHER EQUITABLE RELIEF FROM ANY COURT OF COMPETENT JURISDICTION, WITHOUT THE NEED TO RESORT TO ARBITRATION IN THE EVENT THAT EMPLOYEE VIOLATES SECTIONS 5(b), 5(c), 5(d) OR 5(e) OF THIS EMPLOYMENT AGREEMENT. THIS EMPLOYMENT AGREEMENT SHALL IN ALL RESPECTS BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.

(d) Assignment by the Company; Meaning of “Company”. This Employment Agreement shall be binding upon and inure to the benefit of the Company and any successor to all or substantially all of the business or assets of the Company. The Company may assign this Employment Agreement to any affiliate or successor, and no such assignment shall be treated as a termination of Employee’s employment under this Employment Agreement; provided, however, that in the case of an assignment to an affiliate, the Company shall not be relieved of its obligations under this Employment Agreement. The Company will require any successor corporation (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and to agree to perform this Employment Agreement in the same manner and to the same extent as the Company, as if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a material breach of this Employment Agreement. As used in this Employment Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees to perform this Employment Agreement by operation of law, or otherwise.

(e) Assignment by Employee. Employee’s rights and obligations under this Employment Agreement are personal, and they shall not be assigned or transferred without the Company’s prior written consent.

(f) Other Agreements. With the exception of the Company’s stock option plans (and related agreements), restricted stock plan (and related agreements) and incentive plans, and the guidelines referred to in Section 3(b), this Employment Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of Employee’s employment relationship with the Company, and this Employment Agreement constitutes the entire agreement of the Company and Employee with respect to such terms and conditions.

(g) Amendment. No amendment to this Employment Agreement shall be effective unless it is in writing and signed by the Company and by Employee.

(h) Invalidity. If any provision of this Employment Agreement is held to be invalid, illegal or otherwise unenforceable, the remaining provisions shall be unaffected and shall continue in full force and effect, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue.

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(i) Enforceability by Beneficiaries. This Employment Agreement shall inure to the benefit of and be enforceable by the parties hereto and their respective heirs, legal or personal representatives and successors and if Employee should die while any amount would still be payable to him hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Employment Agreement to Employee’s devisee, legatee or other designee or, if there is no such designee, to his estate.

(j) Reimbursement of Certain Expenses. To the extent Employee shall prevail in any arbitration proceeding pursuant to Section 6(c) to resolve any dispute or controversy between Employee and the Company arising under or in connection with this Employment Agreement, then the Company shall reimburse Employee, or pay on Employee’s behalf, all of Employee’s attorneys’ fees, incurred by Employee in connection with the arbitration. The amount of such expenses eligible for reimbursement during Employee’s taxable year will not affect the expenses eligible for reimbursement in any other taxable year. The Company shall reimburse an eligible expense pursuant to this Section 6(j) on or before the last day of Employee’s taxable year following the taxable year in which the expense was incurred. Employee’s right to reimbursement under this Section 6(j) is not subject to liquidation or exchange for another benefit.

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IN WITNESS WHEREOF, the Company and Employee have executed this Employment Agreement in multiple originals to be effective as set out above.


		HARVEST NATURAL RESOURCES, INC.



		James A. Edmiston
		President and Chief Executive Officer

		Date:




		Patrick R. Oenbring

		Date:

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EX-10.2 3 h56162exv10w2.htm STOCK OPTION AGREEMENT exv10w2

Exhibit 10.2

HARVEST NATURAL RESOURCES

Stock Option Agreement

Agreement (this “Agreement”) made at Houston, Texas, USA, as of April 14, 2008, by and between HARVEST NATURAL RESOURCES, INC. (the “Company”) and Patrick R. Oenbring (the “Optionee”).

Definitions:

	(a)		“BOARD” OR “BOARD OF DIRECTORS” shall mean the Board of Directors of the Company.

	(b)		“CODE” shall mean the Internal Revenue Code of 1986, as amended from time to time.

	(c)		“COMMITTEE” shall mean the Human Resources Committee of the Board of Directors, or, if there is no Human Resources Committee, the committee designated by the non-employee members of the Board of Directors to administer the Company’s long-term incentive plans.

	(d)		“FAIR MARKET VALUE” of Stock shall mean the average of the highest price and the lowest price at which Stock shall have been sold on the applicable date as reported by the New York Stock Exchange Composite Transactions. In the event that the applicable date is a date on which there were no such sales of Stock, the Fair Market Value of Stock on such date shall be the mean of the average of the highest price and the lowest price at which Stock shall have been sold on the last trading day preceding such date.

	(e)		“STOCK” shall mean the common stock of the Company.

	(f)		“SUBSIDIARY” shall mean any corporation or similar legal entity (other than the Company) in which the Company or a Subsidiary of the Company owns fifty percent (50%) or more of the total combined voting power of all classes of stock, or such lesser amount of ownership determined by the Committee.

	(g)		“TOTAL DISABILITY” and “TOTALLY DISABLED” shall normally have such meaning as that defined under the Company’s group insurance plan covering total disability and determinations of Total Disability normally shall be made by the insurance company providing such coverage on the date on which the Employee, whether or not eligible for benefits under such insurance plan, becomes Totally Disabled. In the absence of such insurance plan or in the event the individual is a Director or Consultant, the Committee shall make such determination.

It is hereby agreed as follows:

	2.		Grant of Option; Consideration. The Company hereby grants to the Optionee on April 14, 2008, a nonqualified stock option to purchase up to 120,000 shares of the Company’s Common Stock, par value $0.01 per share (the “Shares”), at an exercise price of $12.625 per share (the “Option”). The Option granted hereunder is not intended to constitute an incentive stock option within the meaning of Section 422 of the Code. The terms of the Option are subject to adjustment in certain circumstances, as provided in this Agreement.

			The Optionee shall be required to pay no consideration for the grant of the Option, except for his agreement to serve as an employee of the Company or any Subsidiary and other agreements set forth herein.

	3.		Vesting. Subject to all of the terms and conditions of this Agreement, including acceleration of vesting in the event of a Change of Control or Total Disability, the Optionee may purchase up to 40,000 Shares upon exercise of this Option on or after April 13, 2009, an additional 40,000 Shares upon exercise of this Option on or after April 13, 2010, and the remaining 40,000 Shares upon exercise of this Option on or after April 13, 2011.

	4.		Term and Termination of Service. This Option, to the extent it has not been previously exercised, shall expire at 5:00 p.m. (Central Time) on April 13, 2015 or, if earlier, at 5:00 p.m. (Central Time):

	(i)		on the date 3 months after the Optionee ceases to be an employee of the Company or any Subsidiary for any reason other than a Change of Control, Total Disability or death;

	(ii)		on the date 12 months after the Optionee ceases to be an employee of the Company or any Subsidiary by reason of Total Disability;

	(iii)		on the date 12 months after the date of the Optionee’s death while in the employ of the Company or a Subsidiary or within 3 months after the termination of such employment; or

	(iv)		on the date 12 months after the Optionee’s termination of employment or service if such employment or service is terminated within 730 days after the effective date of a Change of Control.

			Except in the case of a termination subject to (ii) and (iv) above, the Option shall be exercisable after the date of such termination of Optionee’s service or employment only to the extent the Option was exercisable at the date of such termination. In the case of termination subject to (ii) above, any Options that are not exercisable shall become exercisable effective as of Optionee’s termination date. In the case of a termination subject to (iv) above, Article 11 of this Agreement shall apply.

			Notwithstanding anything to the contrary in the Agreement, if and for so long as Optionee is subject to an employment agreement with the Company, then the terms of the employment agreement will govern the early expiration of the Option including, without

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			limitation, vesting and expiration dates. In the event of any conflict between the Employment Agreement and this Agreement, the terms of the Employment Agreement shall govern.

	5.		Option Exercise. The Option may be exercised in whole or in part (to the extent then exercisable) by contacting the Company’s designated agent for processing Option exercises. An Option exercise must be accompanied by payment in full of the exercise price (i) in cash, (ii) through the withholding of shares of Stock (which would otherwise be delivered to the Optionee) with an aggregate Fair Market Value on the exercise date equal to the aggregate exercise price of the Option, (iii) a combination of a cash payment and such surrender of shares, (iv) by means of a broker-assisted cashless exercise to the extent then permitted under rules and regulations adopted by the Committee, or (v) in such other manner as may then be permitted under rules and regulations adopted by the Committee. As soon as practicable after the valid exercise of the Option, the Company shall deliver to the Optionee one or more stock certificates representing the Shares so purchased, with any requisite legend affixed.

	6.		Non-Transferability. No right or interest of the Optionee in the Option shall be pledged, encumbered, or hypothecated to or in favor of any third party or shall be subject to any lien, obligation, or liability of the Optionee to any third party. The Option shall not be transferable to any third party by the Optionee otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974 to an immediate family member, or (iii) to the extent authorized by the Committee, to an immediate family member of the Optionee who acquires the options from the Optionee through a gift.

	7.		Compliance with Laws and Regulations. The obligation of the Company to deliver Shares upon the exercise of this Option is conditioned upon compliance by the Optionee and by the Company with all applicable laws and regulations, including regulations of federal and state agencies. If requested by the Company, the Optionee shall provide to the Company, as a condition to the valid exercise of this Option and the delivery of any certificates representing Shares, appropriate evidence, satisfactory in form and substance to the Company, that he is acquiring the Shares for investment and not with a view to the distribution of the Shares or any interest in the Shares, and a representation to the effect that the Optionee shall make no sale or other disposition of the Shares unless (i) the Company shall have received an opinion of counsel satisfactory to it in form and substance that such sale or other disposition may be made without compliance with registration or other applicable requirements of federal and state laws and regulations, and (ii) all steps required to comply with such laws and regulations in connection with the sale or other disposition of the Shares have been taken and all necessary approvals have been received. The certificates representing the Shares may bear an appropriate legend giving notice that the shares have not been registered under the Securities Act of 1933 (the “Act”) and are “Restricted Securities” as that term is defined in Rule 144 under the Act and, further, giving notice of the foregoing restrictions on transfer of the Shares, and any other restrictive legend deemed necessary or appropriate by the Committee.

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	8.		Tax Withholding. Whenever Shares are to be delivered upon exercise of the Option, the Company shall be entitled to require as a condition of delivery or payment that the Optionee remit or, in appropriate cases, agree to remit when due an amount sufficient to satisfy all federal, state, and local withholding tax requirements relating thereto. The Optionee will be entitled to elect to have the Company withhold from the Shares to be delivered upon the exercise of the Option, a sufficient number of such shares to satisfy the Optionee’s federal, state, and local withholding tax obligations relating to the Option exercise to the extent then permitted under rules and regulations adopted by the Committee and in effect at the time of the exercise of the Option. In such case, the Shares withheld or the shares surrendered will be valued at the Fair Market Value at the time of the exercise of the Option.

	9.		Administration.

	(i)		The Committee. This Agreement shall be administered by the Committee. Subject to such approvals and other authority as the Board may reserve to itself from time to time, the Committee shall, consistent with the provisions of the Agreement, from time to time establish such rules and regulations and appoint such agents as it deems appropriate for the proper administration of this Agreement, and make such determinations under, and such interpretations of, and take such steps in connection with this Agreement as it deems necessary or advisable.

	(ii)		Authority of the Committee. Subject to the provisions herein, the Committee shall have the full power to construe and interpret this Agreement and to amend the terms and conditions of this Agreement to the extent such terms and conditions are within the sole discretion of the Committee; provided, however, that no amendments shall, without the consent of the Optionee, alter or impact any rights or obligations under this Agreement.

	(iii)		Decisions Binding. All determinations and decisions of the Committee as to any disputed question arising under this Agreement, including questions of construction and interpretation, shall be final, binding and conclusive upon all parties. The Optionee hereby agrees to be bound by all decisions and determinations of the Committee.

	10.		Adjustment Upon Changes in Stock. The number of shares of Stock covered by this Agreement and the Option exercise price per share shall be adjusted proportionately, and any other appropriate adjustments shall be made, for any increase or decrease in the total number of issued and outstanding Stock (or change in kind) resulting from any change in the Stock or Options through a merger, consolidation, reorganization, recapitalization, subdivision or consolidation of shares or other capital adjustment or the payment of a stock dividend or other increase or decrease (or change in kind) in such shares. In the event of any such adjustment, fractional shares shall be eliminated.

	11.		Change in Control. Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control, any outstanding Options that are not exercisable shall

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			become exercisable effective as of the date of a Change in Control. If an Optionee’s employment is terminated within 730 days after the effective date of a Change in Control, to the extent that any Option was exercisable at the time of the Optionee’s termination of employment, such Option may be exercised within twelve months following the date of termination of employment.

			For purposes of this Agreement, a “Change in Control” means the occurrence of any of the following:

	(i)		The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 50 percent or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”); provided, however, that for purposes of this Article 11 the following acquisitions shall not constitute a Change in Control: (a) any acquisition by the Company, (b) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (c) any acquisition by any entity pursuant to a transaction which complied with clauses (a), (b) and (c) of subsection (iii) of this Article 11; or

	(ii)		Individuals who, as of the date of this Agreement, constitute the board of directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors of the Company; provided, however, that any individual becoming a director after the date of this Agreement whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors; or

	(iii)		The consummation of a reorganization, merger or consolidation or sale of the Company, or a disposition of at least 50 percent of the assets of the Company including goodwill (a “Business Combination”), provided, however, that for purposes of this subsection (iii), a Business Combination will not constitute a change in control if the following three requirements are satisfied:

following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company’s voting securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent of the ownership interests of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries or

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other affiliated entities) in substantially the same proportions as their ownership immediately prior to such Business Combination, (b) no Covered Person (excluding any employee benefit plan [or related trust] of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50 percent or more of, respectively, the ownership interests in the entity resulting from such Business Combination, except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the board of directors of the Company, providing for such Business Combination. For this purpose any individual who becomes a director after the date of this Agreement, and whose election or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors.

	12.		Transfer of Employment. Transfer of employment between the Company and a Subsidiary shall not constitute termination of employment or service for the purpose of this Agreement. Whether any leave of absence shall constitute termination of employment for the purposes of this Agreement shall be determined in each case by the Committee.

	13.		Governing Law. This Agreement shall be governed and construed in accordance with the laws of Texas, except to the extent that federal law applies.

	14.		Binding Effect: Integration: No Other Rights Created. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Option, and supersedes any prior agreements or documents with respect to the Option. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of the Optionee with respect to the Option shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by the Optionee. Neither this Agreement nor the grant of the Option shall constitute an employment agreement, nor shall either confer upon the Optionee any right with respect to his continued status with the Company.

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		HARVEST NATURAL RESOURCES, INC.


		BY:
				James A. Edmiston

		TITLE:		President and CEO


		OPTIONEE:



		Patrick R. Oenbring

		DATE:

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EX-10.3 4 h56162exv10w3.htm EMPLOYEE RESTRICTED STOCK AGREEMENT exv10w3

Exhibit 10.3

HARVEST NATURAL RESOURCES

Restricted Stock Agreement

Agreement (the “Agreement”) made at Houston, Texas, USA, as of April 14, 2008, by and between HARVEST NATURAL RESOURCES, INC. (the “Company”) and Patrick R. Oenbring (the “Grantee”).

Definitions:

	(a)		“AWARD” means, individually or collectively, a grant under this Agreement of Restricted Stock, subject to the terms and provisions of this Agreement.

	(b)		“BOARD” OR “BOARD OF DIRECTORS” shall mean the Board of Directors of the Company.

	(c)		“CODE” shall mean the Internal Revenue Code of 1986, as amended from time to time.

	(d)		“COMMITTEE” shall mean the Human Resources Committee of the Board of Directors, or, if there is no Human Resources Committee, the committee designated by the non-employee members of the Board of Directors to administer the Company’s long-term incentive plans.

	(e)		“RESTRICTED STOCK” shall mean Stock which is issued pursuant to Paragraph 2. of this Agreement.

	(f)		“STOCK” shall mean the common stock of the Company.

	(g)		“SUBSIDIARY” shall mean any corporation or similar legal entity (other than the Company) in which the Company or a Subsidiary of the Company owns fifty percent (50%) or more of the total combined voting power of all classes of stock, or such lesser amount of ownership determined by the Committee.

	(h)		“TOTAL DISABILITY” and “TOTALLY DISABLED” shall normally have such meaning as that defined under the Company’s group insurance plan covering total disability and determinations of Total Disability normally shall be made by the insurance company providing such coverage on the date on which the Grantee, whether or not eligible for benefits under such insurance plan, becomes Totally Disabled. In the absence of such insurance plan or in the event the individual is a Director or Consultant, the Committee shall make such determination.

It is hereby agreed as follows:

Grant of Stock; Consideration. The Company hereby grants (the “Grant”) the Grantee 40,000 shares of Stock of the Company’s Common Stock, par value $0.01 per share (the

			“Restricted Shares”). The Grant granted hereunder is not intended to constitute “performance based compensation” as that term is used in Section 162(m) of the Code.

			The Grantee shall be required to pay no consideration for the Grant, except for his agreement to serve as an employee of the Company or any Subsidiary and other agreements set forth herein.

	3.		Incorporation of Agreement. Notwithstanding anything to the contrary in this Agreement, if and for so long as Grantee is subject to an employment agreement with the Company, then the terms of the employment agreement will govern the early expiration of the Grant including, without limitation, vesting and expiration dates. In the event of any conflict between the Employment agreement and this Agreement, the terms of the employment agreement shall govern.

	4.		Restriction Period. Subject to all of the terms and conditions of this Agreement, including the lapse of restrictions in the event of a Change of Control, the period during which the restrictions set forth in this Agreement shall apply to the Restricted Shares shall commence on April 14, 2008 and end on April 13, 2011 (the “Restriction Period”). At the end of the Restriction Period, all restrictions under this Agreement applicable to the Restricted Stock shall lapse, and, subject to paragraph 7 of this Agreement, a stock certificate for the number of shares of Common Stock equal to the number of Restricted Shares shall be delivered to the Grantee, the Grantee’s beneficiary or the Grantee’s estate, whichever is applicable at the time of delivery.

	5.		Restrictions. The Restricted Stock will be represented by a Stock certificate registered in the name of the Grantee. Such certificate, accompanied by a separate duly-endorsed stock power, shall be deposited with the Company. The Grantee shall be entitled to receive dividends during the Restriction Period and shall have the right to vote such Restricted Stock and all other stockholder’s rights, with the exception that (i) the Grantee will not be entitled to delivery of the Stock certificate during the Restriction Period, (ii) the Company will retain custody of the Restricted Stock during the Restriction Period, (iii) none of the Restricted Stock may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restriction Period and (iv) all of the Restricted Stock shall be forfeited and all of the Grantee’s rights to such Restricted Stock shall terminate without further obligation on the part of the Company unless the Grantee remains in the continuous employ of the Company or a Subsidiary during the Restriction Period.

			If, prior to the date on which the Restriction Period ends and applicable restrictions lapse, the Grantee’s employment with the Company is terminated for any reason except Total Disability, death, and layoff with benefits under a Company severance plan, any Restricted Stock shall be canceled and all rights there under shall cease. If reason for termination is Total Disability, death, or layoff with severance benefits, the Restriction Period will continue and applicable restrictions will lapse as if the Grantee had continued employment with the Company.

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	6.		Non-Transferability. The Grant shall not be transferable to any third party by the Grantee otherwise than by will or the laws of descent and distribution.

	7.		Compliance with Laws and Regulations. The obligation of the Company to deliver Restricted Shares is conditioned upon compliance by the Grantee and by the Company with all applicable laws and regulations, including regulations of federal and state agencies. If requested by the Company, the Grantee shall provide to the Company, as a condition to the delivery of any certificates representing Restricted Shares, appropriate evidence, satisfactory in form and substance to the Company, that he is acquiring the Restricted Shares for investment and not with a view to the distribution of the Restricted Shares or any interest in the Restricted Shares, and a representation to the effect that the Grantee shall make no sale or other disposition of the Restricted Shares unless (i) the Company shall have received an opinion of counsel satisfactory to it in form and substance that such sale or other disposition may be made without compliance with registration or other applicable requirements of federal and state laws and regulations, and (ii) all steps required to comply with such laws and regulations in connection with the sale or other disposition of the Restricted Shares have been taken and all necessary approvals have been received. The certificates representing the Restricted Shares may bear an appropriate legend giving notice that the Shares have not been registered under the Securities Act of 1933 (the “Act”) and are “Restricted Securities” as that term is defined in Rule 144 under the Act and, further, giving notice of the foregoing restrictions on transfer of the Restricted Shares, and any other restrictive legend deemed necessary or appropriate by the Committee.

	8.		Tax Withholding. Upon lapse of the restrictions applicable to the Restricted Stock (or if the Grantee makes the election under Section 83 (b) of the Code to be taxed immediately upon the award of such shares), the Grantee must arrange for the payment to the Company of applicable withholding taxes promptly after the Grantee has been notified of the amount due by the Company. If no election is made under Section 83 (b) of the Code, the Grantee must pay such withholding taxes or have Restricted Stock withheld to pay such withholding taxes upon the lapse of restrictions applicable to the Restricted Stock.

	9.		Administration.

	a.		The Committee. This Agreement shall be administered by the Committee. Subject to such approvals and other authority as the Board may reserve to itself from time to time, the Committee shall, consistent with the provisions of the Agreement, from time to time establish such rules and regulations and appoint such agents as it deems appropriate for the proper administration of this Agreement, and make such determinations under, and such interpretations of, and take such steps in connection with this Agreement as it deems necessary or advisable.

	b.		Authority of the Committee. Subject to the provisions herein, the Committee shall have the full power to construe and interpret this Agreement and to amend the

- 3 -

			terms and conditions of this Agreement to the extent such terms and conditions are within the sole discretion of the Committee; provided, however, that no amendments shall, without the consent of the Grantee, alter or impact any rights or obligations under this Agreement.

	c.		Decisions Binding. All determinations and decisions of the Committee as to any disputed question arising under this Agreement, including questions of construction and interpretation, shall be final, binding and conclusive upon all parties. The Grantee hereby agrees to be bound by all decisions and determinations of the Committee.

	10.		Adjustment upon Changes in Stock. The number of shares granted as Restricted Stock, shall be adjusted proportionately, and any other appropriate adjustments shall be made, for any increase or decrease in the total number of issued and outstanding Stock (or change in kind) resulting from any change in the Stock through a merger, consolidation, reorganization, recapitalization, subdivision or consolidation of shares or other capital adjustment or the payment of a stock dividend or other increase or decrease (or change in kind) in such shares. In the event of any such adjustment, fractional shares shall be eliminated.

	11.		Change in Control. Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control during the Restriction Period all restrictions imposed hereunder on such Restricted Stock shall lapse effective as of the date of the Change in Control.

			For purposes of this Agreement, a “Change in Control” means the occurrence of any of the following:

	a.		The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 50 percent or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”); provided, however, that for purposes of this subsection (i) of this Paragraph 11 the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (iii) any acquisition by any entity pursuant to a transaction which complied with clauses (i), (ii) and (iii) of subsection (c) of this Paragraph 11; or

	b.		Individuals who, as of the date of this Agreement, constitute the board of directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors of the Company; provided, however, that any individual becoming a director after the date of this Agreement whose election, or nomination for election by the Company’s stockholders, was

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			approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors; or

	c.		The consummation of a reorganization, merger or consolidation or sale of the Company, or a disposition of at least 50 percent of the assets of the Company including goodwill (a “Business Combination”), provided, however, that for purposes of this subsection (c), a Business Combination will not constitute a change in control if the following three requirements are satisfied:

following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company’s voting securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent of the ownership interests of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries or other affiliated entities) in substantially the same proportions as their ownership immediately prior to such Business Combination, (ii) no Covered Person (excluding any employee benefit plan [or related trust] of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 50 percent or more of, respectively, the ownership interests in the entity resulting from such Business Combination, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the board of directors of the Company, providing for such Business Combination. For this purpose any individual who becomes a director after the date of the Plan, and whose election or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors.

12.

Transfer of Employment. Transfer of employment between the Company and a Subsidiary shall not constitute termination of employment or service for the purpose of

- 5 -

		this Agreement. Whether any leave of absence shall constitute termination of employment for the purposes of this Agreement shall be determined in each case by the Committee.

	13.	Governing Law. This Agreement shall be governed and construed in accordance with the laws of Texas, except to the extent that federal law applies.

	14.	Grantee Bound by this Agreement. The Grantee hereby acknowledges receipt of this Agreement and agrees to be bound by all the terms and provisions thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Committee.

	15.	Binding Effect: Integration: No Other Rights Created. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Grant, and supersedes any prior agreements or documents with respect to the Grant. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of the Grantee with respect to the Grant shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by the Grantee. Neither this Agreement nor the grant of the Grant shall constitute an employment agreement, nor shall either confer upon the Grantee any right with respect to his continued status with the Company.

(Signature page follows)

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		HARVEST NATURAL RESOURCES, INC.

		BY:
				James A. Edmiston

		TITLE:		President and CEO

		GRANTEE:


		Patrick R. Oenbring

		DATE:

ELECTION (FOR U.S. CITIZENS ONLY):

As permitted under Section 83 (b) of the Internal Revenue Code of 1986, as amended, I intend to make the following irrevocable election:

o		I intend to make the election permitted under Section 83 (b) of the Internal Revenue Code of 1986, as amended, to be taxed immediately on the award of the Restricted Shares. I understand the consequences and procedures for making this election, and I understand that it is my responsibility to file the election with the Internal Revenue Service.

o		I do not intend to make the election permitted under Section 83 (b) of the Internal Revenue Code of 1986, as amended, and will be taxed upon the lapse of restrictions applicable to the Restricted Shares.



		Patrick R. Oenbring

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EX-31.1 5 h56162exv31w1.htm CERTIFICATION OF PEO PURSUANT TO SECTION 302 exv31w1

EXHIBIT 31.1

I, James A. Edmiston, certify that:

	1.		I have reviewed this report on Form 10-Q of Harvest Natural Resources, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2008



	By:	/s/ James A. Edmiston
		James A. Edmiston
		President and Chief Executive Officer

EX-31.2 6 h56162exv31w2.htm CERTIFICATION OF PFO PURSUANT TO SECTION 302 exv31w2

EXHIBIT 31.2

I, Steven W. Tholen, certify that:

	1.		I have reviewed this report on Form 10-Q of Harvest Natural Resources, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2008



	By:	/s/ Steven W. Tholen
		Steven W. Tholen
		Senior Vice President - Finance, Chief Financial Officer and Treasurer

EX-32.1 7 h56162exv32w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 1350 exv32w1

EXHIBIT 32.1

Accompanying Certificate
Pursuant to Rule 13a – 14(b) or Rule 15d – 14(b)
and 18 U.S.C Section 1350

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chief Executive Officer of Harvest Natural Resources, Inc. (the “Company”) does hereby certify as follows:

This report on Form 10-Q of Harvest Natural Resources, Inc. for the period ended March 31, 2008 and filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: May 1, 2008	By:	/s/ James A. Edmiston
		James A. Edmiston
		President and Chief Executive Officer

EX-32.2 8 h56162exv32w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 1350 exv32w2

EXHIBIT 32.2

Accompanying Certificate
Pursuant to Rule 13a – 14 (b) or Rule 15d – 14(b)
and 18 U.S.C Section 1350

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chief Financial Officer of Harvest Natural Resources, Inc. (the “Company”) does hereby certify as follows:



Dated: May 1, 2008	By:	/s/ Steven W. Tholen
		Steven W. Tholen
		Senior Vice President - Finance, Chief Financial Officer and Treasurer

-----END PRIVACY-ENHANCED MESSAGE-----

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