-----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, K2xJp7dWQjDKwv7jjcz44mi4YlhFRp6F82wjDdZ9FQ2yNbGxCbyRUDek+potB++I wfYKaDwNDlzca4soAXG7mQ== 0000950129-04-002946.txt : 20040507 0000950129-04-002946.hdr.sgml : 20040507 20040507102341 ACCESSION NUMBER: 0000950129-04-002946 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 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: 04787174 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PLACE DRIVE STREET 2: SUITE 115 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 2815796700 MAIL ADDRESS: STREET 1: 15835 PARK TEN PLACE DRIVE STREET 2: SUITE 115 CITY: HOUSTON STATE: TX ZIP: 77084 FORMER COMPANY: FORMER CONFORMED NAME: BENTON OIL & GAS CO DATE OF NAME CHANGE: 19920703 10-Q 1 h15134e10vq.txt HARVEST NATURAL RESOURCES, INC. - MARCH 31, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2004 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from_____ to ___ COMMISSION FILE NO. 1-10762 ------------------------------ HARVEST NATURAL RESOURCES, INC. (Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0196707 (State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
15835 PARK TEN PLACE DRIVE, SUITE 115 HOUSTON, TEXAS 77084 (Address of Principal Executive Offices) (Zip Code) (281) 579-6700 (Registrant's Telephone Number, Including Area Code) 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 [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] At May 3, 2004, 35,942,161 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, 2004 and December 31, 2003....................................... 3 Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2004 and 2003............................... 4 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003........................ 5 Notes to Consolidated Financial Statements....................... 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................. 13 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............ 16 Item 4. CONTROLS AND PROCEDURES............................................... 16 PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS..................................................... 17 Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................. 17 Item 3. DEFAULTS UPON SENIOR SECURITIES....................................... 17 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 17 Item 5. OTHER INFORMATION..................................................... 17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................... 17 SIGNATURES......................................................................... 18
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents .................................................... $ 147,239 $ 138,660 Restricted cash .............................................................. 12 12 Accounts and notes receivable: Accrued oil and gas sales ............................................. 38,910 32,766 Joint interest and other, net ......................................... 10,956 11,197 Prepaid expenses and other ................................................... 1,391 805 --------- ------------ TOTAL CURRENT ASSETS .................................................... 198,508 183,440 RESTRICTED CASH ...................................................................... 16 16 OTHER ASSETS ......................................................................... 2,577 2,080 DEFERRED INCOME TAXES ................................................................ 4,749 4,749 PROPERTY AND EQUIPMENT: Oil and gas properties (full cost method - costs of $2,900 excluded from amortization in 2004 and 2003, respectively) ............ 594,276 593,622 Furniture and fixtures ....................................................... 8,917 8,948 --------- ------------ 603,193 602,570 Accumulated depletion, depreciation and amortization ......................... (426,548) (418,507) --------- ------------ 176,645 184,063 --------- ------------ $ 382,495 $ 374,348 ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade and other ............................................ $ 1,524 $ 4,163 Accounts payable, related party .............................................. 10,813 10,557 Accrued expenses ............................................................. 12,208 15,069 Accrued interest payable ..................................................... 3,408 1,427 Income taxes payable ......................................................... 10,224 8,647 Current portion of long-term debt ............................................ 5,075 6,367 --------- ------------ TOTAL CURRENT LIABILITIES ............................................... 43,252 46,230 LONG-TERM DEBT ....................................................................... 96,533 96,833 ASSET RETIREMENT LIABILITY ........................................................... 1,459 1,459 COMMITMENTS AND CONTINGENCIES ........................................................ -- -- MINORITY INTEREST .................................................................... 32,679 30,113 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; issued 36,582 shares at March 31, 2004 and 36,405 shares at December 31, 2003 ....... 366 364 Additional paid-in capital ................................................... 176,401 175,051 Retained earnings ............................................................ 35,044 27,537 Treasury stock, at cost, 730 shares March 31, 2004 and December 31, 2003, respectively ....................................... (3,239) (3,239) --------- ------------ TOTAL STOCKHOLDERS' EQUITY.............. ................................ 208,572 199,713 --------- ------------ $ 382,495 $ 374,348 ========= ============
See accompanying notes to consolidated financial statements. 3 HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
FIRST QUARTER ----------------------------------- 2004 2003 ---------------- ---------------- (in thousands, except per share data) REVENUES Oil sales.................................................... $ 30,808 $ 19,390 Gas sales.................................................... 7,989 -- Ineffective hedge activity................................... -- (565) ---------------- ---------------- 38,797 18,825 ---------------- ---------------- EXPENSES Operating expenses........................................... 7,339 6,515 Depletion, depreciation and amortization..................... 8,161 3,515 General and administrative................................... 3,635 3,224 Taxes other than on income................................... 1,194 647 ---------------- ---------------- 20,329 13,901 ---------------- ---------------- INCOME FROM OPERATIONS............................................... 18,468 4,924 OTHER NON-OPERATING INCOME (EXPENSE) Investment earnings and other................................ 303 278 Interest expense............................................. (2,489) (2,668) Net gain (loss) on exchange rates............................ (609) 526 ---------------- ---------------- (2,795) (1,864) ---------------- ---------------- INCOME FROM CONSOLIDATED COMPANIES BEFORE INCOME TAXES AND MINORITY INTERESTS.................................................... 15,673 3,060 INCOME TAX EXPENSE................................................... 5,600 1,056 ---------------- ---------------- INCOME BEFORE MINORITY INTERESTS..................................... 10,073 2,004 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY COMPANIES............... 2,566 887 ---------------- ---------------- INCOME FROM CONSOLIDATED COMPANIES................................... 7,507 1,117 EQUITY IN NET LOSS OF AFFILIATED COMPANIES........................... -- (16,575) ---------------- ---------------- NET INCOME (LOSS).................................................... $ 7,507 $ (15,458) ================ ================ OTHER COMPRENSIVE INCOME: UNREALIZED MARK TO MARKET GAIN FROM CASH FLOW HEDGING ACTIVITIES, NET OF TAX ......................... -- 2,614 ---------------- ---------------- $ 7,507 $ (12,844) ================ ================ NET INCOME (LOSS) PER COMMON SHARE: Basic........................................................ $ 0.21 $ (0.44) ================ ================ Diluted...................................................... $ 0.20 $ (0.44) ================ ================
See accompanying notes to consolidated financial statements. 4 HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FIRST QUARTER ------------------------- 2004 2003 ------------ ---------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss)..................................................................... $ 7,507 $ (15,458) Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization....................................... 8,161 3,515 Amortization of financing costs................................................ 76 140 Equity in losses of affiliated companies....................................... -- 16,575 Allowance for employee notes and accounts receivable........................... -- 51 Non-cash compensation-related charges.......................................... 96 42 Minority interest in undistributed earnings of subsidiaries.................... 2,566 887 Deferred income taxes.......................................................... -- (667) Changes in Operating Assets and Liabilities: Accounts and notes receivable.................................................. (5,903) 5,896 Prepaid expenses and other..................................................... (586) 378 Commodity hedging contract..................................................... -- (6,875) Accounts payable............................................................... (2,639) 2,335 Accounts payable, related party................................................ 256 271 Accrued expenses............................................................... (2,861) (664) Accrued interest payable....................................................... 1,981 2,231 Asset retirement liability..................................................... -- 4,263 Commodity hedging contract payable............................................. -- (430) Income taxes payable........................................................... 1,577 (1,315) ------------ ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 10,231 11,175 ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions of property and equipment................................................... (743) (12,505) Investment in and advances to affiliated companies.................................... -- (497) Decrease in restricted cash........................................................... -- 1,800 Purchases of marketable securities.................................................... -- (200,332) Maturities of marketable securities................................................... -- 200,650 Investment costs...................................................................... (573) 22 ------------ ---------- NET CASH USED IN INVESTING ACTIVITIES................................... (1,316) (10,862) ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from exercise of stock options........................................... 1,256 120 Purchase of treasury stock............................................................ -- (404) Payments of notes payable............................................................. (1,592) (2,767) ------------ ---------- NET CASH USED IN FINANCING ACTIVITIES................................... (336) (3,051) ------------ ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 8,579 (2,738) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................................. 138,660 64,501 ------------ ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $ 147,239 $ 61,763 ============ ========== SUPPLEMENTAL DISCLOSURES OR CASH FLOW INFORMATION Cash paid during the period for interest.............................................. $ 1,285 $ 2,071 ============ ========== Cash paid during the period for income taxes.......................................... $ 913 $ 864 ============ ==========
See accompanying notes to consolidated financial statements. 5 HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST QUARTER 2004 AND 2003 (UNAUDITED) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM REPORTING In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals only) necessary to present fairly the financial position as of March 31, 2004, and the results of operations and cash flows for the first quarter 2004 and 2003. 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. 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 2003, 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 engaged in the exploration, development, production and management of oil and gas properties. We conduct our business principally in Venezuela (through our subsidiary Benton-Vinccler C.A. or "Benton-Vinccler") and, until September 25, 2003, through our minority equity investment in LLC Geoilbent ("Geoilbent"), a Russian entity. 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 and other investments in which we have significant influence. All intercompany profits, transactions and balances have been eliminated. We accounted for our investment in Geoilbent prior to the sale of our minority equity investment based on a fiscal year ending September 30, 2003. MINORITY INTERESTS We record a minority interest attributable to the minority shareholder of our Venezuela subsidiaries. The minority interest in net income and losses is subtracted or added to arrive at consolidated net income. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130 ("SFAS 130") requires that all items required to be recognized under accounting standards as components of comprehensive income, be reported in a financial statement that is displayed with the same prominence as other financial statements. We reflected unrealized mark-to-market gains from cash flow hedging activities as other comprehensive income during the first quarter 2003 and, in accordance with SFAS 130, have provided a separate line in the unaudited consolidated statement of operations. DERIVATIVES AND HEDGING Statement of Financial Accounting Standards No. 133 ("SFAS 133"), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. All derivatives are recorded on the balance sheet at fair value. To the extent that the hedge is determined to be effective, changes in the fair value of derivatives for qualifying cash flow hedges are recorded each period in other comprehensive income. Our derivatives have been designated as cash flow hedge transactions in which we hedge the variability of cash flows related to forecasted transactions. The changes in the fair value of these derivative instruments have been reported in other comprehensive income because the highly effective test was met, and have been reclassified to earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item. 6 Benton-Vinccler hedged a portion of its 2003 oil sales by purchasing a WTI crude oil "put" to protect its 2003 cash flow. The put was for 10,000 barrels of oil per day for the period of March 1, 2003 through December 31, 2003. This put qualified under the highly effective test and the mark-to-market gain at March 31, 2003 was included in other comprehensive income. Due to the pricing structure for our Venezuela oil, the put had the economic effect of hedging approximately 20,800 barrels of oil per day. The put cost was $2.50 per barrel, or $7.7 million, and had a strike price of $30.00 per barrel. The notional amount of each financial instrument was based on expected sales of crude oil production from existing and future development wells and the related incremental oil production associated with the production of natural gas. Oil sales for the three months ended March 31, 2003 included $0.8 million loss in amortization of the put option cost. From time to time, we use hedging instruments to protect our projected investment return and cash flow by reducing the impact of a downward crude oil price movement. Currently, we have no hedging instruments in place for our 2004 production, but we continue to assess production levels and commodity prices in conjunction with our capital resources and liquidity requirements. ASSET RETIREMENT LIABILITY Effective January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). In January 2003, as a result of adopting this statement, Benton-Vinccler recorded under the full cost method of accounting for oil and gas properties an increase in oil and gas properties and a corresponding liability in the amount of $4.3 million. This asset retirement obligation is associated with the plugging and abandonment of certain wells in Venezuela. SFAS 143 requires entities to record the fair value of a liability for a legal obligation to retire an asset in the period in which the liability is incurred if a reasonable estimate of fair value can be made. No wells were abandoned in the first quarter 2004 and 11 wells were abandoned in 2003. Accretion expense related to the asset retirement obligation was approximately $10,000 for the first quarter 2004. Changes in asset retirement obligations during the first quarter 2004 and year ended December 31, 2003 were as follows:
March 31, December, 31 2004 2003 -------------- -------------- Asset retirement obligations beginning of period $ 1,459 $ -- Liabilities recorded during the period -- 4,237 Liabilities settled during the period -- (733) Revisions in estimated cash flows -- (2,125) Accretion expense -- 80 -------------- -------------- Asset retirement obligations end of period $ 1,459 $ 1,459 ============== ==============
EARNINGS PER SHARE Basic earnings per common share ("EPS") is 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 35.8 million and 35.3 million for the first quarter 2004 and 2003, 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 37.9 million and 35.3 million for the first quarter 2004 and 2003, respectively. In September 2002, our board of directors authorized the repurchase of up to one million shares of our common stock. No shares were repurchased in the first quarter 2004 and approximately 80,000 shares were repurchased in the first quarter 2003 for an aggregate price of $0.4 million. An aggregate of 1.5 million and 3.0 million options and warrants to purchase common stock were excluded from the earnings per share calculations because they were anti-dilutive for the first quarter 2004 and 2003, respectively. 7 STOCK-BASED COMPENSATION At March 31, 2004, we had several stock-based employee compensation plans, which are more fully described in Note 6 in our Annual Report on Form 10-K for the year ended 2003. Prior to 2003, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS Statement No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Awards under our plans vest in periodic installments after one year of their grant and expire ten years from grant date. Therefore, the cost related to stock-based employee compensation included in the determination of net income in the first quarter 2004 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.
FIRST QUARTER 2004 2003 ---------- ------------ (in thousands) Net income (loss), as reported................................. $ 7,507 $ (15,458) Add: Stock based employee compensation cost, net of tax.................................................. 96 42 Less: Total stock-based employee compensation cost determined under fair value based method, net of tax.......................................... (251) (243) ---------- ------------ Net income (loss) - proforma................................... $ 7,352 $ (15,659) ========== ============ Earnings (loss) per share: Basic - as reported................................... $ 0.21 $ (0.44) ========== ============ Basic - proforma...................................... $ 0.21 $ (0.44) ========== ============ Diluted - as reported................................. $ 0.20 $ (0.44) ========== ============ Diluted - proforma.................................... $ 0.19 $ (0.44) ========== ============
8 NOTE 2 - LONG-TERM DEBT LONG-TERM DEBT
Long-term debt consists of the following: MARCH 31, DECEMBER 31, 2004 2003 --------------- ------------- (in thousands) Senior unsecured notes with interest at 9.375%.................. $ 85,000 $ 85,000 Note payable with interest at 6.4%.............................. 2,400 2,700 Note payable with interest at 7.4%.............................. 14,208 15,500 --------------- ------------- 101,608 103,200 Less current portion............................................ 5,075 6,367 --------------- ------------- $ 96,533 $ 96,833 =============== =============
In November 1997, we issued $115.0 million in 9.375 percent senior unsecured notes due November 1, 2007 ("2007 Notes"), of which we have repurchased $30.0 million. The terms of the 2007 Notes require that net cash proceeds in excess of $25 million from the sale of Geoilbent must be invested in the oil and gas business within one year of the sale, or any amount not so invested must be used to repay or prepay the 2007 Notes or certain debts of subsidiaries. At March 31, 2004, we and Benton-Vinccler were in compliance with all covenants under our respective borrowing obligations. NOTE 3 - COMMITMENTS AND CONTINGENCIES We have employment contracts with five executive officers which provide for annual base salaries, eligibility for bonus compensation and various benefits. The contracts provide for a lump sum payment as a multiple of base salary in the event of termination of employment without cause. In addition, these contracts provide for payments as a multiple of base salary and bonus, tax reimbursement and a continuation of benefits in the event of termination without cause following a change in control. By providing one year notice, these agreements may be terminated by either party on May 31, 2005. In July 2001, we leased for three years office space in Houston, Texas for approximately $11,000 per month. We lease 17,500 square feet of space in a California building that we no longer occupy under a lease agreement that expires in December 2004, all of which has been subleased for rents that approximate our lease costs. 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. The Court has abated the suit pending final judgment of a case pending in Louisiana to which we are not a party. 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. NOTE 4 - TAXES TAXES OTHER THAN ON INCOME Benton-Vinccler pays municipal taxes on operating fee revenues it receives for production from the South Monagas Unit. We have incurred the following Venezuelan municipal taxes and other taxes: 9
FIRST QUARTER 2004 2003 ------------ ----------- (in thousands) Venezuelan Municipal Taxes.................. $ 888 $ 513 Franchise Taxes............................. 129 27 Payroll and Other Taxes..................... 177 107 ------------ ----------- $ 1,194 $ 647 ============ ===========
TAXES ON INCOME At December 31, 2003, we had, for U.S. federal income tax purposes, operating loss carryforwards of approximately $58.4 million expiring in the years 2018 through 2022. Income tax expense represents foreign taxes attributable to our Venezuela operations. We do not provide deferred income taxes on undistributed earnings of international consolidated subsidiaries for possible future remittances as all such earnings are reinvested as part of our ongoing business. 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. Revenues from the Venezuela operating segment are derived from the production and sale of oil and natural gas. Operations included under the heading "United States and other" include corporate management, exploration and production activities, cash management and financing activities performed in the United States and other countries which do not meet the requirements for separate disclosure. All intersegment revenues, 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:
FIRST QUARTER 2004 2003 -------- -------- (in thousands) OPERATING SEGMENT REVENUES Oil and Gas Sales: Venezuela .................... $ 38,797 $ 18,825 -------- -------- Total oil and gas sales 38,797 18,825 -------- -------- OPERATING SEGMENT INCOME (LOSS) Venezuela .................... 10,263 3,538 Russia ....................... (537) (16,158) United States and other ...... (2,219) (2,838) -------- -------- Net income (loss) ..... $ 7,507 $(15,458) ======== ========
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ (in thousands) OPERATING SEGMENT ASSETS Venezuela ............... $ 250,920 $ 241,855 Russia .................. 369 237 United States and other . 182,123 180,768 --------- ------------ 433,412 422,860 Intersegment eliminations (50,917) (48,512) --------- ------------ $ 382,495 $ 374,348 ========= ============
10 NOTE 6 - RUSSIAN OPERATIONS GEOILBENT On September 25, 2003, we sold our minority equity investment in Geoilbent to Yukos Operational Holding Limited for $69.5 million plus the repayment of the subordinated loan and certain payables owed to us by Geoilbent in the amount of $5.5 million. Prior to the sale, we owned 34 percent of Geoilbent, a Russian limited liability company formed in 1991 to develop, produce and market crude oil from the North Gubkinskoye and South Tarasovskoye Fields in the West Siberia region of Russia. Our minority equity investment in Geoilbent was accounted for using the equity method and was based on a fiscal year ending September 30. Sales quantities attributable to Geoilbent for the three months ended December 31, 2002 were 1.5 million barrels (1.0 million domestic and 0.5 million export). Prices for crude oil for the three months ended December 31, 2002 averaged $14.65 ($10.09 domestic and $22.79 export) per barrel. Depletion expense attributable to Geoilbent for the three months ended December 31, 2002 was $3.32 per barrel. All amounts represent 100 percent of Geoilbent. Summarized financial information for Geoilbent follows: STATEMENT OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 2002 ------------------ (in thousands) Revenues Oil sales......................................... $ 21,921 Expenses Selling and distribution expenses................. 1,046 Operating expenses................................ 4,356 Impairment of oil and gas properties.............. 50,000 Depletion, depreciation and amortization.......... 5,691 General and administrative........................ 1,545 Taxes other than on income........................ 7,963 ----------------- 70,601 ----------------- Loss from operations..................................... (48,680) Other Non-Operating Income (Expense) Other income...................................... (574) Interest expense.................................. (479) Net gain on exchange rates........................ 113 ----------------- (940) ----------------- Loss before income taxes................................. (49,620) Income tax benefit....................................... (870) ----------------- Net loss................................................. $ (48,750) =================
Due to low Russian domestic oil prices, the net present value of Geoilbent's proved reserves at December 31, 2002 were lower than Geoilbent's unamortized capitalized cost of its oil and gas properties at that date. As a result, Geoilbent recorded a $50 million full cost ceiling test impairment in the three months ended December 31, 2002. As of September 30, 2002, the Geoilbent shareholders had provided Geoilbent with subordinated loans totaling $7.5 million (2.5 million from us). These loans were unsecured and repayable in January 2004. The loan by us was repaid as part of the sale of our minority equity investment in Geoilbent. 11 NOTE 7 - RELATED PARTY TRANSACTIONS We have entered into construction service agreements with Venezolana International, S.A. ("Vinsa"). Vinsa is an affiliate of Venezolana de Inversionesy Construcciones Clerico, C.A., which owns 20 percent of Benton-Vinccler. Vinsa provided $0.4 million and $0.1 million in construction services on our Venezuelan gas pipeline and field operations for the first quarter 2004 and 2003, respectively. We have entered into a consulting agreement with Oil & Gas Technology Consultants Inc. ("OGTC") to provide operational and technical assistance in Venezuela. OGTC is an affiliate of Venezolana de Inversionesy Construcciones Clerico, C.A., which owns 20 percent of Benton-Vinccler. Payment for services is due when earnings are not reinvested in Benton-Vinccler operations. Expenses related to this consulting agreement were $0.4 million and $0.3 million for the first quarter 2004 and 2003, respectively. 12 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", "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 substantial concentration of operations in Venezuela, the political and economic risks associated with international operations, the anticipated future development costs for our undeveloped proved reserves, 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 operation and development of oil and gas properties 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, basis risk and counterparty credit risk in executing commodity price risk management activities, the Company's ability to acquire oil and gas properties that meet its objectives, changes in operating costs, 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, 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 2003 Annual Report on form 10-K, which includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report. MANAGEMENT, OPERATIONAL AND FINANCIAL RESTRICTIONS On September 25, 2003, we closed the Sale and Purchase Agreement to sell our entire 34 percent minority equity investment in LLC Geoilbent ("Geoilbent"), to Yukos Operational Holding Limited, a Russian oil and gas company, for $69.5 million plus $5.5 million as repayment of intercompany loans and outstanding accounts payable owed to us by Geoilbent. The terms of our 9.375 percent senior unsecured notes due November 1, 2007 ("2007 Notes") require that net cash proceeds in excess of $25 million from the sale of Geoilbent must be invested in the oil and gas business within one year of the sale, or any amount not so invested must be used to repay or prepay the 2007 Notes or certain debts of subsidiaries. We intend to reinvest the proceeds in oil and gas growth opportunities in Russia and Venezuela, retire debt or use the proceeds for other corporate purposes. CAPITAL RESOURCES AND LIQUIDITY Debt Reduction. We currently have a significant debt principal obligation payable in 2007 ($85 million). We intend to continue to evaluate open market debt purchases to reduce our 2007 Notes outstanding. Working Capital. 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:
FIRST QUARTER ------------------------------ 2004 2003 ------------- -------------- (in thousands) Net cash provided by operating activities $ 10,231 $ 11,175 Net cash used in investing activities (1,316) (10,862) Net cash used in financing activities (336) (3,051) ------------- -------------- Net increase (decrease) in cash $ 8,579 $ (2,738) ============= ==============
At March 31, 2004, we had current assets of $198.5 million and current liabilities of $43.3 million, resulting in working capital of $155.2 million and a current ratio of 4.6:1. This compares with a working capital of $137.2 million and a current ratio of 4.0:1 at December 31, 2003. The increase in working capital of $18.0 million was primarily due to the addition of natural gas sales in Venezuela and the increase in oil sales volumes. 13 Cash Flow from Operating Activities. During the first quarter 2004 and 2003, net cash provided by operating activities was approximately $10.2 million and $11.2 million, respectively. The $1.0 million decrease was due to gas project payments and the crude oil put amortization. We will also be required to make annual interest payments of approximately $8.0 million on the 2007 Notes. Cash Flow from Investing Activities. During the first quarter 2004 and 2003, we had drilling and production-related capital expenditures of approximately $0.7 million and $12.5 million, respectively. The timing and size of capital expenditures for the South Monagas Unit are at our discretion. Our remaining capital commitments worldwide support our search for new acquisitions, are relatively minimal and are substantially at our discretion. We continue to assess production levels and commodity prices in conjunction with our capital resources and liquidity requirements. Cash Flow from Financing Activities. During the first quarter 2004, Benton-Vinccler repaid $1.6 million of its U.S. dollar debt. During the first quarter 2003, Benton-Vinccler repaid all of its Bolivar Denominated debt ($2.2 million) and $0.6 million of its U.S. dollar debt which was an acceleration of the next two principal payments. RESULTS OF OPERATIONS You should read the following discussion of the results of operations for the first quarter 2004 and 2003 and the financial condition as of March 31, 2004 and December 31, 2003 in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended 2003. FIRST QUARTER 2004 COMPARED WITH FIRST QUARTER 2003 Our results of operations for the first quarter 2004 primarily reflected the results for Benton-Vinccler in Venezuela, which accounted for all of our production and sales revenue. Our revenues increased $20.0 million, or 51 percent, during the first quarter 2004 compared with the first quarter 2003. This was due to the addition of natural gas sales as well as higher crude oil prices and volumes in Venezuela. The first quarter of 2003 was affected by the shut-in of the production in Venezuela during all of January and part of February due to the national work stoppage. Oil sales quantities for the first quarter 2004 from Venezuela were 21,000 barrels of oil per day ("BOPD") compared with 13,600 BOPD for the first quarter 2003. Oil revenue per barrel increased 5 percent (from $15.34 in 2003 to $16.10 in 2004) and oil sales quantities increased 36 percent (from 1.2 million barrels ["MMBbls"] of oil in 2003 to 1.9 MMBbls of oil in 2004) during the first quarter 2004 compared with the first quarter 2003. Natural gas sales quantities for the first quarter 2004 from Venezuela were 85 million cubic feet ("Mcf") of gas per day (7.8 billion cubic feet ["BCF"] of gas in 2004). Our operating expenses increased $0.8 million, or 11 percent, during the first quarter 2004 compared with the first quarter 2003. This was primarily due to increased production. Depletion, depreciation and amortization increased $4.6 million, or 57 percent, during the first quarter 2004 compared with the first quarter 2003 due to increased production at the South Monagas Unit. Depletion expense per barrel of oil equivalent produced from Venezuela during the first quarter 2004 was $2.41 compared with $2.57 during the first quarter 2003 primarily due to reduced future development costs. General and administrative expenses during the first quarter 2004 were relatively consistent with that of the first quarter 2003. Taxes other than on income increased during the first quarter 2004 compared with the first quarter 2003. This was primarily due to increased Venezuelan municipal taxes which are a function of oil and gas revenues. Interest expense during the first quarter 2004 was relatively consistent with that of the first quarter 2003. Net loss on exchange rates increased $1.1 million for the first quarter 2004 compared with the first quarter 2003. This was due to Venezuela Government currency controls imposed in February 2003 which fixed the official exchange rate at 1,600 Venezuelan Bolivars for each U.S. Dollar. In February 2004, the official exchange rate was adjusted to 1,920 Venezuelan Bolivars for each U.S. Dollar. We realized income before income taxes and minority interest of $15.7 million during the first quarter 2004 compared with income of $3.1 million in first quarter 2003. Income tax expense increased $4.5 million due to the higher pre-tax income. The effective tax rate remained relatively consistent from the first quarter 2003 compared to the first quarter 2004. The income attributable to the 14 minority interest increased $8.1 million for the first quarter 2004 compared with the first quarter 2003. This increase was due to the increased production of Benton-Vinccler. Equity in net earnings of affiliated companies decreased $0.1 million during the first quarter 2004 compared with the first quarter 2003. This was due to the elimination of Geoilbent equity income on September 25, 2003, the date of its sale. EFFECTS OF FOREIGN EXCHANGE RATES Our results of operations and cash flow are affected by changing oil prices. However, our South Monagas Unit oil sales are based on a fee adjusted quarterly by the percentage change of a basket of crude oil prices instead of by absolute dollar changes. This dampens both any upward and downward effects of changing prices on our Venezuelan oil sales and cash flows. If the price of oil increases, there could be an increase in our cost for drilling and related services because of increased demand, as well as an increase in oil sales. Fluctuations in oil and natural gas prices may affect our total planned development activities and capital expenditure program. On February 5, 2003, the Government of Venezuela fixed the exchange rate between the Bolivar and the U.S. dollar, and restricted the ability to exchange Venezuelan Bolivars for U.S. dollars and vice versa. Initially the exchange rate was fixed at 1,600 Venezuelan Bolivars for each U.S. dollar. On February 6, 2004, the official exchange rate was adjusted to 1,920 Venezuelan Bolivars for each U.S. dollar. Oil companies, such as Benton-Vinccler, are allowed to receive payments for oil sales in U.S. dollars and pay U.S. dollar-denominated expenses from those payments. The full amount of Benton-Vinccler's Bolivar denominated debt was repaid as of March 31, 2003. As of April 27, 2004, we have cash reserves of approximately $134.7 million and do not expect the Venezuelan currency conversion restriction to adversely affect our ability to meet our short-term loan obligations. CONCLUSION While we can give you no assurance, we believe that our cash flow from operations and $134.7 million of cash (as of April 27, 2004) will provide sufficient capital resources and liquidity to fund execution of our business plan including capital expenditures and semiannual interest payment obligations for the next 12 months. Our expectation is based upon our current estimate of projected price levels, ability to remit funds from Benton-Vinccler and an assumption that there will be no material interruption in production or delays in the time periods between the submission of quarterly invoices to PDVSA by Benton-Vinccler and the subsequent payments of these invoices by PDVSA. Future cash flows are subject to a number of variables including, but not limited to, the level of production, prices, as well as various economic and political conditions which have historically affected the oil and natural gas business. Prices for oil are subject to fluctuations in response to changes in supply, market uncertainty and a variety of factors beyond our control. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from adverse changes in oil and natural gas prices, interest rates, foreign exchange and political risk, as discussed in our Annual Report on Form 10-K for the year ended 2003. Information about market risk for the first quarter 2004 does not differ materially from that discussed in the 2003 annual report. ITEM 4. CONTROLS AND PROCEDURES The SEC, among other things, 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. Our principal executive officer and our principal financial officer have informed us that, based upon their evaluation, as of March 31, 2004, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act), they have concluded that those disclosure controls and procedures are effective. There have been no changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation, nor have we been required to take any corrective actions with regard to any significant deficiencies and material weaknesses. 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See our Annual Report on Form 10-K for the year ended 2003 for a description of certain legal proceedings. There have been no material developments in such legal proceedings since the filing of such Annual Report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Certificate of Incorporation filed September 9, 1988 (Incorporated by reference to Exhibit 3.1 to our Registration Statement (Registration No. 33-26333)). 3.2 Amendment to Certificate of Incorporation filed June 7, 1991 (Previously filed as an exhibit to our S-1 Registration Statement (Registration No. 33-39214)). 3.3 Amended and Restated Bylaws as of December 11, 2003 (Incorporated by reference to Exhibit 3.3 to our Form 10-K filed on March 9, 2004, File No. 1-10762). 4.1 Form of Common Stock Certificate (Previously filed as an exhibit to our S-1 Registration Statement) (Registration No. 33-26333). 31.1 Certifications accompanying Quarterly Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Peter J. Hill, President and Chief Executive Officer and Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer. 32.1 Certifications accompanying Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Peter J. Hill, President and Chief Executive Officer and Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer. (b) Reports on Form 8-K On January 8, 2004, we furnished a Report on Form 8-K for a press release dated January 8, 2004 providing certain financial and operating guidance assumptions for 2004. On March 4, 2004, we furnished a Report on Form 8-K for a press release dated March 4, 2004 providing results of operations for the 4th quarter and year ended December 31, 2003. On March 4, 2004, we filed a Report on Form 8-K announcing our intention to file a Form 10-Q/A with the SEC for the second and third quarters of 2003 to reflect changes to our consolidated financial statements for the periods affected. 17 SIGNATURES Pursuant to the requirements of 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 7, 2004 By: /S/Peter J. Hill ------------------------------------- Peter J. Hill President and Chief Executive Officer Dated: May 7, 2004 By: /S/Steven W. Tholen ------------------------------------- Steven W. Tholen Senior Vice President, Chief Financial Officer and Treasurer 18 EXHIBIT INDEX 3.1 Certificate of Incorporation filed September 9, 1988 (Incorporated by reference to Exhibit 3.1 to our Registration Statement (Registration No. 33-26333)). 3.2 Amendment to Certificate of Incorporation filed June 7, 1991 (Previously filed as an exhibit to our S-1 Registration Statement (Registration No. 33-39214)). 3.3 Amended and Restated Bylaws as of December 11, 2003 (Incorporated by reference to Exhibit 3.3 to our Form 10-K filed on March 9, 2004, File No. 1-10762). 4.1 Form of Common Stock Certificate (Previously filed as an exhibit to our S-1 Registration Statement) (Registration No. 33-26333). 31.1 Certifications accompanying Quarterly Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Peter J. Hill, President and Chief Executive Officer and Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer. 32.1 Certifications accompanying Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Peter J. Hill, President and Chief Executive Officer and Steven W. Tholen, Senior Vice President, Chief Financial Officer and Treasurer. EX-31.1 2 h15134exv31w1.txt CERTIFICATIONS PURSUANT TO SECTION 302 EXHIBIT 31.1 I, Peter J. Hill, certify that: 1. I have reviewed this quarterly 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 quarterly 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 officers 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)) for the registrant and we 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. 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 c. disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7, 2004 /s/ Peter J. Hill ---------------------------------- Peter J. Hill President and Chief Executive Officer I, Steven W. Tholen, certify that: 1. I have reviewed this quarterly 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 quarterly 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 officers 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)) for the registrant and we 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. 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 c. disclosed in this report any change in the registrant's internal controls over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7, 2004 /s/ Steven W. Tholen ---------------------------------- Steven W. Tholen Senior Vice President, Chief Financial Officer and Treasurer EX-32.1 3 h15134exv32w1.txt CERTIFICATIONS PURSUANT TO SECTION 906 EXHIBIT 32.1 ACCOMPANYING CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Not Filed Pursuant to the Securities Exchange Act of 1934 The undersigned Chief Executive Officer of Harvest Natural Resources, Inc. (the "Company") do hereby certify as follows: Solely for the purpose of meeting the apparent requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Quarterly Report on Form 10-Q, the undersigned hereby certify that this Quarterly Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 By: /s/ Peter J. Hill ------------------------------- Peter J. Hill President and Chief Executive Officer ACCOMPANYING CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Not Filed Pursuant to the Securities Exchange Act of 1934 The undersigned Chief Financial Officer of Harvest Natural Resources, Inc. (the "Company") do hereby certify as follows: Solely for the purpose of meeting the apparent requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Quarterly Report on Form 10-Q, the undersigned hereby certify that this Quarterly Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 By: /s/ Steven W. Tholen ------------------------------- Steven W. Tholen Senior Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----