UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

For the Quarterly Period Ended June 30, 2015

 

or

 

 

for the transition period from _____ to _____

 

Commission File No. 1-10762

______________________________

 

Harvest Natural Resources, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

(281) 899-5700

(Registrant's Telephone Number, Including Area Code) 

 

Not Applicable

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒  No   ☐

 

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

 

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

 

 

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

At August 5, 2015, the Registrant had 42,747,567 shares of its common stock, par value $0.01 per share, outstanding.

 

 

 

 

 

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HARVEST NATURAL RESOURCES, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

 

 

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except per share data)

 

 

See accompanying notes to consolidated  condensed financial statements.

 

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(Unaudited)

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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Supplemental Schedule of Noncash Investing and Financing Activities:

 

 

 

See accompanying notes to consolidated condensed  financial statements.

 

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HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

Note 1 – Organization

 

Interim Reporting

 

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

 

Organization

 

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

Our Venezuelan interests are owned through our 51 percent ownership interest in Harvest-Vinccler Dutch Holding B.V., a Dutch private company with limited liability (“Harvest Holding”). Our ownership of Harvest Holding is through HNR Energia B.V. (“HNR Energia”), in which we have a direct controlling interest.  The remaining 49 percent ownership interest of Harvest Holding is owned by Oil & Gas Technology Consultants (Netherlands) Cooperatie U.A. (“Vinccler”)  (20 percent) and Petroandina Resources Corporation N.V. ("Petroandina") (29 percent); Petroandina is a wholly owned subsidiary of Pluspetrol Resources Corporation B.V. (“Pluspetrol”). Harvest Holding owns 100 percent of HNR Finance B.V. (“HNR Finance”), and HNR Finance owns a 40 percent interest in Petrodelta, S.A. (“Petrodelta”). Petrodelta is the Venezuelan mixed company formed in 2007 for the purpose of owning and operating certain oil and gas interests in Venezuela. The other 60 percent of Petrodelta is owned by CorporacionVenezolana del Petroleo A.S. (“CVP”) and PDVSA Social S.A., both companies owned and controlled by the Government of Venezuela through Petroleos de Venezuela S.A. (“PDVSA”). Thus, we own an indirect 20.4 percent of Petrodelta (51 percent of 40 percent).  In addition to its 40 percent interest in Petrodelta, Harvest Holding also indirectly owns 100 percent of Harvest Vinccler, S.C.A. (“Harvest Vinccler”), which currently assists us in the oversight of our investment in Petrodelta and in negotiations with PDVSA.

Purchase Agreement

On June 19, 2015, the Company and certain of its domestic subsidiaries entered into a securities purchase agreement (the “Purchase Agreement”) with CT Energy Holding SRL (“CT Energy”), a  Venezuelan-Italian consortium organized as a Barbados Society with Restricted Liability, under which CT Energy purchased certain securities of the Company and acquired certain governance rights. Certain aspects of the transactions contemplated by the Purchase Agreement are subject to approval by the Company’s stockholders.  Harvest immediately received gross proceeds of $32.2 million from the sale of the securities, as described below.   

Terms of the transaction include:

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

Note 2 – Liquidity

Historically, prior to the transaction pursuant to the Purchase Agreement, our primary ongoing source of cash had been dividends from Petrodelta, issuance of debt and the sale of oil and gas properties. Our primary use of cash has been to fund oil and gas exploration projects, principal payments on debt, interest, and general and administrative costs. We require capital principally to fund the exploration and development of new oil and gas properties. As is common in the oil and gas industry, we have various contractual commitments pertaining to exploration, development and production activities.

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

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

On June 19, 2015, CT Energy purchased from the Company certain securities consisting of 9% and 15%  notes and the CT warrant to purchase 34.1 million common shares. Upon closing the Company immediately received gross proceeds of $32.2 million from the sale of the 9% and 15% notes.  The Company used  $9.7 million of these proceeds to repay its existing debt plus accrued interest and certain financing fees. The remaining proceeds will be used to position the Company for long-term growth, both in Venezuela and Gabon as well as to fund general and administrative costs.  See Note 1 – Organization for further information. 

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

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

 

As of December 31, 2014, HNR Energia had a note payable to Petroandina of $7.6 million. Principal was due by January 1, 2016.  Interest payments are quarterly beginning on December 31, 2014.  On June 23, 2015 the Company repaid the note payable of $7.6 million plus accrued interest of $0.4 million.

 

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation

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

 

Investment in Petrodelta

 

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

 

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Oil and Gas Properties

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

 

 

 

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

 

 

 

Other Administrative Property

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

Other Assets

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

 

 

Capitalized Interest

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

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Fair Value Measurements

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

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, accounts receivable, stock appreciation rights, restricted stock units, debt, embedded derivatives and warrant derivative liabilities. We maintain cash and cash equivalents in bank deposit accounts with commercial banks with high credit ratings, which, at times may exceed the federally insured limits. We have not experienced any losses from such investments. Concentrations of credit risk with respect to accounts receivable are limited due to the nature of our receivables. In the normal course of business, collateral is not required for financial instruments with credit risk.  The estimated fair value of cash and cash equivalents and accounts receivable approximates their carrying value due to their short-term nature (Level 1).  The following tables set forth by level within the fair value hierarchy our financial liabilities that were accounted for at fair value as of June 30, 2015 and December 31, 2014.

 

 

 

 

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

Derivative Financial Instruments

 

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

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

 

During the three and six months ended June 30, 2015, there was a change in the fair value of warrant liability from the CT Energy transaction of $2.4 million as reflected in our consolidated condensed statement of operations and comprehensive loss as derivative income.  During the three and six months ended June 30, 2014, there were no changes in the fair value of the warrants within each respective period.  During the three and six months ended June 30, 2015, there was a change in the fair value of embedded derivative liabilities of $0.5 million as derivative income and a change in the fair value of  the embedded derivative asset of $0.1 million of derivative income as reflected in our consolidated condensed statement of operations and comprehensive loss.

 

Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

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

 

 

 

 

 

During three and six months ended June 30, 2015 no transfers were made between Level 1, Level 2 and Level 3 liabilities or investments.  During three and six months ended June 30, 2014,  no transfers were made between Level 1, Level 2 and Level 3 liabilities or investments.

Share-Based Compensation

We use a fair value based method of accounting for stock-based compensation. We utilize the Black-Scholes option pricing model to measure the fair value of stock options and SARs. Restricted stock and RSUs are measured at their intrinsic values.

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Income Taxes

Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns, and (b) operating loss and tax credit carryforwards. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.

We classify interest related to income tax liabilities and penalties as applicable, as interest expense.

Since December of 2013 we have provided deferred income taxes on a portion of the undistributed earnings of our foreign subsidiaries as we are unable to assert that those earnings would be permanently reinvested, nor otherwise could be repatriated in a tax free manner, as part of our ongoing business.

As the conversion feature of the 9% Note was reasonably expected to be exercised at the time of the note’s issuance due to the conversion price being in-the-money, the interest on the 9% Note is expected to be non-deductible to the Company under Internal Revenue Code (“IRC”) 163(l).  The 15% note was issued, for income tax purposes, with original issue discount (“OID”).  OID generally is deductible for income tax purposes.  However, if the debt instrument constitutes an “applicable high-yield discount obligation” (“AHYDO”) within the meaning of IRC Section 163(i)(1), then a portion of the OID likely would be non-deductible pursuant to IRC Section 163(e)(5).  Our analysis of on the 15% Note is that the note is likely to be an AHYDO; consequently, a portion of the OID likely will be non-deductible for income tax purposes.

 

Noncontrolling Interests

 

Changes in noncontrolling interest were as follows:

New Accounting Pronouncements

 

In April 2014, FASB issued ASU No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which is included in ASC 205 “Presentation of Financial Statements” and ASC 360 “Property, Plant, and Equipment.” This update changes the criteria for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the revised standard, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (2) an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. Under current U.S. GAAP, an entity is prohibited from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after the disposal. The new guidance eliminates these criteria. The guidance does not change the presentation requirements for discontinued operations in the statement where net income is presented. Also, the new guidance requires the reclassification of assets and liabilities of a discontinued operation in the statement of financial position for all prior periods presented. The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation, an entity’s continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation. The amendment should be applied prospectively; however, early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue. The amendment is effective for annual periods beginning on or after December 15, 2014 and interim periods within annual periods beginning on or after December 15, 2015. This guidance will not impact disposals (or classifications as held for sale) in periods prior to the period of adoption. We elected an early adoption of this guidance at September 30, 2014, which we have applied to the treatment of our Indonesia interests.  See Note 9 – Indonesia for further information.

 

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

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

 

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

 

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

 

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

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

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

In November 2014, the FASB issued Accounting Standards Update No. 2014-16 (“ASU 2014-16”), Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity, which requires the use of the “whole instrument approach,” to determine whether the host contract in an hybrid instrument in the form of a share is more akin to debt or equity.  The ASU also provides examples and implementation guidance.  It is effective for fiscal years beginning after December 15, 2015; however we have elected to early adopt the provisions of ASU 2014-16.

 

 

 

Note 4 – 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. 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.

 

 

 

 

 

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

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

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

 

Note 5 – Dispositions

Discontinued Operations

Oman

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

 

Colombia

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

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