Board Committees

Harvest Natural Resources, Inc.
AUDIT COMMITTEE CHARTER


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Purpose

The Harvest Natural Resources, Inc. Audit Committee (the "Committee") is appointed by the Board to assist the Board in oversight of (1) the Company's accounting and financial reporting policies and practices, (2) the integrity of the financial statements of the Company, (3) the independent auditor's qualifications, independence, and objectivity, (4) the performance of both the Company's internal audit function and the Company's independent registered public accounting firm, and (5) the compliance by the Company with legal and regulatory requirements. The Committee will act as a liaison between the Company's independent registered public accounting firm and the Board.


The Company and the Board recognize that financial management members and the independent registered public accounting firm have more time, knowledge and detailed information concerning the Company than do Committee members. Consequently, in performing its functions, the Committee is not expected to provide any expert or special assurance as to the Company's financial statements or any professional certification as to the independent registered public accounting firm's work. The independent registered public accounting firm is ultimately accountable to the Board and the Committee, as representatives of the Company's shareholders. The Committee and the Board have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent registered public accounting firm(or, if applicable, to nominate the independent registered public accounting firm to be proposed for shareholder approval in any proxy statement).

Committee Membership

The Audit Committee shall consist of no fewer than three members and all members of the Audit Committee must be members of the Company's Board of Directors and must be independent. Independence shall be determined in accordance with the Company's Guidelines for Corporate Governance and the requirements as established from time to time by applicable law or rule, including the New York Stock Exchange and the Securities Exchange Commission. Each member of the Audit Committee shall be financially literate or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. While there is no fixed definition or criteria in determining financial literacy, it shall generally be considered to mean the ability to read and understand fundamental financial statements, including the Company's balance sheet, income statement, and cash flow statement. At least one member of the Audit Committee must be determined by the Board to qualify as a "financial expert" as that term is defined in Commission rules. In addition, at least one member of the Audit Committee must be determined by the Board, in the exercise of its business judgment, to have accounting or related financial management expertise. The Board may presume that a person determined to be a financial expert has accounting or related financial management expertise.


Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies, unless the Board determines that such simultaneous service will not impair the ability of such member to effectively serve on the Company's Audit Committee.


The members of the Audit Committee shall be appointed each year by the Board at its Annual Board of Directors meeting, based upon the recommendations of the Nominating and Corporate Governance Committee. The Board shall also appoint a chair to the Committee. Audit Committee members may be removed by the Board, based upon a recommendation of the Nominating and Corporate Governance Committee.


Meetings

The Audit Committee shall meet at such times and from time to time as it deems appropriate, but not less frequently than quarterly. The Committee is empowered to hold special meetings as circumstances require. The Audit Committee will offer to meet periodically, but no less often than quarterly, with management, the Company's internal auditors and the independent registered public accounting firm in separate executive sessions. The Audit Committee may request any officer or employee of the Company or the Company's outside counsel or independent registered public accounting firm to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.


Agendas shall be circulated to Committee members and relevant management personnel along with background information on a timely basis prior to the Committee meetings. Minutes of each meeting shall be prepared by the Secretary of the Committee, reviewed by the Committee and made available to the Board.


Officers and other employees of the Company shall attend meetings upon the invitation of the Committee Chair.


Committee Authority and Responsibilities

The Audit Committee shall have the sole authority to appoint or replace the independent registered public accounting firm (subject, if applicable, to shareholder ratification) and to approve any significant non-audit relationship with the independent registered public accounting firm. The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The internal auditor and the independent registered public accounting firm shall report directly to the Audit Committee.


The Audit Committee shall pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, subject to the de minimus exceptions for non-audit services described in Commission rules and regulations which are subsequently ratified by the Audit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittees to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.


The Audit Committee shall have access to any Company records or employee and consultants necessary to carry out its duties and responsibilities. The Audit Committee shall have the sole authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent registered public accounting firm for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.


The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall annually conduct a self-assessment program to review how effectively the Audit Committee members are meeting their responsibilities.


The Audit Committee shall oversee the preparation of the Audit Committee report required by the rules of the Securities and Exchange Commission (the "Commission" to be included in the Company's annual proxy statement.


Financial Statement and Disclosure Matters

  1. Review and discuss with management, the internal audit manager or consultants and the independent auditor the annual audited financial statements, including disclosures made in management's discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Company's Form 10-K.
  2. Review and discuss with management and the independent auditor the Company's quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent registered public accounting firm's review of the quarterly financial statements.
  3. Discuss with management and the independent registered public accounting firm significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including any significant changes in the Company's selection or application of accounting principles, any major issues as to the adequacy of the Company's internal controls and any special steps adopted in light of material control deficiencies.
  4. The Committee shall review with management, the Company's internal auditors and the independent registered public accounting firm, the internal accounting and financial controls of the Company's foreign and other operations to determine whether such internal controls are adequate, effective and in compliance with the regulatory reporting requirements, if any, of the particular country. The Committee shall report any significant deficiencies to the full Board along with curative recommendations.
  5. Review and discuss quarterly reports from the independent registered public accounting firm on: a. All critical accounting policies and practices to be used. b. All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent registered public accounting firm. Other material written communications between the independent registered public accounting firm and management, such as any management letter or schedule of unadjusted differences.
  6. The Committee shall review with management and the independent registered public accounting firm the internal accounting reports and quarterly and annual financial statements along with related footnotes including major issues regarding accounting principles and auditing standards and practices as well as the adequacy of internal controls that could significantly affect the Company's financial statements, management discussion and analysis and other sections of the Annual Report before its release. The Committee shall also consider whether the information is adequate and consistent with members' knowledge about the Company and its operations. The Committee should discuss with management the "quality of earnings" from a subjective as well as objective standpoint.
  7. Discuss with management the Company's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made).
  8. Discuss with management and the independent registered public accounting firm the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company's financial statements.
  9. Discuss with management, internal auditor and the independent registered public accounting firm, the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company's risk assessment and risk management policies.
  10. Discuss with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
  11. Review disclosures made to the Audit Committee by the Company's CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls.

Oversight of the Company's Relationship with the
Independent Registered Public Accounting Firm

  1. Evaluate and recommend the selection, retention or termination of independent registered public accounting firm to the Board and, in connection therewith, to approve the proposed fees and other compensation, if any, to be paid to the auditors for audit and non-audit services.
  2. Review and evaluate the experience and qualifications of the lead partner and senior members of the independent registered public accounting firm team.
  3. Obtain and review a report from the independent registered public accounting firm at least annually regarding (a) the independent registered public accounting firm's internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent registered public accounting firm and the Company. Actively engage the independent registered public accounting firm in a dialogue with respect to any disclosed relationships or services that may affect their objectivity and independence. Review and evaluate the lead independent audit partner. Evaluate the qualifications, performance and independence of the independent registered public accounting firm, including considering whether the registered public accounting firm's quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the registered public accounting firm's independence, and taking into account the opinions of management and the Company's internal auditor. The Audit Committee shall present its conclusions with respect to the independent registered public accounting firm to the Board.
  4. Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
  5. Set policies for the Company's hiring of employees or former employees of the independent registered public accounting firm who participated in any capacity in the audit of the Company.
  6. Discuss with the national office of the independent registered public accounting firm issues on which they were consulted by the Company's audit team and matters of audit quality and consistency.
  7. Meet with the independent auditor prior to the annual audit and any special audits to discuss the planning, scope and staffing of the audit.
  8. Discuss any matters of concern relating to the Company's financial statements, including any adjustments to such statements recommended by the independent registered public accounting firm, or other results of said audit(s).
  9. Consider the independent registered public accounting firm's comments with respect to the Company's financial policies, reporting procedures, internal accounting controls and management's responses thereto.
  10. Review the form of opinion the independent registered public accounting firm propose to render to the Board and shareholders.
  11. Review with the independent registered public accounting firm any problems or difficulties the auditor may have encountered. Such review should include: a. Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, and any disagreements with management. b. Any changes in the planned scope of the audit. c. The effectiveness of the system to monitor compliance. d. Recommend disciplinary actions as warranted. e. Review with the independent registered public accounting firm, the chief financial officer, controller, and internal audit manager, the coordination of audit efforts to assure the completeness of coverage, reduction of redundant efforts, and the effective use of audit resources.
  12. Evaluate, together with the Board, the performance of the independent registered public accounting firm.

Oversight of the Company's Internal Audit Function

  1. Review the selection, replacement and dismissal of the internal audit manager. Review the annual internal audit budget, staff levels, charter and compliance with the Institute of Internal Auditor's Standards for the Professional Practice of Internal Auditing (standards).
  2. Review the significant reports to the Committee prepared by the internal auditor and management's responses. Discuss any difficulties the internal audit team encountered in the course of audits including any restrictions on the scope of their work or access to information, or change required in the scope of their internal audit.
  3. Discuss with the independent registered public accounting firm and management the internal auditor's responsibilities and any recommended changes in the planned scope of the internal audits. Create an agenda for the ensuing year or review and approve the agenda submitted by the internal audit manager.

Compliance Oversight Responsibilities

  1. Obtain from the independent registered public accounting firm assurance that Section 10A(b) of the Exchange Act has not been implicated.
  2. Oversee that the Company, its subsidiaries, and affiliates comply with applicable regulatory requirements, including, but not limited to the Securities Act of 1993, as amended, and the Securities and Exchange Act of 1934, as amended (the "Securities Acts").
  3. At least once a year the Committee shall conduct a compliance review of the Code of Business Conduct and Ethics (the "Code") with appropriate officers of the Company. The Committee shall also receive any reports of violations of the Code and, in consultation with the General Counsel, determine the extent and scope of any investigation to be undertaken as a result. Any findings and recommendations of the Committee will be referred to the Board for final action. It is recognized that the handling and disposition of some types of violations or issues under the Code will fall within the responsibilities of other Board Committees. Accordingly, the Committee shall have the discretion to refer violations or issues arising under the Code to other Committees of the Board for further handling.

    The Committee will review any requests for waivers of the Code and make recommendations to the Board on such requests.
  4. Obtain reports from management, the Company's internal auditor and the independent registered public accounting firm that the Company and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements. Review reports and disclosures of insider and affiliated party transactions. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations.
  5. Review procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
  6. Investigate improprieties or suspected improprieties in the Company's operations brought to the attention of the Committee.
  7. Review with management and the independent registered public accounting firm the effect of regulatory and significant accounting and reporting issues and understand their impact on the Company's financial statements.
  8. Review and investigate any violations of the Company's Insider Trading Policy brought to the Committee's attention and report the Committee's findings to the Board with recommendations for appropriate action.
  9. Discuss with management and the independent registered public accounting firm any correspondence with regulators or governmental agencies and any published reports which raise material issues regarding the Company's financial statements or accounting policies.
  10. Review the independent registered public accounting firm management recommendations and management responses.
  11. Discuss with the Company's General Counsel legal matters that may have a material impact on the financial statements or the Company's compliance policies.
  12. Report regularly to the Board any issues that arise with respect to the quality or integrity of the Company's financial statements, the Company's compliance with legal or regulatory requirements, the performance of the Company's internal audit function and the performance and independence of the Company's independent registered public accounting firm.
  13. Review with management the policies and procedures with respect to officeres' expense accounts and prequisities, including their use of corporate assets, and consider the results of any review of these areas by the internal auditor of the independent registered public accounting firm.
  14. Review with the independent registered public accounting firm and internal audit manager the internal controls on computerized information system controls and security.

Investor Relations

  1. Understand and assess the Company's processes and policies for communication with shareholders, institutional investors, analysts and brokers.
  2. Meet with the Chief Executive Officer and Chief Financial Officer to obtain an understanding of the investor community's overall views and concerns about the Company.

Limitations of Audit Committee's Role

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits; , determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations; certify the Company's financial statements; or guarantee the independent registered public accounting firm's report. Moreover, the Audit Committee is not the sole body responsible for risk assessment and management. These are the responsibilities of management and the independent registered public accounting firm.


The mere designation of a member of the Committee as a financial expert shall not impose a higher degree of individual responsibility or obligation on such member, nor does such designation decrease the duties and obligations of other Committee members or the Board. Furthermore, a member designated as a financial expert shall not be considered an expert for the purposes of Section 11 of the Securities Act solely as a result of such designation. The role of a financial expert is to assist the Committee in overseeing the audit process, not to audit the Company.


Indemnification

The Company shall indemnify, in accordance with and to the fullest extent now or hereafter permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceedings, whether civil, criminal, administrative or investigative, (including, without limitation, an action by or in the right of the Company) by reason of his acting as a member of the Committee against any liability or expense actually or reasonably incurred by such person; provided that the member acted in good faith and in a manner he or she reasonably believed to be lawful and in or not opposed to the best interests of the Company. This right to indemnity held by the members of the Committee is in addition to any other remedies afforded the members under the Company's Certificate and Bylaws.


Miscellaneous

The material in this Charter is not soliciting material, is not deemed filed with the Commission and is not incorporated by reference in any filing of the Company under the Securities Act, whether made before or after the date this Charter is first included in the Company's annual proxy statement filed with the Commission and irrespective of any general incorporation language in such filing.


This Charter may not be amended, modified or supplemented except by a writing signed and adopted by the incumbent members of the Committee and approved by the Board.

Following each meeting, the chair of the Audit Committee, on behalf of the Committee, will report to the Board on key issues, recommending items for approval and/or remedial action when required.


Copies of the minutes of all Committee meetings will be filed with the Board at the next Board meeting after a meeting is held (these may still be in draft form).


The Senior Vice President and Chief Financial Officer will be the key contact for the Committee and will assign the staff resources appropriate to assist the Committee to carry out its responsibilities. This Charter may be modified from time to time at the sole discretion of the Board of Directors.


Adopted:

Audit Committee: December 7, 2005

Board of Directors: December 8, 2005