Jan. 18 (Bloomberg) -- Harvest Natural Resources Inc., a U.S.- based oil and natural-gas exploration company that gets all of its revenue from Venezuela, suspended drilling in that country after the company's 2005 business plan was rejected by state oil company Petroleos de Venezuela SA. Harvest Natural shares fell as much as 36 percent.

The suspension could affect production, earnings and cash flow this year if it's not overturned, Houston-based Harvest Natural said in a statement today. Harvest Natural, which operates the field for Petroleos de Venezuela, said the suspension involves seven wells that the company had hoped to drill at the South Monagas field to boost output.

Shares of Harvest Natural fell $5.36 to $11.56 as of 12:42 p.m. in composite trading on the New York Stock Exchange. They fell as low as $10.80 in earlier trading.

``What is going on here is not in the spirit of our agreement,'' Harvest Natural President and Chief Executive Officer Peter J. Hill said in a conference call today. Hill said Petroleos de Venezuela also lowered the company's production target to 20,400 barrels a day, down from an earlier approved 32,000 barrels a day.

Joint Ventures

Venezuelan Energy Minister and Petroleos de Venezuela President Rafael Ramirez has repeatedly stated the country wants to convert operating contracts, such as the one Harvest Natural holds, into joint ventures in which Petroleos de Venezuela would hold a majority stake.

Ramirez also said last year Petroleos de Venezuela might reject business plans that sought to increase output if joint ventures weren't created. He said Jan. 13 at a press conference that the business plan for one company had been rejected but didn't name the company.

``It's one of the smaller companies,'' Ramirez said. ``We're talking about this now. We will have frank discussions about this.''

Petroleos de Venezuela has 32 fields operated and managed by private companies. The companies, which include ChevronTexaco Corp. and Repsol YPF SA, are paid a fee for each barrel produced exceeding the field's production level when they received it. The fees, which may vary during contract length, are to cover capital investments and profit margins for the investors.

`Marginal Fields'

``When we signed these awards, Petroleos de Venezuela had better investment options,'' Jose Toro Hardy, an oil analyst and former Petroleos de Venezuela board member, said in a telephone interview today. ``These were marginal fields.''

Harvest Natural is producing about 29,000 barrels of oil and 80 million cubic feet of gas from South Monagas. The company has pumped oil from the field, which is in the eastern state of Monagas, since 1992.

``We don't understand why PDVSA would try to restrict future production and investment,'' said Hill. ``We have little idea where this will end.''

Venezuela, the world's fifth-largest oil exporter, receives about 500,000 barrels of its 2.6 million barrels of daily production from fields managed by private companies, such as Harvest Natural, the state oil company said in November.

Harvest Natural is also in talks to form a joint venture with Petroleos de Venezuela to manage the Temblador and El Salto fields in eastern Venezuela. Hill said those talks are continuing.

To contact the reporter on this story: Peter Wilson in Caracas at pewilson@bloomberg.net.

Last Updated: January 18, 2005 12:46 EST