RELEASE: May 6, 2010
HKN Announces Net Income and Positive Cash Flow from Operations in First Quarter 2010
Dallas, Texas – May 6, 2010 – HKN, Inc. (NYSE Amex:HKN) (“HKN”) today reported its interim financial results for the three months ended March 31, 2010. HKN reported net income of $332 thousand during the first three months of 2010 as compared to a net loss of $1.1 million in the first three months of 2009.
Operating Activities and Financial Condition Update:
During the first quarter 2010, oil and natural gas prices increased as compared to the prior year period. Oil prices more than doubled from an average of $37.40 per barrel in the first quarter 2009 to $76.51 per barrel in the first quarter 2010. Prices realized for natural gas sales also increased, averaging $7.13 per mcf in the first quarter 2010 compared to $4.32 per mcf during the first quarter 2009.
Our oil and gas operating expense decreased 27%, decreasing from approximately $1.8 million during the first quarter 2009 to $1.3 million during the first quarter 2010. The majority of this decrease is due to the approval of a severance tax refund claim for certain inactive well exemptions for the Main Pass field.
General and administrative expenses increased 44% from $551 thousand for the first quarter 2009 to $796 thousand for the first quarter 2010 primarily due to consultant and travel costs associated with business development activities connected with the consolidation of BriteWater International LLC (“BWI”) which we began consolidating during the third quarter of 2009. BWI is a privately-held company with a patented oilfield emulsion breaking “OHSOL” technology. Remaining general and administrative costs were slightly lower as compared to the prior year period.
Our cash balance at March 31, 2010 was $7.1 million, and we continued to have no debt outstanding during the period. Our working capital also increased as of March 31, 2010 as compared to December 31, 2009.
Main Pass 35 Field Update:
We have an average 91% interest in Main Pass 35 and are the field operator. Gross production during the first quarter 2010 averaged approximately 378 barrels of oil equivalent (“boe”) per day. During the first quarter 2010, colder than average temperatures contributed to lower producing volumes due to cold weather freeze-ups of the compressors located on our Main Pass 35 facility. In order to increase our production and enhance the value of our reserves at Main Pass 35, we are planning the assessment of at least six inactive wells in the second quarter 2010. We anticipate that at least one of these wells will be added to production during the second quarter.
Creole Field Update:
We hold an average 15% non-operated working interest in this offshore field. Gross daily production from the Creole wells (nine completions) averaged approximately 688 boe per day during the first quarter 2010. One major workover to replace tubing and one re-entry of an abandoned well were successfully completed in the first quarter 2010. The previously abandoned SL2850-A5 well was re-entered and tested at gross rates in excess of 100 boe per day. The well was awaiting installation of new flowlines at the end of the first quarter. At the suggestion of the new operator, a program was designed and implemented to pressure test a number of wells in the field. This data is necessary for the proper configuration of the gas lift system and also for diagnostic purposes to determine if a stimulation program would be beneficial in order to increase production from the field. The data gathered in this program has led to the determination that several of the wells would benefit from acid stimulation, and the operator is currently gathering bids to carry out such work during the second quarter 2010.
Investment in Global Update:
At March 31, 2010 and December 31, 2009, we owned approximately 34% of Global Energy Development PLC (“Global”) ordinary shares. Our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows (in thousands, except for share amounts):
The foreign currency translation adjustment of approximately $1.1 million and the unrealized gain on investment of $6.5 million for these changes in market value between the two periods were recorded to other comprehensive income in stockholders’ equity during the three months ended March 31, 2010.
HKN’s operating results for the three months ended March 31, 2010 and 2009 are as follows (in thousands except for share and per share amounts)
Balance Sheet Summary (in thousands)
- Current ratio is calculated as current assets divided by current liabilities.
- Working capital is the difference between current assets and current liabilities.
NON-GAAP FINANCIAL MEASURE
Reconciliation of Operating Margin to Net Income (Loss) (in thousands)
believes the presentation of this non-GAAP financial measure, in connection
with the results for the three months ended March 31, 2010, 2009, provides
useful information to investors regarding our results of operations. Management
also believes that this non-GAAP financial measure provides a picture of our
results that is comparable among reporting periods and provides factors that
influenced performance during the period under the report. This non-GAAP
financial measure should be considered in addition to, and not as a substitute
for, financial measures prepared in accordance with GAAP.
HKN, Inc. is an independent energy
company engaged in the development and production of crude oil, natural gas and
coalbed methane assets and in the management of investments in energy industry.
Additional information may be found at the HKN Web site, www.hkninc.com. Please e-mail all investor
inquiries to Investorrelations@hkninc.com.
Certain statements in
this announcement, such as “future opportunities,” and inferences derived
therefrom may be regarded as “forward-looking statements” within the meaning of
the Securities Exchange Act of 1934, as amended. These forward-looking
statements are based on the opinions and estimates of management at the time
the statements are made. Management’s current view and plans, however, are
subject to numerous known and unknown risks, uncertainties and other factors
that may cause the actual results, performance, timing or achievements of HKN
to be materially different from any results, performance, timing or
achievements expressed or implied by such forward-looking statements. The
various uncertainties, variables, and other risks include those discussed in
detail in the Company’s SEC filings, including the Annual Report on Form 10-K
filed on February 18, 2010. HKN undertakes no duty to update or revise any
forward-looking statements. Actual results may vary materially.