RELEASE: February 17, 2011
HKN Announces Annual Results for 2010
Texas – February 17, 2011 – HKN,
Inc. (NYSE Amex: HKN) (“HKN”) today reported its annual financial results for
the year ended December 31, 2010. HKN
reported net income attributable to the Company of $606 thousand for the year
ended December 31, 2010 as compared to a net loss of $3.1 million during 2009.
2010 Recap and 2011 Outlook
During 2010, commodity pricing averaged well above 2009 levels, and our
oil prices received rose approximately 34%, while gas prices received rose
approximately 26%. Oil field service
costs remained fairly stable, and our overall oil and gas operating expenses
decreased 9%. These factors combined to
result in a 110% increase in our oil and gas operating profit during 2010. For 2011, we plan to keep our focus on
maintaining or improving our working capital and cash flow from operations.
We limited our discretionary capital expenditures for 2010 to projects
that enhance our current production and facilities, and focused our efforts on
our two largest fields, Main Pass and Creole.
At our Main Pass 35 field, which is located off the coast of Louisiana,
we performed various process and structural upgrades which will allow the
facility to process additional production volumes in the future. We also
participated in pipeline modifications to the third party gas sales line which
serves our facility. At our Creole field, which is located in Louisiana, we
participated in production enhancement studies on several wells and two well recompletions.
These production enhancement studies led to acid stimulation programs for four
of the wells in the field which resulted in increased production rates. We expect production enhancement studies and
associated stimulation programs will be completed on the remaining Creole wells
during the first quarter of 2011.
We issued 544 thousand restricted shares of our common stock and paid
$531 thousand during 2010 to acquire an additional 32.59% interest in BriteWater
International, LLC (“BWI”), bringing our ownership interest to 52.09% at
December 31, 2010. BWI is a private
company which we initially invested in during 2009 and holds patents to the
emulsion-breaking OHSOL technology. The
OHSOL technology is an environmentally-clean process that can be used to purify
oilfield emulsions by breaking and separating the emulsions into oil, water and
solids. BWI is currently pursuing
opportunities to secure contracts for various applications of the OHSOL
technology in both the international and domestic oil and gas industry.
We sold the remaining 9.9 million shares of our investment in the
publicly-traded Canadian company, Spitfire Energy, Ltd. (“Spitfire”) during
2010. We received cash proceeds of $3.3 million and recorded a gain on sale of
investment in our statement of operations of $1.9 million.
During the year we also extended financing to Global Energy Development,
Ltd, (“Global”) and funded additional amounts under the BWI note receivable. Global
is a petroleum exploration and production company focused on Latin America, and
their shares are traded on the AIM, a market operated by the London Stock
Exchange. Our investments in Global and BWI represent a
significant concentration of our asset value, and our additional investment
through this debt financing supports continued growth and development for each
of these businesses while allowing us to earn 8% on the BWI loan and 10% on the
Global loan. Both loans are secured by
the assets of the respective companies. The
outstanding principal balances on the notes receivable from Global and BWI were
$5 million and $1.9 million, respectively, as of December 31, 2010. The BWI note receivable and associated
interest income and expense is eliminated in our consolidated financial
statements. During February of 2011, we
agreed to extend the maturity date of the Global loan by one year, resulting in
a new maturity date of September 2012 and an increased interest rate of 10.50%.
Each year we evaluate our assets to determine which may have reached its
full potential, do not have an expectation of near-term value enhancement, or
represent a disproportionate concentration of value in one asset and determine whether
such assets should be targeted for monetization. We continue to have access to capital, and we
anticipate our operating cash flow and other capital resources will be
sufficient to adequately fund our planned capital requirements over the near
term. We have submitted a proposal to
shareholders for a rights offering which, if approved, would issue rights to
acquire an additional 7.5 million shares of common stock at a price of $2.00
per share. Proceeds from this rights
offering would be used to acquire or invest in energy-based businesses,
securities, working interests, and other oil, natural gas, and energy-related
investments, properties, products and technologies, as well as for general
results for the years ended December 31, 2010 and 2009 are as follows: (in thousands, except for share and per
Balance Sheet Summary (in thousands)
(1) Current ratio is calculated as current assets
divided by current liabilities.
(2) Working capital is the difference between
current assets and current liabilities.
of Operating Margin to Net Loss (in thousands)
believes the presentation of this non-GAAP financial measure, in connection
with the results for the year ended December 31, 2010 and 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 active management of energy-based investments.
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 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 17, 2011.
HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.