FOR RELEASE:  February 17, 2011

 

 

HKN Announces Annual Results for 2010

 

Dallas, 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 corporate purposes.

 

            HKN’s operating results for the years ended December 31, 2010 and 2009 are as follows: (in thousands, except for share and per share amounts)

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.

 

 

NON-GAAP FINANCIAL MEASURE

 

Reconciliation of Operating Margin to Net Loss (in thousands)

 

 

Management 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.