FOR RELEASE:  May 6, 2011

 

HKN Announces First Quarter 2011 Results

 

Dallas, Texas – May 6, 2011 – HKN, Inc. (NYSE Amex: HKN) (“HKN”) today reported its interim financial results for the three months ended March 31, 2011.  HKN reported a net loss of $563 thousand for the period ended March 31, 2011 as compared to net income of $502 thousand during the 2010 period. 

 

Financial Condition

 

During 2011, we improved our financial posture and capabilities through the sale of a non-strategic asset and through a rights offering. We are pleased with the sale of our interests in the Creole field for approximately $7.5 million. We plan to continue to explore the possibility of strategic divestitures of our oil and gas properties in light of the improved commodity pricing environment. In this regard, we have engaged Burks Oil and Gas Properties, Inc., a well regarded Acquisition and Divestiture company active in the Gulf Coast, to assist us.

 

During the quarter we also completed a rights offering. The rights offering was enthusiastically supported by HKN shareholders as evidenced by the participation of over 75% of our shareholders and subscriptions that exceeded our goals by $8 million. At the closing of the rights offering on April 7, 2011, we issued 7.5 million shares of HKN’s common stock and received proceeds of $15 million. Simultaneously, we returned approximately $8 million of the $23 million subscribed to shareholders. 

 

Our cash balance at March 31, 2011 was $11 million, and we continue to carry no debt.  Our working capital increased from $7.6 million at December 31, 2010 to $9.5 million at March 31, 2011.  The increase in cash and working capital was due to proceeds from the Creole divestiture. This was partially offset by the February 2011 amendment of our loan to Global which extended the maturity date from September 2011 to September 2012 and resulted in the Global loan being reclassified from current to non-current at March 31, 2011.

 

Operating Results Update

 

HKN’s operating results for the three months ended March 31, 2011 and 2010 are as follows (in thousands except for share and per share amounts)

First quarter operations were very disappointing. While oil prices during the 2011 period averaged well above comparable prices for the 2010 period, the benefits from this increased pricing were more than offset by production decreases. The production decreases were the result of record-setting cold weather and the corresponding downtime and repairs at several of our properties. The divestiture of our Creole field during the first quarter of 2011 further reduced production during the period. Although oilfield costs of $1.9 million for the first quarter of 2011 were higher than for the comparable period in 2010 ($1.3 million), this is explained entirely by approximately $560 thousand in credits/refunds on severance taxes which were received in the 2010 period.

 

Britewater

 

BriteWater International, LLC. (“BWI”), in which HKN holds a 52.09% interest, continues to pursue opportunities to commercialize its patented OHSOL emulsion-breaking technology.  During March 2011, BWI secured a first right of refusal to process and dispose of certain oilfield emulsion waste materials on the North Slope of Alaska. Plans for the construction of a processing plant are currently underway.

 

Global

 

At March 31, 2011, HKN owned approximately 33% of Global Energy Development PLC’s (AIM:GED) (“Global”) ordinary shares. Our investment in Global is carried at its market value as follows (in thousands, except for the share amounts):

 

	March 31, 2011	December 31, 2010
Shares of Global Stock Held by HKN	11,893,463	11,893,463
Closing price of Global Stock	£                          0.84	£                        1.09
Foreign Currency Exchange Rate	1.6077	1.5524
Market Value of Investment in Global	$                      16,062	$                    20,136

 

The foreign currency translation adjustment of approximately $679 thousand and the unrealized loss of approximately $4.7 million for the decline in market value between the two dates shown, provide the primary components of the $4 million loss recorded in other comprehensive income in stockholders’ equity for the period ended March 31, 2011. 

     

Balance Sheet Summary (in thousands of dollars)

           

(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 (Deficit) to Net Income (Loss) (in thousands)

 

 

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three months ended March 31, 2011 and 2010, 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.