FOR
RELEASE: November 7, 2011
HKN Announces Third Quarter 2011 Results
Dallas,
Texas – November 7, 2011 – HKN,
Inc. (NYSE Amex: HKN) (“HKN”) today reported its interim financial results for
the three and nine months ended September 30, 2011.
Financial Condition
During the third quarter of 2011, we closed our mandatory offer whereby 234,306
shares of Global Energy Development, PLC (“Global”) were tendered to HKN at a
cost of approximately $261 thousand. We also continued to progress our marketing
efforts for our Gulf Coast properties through Burks Oil and Gas Properties,
Inc., and a decision on any potential divestiture of our remaining properties
will be reached during the fourth quarter of 2011. Industry conditions continue to indicate that
divesting of these properties during 2011 may provide the greatest opportunity
to receive value for these assets while eliminating future pricing, operating,
and regulatory risks to the company. Any proceeds received from the sales of
our oil and gas properties may enable our company to invest into areas of the
oil and gas industry which could generate greater value for our shareholders
while carrying significantly lower operational and
regulatory risks.
Our cash balance at September 30, 2011 was $25.8 million, which included
approximately $18.3 million in restricted cash which was held in escrow related
to the Global offer. These funds were
released from escrow during October after the tendered shares were settled. Our
working capital increased from $8.4 million at December 31, 2010 to $29.1
million at September 30, 2011, and we continue to hold no debt. The increase in cash and working capital was
due to proceeds received from the Creole divestiture and rights offering,
discussed in previous quarterly reports.
Investment in BriteWater International, LLC
During the quarter, BriteWater continued to pursue opportunities to
commercialize our patented OHSOL emulsion-breaking technology and began the
planning and design of two plants which will utilize this technology. These
plants will allow the recovery and sale of oil volumes from refinery and
oilfield emulsion waste materials which are lost through current waste disposal
methodologies in the industry.
Investment in Global Energy Development, PLC
At September 30, 2011, HKN owned approximately 34% of Global’s
ordinary shares. Our investment in Global is carried at its market value as
follows (in thousands, except for the share amounts):
|
|
September 30, 2011
|
December 31, 2010
|
|
Shares of Global
Stock Held by HKN
|
12,127,768
|
11,893,462
|
|
Closing price of
Global Stock
|
£ 0.855
|
£ 1.09
|
|
Foreign Currency
Exchange Rate
|
1.5581
|
1.5524
|
|
Market Value of Investment
in Global
|
$ 16,156
|
$ 20,136
|
The foreign currency translation adjustment of approximately $234
thousand and the unrealized loss of approximately $4.5 million for the decline
in market value between the two dates shown, provide the primary components of
the $4.2 million loss recorded in other comprehensive income in stockholders’
equity for the nine month period ended September 30, 2011.
During June 2011, we announced our obligation to make an offer for shares
of Global at a price of 72 pence. This offer closed on September 30, 2011, and
234,306 shares of Global stock were tendered to HKN at a cost of approximately
$261 thousand. As a result of the shares
tendered in the offer, our ownership interest in Global increased by
approximately 0.65%.
Operating Results Update
Our year-to date operating results continue to be significantly below
2010 results. Although our net income for the third quarter increased over the
third quarter of 2010 by approximately 132%, commodity pricing increases during
2011 were more than offset by production decreases as a result of
weather-related issues and divestitures that occurred during our first and
second quarters.
Following record-setting cold weather at our Louisiana properties during
the first quarter and downtime and repairs at our Main Pass field during the
second quarter, production rates at our Main Pass field returned to normal
levels during the third quarter. In addition to these factors, overall oil and
gas production levels continue to be lower than our 2010 levels as a result of our
Creole field divestiture during the first quarter of 2011 and the Allen Ranch,
Point au Fer, and NW Speaks field divestitures in the
second quarter of 2011.
Although oilfield costs of $5.7 million for the nine months ended September
2011 were higher than $5.3 million recorded for the same period during 2010,
this is primarily the result of $560 thousand in refunded severance taxes
received during the 2010 period. Excluding
these refunds, actual oilfield costs decreased during the 2011 period as a
result of the current year property divestitures, but these were partially offset
by increased repair costs during the current year. These repair costs were primarily
due to projects to restore production at Lake Raccourci
and the cold-weather related repairs at our Main Pass facility.
During the nine months ended September 30, 2011, general and administrative
expenses were approximately $2.9 million as compared to approximately $2.4
million during the 2010 period. These
increases were primarily the result of increased business development
activities related to our BriteWater subsidiary as they develop the Arctic Star
project on the North Slope of Alaska. Legal and regulatory costs related to our
IRS contingency and Global mandatory offer also contributed to the increase.
During the nine months ended September
30, 2010, we sold our remaining investment in Spitfire Energy, Ltd.
(“Spitfire”) for cash proceeds of $3.3 million and realized a gain on sale of
assets of $1.9 million.
HKN’s operating
results for the three and nine months ended September 30, 2011 and 2010 are as
follows (in
thousands except for share and per share amounts)
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 to Net Income
(Loss) (in
thousands)
Management
believes the presentation of this non-GAAP financial measure, in connection
with the results for the three and nine months ended September 30, 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 and natural gas
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.
