RELEASE: March 2, 2012
HKN Announces Annual Results for 2011
Texas – March 2, 2012 – HKN,
Inc. (NYSE Amex: HKN) (“HKN”) today reported its annual financial results for
the year ended December 31, 2011.
2011, HKN was able to significantly strengthen its financial condition through
the divestiture of its oil and gas properties and the completion of its rights
offering. Our cash balance at December
31, 2011 was $43 million and we continue to hold no debt.
We sold all
of our oil and gas properties during 2011 with the sale of our remaining Gulf Coast
oil and gas assets during the fourth quarter of 2011. As a result of these sales, we received net
cash proceeds of approximately $26.3 million and eliminated future pricing,
operating, and regulatory risks. Upon the completion of our rights offering
during April 2011, we received net proceeds of approximately $14.7 million and
issued 7.5 million shares of common stock.
proceeds from these transactions has enhanced our ability to invest into areas
of the oil and gas industry which may generate greater value for our
shareholders while carrying significantly lower operational and regulatory
risks. The proceeds also provide capital for the further development of our
wholly-owned subsidiary BriteWater International, Inc. (“BriteWater”).
the majority of the value of our assets is derived from BriteWater, our
investment in publicly-traded common shares of Global Energy Development PLC
(“Global”), and our notes receivable extended to Global. We consider these assets to be strategic for
us, and our objective for 2012 is to build the value of our asset portfolio
developing and marketing applications for the BWI OHSOL technology
opportunities to invest in or acquire undervalued assets or companies in the
energy industry which we believe present significant near-term potential
management expertise and/or additional capital for our portfolio assets to
enhance their value and accelerate growth
capital expenditures and selling, general and administrative costs
Investment in BriteWater
2011, we acquired the remaining 47.91% outstanding units of BriteWater.
BriteWater continues to pursue opportunities to commercialize our patented
OHSOL emulsion-breaking technology and is currently designing standardized
OHSOL modules. These modules can be used for both upstream and downstream
applications in the oil and gas industry, including oil field and refinery
emulsions and oil spill response. BriteWater also has an existing purpose-built
plant which can be used to break emulsions found in weathered lagoon pits. BriteWater
expects to deploy this plant to a location in North Africa or the Middle East during the second half of 2012.
contracts during 2011 and 2012 which give it the right of first refusal for
oilfield emulsions generated in certain fields on the Alaska North Slope
(“ANS”). BriteWater’s wholly-owned subsidiary, Arctic
Star Alaska, Inc. (“Arctic Star”), has identified a location on the ANS on
which it will locate one of its standardized plant designs. This plant will
allow Arctic Star to recover saleable crude oil from oil field waste for sale
into the market. Arctic Star anticipates that construction of the plant will
begin during the second half of 2012.
At December 31,
2011, HKN owned approximately 34% of Global’s
ordinary shares. Global is a publicly-traded oil and gas company listed on the
Alternative Investment Market (“AIM”), a market operated by the London Stock
Exchange. Global is a
Latin America focused petroleum exploration and production company with assets
in Colombia and Peru.
Our investment in Global is carried at its market value as
follows (in thousands, except for the share amounts):
December 31, 2011
December 31, 2010
Shares of Global Stock held by
Closing price of Global Stock
Foreign Currency Exchange Rate
Market Value of Investment in
currency translation adjustment of approximately $6 thousand and the unrealized
loss of approximately $482 thousand for the decline in market value between the
two dates shown, provide the components of the $488 thousand loss recorded in
other comprehensive income in stockholders’ equity for the year ended December
Global Notes Receivable - On
January 31, 2012, we executed a separate Loan Agreement (“Loan”) which is in
addition to the 10.5% Senior Secured Note Receivable which was issued in 2010.
The new Loan carries a principal amount of $12 million. The Loan is currently unsecured, but we can
require Global to provide adequate collateral security in the event of a
material adverse effect, determined at our sole discretion. The Loan is due and
payable to us on or before September 30, 2013 and bears interest at 10.5% per
annum, and Global paid a 1.75% transaction fee of approximately $210 thousand
related to the Loan.
Operating Results Update
date operating results have been restated to reflect our oil and gas operations
as discontinued operations, and our results from continuing operations continue
to be significantly lower than our 2010 results. Our net loss from continuing
operations increased from $1.9 million during 2010 up to $3.5 million during
2011, primarily as a result of increased selling, general and administrative
expenses (“SG&A”) and a non-recurring $1.9 million gain on the sale of our
investment in Spitfire Energy, Ltd. (“Spitfire”) during 2010.
year ended December 31, 2011, SG&A were approximately $4.4 million as
compared to approximately $3.8 million during the 2010 period. The increase was
primarily due to legal and consulting expenses in connection with the Global
mandatory offer and our defense of an IRS tax examination.
and other income from affiliates increased from $267 thousand in 2010 to $528
thousand in 2011, primarily due to interest earned on the 10.5% Senior Secured
Note Receivable from Global which was issued in September 2010.
from discontinued operations increased slightly from $1.7 million for the year
ended December 31, 2010 to $1.9 million for the year ended December 31, 2011. The
increase was primarily the result of increased commodity pricing combined with
lower operating expenses and depletion which were the result of the property
sales throughout 2011. These increases
were partially offset by lower revenues and production volumes due to the
recognized a loss of $1.7 million on the sales of our remaining Gulf Coast
oil and gas properties during the fourth quarter 2011.
results for the year ended December 31, 2011 and 2010 are as follows (in thousands, except for share and
per share amounts)
Balance Sheet Summary (in
(1) Current ratio is calculated as current assets divided
by current liabilities.
(2) Working capital is the difference between current
assets and current liabilities.
HKN, Inc. is an
independent energy company engaged in the development of a well-balanced
portfolio of assets in the energy industry and in the active management of our
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 March 2, 2012.
HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.