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NEWS

 

FOR RELEASE:  March 2, 2012

 

 

HKN Announces Annual Results for 2011

 

Dallas, Texas – March 2, 2012 – HKN, Inc. (NYSE Amex: HKN) (“HKN”) today reported its annual financial results for the year ended December 31, 2011. 

 

Financial Condition

 

During 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.

 

The 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”).

 

 

2012 Outlook

 

Currently, 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 through:

 

·         Identifying, developing and marketing applications for the BWI OHSOL technology

·         Pursuing opportunities to invest in or acquire undervalued assets or companies in the energy industry which we believe present significant near-term potential

·         Providing management expertise and/or additional capital for our portfolio assets to enhance their value and accelerate growth

·         Managing capital expenditures and selling, general and administrative costs

 

 

Investment in BriteWater

 

During 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.

 

            BriteWater signed 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.

 

Investment in Global

 

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 HKN

12,126,768

11,893,463

Closing price of Global Stock

£                       1.06

£                     1.09

Foreign Currency Exchange Rate

1.5490

1.5524

Market Value of Investment in Global

$                   19,913

$                 20,136

 

The foreign 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 31, 2011. 

 

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

 

Our year-to 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.

 

During the 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.

 

Interest 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.

 

Our income 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 property sales.

 

We also recognized a loss of $1.7 million on the sales of our remaining Gulf Coast oil and gas properties during the fourth quarter 2011. 

 

HKN’s operating 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 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.

 

 

 

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.