RELEASE: August 7, 2012
HKN Announces Second Quarter 2012 Results
Texas – August 7, 2012 – HKN,
Inc. (NYSE MKT: HKN) (“HKN” or “the Company”) today reported its interim financial
results for the three and six months ended June 30, 2012.
During the second
quarter of 2012, HKN worked toward re-establishing operating assets following
the sale of its oil and gas properties during 2011. In relation to this effort, management spent
the majority of its time and resources to identify and evaluate acquisition
opportunities as well as to further develop and commercialize the oilfield
technology owned by its wholly-owned subsidiary BriteWater International, Inc.
(“BriteWater”). During this period, management also focused on minimizing
overhead costs. The cash balance at June
30, 2012 was approximately $25 million, and the Company continues to hold no
At June 30,
2012, HKN’s assets are primarily comprised of cash, the BriteWater technology
and plants, the approximate 34% ownership of Global Energy Development PLC
(“Global”), and the notes receivable extended to Global. During July 2012, the Company also acquired a
50% interest in Gerrity Oil, LLC (“Gerrity Oil”), a joint venture which is
active in the Bakken shale.
BriteWater International, Inc.
to devote substantial resources to the development and commercialization of
BriteWater, which holds patented emulsion-breaking technology. During the quarter, BriteWater continued its
efforts towards designing standardized modules which can be used for both
upstream and downstream applications in the oil and gas industry, including oil
field and refinery emulsions and oil spill remediation. Construction on the plant should begin during
the fourth quarter of 2012.
Energy Development, plc
Global Common Shares - At June 30,
2012, HKN owned approximately 34% of Global’s ordinary shares. Global is a
publicly-traded oil and gas company listed on the Alternative Investment Market,
a market operated by the London Stock Exchange with oil properties in Colombia.
During the quarter, the Company purchased an additional 100 thousand shares of
Global for $175 thousand and increased its ownership from 33.88% to
33.92%. The investment in Global is
carried at its market value as follows (in thousands, except for the share
currency translation adjustment of approximately $161 thousand and the
unrealized loss on investment of $4.4 million for the changes in market value
between the two periods were recorded to other comprehensive income in
stockholders’ equity during the six months ended June 30, 2012.
Global Notes Receivable – HKN
has two outstanding notes receivable from Global. The first agreement (the “Global Loan”)
provides principal in the amount of $12 million, is due on or before September
30, 2013, and bears interest at 10.5% per annum. The Global Loan is currently unsecured, but HKN
can require Global to provide adequate collateral security in the event of a
material adverse effect, as determined in its sole discretion. The second agreement (the “Global Note
Receivable”) provides principal in the amount of $5 million, is due on or
before September 14, 2012 and, bears interest at 10.5% per annum. This note is fully secured by oil producing
assets of Global.
Investment in Gerrity Oil, LLC
During the second quarter 2012, HKN completed its due
diligence on Gerrity Oil, a joint venture which will be engaged in all phases
of the oil and gas business in the Niobrara and Williston Basins, including the
acquisition of oil and gas leases, fee mineral interests, overriding royalty
interests, participating and non-participating royalty interests and production
payments, and participating in the drilling, completion, operation and
maintenance of oil and gas wells. During
July 2012, the Company contributed $4 million to the newly-formed joint venture
in return for the receipt of a 50% ownership interest. Robert W. Gerrity contributed oil and gas
assets in the Niobrara and Williston Basins in return for the other 50% interest
in Gerrity Oil and will serve as the President of Gerrity Oil.
Operating Results Update
Due to the
sale of the oil and gas properties in the prior year, HKN’s operating results
have been restated to remove the results generated by the oil and gas
operations from continuing operations and include them within discontinued
As a result
of cost-cutting measures and interest on the Global notes receivable, the
Company’s results from continuing operations improved from a loss of $2 million
in the first half of 2011 to a loss of $1.5 million for the first half of 2012. These improvements were partially offset by
increased commercialization costs at BriteWater.
Selling, general and administrative expenses
increased from $2.1 million during the first six months of 2011 to $2.3 million
for the first six months of 2012, primarily due to additional travel,
consulting and personnel expenses as BriteWater further develops and commercializes
its technology during 2012.
and other income from related parties increased from $265 thousand in the first
half of 2011 to $840 thousand in the first half of 2012, primarily due to
interest earned on the Global Loan which was issued in January 2012.
income (loss) from discontinued operations decreased from income of $817
thousand in the first half of 2011 to a loss of $220 thousand for the first
half of 2012 as a result of the sale of all of the Company’s oil and gas
properties during 2011. The current year
loss is primarily due to additional legal costs related to the sold oil and gas
properties and bad debt expense on a potentially uncollectible oil and gas
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 its
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.