RELEASE: November 6, 2012
HKN Announces Third Quarter 2012 Results
Texas – November 6, 2012 – HKN,
Inc. (OTCQB: HKNI) (“HKN”) today reported its interim financial results for the
three and nine months ended September 30, 2012.
During the third
quarter of 2012, HKN continued to focus on building the value of our assets and
investments in the energy industry. Our
cash balance at September 30, 2012 was approximately $22 million, and we
continue to hold no debt.
the majority of the value of our assets is derived from our wholly-owned
subsidiary BriteWater International, Inc. (“BriteWater”), our investment in
publicly-traded common shares of Global Energy Development PLC (“Global”), our
joint venture in Gerrity Oil, LLC (“Gerrity Oil”) and our notes receivable
extended to Global. Management continues
to seek and evaluate additional projects and opportunities within the energy
and related industries.
Investment in Gerrity Oil, LLC
In July 2012, we invested in Gerrity Oil, an entity which
holds non-operated working interests in properties strategically located in the
Bakken and Niobrara shale oil plays. HKN contributed $4 million in cash in
exchange for 50% ownership interest and voting participation on the Board. The
other investor, Robert W. Gerrity, an unrelated party, contributed oil and gas
assets and liabilities in exchange for the remaining 50% ownership interest and
voting participation on the Board.
Gerrity Oil plans to engage in all phases of the oil and gas business in
the Bakken and Niobrara shale plays 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.
BriteWater International, Inc.
continues to devote substantial resources to the development and
commercialization of BriteWater. BriteWater
is currently finalizing its detailed engineering for standardized modules which
can be configured for use in both upstream and downstream applications in the
oil and gas industry, including oil field and refinery emulsions. BriteWater also
has a completed purpose-built plant which can be used to break emulsions found
in weathered lagoon pits.
is pursuing opportunities to commercialize its patented emulsion-breaking
technology through the operation of plants which use its standardized module
design. In association with its commercialization efforts, BriteWater and its
wholly-owned subsidiary, Arctic Star Alaska, Inc. (“Arctic Star”) signed
contracts during 2011 and 2012 which grant it the right of first refusal for
oilfield emulsions generated in certain fields on the Alaska North Slope. Arctic Star plans to place one of its
standardized plants on the Alaskan North Slope to recover saleable crude oil
from oil field waste to be sold into the market. Construction of this plant is
anticipated to begin during the first half of 2013.
At September 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. Global is a Latin America
focused petroleum exploration and production company with assets in Colombia. Our investment in Global is carried at its
market value as follows (in thousands, except for the share amounts):
currency translation adjustment of approximately $664 thousand and the
unrealized loss on investment of $6.4 million for the changes in market value
between the two periods were recorded to other comprehensive income in
stockholders’ equity during the nine months ended September 30, 2012.
Global Notes Receivable - In
January 2012, we executed a new Loan Agreement (the “Global Loan”) with Global
which provides the principal amount of $12 million. The Global Loan is
currently unsecured, but we can require Global to provide adequate collateral
security in the event of a material adverse effect, as determined in our sole
discretion. The Global Loan is due and payable to us on or before September 30,
2013. As of September
26, 2012, pursuant to provisions of the Global Loan agreement, the interest
rate charged on this loan was increased from 10.5% up to 12.5% per annum due to
Gobal’s nonconformity with a performance condition as of June 30, 2012. The new stated interest rate will remain in
effect until the maturity of the loan agreement. Accrued and unpaid interest on the
outstanding principal amount is due and payable on the last day of each quarter.
We also issued a
separate note to Global in 2010 in the amount of $5 million (“Global Note
Receivable”). During August 2012, we agreed to extend the maturity
date of our Global Note Receivable by seven months, resulting in a new maturity
date of April 14, 2013. In association
with this amendment, we increased the interest rate from 10.5% up to 12.5%. Global
also paid to us a 1% transaction fee of approximately $50 thousand, of which $44
thousand is deferred at September 30, 2012 and will be recognized over the
remaining term of the Global Note Receivable. This note is
fully secured by oil producing assets of Global, and interest is paid on a
Reverse Stock Split,
Change in Authorized Shares and Voluntary Delisting
Effective October 30, 2012, we completed a
one-for-forty reverse stock split of our issued and outstanding common stock which
was approved by shareholders on October 29, 2012. In conjunction with the reverse stock split,
our shareholders also approved a reduction of our common stock shares
authorized from 24 million shares to 2 million shares. As previously disclosed, the Company also voluntarily
decided to move the listing of its stock from the NYSE MKT on October 30, 2012
and began trading on the OTC Markets’ OTCQB marketplace effective November 1,
Operating Results Update
from continuing operations decreased approximately 36% from $2.8 million in the
first nine months of 2011 to $1.8 million for the first nine months of 2012.
The majority of the decrease was due to increased interest income from our
related party notes receivable as a result of the additional $12 million loan
issued to Global in January 2012. The current period operating loss also
improved marginally due to the results from our Gerrity Oil joint venture that
began operations in July 2012. These
improvements were partially offset by increased commercialization costs at BriteWater.
Oil revenues from our portion of our Gerrity Oil joint
venture were $180 thousand, or 97% of our total revenues for the three months
ended September 30, 2012. We realized an average oil price of $87.45 per barrel
during the period. Our share of oil production for the period was approximately
2 thousand bbls for the period, approximately 99% of which came from our
non-operating properties located in the Bakken.
Gas revenues from our portion of our Gerrity Oil joint
venture were $5 thousand, or 3% of our total revenues for the three months
ended September 30, 2012. We realized an average gas price of $4.90 per mcf
during the period. Our share of gas production for the period was approximately
1 thousand mcf, approximately 88% of which came from our non-operating
properties located in the Bakken.
Oil and gas operating expenses for the year to date
period ended September 30, 2012 were $21 thousand from our portion of our
Gerrity Oil joint venture that began operations in July 2012. Oil and gas operating expenses are expected
to increase as new wells in our Gerrity Oil joint venture are drilled in the
Selling, general and administrative expenses
increased approximately 4% from $3.0 million during the first nine months of
2011 to $3.2 million for the first nine months of 2012 primarily due to additional
travel, consulting and personnel expenses as we continue to develop and
commercialize the BriteWater technology during 2012.
and other income increased approximately 212% from $439 thousand in the first nine
months of 2011 to $1.4 million in the first nine months of 2012,
primarily as a result of the related party interest earned on the Global Loan which was issued in January 2012.
We sold our oil and gas
properties in the prior year and our operating results have been restated to
reflect our oil and gas operations as discontinued operations. Our income (loss) from discontinued operations
decreased from income of $1.8 million in the first nine months of 2011 to a
loss of $302 thousand for the first nine months of 2012 as a result of the oil
and gas property sales during 2011. During the current year, we incurred
additional legal costs resulting from the sale of the oil and gas properties
and bad debt expense on a potentially uncollectible oil and gas receivable
results for the three and nine months ended September 30, 2012 and 2011 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.