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HKN Announces First Quarter 2011 Results

May 6, 2011 - DALLAS, TX

HKN, Inc. (NYSE Amex: HKN) ("HKN") todayreported its interim financial results for the three months ended March 31,2011. HKN reported a net loss of $563 thousand for the period ended March31, 2011 as compared to net income of $502 thousand during the 2010 period.

Financial Condition

During 2011, we improved our financial posture and capabilities through thesale of a non-strategic asset and through a rights offering. We are pleasedwith the sale of our interests in the Creole field for approximately $7.5million. We plan to continue to explore the possibility of strategicdivestitures of our oil and gas properties in light of the improvedcommodity pricing environment. In this regard, we have engaged Burks Oiland Gas Properties, Inc., a well regarded Acquisition and Divestiturecompany active in the Gulf Coast, to assist us.

During the quarter we also completed a rights offering. The rights offeringwas enthusiastically supported by HKN shareholders as evidenced by theparticipation of over 75% of our shareholders and subscriptions thatexceeded our goals by $8 million. At the closing of the rights offering onApril 7, 2011, we issued 7.5 million shares of HKN's common stock andreceived proceeds of $15 million. Simultaneously, we returned approximately$8 million of the $23 million subscribed to shareholders.

Our cash balance at March 31, 2011 was $11 million, and we continue tocarry no debt. Our working capital increased from $7.6 million at December31, 2010 to $9.5 million at March 31, 2011. The increase in cash andworking capital was due to proceeds from the Creole divestiture. This waspartially offset by the February 2011 amendment of our loan to Global whichextended the maturity date from September 2011 to September 2012 andresulted in the Global loan being reclassified from current to non-currentat March 31, 2011.

Operating Results Update

HKN's operating results for the three months ended March 31, 2011 and 2010are as follows (in thousands except for share and per share amounts)

Three Months Ended
March 31,
2011 2010
----------- -----------
Oil Revenues $ 2,252 $ 2,423
Gas Revenues $ 107 $ 412
Interest and Other Income $ 469 $ 447
Oil and Gas Operating Expenses $ 1,893 $ 1,333
General and Administrative Expenses $ 959 $ 796
Provision (Benefit) for Doubtful Accounts $ 6 $ (20)
Operating Margin (Deficit) (Non-GAAP; see
reconciliation below) $ (30) $ 1,173
Depreciation, Depletion, Amortization and
Accretion $ 638 $ 779
Net Income (Loss) $ (680) $ 332
Net Loss Attributable to Noncontrolling Interests $ 117 $ 170
Net Income (Loss) Attributable to HKN, Inc. $ (563) $ 502
Net Income (Loss) Attributed to Common Stock $ (567) $ 498
Basic and Diluted Net Income (Loss) per Common
Share $ (0.06) $ 0.05
Weighted Average Common Shares Outstanding:
Basic 10,026,098 9,553,847
Diluted 10,026,098 9,668,537

First quarter operations were very disappointing. While oil prices duringthe 2011 period averaged well above comparable prices for the 2010 period,the benefits from this increased pricing were more than offset byproduction decreases. The production decreases were the result ofrecord-setting cold weather and the corresponding downtime and repairs atseveral of our properties. The divestiture of our Creole field during thefirst quarter of 2011 further reduced production during the period.Although oilfield costs of $1.9 million for the first quarter of 2011 werehigher than for the comparable period in 2010 ($1.3 million), this isexplained entirely by approximately $560 thousand in credits/refunds onseverance taxes which were received in the 2010 period.


BriteWater International, LLC. ("BWI"), in which HKN holds a 52.09%interest, continues to pursue opportunities to commercialize its patentedOHSOL emulsion-breaking technology. During March 2011, BWI secured a firstright of refusal to process and dispose of certain oilfield emulsion wastematerials on the North Slope of Alaska. Plans for the construction of aprocessing plant are currently underway.


At March 31, 2011, HKN owned approximately 33% of Global Energy DevelopmentPLC's (AIM: GED) ("Global") ordinary shares. Our investment in Global iscarried at its market value as follows (in thousands, except for the shareamounts):

 March 31, December 31, 2011 2010 -------------- --------------Shares of Global Stock Held by HKN 11,893,463 11,893,463Closing price of Global Stock GBP 0.84 GBP 1.09Foreign Currency Exchange Rate 1.6077 1.5524 -------------- --------------Market Value of Investment in Global $ 16,062 $ 20,136 ============== ==============

The foreign currency translation adjustment of approximately $679 thousandand the unrealized loss of approximately $4.7 million for the decline inmarket value between the two dates shown, provide the primary components ofthe $4 million loss recorded in other comprehensive income in stockholders'equity for the period ended March 31, 2011.

Balance Sheet Summary (in thousands of dollars)

 March 31, December 31, -------------- -------------- 2011 2010 -------------- -------------- Current Ratio (1) 3.54 to 1 2.68 to 1Working Capital (2) $ 9,488 $ 7,575Cash and Cash Equivalents $ 11,051 $ 4,815Total Debt $ - $ -Total Stockholders' Equity $ 60,355 $ 65,112Total Liabilities to Equity 0.22 to 1 0.22 to 1 (1) Current ratio is calculated as current assets divided by current liabilities.(2) Working capital is the difference between current assets and current liabilities.


Reconciliation of Operating Margin (Deficit) to Net Income (Loss) (inthousands)

 Three Months Ended March 31, -------------------- 2011 2010 --------- ----------Net Income (Loss) - GAAP $ (680) $ 332Depreciation, Depletion, Amortization and Accretion 638 779Interest Expense and Other Losses 12 42Equity in Losses of Spitfire - 20 --------- ----------Operating Margin (Deficit) $ (30) $ 1,173 ========= ==========

Management believes the presentation of this non-GAAP financial measure, inconnection with the results for the three months ended March 31, 2011 and2010, provides useful information to investors regarding our results ofoperations. Management also believes that this non-GAAP financial measureprovides a picture of our results that is comparable among reportingperiods and provides factors that influenced performance during the periodunder the report. This non-GAAP financial measure should be considered inaddition to, and not as a substitute for, financial measures prepared inaccordance with GAAP.

HKN, Inc. is an independent energy company engaged in the development andproduction of crude oil, natural gas and coalbed methane assets and in theactive management of energy-based investments. Additional information maybe found at the HKN Web site, Please e-mail all investorinquiries to

Certain statements in this announcement and inferences derived therefrommay be regarded as "forward-looking statements" within the meaning of theSecurities Exchange Act of 1934, as amended. These forward-lookingstatements are based on the opinions and estimates of management at thetime the statements are made. Management's current view and plans,however, are subject to numerous known and unknown risks, uncertainties andother factors that may cause the actual results, performance, timing orachievements of HKN to be materially different from any results,performance, timing or achievements expressed or implied by suchforward-looking statements. The various uncertainties, variables, andother 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. HKNundertakes no duty to update or revise any forward-looking statements.Actual results may vary materially.


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