HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its annual
financial results for the year ended December 31, 2009. HKN
reported a net loss of $3.3 million during 2009 as compared to a
net loss of $27 million during 2008.
2009 Recap and 2010 Outlook
During 2009, commodity pricing for both crude oil and natural
gas averaged well below pricing from the respective prior year
period. In 2009, industry-wide drilling costs did not reduce in
comparison to the dramatic drop in commodity prices. In order to
continue generating cash flow from operating activities, we focused
on reducing our costs and were able to cut our operating expenses
by 20% and our general and administrative costs by 39% over prior
year. However, oil and gas commodity prices during the year
averaged approximately 43% and 60% lower, respectively, than 2008.
In 2010, our objective is to maintain our working capital while
continuing to seek opportunities to increase our operating margin
as compared to prior year. We continue to believe in the long-term
fundamentals of our industry.
In 2009, we used our discretionary cash to simplify our capital
structure by redeeming the remaining 44 thousand shares of our
Series M Preferred Stock and 600 shares of our G1 Preferred Stock
for a total of approximately $4.4 million. The Series M Preferred
had an 8% cash coupon rate which was scheduled to increase to 10%
in October 2009. As of December 31, 2009, our Series M Preferred is
no longer outstanding. In accordance with our share buyback
program, in 2009, we also repurchased 708 thousand of our common
shares in the market (approximately 7% of our outstanding shares)
at a total cost of approximately $1.9 million.
During 2009, we enhanced the value of our Main Pass 35 field
which is located offshore Louisiana in the Gulf of Mexico, by
performing various process and structural upgrades and improvements
to the facility and its equipment. We believe our Main Pass 35
asset has unique characteristics such as low-decline oil
production, behind-pipe development potential as well as
third-party oil, gas and water processing and handling services for
neighboring fields in the area. We consider our Main Pass 35 field
a strategic asset for us in 2010. In addition to our Main Pass 35
expenditures, we also deployed capital expenditures of
approximately $1.3 million for oil and gas exploratory and
development drilling at our Creole Field, as well as other
projects.
Also during 2009, we acquired an interest in a private company,
BriteWater International, LLC ("BWI"), formerly known as
UniPureEnergy Acquisition Co, LLC, which holds patents to the
emulsion breaking "OHSOL" technology. This environmentally-clean
process can be used to purify oilfield emulsions by breaking and
separating the emulsions into oil, water and solids. This
technology has been successfully tested using a mobile OHSOL unit
in a demonstration in Prudhoe Bay, Alaska, which demonstrated the
effectiveness of the OHSOL emulsion breaking technology to recover
valuable hydrocarbons and reduce wastes. BWI is currently pursuing
opportunities to commercialize the OHSOL technology by performing
emulsion testing of the OHSOL plant equipment both internationally
and domestically.
We continue to have access to capital, and we have a
discretionary cash balance of approximately $7 million at December
31, 2009 with no debt. We anticipate our operating cash flow and
other capital resources, if needed, will adequately fund our
planned capital expenditures and other capital uses over the
near-term. Based on industry outlook for 2010, prices for oil and
natural gas are expected to increase as compared to the prior year.
In addition, with savings expected due to cost-cutting measures
implemented during 2009, we believe our 2010 operations will remain
cash-flow positive.
HKN's operating results for the years ended December 31, 2009,
2008 and 2007 are as follows: (in thousands except for share and
per share amounts)
Year Ended December 31,
-------------------------------------
2009 2008 2007
----------- ----------- -----------
Oil Revenues $ 8,643 $ 15,293 $ 12,538
Gas Revenues $ 1,542 $ 6,913 $ 7,881
Trade Revenues (losses) $ - $ (4,344) $ 680
Fees, Interest and Other Revenues $ 2,183 $ 2,401 $ 3,199
Oil and Gas Operating Expenses $ 8,591 $ 10,801 $ 8,648
General and Administrative Expenses $ 3,197 $ 5,281 $ 5,950
Provision (Benefit) for Doubtful
Accounts $ 183 $ 41 $ (106)
Operating Margin (Non-GAAP; see
reconciliation below) $ 397 $ 4,140 $ 9,806
Depreciation, Depletion,
Amortization and Accretion $ 3,524 $ 5,224 $ 6,107
Impairment of Investment in Spitfire $ - $ 4,618 $ -
Impairment of Facilities $ - $ 97 $ -
Full Cost Valuation Allowance $ - $ 19,906 $ -
Loss from Discontinued Operations,
net of taxes $ - $ (1,049) $ -
Net Income (Loss) $ (3,345) $ (26,954) $ 3,229
Net Loss Attributed to
Noncontrolling Interests $ 295 $ - $ -
Net Income (Loss) Attributed to HKN,
Inc. $ (3,050) $ (26,746) $ 3,229
Net Income (Loss) Attributed to
Common Stock $ (3,469) $ (27,108) $ 2,965
Net Income (Loss) per Common Share
from continuing operations $ (0.37) $ (2.74) $ 0.30
Net Income (Loss) per Common Share
from discontinued operations $ 0.00 $ (0.09) $ 0.00
Basic and Diluted Net Income (Loss)
per Common Share $ (0.37) $ (2.83) $ 0.30
Basic and Diluted Weighted Average
Common Shares Outstanding 9,269,565 9,587,952 9,799,332
Balance Sheet Summary (in thousands):
December 31,
-------------------------
2009 2008
------------ ------------
Current Ratio (1) 2.74 to 1 5.77 to 1
Working Capital (2) $ 5,989 $ 16,102
Cash and Short-Term Investments $ 7,030 $ 15,219
Total Debt $ - $ -
Cash and Short-Term Investments less Debt $ 7,030 $ 15,219
Stockholders' Equity $ 57,831 $ 59,904
Total Liabilities to Equity 0.18 to 1 0.15 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.
NON-GAAP FINANCIAL MEASURE
Reconciliation of Operating Margin to Net Income (in thousands)
Year Ended December 31,
-------------------------------------
2009 2008 2007
----------- ----------- -----------
Net Income (Loss) - GAAP $ (3,345) $ (26,954) $ 3,229
Depreciation, Depletion,
Amortization and Accretion 3,524 5,224 6,107
Interest Expense and Other Losses 33 121 390
Equity in Losses (Gains) of Spitfire 225 (196) 50
Income Tax Expense (40) 275 30
Impairment of Investment in Spitfire - 4,618 -
Impairment of Facilities - 97 -
Full Cost Valuation Allowance - 19,906 -
Loss from Discontinued Operations,
net of taxes - 1,049 -
----------- ----------- -----------
Operating Margin $ 397 $ 4,140 $ 9,806
=========== =========== ===========
Management believes the presentation of this non-GAAP financial
measure, in connection with the results for the years ended
December 31, 2009, 2008 and 2007, provides useful information to
investors regarding our results of operations. Management also
believes that this non-GAAP financial measure provides a picture of
our results that is comparable among reporting periods and provides
factors that influenced performance during the period under the
report. This non-GAAP financial measure should be considered in
addition to, and not as a substitute for, financial measures
prepared in accordance with GAAP.
HKN, Inc. is an independent energy company engaged in the
development and production of crude oil, natural gas and coalbed
methane assets and in the management of investments in energy
industry. Additional information may be found at the HKN Web site,
www.hkninc.com. Please e-mail all investor inquiries to
HKNinquiries@ctaintegrated.com.
Certain statements in this announcement, such as "future
opportunities," 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 February 19, 2010. HKN
undertakes no duty to update or revise any forward-looking
statements. Actual results may vary materially.
For Further Information Contact: Investor Relations Email: Email
Contact www.hkninc.com
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