HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its interim
financial results for the three months ended March 31, 2010. HKN
reported net income of $332 thousand during the first three months
of 2010 as compared to a net loss of $1.1 million in the first
three months of 2009.
Operating Activities and Financial Condition Update:
During the first quarter 2010, oil and natural gas prices
increased as compared to the prior year period. Oil prices more
than doubled from an average of $37.40 per barrel in the first
quarter 2009 to $76.51 per barrel in the first quarter 2010. Prices
realized for natural gas sales also increased, averaging $7.13 per
mcf in the first quarter 2010 compared to $4.32 per mcf during the
first quarter 2009.
Our oil and gas operating expense decreased 27%, decreasing from
approximately $1.8 million during the first quarter 2009 to $1.3
million during the first quarter 2010. The majority of this
decrease is due to the approval of a severance tax refund claim for
certain inactive well exemptions for the Main Pass field.
General and administrative expenses increased 44% from $551
thousand for the first quarter 2009 to $796 thousand for the first
quarter 2010 primarily due to consultant and travel costs
associated with business development activities connected with the
consolidation of BriteWater International LLC ("BWI") which we
began consolidating during the third quarter of 2009. BWI is a
privately-held company with a patented oilfield emulsion breaking
"OHSOL" technology. Remaining general and administrative costs were
slightly lower as compared to the prior year period.
Our cash balance at March 31, 2010 was $7.1 million, and we
continued to have no debt outstanding during the period. Our
working capital also increased as of March 31, 2010 as compared to
December 31, 2009.
Main Pass 35 Field Update:
We have an average 91% interest in Main Pass 35 and are the
field operator. Gross production during the first quarter 2010
averaged approximately 378 barrels of oil equivalent ("boe") per
day. During the first quarter 2010, colder than average
temperatures contributed to lower producing volumes due to cold
weather freeze-ups of the compressors located on our Main Pass 35
facility. In order to increase our production and enhance the value
of our reserves at Main Pass 35, we are planning the assessment of
at least six inactive wells in the second quarter 2010. We
anticipate that at least one of these wells will be added to
production during the second quarter.
Creole Field Update:
We hold an average 15% non-operated working interest in this
offshore field. Gross daily production from the Creole wells (nine
completions) averaged approximately 688 boe per day during the
first quarter 2010. One major workover to replace tubing and one
re-entry of an abandoned well were successfully completed in the
first quarter 2010. The previously abandoned SL2850-A5 well was
re-entered and tested at gross rates in excess of 100 boe per day.
The well was awaiting installation of new flowlines at the end of
the first quarter. At the suggestion of the new operator, a program
was designed and implemented to pressure test a number of wells in
the field. This data is necessary for the proper configuration of
the gas lift system and also for diagnostic purposes to determine
if a stimulation program would be beneficial in order to increase
production from the field. The data gathered in this program has
led to the determination that several of the wells would benefit
from acid stimulation, and the operator is currently gathering bids
to carry out such work during the second quarter 2010.
Investment in Global Update:
At March 31, 2010 and December 31, 2009, we owned approximately
34% of Global Energy Development PLC ("Global") ordinary shares.
Our investment in Global was equal to the market value of our 11.9
million shares of Global's common stock as follows (in thousands,
except for share amounts):
March 31, 2010 December 31, 2009
----------------- -----------------
Shares of Global Stock held by HKN 11,893,463 11,893,463
Closing price of Global Stock GBP 1.00 GBP 0.66
Foreign Currency Exchange Rate 1.5148 1.62212
----------------- -----------------
Market Value of Investment in Global $ 18,017 $ 12,637
================= =================
The foreign currency translation adjustment of approximately
$1.1 million and the unrealized gain on investment of $6.5 million
for these changes in market value between the two periods were
recorded to other comprehensive income in stockholders' equity
during the three months ended March 31, 2010.
HKN's operating results for the three months ended March 31,
2010 and 2009 are as follows (in thousands except for share and per
share amounts)
Three Months Ended
March 31,
-----------------------
2010 2009
---------- ----------
Oil Revenues $ 2,423 $ 1,386
Gas Revenues $ 412 $ 634
Fees, Interest and Other Revenues $ 447 $ 708
Oil and Gas Operating Expenses $ 1,333 $ 1,824
General and Administrative Expenses $ 796 $ 551
Provision (Benefit) for Doubtful Accounts $ (20) $ 274
Operating Margin (Non-GAAP; see reconciliation
below) $ 1,173 $ 79
Depreciation, Depletion, Amortization and
Accretion $ 779 $ 1,100
Net Income (Loss) $ 332 $ (1,118)
Net Loss Attributed to Noncontrolling Interests $ 170 $ -
Net Income (Loss) Attributed to HKN, Inc. $ 502 $ (1,118)
Net Income (Loss) Attributed to Common Stock $ 498 $ (1,211)
Basic and Diluted Net Income (Loss) per Common
Share $ 0.05 $ (0.13)
Basic and Diluted Weighted Average Common Shares
Outstanding 9,553,847 9,116,134
Balance Sheet Summary (in thousands)
March 31, December 31,
-------------- --------------
2010 2009
-------------- --------------
Current Ratio (1) 2.52 to 1 2.74 to 1
Working Capital (2) $ 6,287 $ 5,989
Cash and Short-Term Investments $ 7,131 $ 7,030
Total Debt $ - $ -
Cash and Short-Term Investments less Debt $ 7,131 $ 7,030
Stockholders' Equity $ 63,557 $ 57,831
Total Liabilities to Equity 0.18 to 1 0.18 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 (Loss) (in thousands)
Three Months Ended
March 31,
------------------------
2010 2009
----------- ----------
Net Income (Loss) - GAAP $ 332 $ (1,118)
Depreciation, Depletion, Amortization and
Accretion 779 1,100
Other Losses 42 47
Equity in Losses of Spitfire 20 90
Income Tax Benefit - (40)
----------- ----------
Operating Margin $ 1,173 $ 79
=========== ==========
Management believes the presentation of this non-GAAP financial
measure, in connection with the results for the three months ended
March 31, 2010 and 2009, 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 active management of investments in the
energy industry. Additional information may be found at the HKN Web
site, www.hkninc.com. Please e-mail all investor inquiries to
Investorrelations@hkn.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
February 18, 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
Contact www.hkninc.com
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