HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its interim
financial results for the three and six months ended June 30, 2010.
HKN reported net income attributable to the Company of $2.15
million for the first six months of 2010 as compared to a net loss
of $1.3 million in the prior period in 2009.
Sale of Investment in Canadian Oil Company (Spitfire Energy,
Ltd.)
During the six months ended June 30, 2010, we sold our remaining
investment in Spitfire Energy, Ltd. ("Spitfire"), consisting of
approximately 9.9 million shares of Spitfire common shares, for
cash proceeds of $3.3 million using the average cost method. We
realized a gain on sale of assets of $1.9 million, which included
$351 thousand of foreign currency gains which were reclassified
into earnings from other comprehensive income, in our consolidated
condensed statement of operations. Therefore, at June 30, 2010, we
no longer carried this investment on our consolidated condensed
balance sheet. At December 31, 2009, our carrying value of this
investment was $1.6 million.
Operating Activities and Financial Condition Update:
During the first six months of 2010, our oil and gas revenue was
comprised of approximately 88% oil sales and 12% natural gas sales.
During this period, our results of operations reflect increased oil
and natural gas revenues as compared to the prior year period,
which are the result of increased commodity prices in 2010. We had
a cash balance of approximately $10.5 million at June 30, 2010, and
our operations for the first half of 2010 were cash-flow positive.
Our working capital also increased from $5.9 million as of December
31, 2009 to $9.3 million as of June 30, 2010.
Our oil revenues increased to approximately $4.9 million during
the first six months of 2010 from approximately $3.7 million during
the same period in 2009. We realized a 60% increase in oil prices
received, increasing from an average of $47.74 per barrel in the
first half of 2009 to $76.47 per barrel in the current year period.
Overall oil production decreased 18% in the first six months of
2010 as compared to the prior year period due primarily to cold
weather emulsion issues and compressor downtime at Main Pass
35.
Our natural gas revenues decreased from $1.1 million during the
first six months of 2009 to $653 thousand for the same period in
2010. The prices realized for natural gas sales increased 43%,
averaging $5.70 per mcf in the first half of 2010 compared to $3.98
per mcf during the first half of 2009. Natural gas production
decreased 57% in the first six months of 2010 as compared to the
prior year period due to the sale of our interests in a
non-strategic field, mentioned above. In addition, we had decreased
production at the Lake Raccourci field. However, we expect to have
increased natural gas production from our Lake Raccourci field in
the third quarter 2010 due to the second quarter 2010 successful
recompletion of the SL14589 #3 well.
Our oil and gas operating expense decreased 14%, decreasing from
approximately $3.8 million during the first six months of 2009 to
$3.3 million during the same period in 2010 due primarily to lower
severance taxes as well as a refund received for prior periods
related to the inactive well exemption on certain wells at Main
Pass.
General and administrative expenses increased 26% from $1.2
million for the first half of 2009 to $1.5 million for the first
half of 2010 primarily due to salary, 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. Our remaining
general and administrative costs for 2010 were slightly lower than
the prior period.
Main Pass, Plaquemines Parish -- Louisiana
We have 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 is in
a strategic area within the Gulf of Mexico and 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 to be a strategic asset.
We have an average 91% interest in Main Pass 35 and are the field
operator. Gross production during the second quarter 2010 averaged
approximately 369 boe per day.
During the second quarter 2010, work began on pipeline
modifications mandated by the Corps of Engineers to a third-party
gas sales line that serves our facility. The majority of the work
has been postponed due to the above average level of the
Mississippi River, and completion of the project will be delayed
until after hurricane season. We anticipate that the pipeline work
will be finished in November and have decided to defer additional
well work until that time in favor of continuing our process and
structural upgrades and improvements to the facility and its
equipment.
Creole Field, Terrebonne Parish -- Louisiana
We hold an average 15% non-operated working interest in this
offshore field. Gross daily production from the wells was
approximately 1,156 boe per day during the second quarter 2010. One
major workover to replace tubing and one re-entry of an abandoned
well were successfully completed in 2010. The previously abandoned
SL18423 #3 well was re-entered and tested at gross rates in excess
of 100 boe per day. The well was placed on production in mid-April,
and has averaged 83 boepd through the second quarter. At the
suggestion of the new operator which took over operations during
the second quarter, 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, as
well as 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. Acid stimulation programs have been designed for four
of the completions. This work should be completed in the third
quarter 2010.
Lake Raccourci Field, Lafourche Parish -- Louisiana
We hold an average 55% operated working interest in our Lake
Raccourci field. Gross production for this field averaged 34 boe
per day for the second quarter 2010. Production from the field has
significantly decreased since the SL 14284-1 well ceased production
in 2009. But in late second quarter 2010, the SL14589 #3 well was
successfully recompleted in the Bol 2 for 2.0 Mscfd Gross (341
Boepd) and put on production in late June. We expect production and
cash flow from operations from this field to increase in the third
quarter 2010.
HKN's operating results for the three and six months ended June
30, 2010 and 2009 are as follows (in thousands except for share and
per share amounts)
Three Months Ended
------------------------
June 30,
------------------------
2010 2009
----------- -----------
(unaudited) (unaudited)
Oil Revenues $ 2,477 $ 2,353
Gas Revenues $ 241 $ 430
Fees, Interest and Other Revenues $ 330 $ 590
Oil and Gas Operating Expenses $ 1,951 $ 1,988
General and Administrative Expenses $ 697 $ 638
Benefit for Doubtful Accounts $ (1) $ (3)
Operating Margin (Non-GAAP; see reconciliation
below) $ 401 $ 750
Depreciation, Depletion, Amortization and
Accretion $ 715 $ 885
Net Income (Loss) $ 1,564 $ (159)
Net Loss Attributed to Noncontrolling Interests $ 85 $ -
Net Income (Loss) Attributed to HKN, Inc. $ 1,649 $ (159)
Net Income (Loss) Attributed to Common Stock $ 1,653 $ (348)
Basic and Diluted Net Income (Loss) per Common
Share $ 0.17 $ (0.04)
Basic and Diluted Weighted Average Common Shares
Outstanding 9,553,848 8,735,005
Six Months Ended
------------------------
June 30,
------------------------
2010 2009
----------- -----------
(unaudited) (unaudited)
Oil Revenues $ 4,900 $ 3,739
Gas Revenues $ 653 $ 1,064
Fees, Interest and Other Revenues $ 768 $ 1,298
Oil and Gas Operating Expenses $ 3,284 $ 3,812
General and Administrative Expenses $ 1,493 $ 1,189
Provision (Benefit) for Doubtful Accounts $ (21) $ 271
Operating Margin (Non-GAAP; see reconciliation
below) $ 1,565 $ 829
Depreciation, Depletion, Amortization and
Accretion $ 1,494 $ 1,985
Net Income (Loss) $ 1,896 $ (1,277)
Net Loss Attributed to Noncontrolling Interests $ 255 $ -
Net Income (Loss) Attributed to HKN, Inc. $ 2,151 $ (1,277)
Net Income (Loss) Attributed to Common Stock $ 2,151 $ (1,559)
Basic and Diluted Net Income (Loss) per Common
Share $ 0.23 $ (0.17)
Basic and Diluted Weighted Average Common Shares
Outstanding 9,553,848 8,924,516
Balance Sheet Summary (in thousands)
June 30, December 31,
------------ ------------
2010 2009
------------ ------------
(unaudited)
Current Ratio (1) 3.41 to 1 2.74 to 1
Working Capital (2) $ 9,335 $ 5,989
Cash and Marketable Securities $ 10,496 $ 7,030
Total Debt $ 312 $ -
Stockholders' Equity $ 59,634 $ 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
June 30,
------------------------
2010 2009
----------- -----------
(unaudited) (unaudited)
Net Income (Loss) - GAAP $ 1,564 $ (159)
Depreciation, Depletion, and Amortization 715 885
Interest Expense and Other Losses - 12
Equity in Losses of Spitfire - 33
Gain on Sale of Investment (1,878) (21)
----------- -----------
Operating Margin $ 401 $ 750
=========== ===========
Six Months Ended
June 30,
------------------------
2010 2009
----------- -----------
Net Income (Loss) - GAAP $ 1,896 $ (1,277)
Depreciation, Depletion, and Amortization 1,494 1,985
Interest Expense and Other Losses 42 59
Equity in Losses of Spitfire 20 123
Gain on Sale of Investment (1,887) (21)
Income Tax Benefit - (40)
----------- -----------
Operating Margin $ 1,565 $ 829
=========== ===========
Management believes the presentation of this non-GAAP financial
measure, in connection with the results for the three and six
months ended June 30, 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@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
February 18, 2010. HKN undertakes no duty to update or revise any
forward-looking statements. Actual results may vary materially.
Contact: HKN, Inc. Email Contact
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