HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its annual
financial results for the year ended December 31, 2010. HKN
reported net income attributable to the Company of $606 thousand
for the year ended December 31, 2010 as compared to a net loss of
$3.1 million during 2009.
2010 Recap and 2011 Outlook
During 2010, commodity pricing averaged well above 2009 levels,
and our oil prices received rose approximately 34%, while gas
prices received rose approximately 26%. Oil field service costs
remained fairly stable, and our overall oil and gas operating
expenses decreased 9%. These factors combined to result in a 110%
increase in our oil and gas operating profit during 2010. For 2011,
we plan to keep our focus on maintaining or improving our working
capital and cash flow from operations.
We limited our discretionary capital expenditures for 2010 to
projects that enhance our current production and facilities, and
focused our efforts on our two largest fields, Main Pass and
Creole. At our Main Pass 35 field, which is located off the coast
of Louisiana, we performed various process and structural upgrades
which will allow the facility to process additional production
volumes in the future. We also participated in pipeline
modifications to the third party gas sales line which serves our
facility. At our Creole field, which is located in Louisiana, we
participated in production enhancement studies on several wells and
two well recompletions. These production enhancement studies led to
acid stimulation programs for four of the wells in the field which
resulted in increased production rates. We expect production
enhancement studies and associated stimulation programs will be
completed on the remaining Creole wells during the first quarter of
2011.
We issued 544 thousand restricted shares of our common stock and
paid $531 thousand during 2010 to acquire an additional 32.59%
interest in BriteWater International, LLC ("BWI"), bringing our
ownership interest to 52.09% at December 31, 2010. BWI is a private
company which we initially invested in during 2009 and holds
patents to the emulsion-breaking OHSOL technology. The OHSOL
technology is an environmentally-clean process that can be used to
purify oilfield emulsions by breaking and separating the emulsions
into oil, water and solids. BWI is currently pursuing opportunities
to secure contracts for various applications of the OHSOL
technology in both the international and domestic oil and gas
industry.
We sold the remaining 9.9 million shares of our investment in
the publicly-traded Canadian company, Spitfire Energy, Ltd.
("Spitfire") during 2010. We received cash proceeds of $3.3 million
and recorded a gain on sale of investment in our statement of
operations of $1.9 million.
During the year we also extended financing to Global Energy
Development, Ltd, ("Global") and funded additional amounts under
the BWI note receivable. Global is a petroleum exploration and
production company focused on Latin America, and their shares are
traded on the AIM, a market operated by the London Stock Exchange.
Our investments in Global and BWI represent a significant
concentration of our asset value, and our additional investment
through this debt financing supports continued growth and
development for each of these businesses while allowing us to earn
8% on the BWI loan and 10% on the Global loan. Both loans are
secured by the assets of the respective companies. The outstanding
principal balances on the notes receivable from Global and BWI were
$5 million and $1.9 million, respectively, as of December 31, 2010.
The BWI note receivable and associated interest income and expense
is eliminated in our consolidated financial statements. During
February of 2011, we agreed to extend the maturity date of the
Global loan by one year, resulting in a new maturity date of
September 2012 and an increased interest rate of 10.50%.
Each year we evaluate our assets to determine which may have
reached its full potential, do not have an expectation of near-term
value enhancement, or represent a disproportionate concentration of
value in one asset and determine whether such assets should be
targeted for monetization. We continue to have access to capital,
and we anticipate our operating cash flow and other capital
resources will be sufficient to adequately fund our planned capital
requirements over the near term. We have submitted a proposal to
shareholders for a rights offering which, if approved, would issue
rights to acquire an additional 7.5 million shares of common stock
at a price of $2.00 per share. Proceeds from this rights offering
would be used to acquire or invest in energy-based businesses,
securities, working interests, and other oil, natural gas, and
energy-related investments, properties, products and technologies,
as well as for general corporate purposes.
HKN's operating results for the years ended December 31, 2010
and 2009 are as follows: (in thousands, except for share and per
share amounts)
Year Ended December 31,
-----------------------------
2010 2009
------------- -------------
Oil Revenues $ 9,900 $ 8,643
Gas Revenues $ 1,284 $ 1,542
Fees, Interest and Other Revenues $ 1,720 $ 2,153
Oil and Gas Operating Expenses $ 7,844 $ 8,591
General and Administrative Expenses $ 3,663 $ 3,197
Provision (Benefit) for Doubtful Accounts $ (22) $ 183
Gain on Sale of Investment $ (1,887) $ (30)
Operating Margin (Non-GAAP; see
reconciliation below) $ 1,419 $ 367
Depreciation, Depletion, Amortization and
Accretion $ 3,419 $ 3,524
Net Loss $ (192) $ (3,345)
Net Loss Attributed to Noncontrolling
Interests $ 798 $ 295
Net Income (Loss) Attributed to HKN, Inc. $ 606 $ (3,050)
Net Income (Loss) Attributed to Common Stock $ 605 $ (3,469)
Basic and Diluted Net Income (Loss) per
Common Share $ 0.06 $ (0.37)
Basic and Diluted Weighted Average Common
Shares Outstanding 9,696,047 9,269,565
Balance Sheet Summary (in thousands)
December 31,
-----------------------------
2010 2009
------------- -------------
Current Ratio (1) 2.68 to 1 2.74 to 1
Working Capital (2) $ 7,575 $ 5,989
Cash and Marketable Securities $ 4,815 $ 7,030
Total Debt $ - $ -
Stockholders' Equity $ 65,112 $ 57,831
Total Liabilities to Equity 0.22 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 Loss
(in thousands)
Year Ended December 31,
-----------------------------
2010 2009
------------- -------------
Net Loss - GAAP $ (192) $ (3,345)
Depreciation, Depletion, Amortization and
Accretion 3,419 3,524
Interest Expense and Other Losses 79 33
Equity in Losses of Spitfire 20 225
Gain on Sale of Investment (1,887) (30)
Income Tax Benefit (20) (40)
------------- -------------
Operating Margin $ 1,419 $ 367
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Management believes the presentation of this non-GAAP financial
measure, in connection with the results for the year ended December
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 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
February 17, 2011. HKN undertakes no duty to update or revise any
forward-looking statements. Actual results may vary materially.
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