HEC Harken Energy Corp

Harken Energy Reports First Quarter 2005 Results DALLAS, May 10 /PRNewswire-FirstCall/ -- Harken Energy Corporation (AMEX:HEC) today reported quarterly financial results for the period ended March 31, 2005. Total revenues in the first quarter of 2005 increased to approximately $7.4 million, an increase of 14% over the first quarter of 2004, due primarily to higher oil and gas prices. During the period ended March 31, 2005, Harken's balance sheet has remained strong as summarized below. Harken ended the first quarter 2005 with approximately $19.3 million in Cash, outstanding Debt of $8.6 million, and positive Working Capital of approximately $18 million. Balance Sheet Summary: December 31, March 31, 2004 2005 (unaudited) Current ratio (1) 2.54 to 1 2.77 to 1 Working capital (2) $21,845,000 $17,718,000 Cash $28,632,000 $19,333,000 Total debt $8,578,000 $8,578,000 Total cash less debt $20,054,000 $10,7551,000 Stockholders' equity $51,102,000 $45,592,000 Total debt to equity 0.17 to 1 0.19 to 1 (1) Current ratio is calculated as current assets divided by current liabilities (2) Working capital in the difference between current assets and current liabilities Capital expenditures for the drilling and development of Harken's energy-related assets totaled approximately $6 million during the period ended March 31, 2005 of which Harken's 70%-owned international subsidiary, Global Energy Development PLC (Global) international capital expenditures totaled approximately $3.5 million, and Harken's wholly-owned domestic subsidiary, Gulf Energy Management Company's (GEM) capital expenditures totaled approximately $2.3 million. Operating Summary The most significant items in Harken's results of operations for the period ended March 31, 2005 as compared to the prior year period were the non-cash accounting losses associated with Global's warrants and stock options. During the three months ended March 31, 2005, there was a 19% increase in Global's common share price from approximately 153 UK pence at December 31, 2004 to approximately 181 UK pence at March 31, 2005. As a result of the changes in Global's common share price, Harken was required under US GAAP to record an unrealized non-cash expense of approximately $3.8 million for the period ended March 31, 2005 for the change in the fair value of the Global Warrants held by outside parties. These warrants expire in August and October 2005. As of March 31, 2005, the fair value of the Global warrant liability was estimated to be approximately $18.6 million. Harken also holds warrants to purchase shares of Global's stock at 60 UK pence per share. Since Global is a consolidated subsidiary, the Global warrants held by Harken are not reflected in Harken's financial statements. The estimated fair value of Global warrants held by Harken at March 31, 2005 was approximately $15 million. The fair value of the Global warrants was calculated by a third party firm based primarily on the underlying market price of the Global common stock. In addition to the Global warrants described above, certain employees and directors of Global hold options to purchase shares of Global's common stock. Accordingly, since the Global share price is greater than the option exercise price, variable plan accounting requires compensation expense to be recognized for changes in Global's share price for all options outstanding under the plan. Unrecognized compensation costs relating to the unvested options are recorded over the remaining vesting period. During the period ended March 31, 2005, Harken recognized share-based non-cash compensation expense of approximately $2.0 million attributable to vested Global stock as a result of the increase in the Global share price during the period from December 31, 2004 to March 31, 2005. A summary of Harken's Results of Operations for the period ended March 31, 2005 as compared to the prior year period is as follows: Three Months Ended March 31, 2004 2005 Total Revenues and Other $6,493,000 $7,347,000 Oil and Gas Operating Expenses 1,877,000 2,206,000 General and Administrative Expenses 1,567,000 2,660,000 Operating Margin (Non-GAAP; see Reconciliation below) 3,049,000 2,481,000 Depreciation and Amortization 2,635,000 2,601,000 Share-based Compensation Expense -- 2,020,000 Increase in Global warrant liability 50,000 3,796,000 Accretion Expense 102,000 92,000 Interest Expense and Other, net (124,000) 269,000 Gains from Extinguishment of Debt (325,000) -- Gain on Investment (990,000) -- Income Tax Expense 92,000 206,000 Minority Interest in Subsidiary 98,000 (287,000) Net Income / (Loss) $1,511,000 $(6,216,000) Accrual of Dividends Related to Preferred Stock (766,000) (304,000) Payment of Preferred Stock Dividends 2,664,000 (90,000) Net Income / (Loss) Attributed to Common Stock $3,409,000 $(6,610,000) Basic Net Income / (Loss) per Common Share $0.02 $(0.03) Basic Weighted Average Shares Outstanding 188,037,334 218,312,672 Diluted Net Income / (Loss ) per Common Share $0.02 $(0.03) Diluted Weighted Average Share Outstanding 203,377,334 218,312,672 Gulf Energy Management Company (GEM) During the quarter ended March 31, 2005, GEM continued development of its operations and properties in the Gulf Coast area of Texas and Louisiana, specifically the Lapeyrouse, Branville Bay, Point-a-la-Hache fields in Louisiana and the South Beach, Allen Ranch and Southeast Nada fields in Texas. Also during the first quarter 2005, GEM entered into two significant Exploration and Development Agreements in Indiana and Ohio. The combined prospects provide for an area of mutual interest of approximately 800,000 acres. The agreements provide for a phased delineation, pilot and development program, with corresponding staged expenditures. A contracted third party with a long track record in successful coalbed methane development will provide expert advice for these projects. GEM is currently in Phase 1 of both Exploration and Development Agreements which consist of drilling three core holes on each prospect area. During the period ended March 31, 2005, GEM's natural gas production decreased 3.7% as compared to the prior year period, affected principally by a 40% reduction in production associated with GEM's interests in its existing wells in the Raymondville field. Despite an active recompletion campaign at Raymondville, field production peaked in 2004. Initial production from GEM's new wells drilled during 2004 and first quarter 2005 helped to offset the decline from Raymondville. Production from GEM's newly drilled wells in the Point-a-la-Heche field, the Allen Ranch field and the Southeast Nada fields in Louisiana and Texas is expected to begin in the second quarter of 2005. Oil and gas operating expense increased during the first quarter of 2005 compared to first quarter 2004 primarily due to demand driven price increases for oilfield services and equipment associated with increased oilfield activity. Diesel fuel costs have risen with the increase in price of crude oil. Global Energy Development PLC (Global) Global continued the development of its international operations by successfully re-completing and commencing production from the Macarenas #1 well in January 2005 on its Rio Verde Exploration and Production Contract area in Colombia, South America. Global owns a 100% working interest in the Macarenas #1 well. Global currently produces from two wells on the Rio Verde Contract and intends to explore opportunities for additional development around these two wells in the medium-term. Global's oil sales volumes decreased 20% from approximately 97,000 barrels in the first quarter 2004 to approximately 78,000 barrels during the period ended March 31, 2005. Lower oil sales volumes were a result of the 2004 commerciality declaration from Ecopetrol on Cajaro #1 resulting in a lower working interest to Global, coupled with a 13,000 net barrel reduction in sales volumes between the quarterly periods. In addition, the Torcaz field volumes declined 3,000 net barrels, and the Olivo #1 well from the Bolivar Contract Area dropped by 5,000 net barrels in the first quarter 2005 as compared to the prior year period. Both areas are planned to be worked over during 2005. New production from the Tilodiran #1 and the Macarenas #1 wells from the Rio Verde Contract area helped to partially mitigate this decrease in sales volumes as compared to the first quarter of 2004. In March 2005, Global completed the successful workover and the re-commencement of production from the Canacabare #1 well located in the Anteojos field within its Alcaravan Association Contract in Colombia. Canacabare #1 was the first well to be brought on production in the Anteojos field, which is adjacent to the established Palo Blanco field, also within the Alcaravan Contract area. During the workover, Global successfully added the Middle Carbonera C-7 formation. Global experienced increased quality adjusted price penalties from the sale of its crude oil during the first quarter 2005 as compared to the prior year period. These penalties were as high as $4.00 per barrel. To offset the increased quality adjustments, in April 2005, Global entered into a new crude oil sales contract with Petrobras Colombia Limited, a subsidiary of Petrobras, the state oil company of Brazil, with an effective date of May 1, 2005. The new non-exclusive contract offers Global much improved terms through a reduced quality adjustment levy. Global anticipates an approximate $3.00 increase in the net well-head price it receives per barrel of oil. This new contract covers all crude oil production from Global's Palo Blanco, Anteojos, Rio Verde, Torcaz and Bolivar fields in Colombia, net of royalties paid to the Colombian government and Ecopetrol's portion of production from one well, the Cajaro #1. International Business Associates (IBA) IBA's net loss for the period ended March 31, 2005 totaled approximately $1 million, which was primarily associated with general and administrative expenses. Harken invested in IBA, a start-up energy trading company, in late 2004. IBA is in the initial stages of operations and is focused primarily on opportunities created by the recent deregulation of the energy market in Eastern Europe by seeking to trade energy futures or other energy based contracts, principally in Hungary and the United States. IBA began trading natural gas contracts in the United States during late 2004 and has continued with minimal trading activities during the first quarter of 2005. Chairman's Comment Alan G. Quasha, Harken's Chairman, stated, "The most significant items in our income statement for the first quarter 2005 as compared to the prior year period are the Global share-based compensation expense and the increase in the Global warrant liability. We are seeking to resolve these issues this year so they won't continue to dominate our financial statements. The Global warrants expire in August and October of 2005." More information is available in Harken Energy Corporation's Form 10-Q for the period ended March 31, 2005 which may be accessed through the Company's website at http://www.harkenenergy.com/. NON-GAAP FINANCIAL MEASURE Reconciliation of Operating Margin to Net Income Three Months Ended March 31, 2004 2005 Net Income / (Loss) (GAAP) $1,511,000 $(6,216,000) Minority Interest in Subsidiary 98,000 (287,000) Income Tax Expense 92,000 206,000 Gains from Extinguishment of Debt (325,000) -- Gain on Investment (990,000) -- Interest Expense and Other, Net (124,000) 269,000 Accretion Expense 102,000 92,000 Increase in Global Warrant Liability 50,000 3,796,000 Share-Based Compensation Expense -- 2,020,000 Depreciation and Amortization 2,635,000 2,601,000 Operating Margin $3,049,000 $2,481,000 Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three months ended March 31, 2005, provides useful information to investors regarding the Company's results of operations. Management also believes that this non-GAAP financial measure provides a picture of Harken's 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. Harken Energy Corporation is engaged in oil and gas exploration, development and production operations both domestically and internationally through its various subsidiaries. Additional information may be found at the Harken Energy Web site, http://www.harkenenergy.com/, or by calling Bevo Beaven or Bill Conboy at CTA Public Relations at (303) 665-4200. Certain statements in this announcement including statements regarding future expectations, objectives, intentions and plans for oil and gas exploration, development and production may be regarded as "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. 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 Harken 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/A dated April 13, 2005. Harken undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially. Contact: Bevo Beaven, Vice President Bill Conboy, Senior Account Executive CTA Public Relations 303-665-4200 DATASOURCE: Harken Energy Corporation CONTACT: Bevo Beaven, Vice President, , or Bill Conboy, Senior Account Executive, , both of CTA Public Relations, +1-303-665-4200, for Harken Energy Corporation Web site: http://www.harkenenergy.com/

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