HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its annual
financial results for the year ended December 31, 2011.
Financial Condition
During 2011, HKN was able to significantly strengthen its
financial condition through the divestiture of its oil and gas
properties and the completion of its rights offering. Our cash
balance at December 31, 2011 was $43 million and we continue to
hold no debt.
We sold all of our oil and gas properties during 2011 with the
sale of our remaining Gulf Coast oil and gas assets during the
fourth quarter of 2011. As a result of these sales, we received net
cash proceeds of approximately $26.3 million and eliminated future
pricing, operating, and regulatory risks. Upon the completion of
our rights offering during April 2011, we received net proceeds of
approximately $14.7 million and issued 7.5 million shares of common
stock.
The proceeds from these transactions has enhanced our ability to
invest into areas of the oil and gas industry which may generate
greater value for our shareholders while carrying significantly
lower operational and regulatory risks. The proceeds also provide
capital for the further development of our wholly-owned subsidiary
BriteWater International, Inc. ("BriteWater").
2012 Outlook
Currently, the majority of the value of our assets is derived
from BriteWater, our investment in publicly-traded common shares of
Global Energy Development PLC ("Global"), and our notes receivable
extended to Global. We consider these assets to be strategic for
us, and our objective for 2012 is to build the value of our asset
portfolio through:
- Identifying, developing and marketing applications for the BWI
OHSOL technology
- Pursuing opportunities to invest in or acquire undervalued
assets or companies in the energy industry which we believe present
significant near-term potential
- Providing management expertise and/or additional capital for
our portfolio assets to enhance their value and accelerate
growth
- Managing capital expenditures and selling, general and
administrative costs
Investment in BriteWater
During 2011, we acquired the remaining 47.91% outstanding units
of BriteWater. BriteWater continues to pursue opportunities to
commercialize our patented OHSOL emulsion-breaking technology and
is currently designing standardized OHSOL modules. These modules
can be used for both upstream and downstream applications in the
oil and gas industry, including oil field and refinery emulsions
and oil spill response. BriteWater also has an existing
purpose-built plant which can be used to break emulsions found in
weathered lagoon pits. BriteWater expects to deploy this plant to a
location in North Africa or the Middle East during the second half
of 2012.
BriteWater signed contracts during 2011 and 2012 which give it
the right of first refusal for oilfield emulsions generated in
certain fields on the Alaska North Slope ("ANS"). BriteWater's
wholly-owned subsidiary, Arctic Star Alaska, Inc. ("Arctic Star"),
has identified a location on the ANS on which it will locate one of
its standardized plant designs. This plant will allow Arctic Star
to recover saleable crude oil from oil field waste for sale into
the market. Arctic Star anticipates that construction of the plant
will begin during the second half of 2012.
Investment in Global
At December 31, 2011, HKN owned approximately 34% of Global's
ordinary shares. Global is a publicly-traded oil and gas company
listed on the Alternative Investment Market ("AIM"), a market
operated by the London Stock Exchange. Global is a Latin America
focused petroleum exploration and production company with assets in
Colombia and Peru. Our investment in Global is carried at its
market value as follows (in thousands, except for the share
amounts):
December 31, December 31,
2011 2010
--------------------------------
Shares of Global Stock held by HKN 12,126,768 11,893,463
Closing price of Global Stock £ 1.06 £ 1.09
Foreign Currency Exchange Rate 1.5490 1.5524
--------------------------------
Market Value of Investment in Global $ 19,913 $ 20,136
================================
The foreign currency translation adjustment of approximately $6
thousand and the unrealized loss of approximately $482 thousand for
the decline in market value between the two dates shown, provide
the components of the $488 thousand loss recorded in other
comprehensive income in stockholders' equity for the year ended
December 31, 2011.
Global Notes Receivable - On January 31, 2012, we executed a
separate Loan Agreement ("Loan") which is in addition to the 10.5%
Senior Secured Note Receivable which was issued in 2010. The new
Loan carries a principal amount of $12 million. The Loan is
currently unsecured, but we can require Global to provide adequate
collateral security in the event of a material adverse effect,
determined at our sole discretion. The Loan is due and payable to
us on or before September 30, 2013 and bears interest at 10.5% per
annum, and Global paid a 1.75% transaction fee of approximately
$210 thousand related to the Loan.
Operating Results Update
Our year-to date operating results have been restated to reflect
our oil and gas operations as discontinued operations, and our
results from continuing operations continue to be significantly
lower than our 2010 results. Our net loss from continuing
operations increased from $1.9 million during 2010 up to $3.5
million during 2011, primarily as a result of increased selling,
general and administrative expenses ("SG&A") and a
non-recurring $1.9 million gain on the sale of our investment in
Spitfire Energy, Ltd. ("Spitfire") during 2010.
During the year ended December 31, 2011, SG&A were
approximately $4.4 million as compared to approximately $3.8
million during the 2010 period. The increase was primarily due to
legal and consulting expenses in connection with the Global
mandatory offer and our defense of an IRS tax examination.
Interest and other income from affiliates increased from $267
thousand in 2010 to $528 thousand in 2011, primarily due to
interest earned on the 10.5% Senior Secured Note Receivable from
Global which was issued in September 2010.
Our income from discontinued operations increased slightly from
$1.7 million for the year ended December 31, 2010 to $1.9 million
for the year ended December 31, 2011. The increase was primarily
the result of increased commodity pricing combined with lower
operating expenses and depletion which were the result of the
property sales throughout 2011. These increases were partially
offset by lower revenues and production volumes due to the property
sales.
We also recognized a loss of $1.7 million on the sales of our
remaining Gulf Coast oil and gas properties during the fourth
quarter 2011.
HKN's operating results for the year ended December 31, 2011 and
2010 are as follows (in thousands, except for share and per share
amounts)
Year Ended December 31,
------------------------------
2011 2010
-------------- -------------
Revenues $ - $ -
Selling, General and Administrative Expenses $ 4,372 $ 3,754
Depreciation and Amortization $ (286) $ (370)
Interest and Other Income - Affiliates $ 528 $ 267
Interest and Other Income $ 50 $ 98
Gain on Sale of Investment $ - $ 1,887
Income Tax Benefit $ 573 $ 20
Equity in Losses of Spitfire $ - $ (20)
Loss from Continuing Operations $ (3,507) $ (1,872)
Loss on Disposal of Discontinued Operations $ (1,703) $ -
Income from Discontinued Operations $ 1,919 $ 1,680
Net Loss $ (3,291) $ (192)
Net Loss Attributable to Noncontrolling $
Interests 327 $ 798
Net Income (Loss) Attributable to HKN, Inc. $ (2,964) $ 606
Net Income (Loss) Attributed to Common Stock $ (2,964) $ 605
Basic and Diluted Income (Loss) per Common $
Share (0.19) $ 0.06
Basic and Diluted Weighted Average Common
Shares Outstanding 16,012,956 9,696,047
Balance Sheet Summary (in thousands)
December 31,
----------------------------------
2011 2010
----------------------------------
Current Ratio (1) 22.84 to 1 3.97 to 1
Working Capital (2) $ 47,096 $ 37,550
Cash and Cash Equivalents $ 43,431 $ 4,815
Total Debt $ - $ -
Stockholders' Equity $ 75,242 $ 65,112
Total Liabilities to Equity 0.04 to 1 0.22 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.
HKN, Inc. is an independent energy company engaged in the
development of a well-balanced portfolio of assets in the energy
industry and in the active management of our 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
March 2, 2012. HKN undertakes no duty to update or revise any
forward-looking statements. Actual results may vary materially.
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