DALLAS, TX -- (Marketwire) -- 08/07/12 -- HKN, Inc. (NYSE MKT: HKN) ("HKN" or "the Company") today reported its interim financial results for the three and six months ended June 30, 2012.
Financial Condition
During the second quarter of 2012, HKN worked toward re-establishing operating assets following the sale of its oil and gas properties during 2011. In relation to this effort, management spent the majority of its time and resources to identify and evaluate acquisition opportunities as well as to further develop and commercialize the oilfield technology owned by its wholly-owned subsidiary BriteWater International, Inc. ("BriteWater"). During this period, management also focused on minimizing overhead costs. The cash balance at June 30, 2012 was approximately $25 million, and the Company continues to hold no debt.
At June 30, 2012, HKN's assets are primarily comprised of cash, the BriteWater technology and plants, the approximate 34% ownership of Global Energy Development PLC ("Global"), and the notes receivable extended to Global. During July 2012, the Company also acquired a 50% interest in Gerrity Oil, LLC ("Gerrity Oil"), a joint venture which is active in the Bakken shale.
BriteWater International, Inc.
HKN continues to devote substantial resources to the development and commercialization of BriteWater, which holds patented emulsion-breaking technology. During the quarter, BriteWater continued its efforts towards designing standardized modules which can be used for both upstream and downstream applications in the oil and gas industry, including oil field and refinery emulsions and oil spill remediation. Construction on the plant should begin during the fourth quarter of 2012.
Global Energy Development, plc
Global Common Shares - At June 30, 2012, HKN owned approximately 34% of Global's ordinary shares. Global is a publicly-traded oil and gas company listed on the Alternative Investment Market, a market operated by the London Stock Exchange with oil properties in Colombia. During the quarter, the Company purchased an additional 100 thousand shares of Global for $175 thousand and increased its ownership from 33.88% to 33.92%. The investment in Global is carried at its market value as follows (in thousands, except for the share amounts):
June 30, 2012 December 31, 2011
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Shares of Global Stock held by HKN 12,226,768 12,126,768
Closing price of Global Stock £ 0.83 £ 1.06
Foreign Currency Exchange Rate 1.5605 1.5490
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Market Value of Investment in Global $ 15,836 $ 19,913
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The foreign currency translation adjustment of approximately $161 thousand and the unrealized loss on investment of $4.4 million for the changes in market value between the two periods were recorded to other comprehensive income in stockholders' equity during the six months ended June 30, 2012.
Global Notes Receivable - HKN has two outstanding notes receivable from Global. The first agreement (the "Global Loan") provides principal in the amount of $12 million, is due on or before September 30, 2013, and bears interest at 10.5% per annum. The Global Loan is currently unsecured, but HKN can require Global to provide adequate collateral security in the event of a material adverse effect, as determined in its sole discretion. The second agreement (the "Global Note Receivable") provides principal in the amount of $5 million, is due on or before September 14, 2012 and, bears interest at 10.5% per annum. This note is fully secured by oil producing assets of Global.
Investment in Gerrity Oil, LLC
During the second quarter 2012, HKN completed its due diligence on Gerrity Oil, a joint venture which will be engaged in all phases of the oil and gas business in the Niobrara and Williston Basins, including the acquisition of oil and gas leases, fee mineral interests, overriding royalty interests, participating and non-participating royalty interests and production payments, and participating in the drilling, completion, operation and maintenance of oil and gas wells. During July 2012, the Company contributed $4 million to the newly-formed joint venture in return for the receipt of a 50% ownership interest. Robert W. Gerrity contributed oil and gas assets in the Niobrara and Williston Basins in return for the other 50% interest in Gerrity Oil and will serve as the President of Gerrity Oil.
Operating Results Update
Due to the sale of the oil and gas properties in the prior year, HKN's operating results have been restated to remove the results generated by the oil and gas operations from continuing operations and include them within discontinued operations.
As a result of cost-cutting measures and interest on the Global notes receivable, the Company's results from continuing operations improved from a loss of $2 million in the first half of 2011 to a loss of $1.5 million for the first half of 2012. These improvements were partially offset by increased commercialization costs at BriteWater.
Selling, general and administrative expenses increased from $2.1 million during the first six months of 2011 to $2.3 million for the first six months of 2012, primarily due to additional travel, consulting and personnel expenses as BriteWater further develops and commercializes its technology during 2012.
Interest and other income from related parties increased from $265 thousand in the first half of 2011 to $840 thousand in the first half of 2012, primarily due to interest earned on the Global Loan which was issued in January 2012.
HKN's income (loss) from discontinued operations decreased from income of $817 thousand in the first half of 2011 to a loss of $220 thousand for the first half of 2012 as a result of the sale of all of the Company's oil and gas properties during 2011. The current year loss is primarily due to additional legal costs related to the sold oil and gas properties and bad debt expense on a potentially uncollectible oil and gas receivable account.
HKN's operating results for the three and six months ended June 30, 2012 and 2011 are as follows (in thousands, except for share and per share amounts)
Three Months Ended June 30,
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2012 2011
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Revenues $ - $ -
Selling, General and Administrative Expenses $ 1,110 $ 1,149
Depreciation and Amortization $ (67) $ (82)
Interest and Other Income - Related Party $ 478 $ 132
Interest and Other Income $ 9 $ 12
Income Tax Benefit $ 73 $ -
Loss from Continuing Operations $ (617) $ (1,087)
Income on Disposal of Discontinued Operations $ 13 $ -
Income (Loss) from Discontinued Operations $ (43) $ 578
Net Loss $ (647) $ (509)
Net Loss Attributable to Noncontrolling
Interests $ - $ 202
Net Loss Attributable to HKN, Inc. $ (647) $ (307)
Net Loss Attributed to Common Stock $ (643) $ (303)
Basic and Diluted Loss per Common Share $ (0.04) $ (0.02)
Basic and Diluted Weighted Average Common
Shares Outstanding 17,750,375 16,715,311
Six Months Ended June 30,
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2012 2011
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Revenues $ - $ -
Selling, General and Administrative Expenses $ 2,300 $ 2,144
Depreciation and Amortization $ (127) $ (149)
Interest and Other Income - Related Party $ 840 $ 265
Interest and Other Income $ 21 $ 22
Income Tax Benefit $ 78 $ -
Loss from Continuing Operations $ (1,488) $ (2,006)
Loss on Disposal of Discontinued Operations $ (69) $ -
Income (Loss) from Discontinued Operations $ (220) $ 817
Net Loss $ (1,777) $ (1,189)
Net Loss Attributable to Noncontrolling
Interests $ - $ 319
Net Loss Attributable to HKN, Inc. $ (1,777) $ (870)
Net Loss Attributed to Common Stock $ (1,777) $ (870)
Basic and Diluted Loss per Common Share $ (0.10) $ (0.06)
Basic and Diluted Weighted Average Common
Shares Outstanding 18,109,123 13,389,184
Balance Sheet Summary (in thousands)
June 30, December 31,
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2012 2011
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Current Ratio (1) 71.38 to 1 22.84 to 1
Working Capital (2) $ 30,052 $ 47,097
Cash $ 24,848 $ 43,431
Total Debt $ - $ -
Stockholders' Equity $ 66,366 $ 75,242
Total Liabilities to Equity 0.02 to 1 0.04 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 its 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.
