DALLAS, TX--(Marketwire -05/08/12)- HKN, Inc. (HKN) ("HKN") today reported its interim financial results for the three months ended March 31, 2012.
During the first quarter of 2012, HKN continued to focus on enhancing value for our shareholders through the development of a well-balanced portfolio of assets in the energy industry. Our cash balance at March 31, 2012 was approximately $30 million, and we continue to hold no debt.
Currently, the majority of the value of our assets is derived from BriteWater International, Inc. ("BriteWater"), our investment in publicly-traded common shares of Global Energy Development PLC ("Global"), and our notes receivable extended to Global.
BriteWater International, Inc.
The Company continues to devote substantial resources to the development and commercialization of our wholly-owned subsidiary BriteWater. BriteWater is currently designing standardized OHSOL modules which can be configured for use in both upstream and downstream applications in the oil and gas industry, including oil field and refinery emulsions and oil spill remediation. BriteWater also has an existing purpose-built plant which can be used to break emulsions found in weathered lagoon pits. BriteWater continues to market this plant and hopes to deploy it to a location in North Africa or the Middle East during the second half of 2012.
BriteWater is currently pursuing opportunities to commercialize our patented OHSOL emulsion-breaking technology. BriteWater and its wholly-owned subsidiary, Arctic Star Alaska, Inc. ("Arctic Star") signed contracts during 2011 and 2012 which grant Arctic Star the right of first refusal for oilfield emulsions generated in certain fields on the Alaska North Slope ("ANS"). Arctic Star has also secured an option which grants it the right of first refusal to lease a location on the ANS on which it plans to locate one of the 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 March 31, 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 ("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):
March 31, December 31, 2012 2011 ------------- ------------- Shares of Global Stock held by HKN 12,126,768 12,126,768 Closing price of Global Stock GBP 1.11 GBP 1.06 Foreign Currency Exchange Rate 1.6016 1.5490 ------------- ------------- Market Value of Investment in Global $ 21,559 $ 19,913 ============= =============
The foreign currency translation adjustment of approximately $664 thousand and the unrealized gain of approximately $982 thousand for the changes in market value between the two dates shown, provide the components of the $1.6 million gain recorded in our statement of comprehensive income for the three months ended March 31, 2012.
Global Notes Receivable - In January 2012, we executed a new Loan Agreement (the "Global Loan") with Global which provides the principal amount of $12 million. The Global Loan is currently unsecured, but we can require Global to provide adequate collateral security in the event of a material adverse effect, as determined in our sole discretion. The Global Loan is due and payable to us on or before September 30, 2013 and bears interest at 10.5% per annum. Accrued and unpaid interest on the outstanding principal amount is due and payable on the last day of each quarter.
We had previously issued a separate note to Global in 2010 in the amount of $5 million ("Global Note Receivable"). The Global Note Receivable is due and payable to us 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, and interest is paid on a monthly basis.
Operating Results Update
Our results from continuing operations improved from a loss of $919 thousand in the first quarter 2011 to a loss of $871 thousand for the first quarter 2012, primarily as a result of increased interest income generated by a loan to Global in the current year which was partially offset by increased selling, general and administrative expenses ("SG&A").
During the three months ended March 31, 2012, SG&A were approximately $1.2 million as compared to approximately $995 thousand during the 2011 period. The increase was primarily due to higher consulting and personnel related expenses for BriteWater which have grown as we continue to increase the resources used for the commercial development of BriteWater.
Interest and other income from related parties increased from $129 thousand in 2011 to $362 thousand in 2012, primarily due to interest earned on the Global Loan which was issued in January 2012.
We sold our oil and gas properties in the prior year and our quarterly operating results have been restated to reflect our oil and gas operations as discontinued operations. Our income (loss) from discontinued operations decreased from income of $239 thousand in the first quarter 2011 to a loss of $177 thousand for the first quarter 2012. The current year loss is primarily due to additional legal costs related to the divestitures and bad debt expense on a potentially uncollectible oil and gas receivable account.
We recognized an adjustment to the loss of $82 thousand on the 2011 Gulf Coast oil and gas divestitures during the first quarter 2012 as a result of increases in retained liabilities for plugging and abandonment costs on sold and abandoned fields.
HKN's operating results for the three months ended March 31, 2012 and 2011 are as follows (in thousands, except for share and per share amounts)
Three Months Ended March 31, -------------------------- 2012 2011 ------------ ------------ Revenues $ - $ - Selling, General and Administrative Expenses $ 1,190 $ 995 Depreciation and Amortization $ (60) $ (67) Interest and Other Income - Related party $ 362 $ 129 Interest and Other Income $ 12 $ 14 Deferred Income Tax Benefit $ 5 $ - Loss from Continuing Operations $ (871) $ (919) Loss on Disposal of Discontinued Operations $ (82) $ - Income (Loss) from Discontinued Operations $ (177) $ 239 Net Loss $ (1,130) $ (680) Net Loss Attributable to Noncontrolling Interests $ - $ 117 Net Loss Attributable to HKN, Inc. $ (1,130) $ (563) Net Loss Attributed to Common Stock $ (1,134) $ (567) Basic and Diluted Loss per Common Share $ (0.06) $ (0.06) Basic and Diluted Weighted Average Common Shares Outstanding 18,467,866 10,026,098
Balance Sheet Summary (in thousands)
March 31, December 31, ------------- ------------- 2012 2011 ------------- ------------- Current Ratio (1) 19.08 to 1 22.84 to 1 Working Capital (2) $ 33,560 $ 47,097 Cash and Cash Equivalents $ 29,716 $ 43,431 Total Debt $ - $ - Stockholders' Equity $ 75,559 $ 75,242 Total Liabilities to Equity 0.04 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 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.