|By Marketwired .||
|November 6, 2012 02:56 PM EST||
DALLAS, TX -- (Marketwire) -- 11/06/12 -- HKN, Inc. (OTCQB: HKNI) ("HKN") today reported its interim financial results for the three and nine months ended September 30, 2012.
During the third quarter of 2012, HKN continued to focus on building the value of our assets and investments in the energy industry. Our cash balance at September 30, 2012 was approximately $22 million, and we continue to hold no debt.
Currently, the majority of the value of our assets is derived from our wholly-owned subsidiary BriteWater International, Inc. ("BriteWater"), our investment in publicly-traded common shares of Global Energy Development PLC ("Global"), our joint venture in Gerrity Oil, LLC ("Gerrity Oil") and our notes receivable extended to Global. Management continues to seek and evaluate additional projects and opportunities within the energy and related industries.
Investment in Gerrity Oil, LLC
In July 2012, we invested in Gerrity Oil, an entity which holds non-operated working interests in properties strategically located in the Bakken and Niobrara shale oil plays. HKN contributed $4 million in cash in exchange for 50% ownership interest and voting participation on the Board. The other investor, Robert W. Gerrity, an unrelated party, contributed oil and gas assets and liabilities in exchange for the remaining 50% ownership interest and voting participation on the Board. Gerrity Oil plans to engage in all phases of the oil and gas business in the Bakken and Niobrara shale plays 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.
BriteWater International, Inc.
The Company continues to devote substantial resources to the development and commercialization of BriteWater. BriteWater is currently finalizing its detailed engineering for standardized 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. BriteWater also has a completed purpose-built plant which can be used to break emulsions found in weathered lagoon pits.
BriteWater is pursuing opportunities to commercialize its patented emulsion-breaking technology through the operation of plants which use its standardized module design. In association with its commercialization efforts, BriteWater and its wholly-owned subsidiary, Arctic Star Alaska, Inc. ("Arctic Star"), signed contracts during 2011 and 2012 which grant it the right of first refusal for oilfield emulsions generated in certain fields on the Alaska North Slope. Arctic Star plans to place one of its standardized plants on the Alaskan North Slope to recover saleable crude oil from oil field waste to be sold into the market. Construction of this plant is anticipated to begin during the first half of 2013.
Investment in Global
At September 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. Global is a Latin America focused petroleum exploration and production company with assets in Colombia. Our investment in Global is carried at its market value as follows (in thousands, except for the share amounts):
September 30, December 31, 2012 2011 ------------- ------------- Shares of Global Stock held by HKN 12,226,768 12,126,768 Closing price of Global Stock GBP 0.73 GBP 1.06 Foreign Currency Exchange Rate 1.6132 1.5490 ------------- ------------- Market Value of Investment in Global $ 14,399 $ 19,913 ============= =============
The foreign currency translation adjustment of approximately $664 thousand and the unrealized loss on investment of $6.4 million for the changes in market value between the two periods were recorded to other comprehensive income in stockholders' equity during the nine months ended September 30, 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. As of September 26, 2012, pursuant to provisions of the Global Loan agreement, the interest rate charged on this loan was increased from 10.5% up to 12.5% per annum due to Gobal's nonconformity with a performance condition as of June 30, 2012. The new stated interest rate will remain in effect until the maturity of the loan agreement. Accrued and unpaid interest on the outstanding principal amount is due and payable on the last day of each quarter.
We also issued a separate note to Global in 2010 in the amount of $5 million ("Global Note Receivable"). During August 2012, we agreed to extend the maturity date of our Global Note Receivable by seven months, resulting in a new maturity date of April 14, 2013. In association with this amendment, we increased the interest rate from 10.5% up to 12.5%. Global also paid to us a 1% transaction fee of approximately $50 thousand, of which $44 thousand is deferred at September 30, 2012 and will be recognized over the remaining term of the Global Note Receivable. This note is fully secured by oil producing assets of Global, and interest is paid on a monthly basis.
Reverse Stock Split, Change in Authorized Shares and Voluntary Delisting
Effective October 30, 2012, we completed a one-for-forty reverse stock split of our issued and outstanding common stock which was approved by shareholders on October 29, 2012. In conjunction with the reverse stock split, our shareholders also approved a reduction of our common stock shares authorized from 24 million shares to 2 million shares. As previously disclosed, the Company also voluntarily decided to move the listing of its stock from the NYSE MKT on October 30, 2012 and began trading on the OTC Markets' OTCQB marketplace effective November 1, 2012.
Operating Results Update
Our loss from continuing operations decreased approximately 36% from $2.8 million in the first nine months of 2011 to $1.8 million for the first nine months of 2012. The majority of the decrease was due to increased interest income from our related party notes receivable as a result of the additional $12 million loan issued to Global in January 2012. The current period operating loss also improved marginally due to the results from our Gerrity Oil joint venture that began operations in July 2012. These improvements were partially offset by increased commercialization costs at BriteWater.
Oil revenues from our portion of our Gerrity Oil joint venture were $180 thousand, or 97% of our total revenues for the three months ended September 30, 2012. We realized an average oil price of $87.45 per barrel during the period. Our share of oil production for the period was approximately 2 thousand bbls for the period, approximately 99% of which came from our non-operating properties located in the Bakken.
Gas revenues from our portion of our Gerrity Oil joint venture were $5 thousand, or 3% of our total revenues for the three months ended September 30, 2012. We realized an average gas price of $4.90 per mcf during the period. Our share of gas production for the period was approximately 1 thousand mcf, approximately 88% of which came from our non-operating properties located in the Bakken.
Oil and gas operating expenses for the year to date period ended September 30, 2012 were $21 thousand from our portion of our Gerrity Oil joint venture that began operations in July 2012. Oil and gas operating expenses are expected to increase as new wells in our Gerrity Oil joint venture are drilled in the near term.
Selling, general and administrative expenses increased approximately 4% from $3.0 million during the first nine months of 2011 to $3.2 million for the first nine months of 2012, primarily due to additional travel, consulting and personnel expenses as we continue to develop and commercialize the BriteWater technology during 2012.
Interest and other income increased approximately 212% from $439 thousand in the first nine months of 2011 to $1.4 million in the first nine months of 2012, primarily as a result of the related party 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 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 $1.8 million in the first nine months of 2011 to a loss of $302 thousand for the first nine months of 2012 as a result of the oil and gas property sales during 2011. During the current year, we incurred additional legal costs resulting from the sale of the 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 nine months ended September 30, 2012 and 2011 are as follows (in thousands, except for share and per share amounts)
Three Months Ended September 30, -------------------------- 2012 2011 ------------ ------------ Total revenues $ 185 $ - Operating costs and expenses: Oil and gas expenses 21 - Selling, general and administrative expenses 857 887 Depreciation, depletion and amortization 117 64 ------------ ------------ Total operating costs and expenses 995 951 Loss from operations (810) (951) Other income: Interest and other income - related party 496 131 Interest and other income 12 21 Income tax benefit 2 - ------------ ------------ Total other income 510 152 Loss from continuing operations (300) (799) Loss on disposal of discontinued operations (24) - Income (loss) from discontinued operations (82) 944 ------------ ------------ Net income (loss) (406) 145 Net loss attributable to noncontrolling interests - 7 ------------ ------------ Net income (loss) attributable to HKN, Inc. $ (406) $ 152 Net income (loss) attributed to common stock $ (410) $ 148 Net income (loss) per common share - basic and diluted $ (0.94) $ 0.32 Weighted average common shares outstanding - basic and diluted 436,896 468,173 Nine Months Ended September 30, -------------------------- 2012 2011 ------------ ------------ Total revenues $ 185 $ - Operating costs and expenses: Oil and gas expenses 21 - Selling, general and administrative expenses 3,157 3,031 Depreciation, depletion and amortization 244 213 ------------ ------------ Total operating costs and expenses 3,422 3,244 Loss from operations (3,237) (3,244) Other income: Interest and other income - related party 1,336 396 Interest and other income 33 43 Income tax benefit 80 - ------------ ------------ Total other income 1,449 439 Loss from continuing operations (1,788) (2,805) Loss on disposal of discontinued operations (93) - Income (loss) from discontinued operations (302) 1,761 ------------ ------------ Net loss (2,183) (1,044) Net loss attributable to noncontrolling interests - 326 ------------ ------------ Net loss attributable to HKN, Inc. $ (2,183) $ (718) Net loss attributed to common stock $ (2,187) $ (722) Net loss per common share - basic and diluted $ (4.89) $ (1.90) Weighted average common shares outstanding - basic and diluted 447,411 379,701
Balance Sheet Summary (in thousands)
September 30, December 31, ------------- ------------- 2012 2011 ------------- ------------- Current Ratio (1) 108.42 to 1 22.84 to 1 Working Capital (2) $ 38,993 $ 47,097 Cash $ 21,964 $ 43,431 Total Debt $ - $ - Stockholders' Equity $ 64,522 $ 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 our energy-based investments. Additional information may be found at the HKN Web site, www.hkninc.com. Please e-mail all investor inquiries to [email protected].
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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