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Gulf Coast Storms and Financial Market Storms Lead to Disappointing Third Quarter 2008 Results for HKN DALLAS, TX--(MARKET WIRE)--Nov 4, 2008 -- HKN, Inc. (AMEX:HKN - News) ("HKN") today reported its
interim financial results for the three and nine months
ended September 30,
2008. HKN reported a net loss of $3.2 million and net income
of $268
thousand, respectively, during the three and nine months
ended September
30, 2008 as compared to net income of $972 thousand and
$2.8 million for
the respective prior year periods.
Effect of Recent Hurricanes in the Gulf of Mexico During the third quarter 2008, both Hurricane Gustav and Hurricane Ike (the "Hurricanes") hit the Gulf Coast of Mexico effectively shutting in most oil & gas production in the Texas and Louisiana coastal area. Production from our operated oil and gas properties (Main Pass 35, Lake Raccourci and Point a la Hache) along with most of our non-operated properties was shut-in during late August and September and certain of our pre-storm production currently remain curtailed. We are continuing to repair damage to our operations that remain shut-in. Restoration of remaining curtailed production is also dependent on resumption of downstream infrastructure and the availability of service and equipment contractors necessary for over-water transportation and repairs. Our net loss for the third quarter of 2008 reflects both decreased revenue, due to the interruption of production, and non-capitalizable net repair costs related to the Hurricanes both totaling in excess of $3.0 million. Total gross direct damage costs to repair and rebuild the damaged properties are currently estimated at approximately $3.0 million ($2.0 million net of partners' share) but could be higher as actual repairs and restoration are completed during the remainder of 2008. In connection with our oil and gas properties, we have property damage insurance, but not business interruption coverage. We expect our fourth quarter 2008 financial results to reflect the subsequent continued decline in oil and gas commodity pricing and the residual effects of curtailed production from certain of our operated and non-operated properties which remain shut-in after the Hurricanes. Adverse Market Conditions Effect Investment Activities During September and October 2008, unfavorable changes in economic conditions, including decreased oil and gas commodity pricing and a dramatic decline in the U.S. and international stock markets resulted in an adverse effect on our oil and gas revenue along with our investment activities. Investment Trading Portfolio During the three and nine months ended September 30, 2008, we realized net losses of approximately $849 thousand and $2.3 million, respectively, associated with our investment trading activities. Also in October 2008, due to the dramatic volatility in the U.S. stock markets, we closed our entire open derivative trading portfolio and realized subsequent losses in excess of $3.3 million to be recognized in our results of operations during the fourth quarter 2008. Canergy Growth Fund During the quarterly period ended September 30, 2008, the value of the shares of Canadian energy companies held by the Canergy Growth Fund ("Canergy Fund") declined in conjunction with the overall decline in the United States and other foreign stock markets. Certain investments held by Canergy Fund were divested during September 2008 in order to mitigate future losses. The Canergy Fund recognized realized net losses on investments of $192 thousand and $16 thousand of foreign currency translation losses on the sales of these investments, which amounts are included within trading revenues in our consolidated condensed statement of operations for the period ended September 30, 2008. During October 2008, Canergy Fund divested all of its common stock holdings in Canadian junior oil and gas companies for total cumulative realized losses of approximately $1.0 million resulting in the Canergy Growth Fund Total Return Ratio as of October 2008 of approximately (40%). In addition, challenging economic conditions also impaired the ability of our third-party investor in Canergy Management Company and Canergy Fund to continue to maintain their investments in these entities. In October 2008, the third-party investor exercised his right to voluntarily withdraw from the Canergy Fund and Canergy Management, and HKN is currently the sole participant in both the Canergy Fund and Canergy Management. Investment in Spitfire Energy At September 30, 2008, we held an investment in Spitfire Energy Ltd. ("Spitfire") through the ownership of approximately 27% of Spitfire's currently outstanding common shares. During the third quarter 2008 and subsequently in October 2008, Spitfire's common share price continued to decline. As of September 30, 2008, Spitfire's share price had declined to Can$0.35 per share. Based upon the significant deterioration of the U.S. and foreign stock markets, including the Canadian exchanges, along with our significant doubt that Spitfire's management will take needed steps to increase the market value of Spitfire in the near future, we believe our investment has experienced an other-than-temporary decline in fair value, requiring an impairment charge of $2.8 million to write down the carrying value of our investment to its market value as of September 30, 2008. Further declines in Spitfire's share price and the Canadian stock markets in the future may require additional impairment of our investment in Spitfire if these declines are deemed to be other-than-temporary. HKN's operating results for the three and nine months ended September 30, 2008 and 2007 are as follows (in thousands except for share and per share amounts)
Three Months Ended
-----------------------
September 30,
-----------------------
2008 2007
---------- -----------
(unaudited) (unaudited)
Oil Revenues $ 4,113 $ 3,459
Gas Revenues $ 1,839 $ 1,552
Trade Revenues (Losses) $ (849) $ 210
Fees, Interest and Other Revenues $ 503 $ 803
Oil and Gas Operating Expenses $ 3,478 $ 2,078
General and Administrative Expenses $ 1,245 $ 1,372
Operating Margin (Non-GAAP; see reconciliation
below) $ 883 $ 2,574
Impairment of investment in Spitfire $ 2,787 $ -
Depreciation, Depletion, Amortization and Accretion $ 1,190 $ 1,489
Net Income (Loss) $ (3,204) $ 972
Net Income (Loss) Attributed to Common Stock $ (3,276) $ 923
Basic and Diluted Net Income (Loss) per Common
Share $ (0.34) $ 0.09
Basic and Diluted Weighted Average Common Shares
Outstanding 9,638,039 9,793,806
Nine Months Ended
-----------------------
September 30,
-----------------------
2008 2007
---------- -----------
(unaudited) (unaudited)
Oil Revenues $ 13,238 $ 8,731
Gas Revenues $ 5,967 $ 6,150
Trade Revenues (Losses) $ (2,270) $ 540
Fees, Interest and Other Revenues $ 2,023 $ 2,594
Oil and Gas Operating Expenses $ 8,554 $ 6,258
General and Administrative Expenses $ 3,491 $ 3,682
Operating Margin (Non-GAAP; see reconciliation
below) $ 6,913 $ 8,075
Impairment of investment of Spitfire $ 2,787 $ -
Depreciation, Depletion, Amortization and Accretion $ 3,680 $ 4,803
Net Income $ 268 $ 2,770
Net Income Attributed to Common Stock $ 33 $ 2,608
Basic and Diluted Net Income per Common Share $ 0.00 $ 0.27
Basic and Diluted Weighted Average Common Shares
Outstanding 9,684,609 9,803,220
Balance Sheet Summary (in thousands)
September 30, December 31,
------------- -------------
2008 2007
------------- -------------
(unaudited)
Current Ratio (1) 3.16 to 1 5.48 to 1
Working Capital (2) $ 20,480 $ 24,533
Cash and Short-Term Investments $ 23,198 $ 25,581
Total Debt $ - $ -
Cash and Short-Term Investments less Debt $ 23,198 $ 25,581
Stockholders' Equity $ 96,365 $ 99,766
Total Liabilities to Equity 0.16 to 1 0.11 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.
NON-GAAP FINANCIAL MEASURE
Reconciliation of Operating Margin to Net Income (in thousands)
Three Months Ended
September 30,
-----------------------
2008 2007
---------- -----------
(unaudited) (unaudited)
Net Income (Loss) - GAAP $ (3,204) $ 972
Depreciation, Depletion, Amortization and Accretion 1,190 1,489
Interest Expense and Other Losses 5 109
Equity in earnings of Spitfire (97) 1
Minority Interest (62) -
Impairment of investment in Spitfire 2,787 -
Income Tax Expense 264 3
---------- -----------
Operating Margin $ 883 $ 2,574
========== ===========
Nine Months Ended
September 30,
-----------------------
2008 2007
---------- -----------
(unaudited) (unaudited)
Net Income - GAAP $ 268 $ 2,770
Depreciation, Depletion, Amortization and Accretion 3,680 4,803
Interest Expense and Other Losses 50 413
Equity in earnings of Spitfire (68) 43
Minority Interest (75) -
Impairment of investment of Spitfire 2,787 -
Income Tax Expense 271 46
---------- -----------
Operating Margin $ 6,913 $ 8,075
========== ===========Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three and nine months ended September 30, 2008 and 2007, provides useful information to investors regarding our results of operations. Management also believes that this non-GAAP financial measure provides a picture of our 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. HKN, Inc. is an independent energy company engaged in the development and production of crude oil, natural gas and coalbed methane assets and in the management of investments in energy industry securities traded on both domestic and international securities exchanges. Additional information may be found at the HKN Web site, www.hkninc.com. Please e-mail all investor inquiries to HKNinquiries@ctaintegrated.com. Certain statements in this announcement, such as "future opportunities," 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 February 19, 2008. HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially. Contact: Investor Inquiries:
HKN, Inc.
Email Contact
Source: HKN, Inc.
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