SOURCE: HKN, Inc.

November 06, 2007 10:33 ET

HKN Continues Profitability During Third Quarter 2007

DALLAS, TX--(Marketwire - November 6, 2007) - HKN, Inc. (AMEX: HKN) ("HKN") today reported its interim financial results for the three and nine months ended September 30, 2007. HKN reported net income of $2.8 million during the first nine months of 2007 as compared to a net loss of $8 thousand in the first nine months of 2006 on a pro-forma basis. Significant financial highlights for the nine months ended September 30, 2007 for HKN and its investments include the following:

Financial Highlights

--  Improvement of current ratio (defined as current assets divided by
    current liabilities) of 5.59 to 1.00 at September 30, 2007 as compared to
    3.29 to 1.00 at December 31, 2006.
    
--  No debt outstanding during the nine months ended September 30, 2007.
    
--  Profitable operations resulting in net income of $2.8 million.
    
--  Additional investment of $3.9 million for 8.3 million additional
    common shares in Spitfire Energy, Ltd. ("Spitfire"), resulting in 25%
    ownership of Spitfire.
    
--  Capital expenditures of $8.6 million for development drilling on newly
    acquired interests in the Creole and East Lake Verret fields as well as
    development drilling at East Allen Ranch and workover activity at Main Pass
    35.
    
--  Decreased depreciation, depletion and amortization rate per unit as a
    result of increased interim reserve volumes.
    
--  Completed the first phase of pilot wells in our Indiana-Posey coalbed
    methane prospect. Technical evaluation completed with good results. Second
    pilot project initiated.
    
--  Fair value of our investment in Global Energy Development plc
    ("Global") shares increased in value to approximately $28.4 million.
    
--  Non-operated natural gas production declined 50% compared to prior
    year period due to lower than anticipated partner generated well workover
    and drilling activity.
    
--  Crude oil production increased 7% (on a pro-forma basis) compared to
    prior year period due to increased production at our operated Main Pass 35
    field.
    
--  General and administrative expenses decreased by 14% due to cost-
    cutting measures, on a pro-forma basis.
    
--  Repurchased approximately 43 thousand common shares in the market.
    


HKN's operating results for the three months and nine months ended September 30, 2007 are as follows (in thousands except for share and per share amounts)

                                                      Nine Months Ended
                                                        September 30,
                                                  -------------------------
                                                      2007        2006
                                                  ------------ ------------
                                                  (unaudited)   Pro-Forma
                                                               (unaudited)
                                                               (restated)

Oil Revenues                                      $      8,731 $     8,051
Gas Revenues                                      $      6,150 $     9,694
Trade Revenues                                    $        540 $        (1)
Fees, Interest and Other Revenues                 $      2,594 $     2,205
Oil and Gas Operating Expenses                    $      6,258 $     6,893
General and Administrative Expenses               $      3,682 $     4,276
Operating Margin (Non-GAAP; see reconciliation
 below)                                           $      8,075 $     8,780
Depreciation, Depletion, Amortization and
 Accretion                                        $      4,803 $     7,472
Loss from Discontinued Operations, net of taxes   $          - $    (1,223)
Net Income (Loss)                                 $      2,770 $        (8)
Net Income (Loss) Attributed to Common Stock      $      2,608 $    (1,327)
Basic and Diluted Net Income (Loss) per Common
 Share                                            $       0.27 $     (0.13)
Basic and Diluted Weighted Average Common Shares
 Outstanding                                         9,803,220   9,972,459




                                                     Three Months Ended
                                                  -------------------------
                                                        September 30,
                                                  -------------------------
                                                      2007        2006
                                                  ------------ ------------
                                                  (unaudited)  (unaudited)
                                                               (restated)

Oil Revenues                                      $      3,459 $     3,155
Gas Revenues                                      $      1,552 $     3,610
Trade Revenues                                    $        210 $        77
Fees, Interest and Other Revenues                 $        803 $       779
Oil and Gas Operating Expenses                    $      2,078 $     2,466
General and Administrative Expenses               $      1,372 $     1,337
Operating Margin (Non-GAAP; see reconciliation
 below)                                           $      2,574 $     3,818
Depreciation, Depletion, Amortization and
 Accretion                                        $      1,489 $     2,497
Loss from Discontinued Operations, net of taxes   $          - $        (3)
Net Income                                        $        972 $     1,282

Net Income Attributed to Common Stock             $        923 $     1,235
Basic and Diluted Net Income per Common Share     $       0.09 $      0.12
Basic Weighted Average Common Shares Outstanding     9,793,806   9,970,653
Diluted Weighted Average Common Shares
 Outstanding                                         9,793,806   9,981,199

As previously disclosed, HKN deconsolidated the financial operations of Global during the second quarter of 2006. HKN was required to reflect this deconsolidation prospectively. As a result of this treatment, Global's operations for the quarter ended March 31, 2006 are still included in HKN's consolidated financial in 2006. HKN included pro-forma results of operations for the nine months ended September 30, 2006 in its Quarterly Report on Form 10-Q giving effect to the deconsolidation of Global's operations as if it had been effective for all periods presented. The unaudited pro-forma data is presented for illustrative purposes only and is not necessarily indicative of future operating results.

Pro-Forma Balance Sheet Summary (in thousands)

                                                September 30, December 31,
                                                ------------- -------------
                                                    2007          2006
                                                ------------- -------------
                                                 (unaudited)   (restated)

Current Ratio (1)                                   5.59 to 1     3.29 to 1
Working Capital (2)                             $      23,949 $      28,962
Cash and Short-Term Investments                 $      23,266 $      30,954
Total Debt                                      $           - $           -
Cash and Short-Term Investments less Debt       $      23,266 $      30,954
Stockholders' Equity                            $     108,016 $     105,001
Total Liabilities to Equity                         0.10 to 1     0.19 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 (Loss) (in thousands)

                                                     Three Months Ended
                                                        September 30,
                                                  -------------------------
                                                     2007         2006
                                                  ------------ ------------
                                                  (unaudited)   (unaudited)

Net Income - GAAP                                 $        972 $      1,282
Depreciation, Depletion, Amortization,
 and Accretion                                           1,489        2,497
Interest Expense and Other Losses                          109           36
Equity in Losses of Spitfire                                 1            -
Income Tax Expense                                           3            -
Loss from Discontinued Operations, net of taxes              -            3
                                                  ------------ ------------
Operating Margin                                  $      2,574 $      3,818
                                                  ============ ============

                                                      Nine Months Ended
                                                        September 30,
                                                  -------------------------
                                                      2007        2006
                                                  ------------ ------------
                                                  (unaudited)    Pro-Forma
                                                                (unaudited)
Net Income (Loss)  - GAAP                         $      2,770 $        (8)
Depreciation, Depletion, Amortization,
 and Accretion                                           4,803       7,472
Interest Expense and Other Losses                          413          93
Income Tax Expense                                          46           -
Equity in Losses of Spitfire                                43           -
Loss from Discontinued Operations, net of taxes              -       1,223
                                                  ------------ -----------
Operating Margin                                  $      8,075 $     8,780
                                                  ============ ===========

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three and nine months ended September 30, 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 oil and gas development activities and the active management of 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 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 28, 2007. HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.

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