SOURCE: Harken Energy Corp.

August 09, 2005 16:15 ET

Harken Energy Reports Net Income of $15.7 Million, 44% Increase in Revenue and 54% Increase in Operating Margin for the Second Quarter of 2005

DALLAS, TX -- (MARKET WIRE) -- August 9, 2005 -- Harken Energy Corporation (AMEX: HEC) reports quarterly financial results and is pleased to announce Net Income of $15.7 Million for the period ended June 30, 2005. As summarized below, total revenues in the second quarter of 2005 increased to $11.6 million, an increase of 44% over the second quarter of 2004, due to increased international production and higher oil and gas prices. Non-GAAP Operating Margin increased to $5.8 million in the second quarter of 2005, representing 54% growth over the same period in the prior year, and a 135% improvement as compared to the first quarter 2005.


                        Three Months Ended           Six Months Ended
                             June 30,                    June 30,
                        2004          2005          2004          2005
                    ------------  ------------  ------------  ------------
                     (unaudited)   (unaudited)   (unaudited)   (unaudited)
Total revenues and
 other                 8,039,000    11,601,000    14,532,000    18,948,000
Oil and gas
 operating expenses    2,178,000     2,643,000     4,055,000     4,849,000
General and
 administrative
 expenses, net         2,080,000     3,120,000     3,647,000     5,780,000
                    ------------  ------------  ------------  ------------
  Operating Margin
   (Non-GAAP; see
   reconciliation
   below)              3,781,000     5,838,000     6,830,000     8,319,000
Depreciation and
 amortization          2,948,000     3,295,000     5,583,000     5,896,000
Share-based
 compensation
 expense                       -     2,448,000             -     4,468,000
Increase in Global
 warrant liability    12,431,000     4,402,000    12,481,000     8,198,000
Accretion expense        105,000        93,000       207,000       185,000
Interest expense
 and other, net          (36,000)      289,000      (160,000)      558,000
Gains from
 extinguishments
 of debt                       -             -       325,000             -
Gain on sale of
 subsidiary shares             -    20,344,000             -    20,344,000
Gain on investment             -             -       990,000             -
Income tax expense       231,000       201,000       323,000       407,000
Minority interest
 of subsidiary          (127,000)      234,000      (225,000)      521,000
                    ------------  ------------  ------------  ------------

Net income (loss)   $(12,025,000) $ 15,688,000  $(10,514,000) $  9,472,000
                    ============  ============  ============  ============
Accrual of
 dividends related
 to preferred stock     (877,000)     (299,000)   (1,643,000)     (603,000)
Exchange of
 preferred stock         337,000             -       337,000             -
Payment of
 preferred stock
 dividends             1,074,000       302,000     3,738,000       212,000
                    ------------  ------------  ------------  ------------

Net income (loss)
 attributed to
 common stock       $(11,491,000) $ 15,691,000  $ (8,082,000) $  9,081,000
                    ============  ============  ============  ============

Basic net income
 (loss) per common
 share              $      (0.06) $       0.07  $      (0.04) $       0.04
Basic weighted
 average common
 shares
 outstanding         201,391,524   218,573,229   194,714,427   218,443,670
Diluted net income
 (loss) per common
 share              $      (0.06) $       0.07  $      (0.04) $       0.04
Diluted weighted
 average common
 shares
 outstanding         201,391,524   248,736,991   194,714,427   245,356,273

During the six months ended June 30, 2005 Harken sold certain of its common shares of Global Energy Development PLC ("Global"), at market prices as of the date of each sale, in exchange for total cash consideration, net of fees, of approximately $26 million. These sales of shares decreased Harken's ownership percentage in Global. Harken owned approximately 62% of Global's common shares as of June 30, 2005. In accordance with APB Opinion 18 (As Amended) "The Equity Method of Accounting for Investments in Common Stock" and as a result of the sale of these shares during the six months ended June 30, 2005, Harken recognized a gain of approximately $20 million equal to the amount by which the total proceeds exceeded Harken's proportionate carrying value of Global.

Since December 31, 2004, Global's common share price, as listed on the AIM Exchange in London, has increased from 153 UK pence to 223 UK pence as of June 30, 2005. Three institutional investors have taken a position in Global's common shares during this same period, and the estimated fair market value of Harken's investment in Global increased from approximately $50 million(1) at December 31, 2004 to approximately $60 million(2) at June 30, 2005.

(1) Estimated fair market value of $50 million was calculated as the
    number of Global common shares held by Harken (less outstanding
    warrants held by Lyford Investments Enterprises, Ltd. to purchase
    up to 7,000,000 shares of Global held by Harken) multiplied by
    Global's share price and the exchange rate at December 31, 2004
    (23,949,930 shares less 7,000,000 warrants multiplied by 153 UK
    pence per share at 1.92 currency exchange rate).
(2) Estimated fair market value of $60 million was calculated as the
    number of Global common shares held by Harken (less outstanding
    warrants held by Lyford Investments Enterprises, Ltd. to purchase
    up to 7,000,000 shares of Global held by Harken) multiplied by
    Global's share price and the exchange rate at June 30, 2005
    (21,805,142 shares less 7,000,000 warrants multiplied by 223 UK
    pence per share at 1.79 currency exchange rate).
Operating Summary

Gulf Energy Management Company (GEM):

During the period ended June 30, 2005, GEM continued development of its operations and properties in the Gulf Coast area of Texas and Louisiana, specifically the Lapeyrouse, Branville Bay, Point-a-la-Heche fields in Louisiana and the South Beach, Allen Ranch and Southeast Nada filed in Texas. As of June 30, 2005, GEM's net domestic production rate was at approximately 7.3 million cubic feet equivalent of natural gas per day. In addition, new production initiated subsequent to June 30, 2005 has increased this rate to approximately 7.6 million cubic feet equivalent of natural gas per day related to two wells completed in the second quarter 2005.

Related to GEM's Coalbed Methane Exploration and Development Project in Indiana, covering 400,000 acres, GEM elected to expand the scope of the Phase I coring work, and funded $446,000 in connection with the drilling and evaluation of five core samples for Phase I during the quarter ended June 30, 2005. The last core hole was finished at the beginning of July 2005. Gathered data is being processed and analyzed. Following a report and evaluation of the cores, an election by GEM with regard to Phase II for pilot well drilling will most likely take place late in the third quarter of 2005.

On GEM's Ohio Coalbed Methane Exploration and Development Project, covering an additional 400,000 acres, funding of the work for Phase I of $284,000 is expected to occur in the third quarter of 2005. GEM expects to move a rig during August 2005 and expects the core drilling and data gathering to be completed by early fourth quarter of 2005.

During the six months ended June 30, 2005, GEM's oil and gas revenues increased 9% to approximately $9.7 million compared to approximately $8.9 million for the prior year period due to the increase in both oil and gas prices as compared to the prior year period. GEM's natural gas production decreased 19% as compared to the prior year period, affected principally by a 40% reduction in production associated with GEM's interests in its existing wells in the Raymondville and Lake Raccourci fields. Initial production from GEM's new wells drilled during the first six months of 2005 helped to offset these declines. GEM's oil production decreased 11% related to normal production declines from existing wells.

Global Energy Development PLC:

Global revenues during the first six months of 2005 relate to Global's oil operations in Colombia. Global's Colombian oil revenues increased 65% from $5.5 million during the first six months of 2004 to $9.1 million during the first six months of 2005, due to increased oil prices, which averaged $39.07 per barrel during the first six months of this year compared to $27.62 per barrel during the first six months of 2004 along with increased oil production. Global's oil production volumes increased 17% during the first six months of 2005 compared to the prior year period primarily due to the new production from the Tilodiran #1, Macarenas #1 and Estero #5 wells, mitigated by normal production decline.

Global's operating expenses increased 87% from $1.2 million during the first six months of 2004 to $2.2 million for the first six months of 2005, primarily due to higher diesel fuel and equipment rental costs.

In May 2005, Global signed a new exclusive Technical Evaluation Agreement ("TEA") with the National Hydrocarbons Agency of the Republic of Colombia for the evaluation of potential hydrocarbons resources in the Valle Lunar area located in the established Llanos Basin of eastern Colombia. The total acreage covered by the TEA is approximately 2.1 million acres.

The Valle Lunar area has been subject to prior exploration activity by an international petroleum company in 1981 with two exploration wells reported as productive at that time. The Valle Lunar TEA targets medium heavy oil deposits and grants Global the exclusive option to sign a future Exploration and Production Concession contract, typically 25 years in duration, for acreage within the TEA area that Global identifies as prospective and suitable for exploratory drilling and production operations. The TEA duration is 16 months.

The TEA requires Global to complete within 12 months the reprocessing and interpretation of 800 linear kilometers of existing 2D seismic and certain other geophysical measurements and analysis, including the acquisition of aeromagnetic data.

In May 2005, Global commenced work to acquire approximately 56 kilometers of new 2D seismic within its Rio Verde Exploration and Production Contract in Colombia. The seismic is being acquired around the two producing wells located on the Rio Verde acreage, the Tilodiran #1 and Macarenas #1, in order to evaluate and then proceed with the drilling of additional wells within the contract area. In addition, a proportion of the seismic is being acquired elsewhere in the contract area to consider future exploratory wells. The new seismic will be processed alongside with the reprocessing of 300 kilometers of existing seismic as required under the terms of the contract.

International Business Associates (IBA):

IBA's net loss for the six months ended June 30, 2005 totaled approximately $2 million, which was primarily associated with general and administrative expenses and foreign currency losses. Harken invested in IBA, a start-up energy trading company, in late 2004. IBA is in the initial stages of operations and is focused primarily on opportunities created by the deregulation of the energy market in Eastern Europe by seeking to trade energy futures or other energy based contracts, principally in Hungary and the United States. IBA began trading natural gas contracts in the United States during late 2004 and has continued with minimal trading activities during the first six months of 2005.

Balance Sheet Summary

As the ratios below show, Harken has improved its Working Capital by over 88% since year-end 2004 to approximately $41 million at June 30, 2005. Harken reduced its debt by 39% during the six months ended June 30, 2005, ended the period with over $30 million in cash less debt as detailed below:

                           December 31,     June 30,
                               2004           2005
                           -----------    -----------
                                *         (unaudited)
Current ratio (1)            2.54 to 1      4.70 to 1
Total debt to equity         0.17 to 1      0.09 to 1
Working capital  (2)       $21,845,000    $41,072,000
Cash                       $28,632,000    $35,437,000
Total debt                 $ 8,578,000    $ 5,245,000
Total cash less debt       $20,054,000    $30,192,000
Stockholders' equity       $51,102,000    $60,996,000

(1) Current ratio is calculated as current assets divided
    by current liabilities
(2) Working capital is the difference between current assets
    and current liabilities

* Derived from audited financial statements

NON-GAAP FINANCIAL MEASURE

Reconciliation of Operating Margin to Net Income (loss)


                        Three Months Ended           Six Months Ended
                             June 30,                    June 30,
                        2004          2005          2004          2005
                    ------------  ------------  ------------  ------------
                     (unaudited)   (unaudited)   (unaudited)   (unaudited)
Net income/
(loss) (GAAP)       $(12,025,000) $ 15,688,000  $(10,514,000) $  9,472,000
  Minority interest
   of subsidiary         127,000      (234,000)      225,000      (521,000)
  Income tax
   expense               231,000       201,000       323,000       407,000
  Gain on
   investment                  -             -      (990,000)            -
  Gain on sale of
   subsidiary
   shares                      -   (20,344,000)            -   (20,344,000)
  Gains from
   extinguishments
   of debt                     -             -      (325,000)            -
  Interest expense
   and other, net        (36,000)      289,000      (160,000)      558,000
  Accretion expense      105,000        93,000       207,000       185,000
  Increase in
   Global warrant
   liability          12,431,000     4,402,000    12,481,000     8,198,000
  Share-based
   compensation
   expense                     -     2,448,000             -     4,468,000
  Depreciation and
   amortization        2,948,000     3,295,000     5,583,000     5,896,000
                    ------------  ------------  ------------  ------------
Operating Margin    $  3,781,000  $  5,838,000  $  6,830,000  $  8,319,000
                    ------------  ------------  ------------  ------------

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three and six months ended June 30, 2005 and 2004, provides useful information to investors regarding the Company's results of operations. Management also believes that this non-GAAP financial measure provides a picture of Harken's 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.

Harken Energy Corporation is engaged in oil and gas exploration, development and production operations both domestically and internationally through its various subsidiaries. Additional information may be found at the Harken Energy Web site, www.harkenenergy.com, or by calling Bevo Beaven or Bill Conboy at CTA Public Relations at (303) 665-4200.

Certain statements in this announcement including statements regarding future expectations, objectives, intentions and plans for oil and gas exploration, development and production may be regarded as "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended. 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 Harken 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/A, as amended, for the year ended December 31, 2004 and its Quarterly Report on Form 10-Q, as amended, for the period ended March 31, 2005. Harken undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.

Contact Information

  • Contact:
    Bevo Beaven, Vice President
    Bill Conboy, Vice President
    CTA Public Relations
    303-665-4200