SOURCE: HKN, Inc.

February 21, 2008 16:32 ET

HKN Achieves Profitability and Increased Proved Reserve Values During 2007

DALLAS, TX--(Marketwire - February 21, 2008) - HKN, Inc. (AMEX: HKN) ("HKN") today reported its annual financial results for the year ended December 31, 2007. During 2007, HKN continued to actively invest in energy industry assets as well as develop its crude oil, natural gas and coalbed methane assets. Consistent with HKN's strategy to invest in energy-based opportunities, during 2007 HKN increased the assets invested in its trading activities and also increased its level of ownership in Spitfire Energy Ltd. (TSX-V: SEL) ("Spitfire"), a junior oil and gas exploration company in Canada. HKN's ownership interest in Spitfire increased from approximately 9% to 25% during the year.

HKN reported net income of $3.2 million during 2007 as compared to a net loss of $855 thousand during 2006. Significant financial highlights for the year ended December 31, 2007 for HKN and its investments include the following:

Financial Highlights

--  Improvement in current ratio (defined as current assets divided by
    current liabilities) of 5.48 to 1.00 at December 31, 2007 as compared to
    3.29 to 1.00 at December 31, 2006.
    
--  Increase in discounted value of proved reserves of 84%; value climbed
    from $50.9 million at the prior year end to $93.9 million at December 31,
    2007.
    
--  No debt outstanding during 2007.
    
--  Profitable operations resulting in net income of $3.2 million.
    
--  Trading revenues of $862 thousand on our investments in common stock
    and common stock derivatives.
    
--  Additional investment of $3.9 million for 8.3 million additional
    common shares in Spitfire, resulting in 25% ownership of Spitfire.
    
--  Capital expenditures of $10.9 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 proved reserve volumes.
    
--  Completed the first phase of pilot wells in our Indiana-Posey coalbed
    methane prospect. Technical evaluation completed with promising results and
    initiated a second pilot project.
    
--  Non-operated natural gas production declined during 2007 compared to
    prior year period due to lower than anticipated partner generated well
    workover and drilling activity by the operators.
    
--  Repurchased approximately 69 thousand common shares in the market.
    

HKN's operating results for the years ended December 31, 2007, 2006, and 2005 are as follows (in thousands except for share and per share amounts)

                                                 Year Ended
                                      ----------------------------------
                                                December 31,
                                      ----------------------------------
                                          2007       2006       2005
                                      ----------- ----------  ----------
Oil Revenues-domestic                 $    12,538 $   10,769  $    7,086
Gas Revenues-domestic                 $     7,881 $   12,381  $   10,768
Oil Revenues-international            $         - $    3,743  $   19,045
Trade Revenues                        $       680 $      315  $     (157)
Fees, Interest and Other Revenues     $     3,199 $    3,065  $    3,320
Oil and Gas Operating
 Expenses-domestic                    $     8,648 $    9,733  $    6,334
Oil and Gas Operating
 Expenses-international               $         - $    1,260  $    5,343
General and Administrative Expenses   $     5,844 $    9,022  $   17,327
Operating Margin (Non-GAAP; see
 reconciliation below)                $     9,806 $   10,258  $   11,058
Depreciation, Depletion, Amortization
 and Accretion                        $     6,107 $   10,624  $   11,677
Gain on Exercise of Global Warrants   $         - $        -  $   28,341
Gain on Sale of Global Shares         $         - $        -  $   32,452
Loss from Discontinued Operations,
 net of taxes                         $         - $   (1,223) $   (2,817)
Net Income  (Loss)                    $     3,229 $     (855) $   42,655
Net Income (Loss) Attributed to
 Common Stock                         $     2,965 $   (2,244) $   42,068
Basic Net Income (Loss) per Common
 Share                                $      0.30 $    (0.23) $     4.30
Diluted Net Income (Loss) per Common
 Share                                $      0.30 $    (0.23) $     3.95
Basic Weighted Average Common Shares
 Outstanding                            9,799,332  9,952,742   9,793,296
Diluted Weighted Average Common
 Shares Outstanding                     9,799,332  9,952,742  10,876,445

As previously disclosed, HKN deconsolidated the financial operations of Global Energy Development PLC ("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 and for the year ended December 31, 2005 are still included in HKN's consolidated financials in 2005 and 2006.

Balance Sheet Summary (in thousands)

                                                 December 31,  December 31,
                                                ------------- -------------
                                                    2007          2006
                                                ------------- -------------


Current Ratio (1)                                   5.48 to 1     3.29 to 1
Working Capital (2)                             $      24,533 $      28,962
Cash and Short-Term Investments                 $      25,581 $      30,954
Total Debt                                      $           - $           -
Cash and Short-Term Investments less Debt       $      25,581 $      30,954
Stockholders' Equity                            $      99,766 $     105,001
Total Liabilities to Equity                         0.11 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.

Operating Summary

HKN's oil and gas operations consist of its exploration, development and production efforts in the United States. The following table sets forth its domestic oil and gas operating results for each of the years in the three-year period ended December 31, 2007 (in thousands):

                                       2007      2006      2005
                                    --------- --------- ---------
Oil Revenues                        $  12,538 $  10,769 $   7,086
Gas Revenues                        $   7,881 $  12,381 $  10,768
Net oil sold (bbls)                   171,866   167,469   134,660
Net gas sold (mcf)                    986,279 1,711,866 1,265,881
Average price of oil sold (per bbl) $   72.95 $   64.30 $   52.62
Average price of gas sold (per mcf) $    7.99 $    7.23 $    8.51
Average production and
 transportation costs (per mcfe)    $    4.29 $    3.58 $    3.05
                                    --------- --------- ---------

During 2007, HKN's domestic oil revenues increased 16%, due to higher commodity pricing and increased volumes from its Main Pass 35 field as compared to 2006. Gas revenues decreased approximately 36%; even though 2007 pricing was higher than 2006 gas pricing, significant production losses on several non-operated fields due to lack of workover and maintenance projects by the operators caused the significant reduction in HKN's gas revenues.

HKN's domestic oil and gas operating expenses decreased 11%, falling from $9.7 million in 2006 to $8.6 million in 2007. The decrease in workover activity in HKN's fields is the primary reason for the overall decrease in the operating expenses. Rising oilfield costs and lower production during 2007 resulted in higher costs per mcfe, however.

NON-GAAP FINANCIAL MEASURE

Reconciliation of Operating Margin to Net Income (Loss) (in thousands)

                                                       Year Ended
                                                      December 31,
                                              -----------------------------
                                                 2007     2006      2005
                                              --------- --------  --------
Net Income (Loss) - GAAP                      $   3,229 $   (855) $ 42,655
Depreciation, Depletion, Amortization and
 Accretion                                        6,107   10,624    11,677
Interest Expense and Other Losses                   390      386       771
Equity in Losses of Spitfire                         50        -         -
Income Tax Expense                                   30      187       730
Increase in Lyford Warrant Liability                  -        -    13,297
Gain on Exercise of Global Warrants                   -        -   (28,341)
Gain on Sale of Global Shares                         -        -   (32,452)
Cumulative Effect of a Change in Accounting
 Principle                                            -      868         -
Minority Interest                                     -   (2,175)      (96)
Loss from Discontinued Operations, net of
 taxes                                                -    1,223     2,817
                                              --------- --------  --------
Operating Margin                              $   9,806 $ 10,258  $ 11,058
                                              --------- --------  --------

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the years ended December 31, 2007, 2006 and 2005, 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 both in the development and production of crude oil, natural gas and coalbed methane assets and in the active management of investments in energy industry securities and futures traded on 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 (including, but not limited to, any references related to continuing profitability and increasing reserve values) 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 21, 2008. HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.

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