SOURCE: HKN, Inc.

February 19, 2010 12:16 ET

HKN Announces Annual Results for 2009

DALLAS, TX--(Marketwire - February 19, 2010) - HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its annual financial results for the year ended December 31, 2009. HKN reported a net loss of $3.3 million during 2009 as compared to a net loss of $27 million during 2008.

2009 Recap and 2010 Outlook

During 2009, commodity pricing for both crude oil and natural gas averaged well below pricing from the respective prior year period. In 2009, industry-wide drilling costs did not reduce in comparison to the dramatic drop in commodity prices. In order to continue generating cash flow from operating activities, we focused on reducing our costs and were able to cut our operating expenses by 20% and our general and administrative costs by 39% over prior year. However, oil and gas commodity prices during the year averaged approximately 43% and 60% lower, respectively, than 2008. In 2010, our objective is to maintain our working capital while continuing to seek opportunities to increase our operating margin as compared to prior year. We continue to believe in the long-term fundamentals of our industry.

In 2009, we used our discretionary cash to simplify our capital structure by redeeming the remaining 44 thousand shares of our Series M Preferred Stock and 600 shares of our G1 Preferred Stock for a total of approximately $4.4 million. The Series M Preferred had an 8% cash coupon rate which was scheduled to increase to 10% in October 2009. As of December 31, 2009, our Series M Preferred is no longer outstanding. In accordance with our share buyback program, in 2009, we also repurchased 708 thousand of our common shares in the market (approximately 7% of our outstanding shares) at a total cost of approximately $1.9 million.

During 2009, we enhanced the value of our Main Pass 35 field which is located offshore Louisiana in the Gulf of Mexico, by performing various process and structural upgrades and improvements to the facility and its equipment. We believe our Main Pass 35 asset has unique characteristics such as low-decline oil production, behind-pipe development potential as well as third-party oil, gas and water processing and handling services for neighboring fields in the area. We consider our Main Pass 35 field a strategic asset for us in 2010. In addition to our Main Pass 35 expenditures, we also deployed capital expenditures of approximately $1.3 million for oil and gas exploratory and development drilling at our Creole Field, as well as other projects.

Also during 2009, we acquired an interest in a private company, BriteWater International, LLC ("BWI"), formerly known as UniPureEnergy Acquisition Co, LLC, which holds patents to the emulsion breaking "OHSOL" technology. This environmentally-clean process can be used to purify oilfield emulsions by breaking and separating the emulsions into oil, water and solids. This technology has been successfully tested using a mobile OHSOL unit in a demonstration in Prudhoe Bay, Alaska, which demonstrated the effectiveness of the OHSOL emulsion breaking technology to recover valuable hydrocarbons and reduce wastes. BWI is currently pursuing opportunities to commercialize the OHSOL technology by performing emulsion testing of the OHSOL plant equipment both internationally and domestically.

We continue to have access to capital, and we have a discretionary cash balance of approximately $7 million at December 31, 2009 with no debt. We anticipate our operating cash flow and other capital resources, if needed, will adequately fund our planned capital expenditures and other capital uses over the near-term. Based on industry outlook for 2010, prices for oil and natural gas are expected to increase as compared to the prior year. In addition, with savings expected due to cost-cutting measures implemented during 2009, we believe our 2010 operations will remain cash-flow positive.

HKN's operating results for the years ended December 31, 2009, 2008 and 2007 are as follows: (in thousands except for share and per share amounts)


                                            Year Ended December 31,
                                     -------------------------------------
                                        2009          2008         2007
                                     -----------  -----------  -----------
Oil Revenues                         $     8,643  $    15,293  $    12,538
Gas Revenues                         $     1,542  $     6,913  $     7,881
Trade Revenues (losses)              $         -  $    (4,344) $       680
Fees, Interest and Other Revenues    $     2,183  $     2,401  $     3,199
Oil and Gas Operating Expenses       $     8,591  $    10,801  $     8,648
General and Administrative Expenses  $     3,197  $     5,281  $     5,950
Provision (Benefit) for Doubtful
 Accounts                            $       183  $        41  $      (106)
Operating Margin (Non-GAAP; see
 reconciliation below)               $       397  $     4,140  $     9,806
Depreciation, Depletion,
 Amortization and Accretion          $     3,524  $     5,224  $     6,107
Impairment of Investment in Spitfire $         -  $     4,618  $         -
Impairment of Facilities             $         -  $        97  $         -
Full Cost Valuation Allowance        $         -  $    19,906  $         -
Loss from Discontinued Operations,
 net of taxes                        $         -  $    (1,049) $         -
Net Income  (Loss)                   $    (3,345) $   (26,954) $     3,229
Net Loss Attributed to
 Noncontrolling Interests            $       295  $         -  $         -
Net Income (Loss) Attributed to HKN,
 Inc.                                $    (3,050) $   (26,746) $     3,229
Net Income (Loss) Attributed to
 Common Stock                        $    (3,469) $   (27,108) $     2,965
Net Income (Loss) per Common Share
 from continuing operations          $     (0.37) $     (2.74) $      0.30
Net Income (Loss) per Common Share
 from discontinued operations        $      0.00  $     (0.09) $      0.00
Basic and Diluted Net Income (Loss)
 per Common Share                    $     (0.37) $     (2.83) $      0.30
Basic and Diluted Weighted Average
 Common Shares Outstanding             9,269,565    9,587,952    9,799,332




Balance Sheet Summary (in thousands):

                                                       December 31,
                                                 -------------------------
                                                     2009          2008
                                                 ------------  ------------

Current Ratio (1)                                   2.74 to 1     5.77 to 1
Working Capital (2)                              $      5,989  $     16,102
Cash and Short-Term Investments                  $      7,030  $     15,219
Total Debt                                       $          -  $          -
Cash and Short-Term Investments less Debt        $      7,030  $     15,219
Stockholders' Equity                             $     57,831  $     59,904
Total Liabilities to Equity                         0.18 to 1     0.15 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)

                                             Year Ended December 31,
                                      -------------------------------------
                                         2009          2008        2007
                                      -----------  -----------  -----------
Net Income (Loss) - GAAP              $    (3,345) $   (26,954) $     3,229
Depreciation, Depletion,
 Amortization and Accretion                 3,524        5,224        6,107
Interest Expense and Other Losses              33          121          390
Equity in Losses (Gains) of Spitfire          225         (196)          50
Income Tax Expense                            (40)         275           30
Impairment of Investment in Spitfire            -        4,618            -
Impairment of Facilities                        -           97            -
Full Cost Valuation Allowance                   -       19,906            -
Loss from Discontinued Operations,
 net of taxes                                   -        1,049            -
                                      -----------  -----------  -----------
Operating Margin                      $       397  $     4,140  $     9,806
                                      ===========  ===========  ===========

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the years ended December 31, 2009, 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. 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, 2010. HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.

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