SOURCE: HKN, Inc.

May 06, 2008 16:23 ET

HKN Announces Over 100% Increase in Profitability in First Quarter 2008

DALLAS, TX--(Marketwire - May 6, 2008) - HKN, Inc. (AMEX: HKN) ("HKN") today reported its interim financial results for the three months ended March 31, 2008. HKN reported net income of $1.1 million during the first three months of 2008 as compared to $433 thousand in the first three months of 2007. Significant financial highlights for the three months ended March 31, 2008 as compared to the prior year period for HKN and its investments include the following:

Quarterly Highlights

Consistent with our strategy to deploy assets into energy-based opportunities, we:

--  Held approximately $15.5 million outstanding of average notional value
    in exchange-traded written positions in our energy trading portfolio.
    
--  Deployed capital expenditures of $519 thousand for development
    drilling on new interests (the RC Roberson #1 well) in the NW Speaks field
    in South Texas, completion costs on the successful Boquillas #1 well also
    in South Texas as well as other projects.
    

Consistent with our focus to improve our financial condition and optimize the value of our assets through collective expectations and objectives, we:

--  Improved our current ratio (defined as current assets divided by
    current liabilities) to 5.81 to 1.00 at March 31, 2008 as compared to 5.48
    to 1.00 at December 31, 2007.
    
--  Held no debt outstanding during the three months ended March 31, 2008.
    
--  Increased our profitable operations resulting in net income of $1.1
    million.
    
--  Decreased depreciation, depletion and amortization rates per unit as a
    result of increased proved reserve volumes.
    
--  Reaped a 53% increase in our crude oil revenue compared to prior year
    period due to increased commodity prices mitigating slight production
    decreases from our Lake Raccourci and Raymondville fields.
    
--  Held our general and administrative expenses flat in an increasing-
    cost environment.
    
--  Repurchased approximately 75 thousand common shares in the market.
    

Financial and Operational Disappointments:

--  Fair value of our investment in Global Energy Development plc
    ("Global") shares decreased in value to approximately $15.6 million due to
    Global's lower share price on the London AIM Market exchange.
    
--  Non-operated natural gas production declined 36% compared to first
    quarter 2007 due to lower than anticipated partner generated well workover
    and drilling activity.
    

HKN's operating results for the three months ended March 31, 2008 and 2007 are as follows (in thousands except for share and per share amounts)

                                                   Three Months Ended
                                              -----------------------------
                                                        March 31,
                                              -----------------------------
                                                   2008            2007
                                              -------------   -------------
                                               (unaudited)     (unaudited)

Oil Revenues                                  $       3,856   $      2,520
Gas Revenues                                  $       1,680   $      2,089
Trade Revenues                                $        (134)  $        152
Fees, Interest and Other Revenues             $         878   $      1,049
Oil and Gas Operating Expenses                $       2,655   $      2,190
General and Administrative Expenses           $       1,189   $      1,086
Operating Margin (Non-GAAP; see
 reconciliation below)                        $       2,436   $      2,534
Depreciation, Depletion, Amortization
 and Accretion                                $       1,230   $      1,834
Net Income                                    $       1,114   $        433
Net Income Attributed to Common Stock         $       1,053   $        384
Basic and Diluted Net Income per
 Common Share                                 $        0.11   $       0.04
Basic Weighted Average Common Shares
 Outstanding                                      9,737,907      9,813,830
Diluted Weighted Average Common Shares
 Outstanding                                      9,737,907      9,813,830




Balance Sheet Summary (in thousands)

                                                 March 31,     December 31,
                                              -------------   -------------
                                                   2008            2007
                                              -------------   -------------
                                               (unaudited)

Current Ratio (1)                                 5.81 to 1       5.48 to 1
Working Capital (2)                           $      25,223   $      24,533
Cash and Short-Term Investments               $      21,942   $      25,581
Total Debt                                    $           -   $           -
Cash and Short-Term Investments less Debt     $      21,942   $      25,581
Stockholders' Equity                          $      96,021   $      99,766
Total Liabilities to Equity                       0.11 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
                                                        March 31,
                                              -----------------------------
                                                   2008            2007
                                              -------------   -------------
                                               (unaudited)     (unaudited)

Net Income - GAAP                             $       1,114   $         433
Depreciation, Depletion, and Amortization             1,230           1,834
Interest Expense and Other Losses                        86             227
Equity in Losses of Spitfire                              3              16
Income Tax Expense                                        3              24
                                              -------------   -------------
Operating Margin                              $       2,436   $       2,534
                                              =============   =============

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three months ended March 31, 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 active 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 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.

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