SOURCE: HKN, Inc.

August 07, 2008 14:53 ET

HKN Announces Second Quarter 2008 Increased Profits

DALLAS, TX--(Marketwire - August 7, 2008) - HKN, Inc. (AMEX: HKN) ("HKN") today reported its interim financial results for the three and six months ended June 30, 2008. HKN reported net income of $2.3 million and $3.3 million, respectively, during the three and six months ended June 30, 2008 as compared to $1.3 million and $1.7 million for the respective prior year periods. Significant financial highlights for the first half of 2008 for HKN and its investments include the following:

Financial and Operational Highlights

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

--  Created the Canergy Growth Fund LLC (Canergy Fund), a U.S. Virgin
    Islands non-registered investment company, in May 2008, to invest in a
    potentially undervalued segment of the global energy industry, the Canadian
    junior oil and gas market.  The Canergy Fund is seeking total capital
    commitments up to $10 million.  As of June 30, 2008, total capital
    contributions into the Canergy Fund were $2.4 million (HKN owning
    approximately 83% of the Canergy Fund).
    
--  Held approximately $7.7 million outstanding of average notional value
    in exchange-traded written positions in our energy trading portfolio
    through our treasury activities.
    
--  Deployed capital expenditures of $1 million 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.
    
--  Deployed over $1.7 million of prepaid costs towards the 2nd five-well
    pilot project for our coalbed methane Indiana Posey Prospect as well as for
    two wells in our Creole Field to be drilled during the third quarter 2008.
    
--  Repurchased approximately 92 thousand of our common shares in the
    market.
    

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 6.76 to 1.00 at June 30, 2008 up from 5.81 to 1.00
    at March 31, 2008 and 5.48 to 1.00 at December 31, 2007.
    
--  Held no debt outstanding during the six months ended June 30, 2008.
    
--  Increased our profitable operations resulting in net income of $3.3
    million.
    
--  Decreased depreciation, depletion and amortization rates per unit as a
    result of increased proved reserve volumes.
    
--  Experienced an increase in the fair value of our investment in Global
    Energy Development plc ("Global") shares to approximately $28.8 million at
    June 30, 2008 as compared to $19.8 million at December 31, 2007.
    
--  Reaped a 73% increase in our crude oil revenue compared to prior year
    period due to increased commodity prices and an overall increase in our oil
    production from our Main Pass 35 and Creole fields.
    
--  Decreased our general and administrative expenses in an increasing-
    cost environment.
    

Consistent with our monetization strategy, we:

--  Retained Lantana Oil & Gas Partners to market our operated working
    interest in Main Pass Block 35 in Plaquemines Parish, Louisiana.
    

Financial and Operational Disappointments:

--  We experienced a $1.2 million realized loss on crude oil futures
    contracts.  At June 30, 2008, we no longer hold any open crude oil futures
    contracts.
    
--  Our natural gas revenues decreased 10% to approximately $4.1 million.
    Our natural gas production declined 31% compared to the first six months of
    2007 due to lower than anticipated partner generated well workover and
    drilling activity.
    

HKN's operating results for the three and six months ended June 30, 2008 and 2007 are as follows (in thousands except for share and per share amounts)


                                                     Three Months Ended
                                                  ------------------------
                                                          June 30,
                                                  ------------------------
                                                      2008         2007
                                                  -----------  ------------
                                                  (unaudited)  (unaudited)

Oil Revenues                                      $     5,269  $      2,752
Gas Revenues                                      $     2,448  $      2,509
Trade Revenues                                    $    (1,287) $        178
Fees, Interest and Other Revenues                 $       642  $        742
Oil and Gas Operating Expenses                    $     2,421  $      1,990
General and Administrative Expenses               $     1,057  $      1,224

Operating Margin (Non-GAAP; see reconciliation
 below)                                           $     3,607  $      2,967
Depreciation, Depletion, Amortization and
 Accretion                                        $     1,260  $      1,480
Net Income                                        $     2,358  $      1,365
Net Income Attributed to Common Stock             $     2,256  $      1,301
Basic and Diluted Net Income per Common Share     $      0.23  $       0.13
Basic Weighted Average Common Shares Outstanding    9,678,882     9,802,247
Diluted Weighted Average Common Shares
 Outstanding                                        9,678,882    10,135,076



                                                     Six Months Ended
                                                  ------------------------
                                                          June 30,
                                                  ------------------------
                                                      2008         2007
                                                  -----------  ------------
                                                  (unaudited)  (unaudited)

Oil Revenues                                      $     9,125  $      5,272
Gas Revenues                                      $     4,128  $      4,598
Trade Revenues                                    $    (1,421) $        330
Fees, Interest and Other Revenues                 $     1,520  $      1,791
Oil and Gas Operating Expenses                    $     5,076  $      4,180
General and Administrative Expenses               $     2,246  $      2,310
Operating Margin (Non-GAAP; see reconciliation
 below)                                           $     6,043  $      5,501
Depreciation, Depletion, Amortization and
 Accretion                                        $     2,490  $      3,314
Net Income                                        $     3,472  $      1,798
Net Income Attributed to Common Stock             $     3,309  $      1,685
Basic and Diluted Net Income per Common Share     $      0.34  $       0.17
Basic Weighted Average Common Shares Outstanding    9,708,153     9,808,007
Diluted Weighted Average Common Shares
 Outstanding                                        9,708,153     9,808,007

Balance Sheet Summary (in thousands)

                                      June 30     December 31,
                                    ------------- -------------
                                        2008          2007
                                    ------------- -------------
                                    (unaudited)
Current Ratio (1)                       6.76 to 1     5.48 to 1
Working Capital (2)                 $      26,202 $      24,533
Cash and Short-Term Investments     $      20,974 $      25,581
Total Debt                          $           - $           -
Stockholders' Equity                $     111,170 $      99,766
Total Liabilities to Equity             0.09 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
                                                   June 30,
                                           ------------------------
                                               2008         2007
                                           -----------  ------------
                                           (unaudited)  (unaudited)
Net Income - GAAP                          $     2,358  $      1,365
Depreciation, Depletion, and Amortization        1,260         1,480
Interest Expense and Other Losses                  (41)           77
Equity in Losses of Spitfire                        26            26
Income Tax Expense                                   4            19
                                           -----------  ------------
Operating Margin                           $     3,607  $      2,967
                                           ===========  ============



                                              Six Months Ended
                                                   June 30,
                                           ------------------------
                                               2008         2007
                                           -----------  ------------
                                           (unaudited)  (unaudited)
Net Income - GAAP                          $     3,472  $      1,798
Depreciation, Depletion, and Amortization        2,490         3,314
Interest Expense and Other Losses                   45           304
Equity in Losses of Spitfire                        29            42
Income Tax Expense                                   7            43
                                           -----------  ------------
Operating Margin                           $     6,043  $      5,501
                                           ===========  ============

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three and six months ended June 30, 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.

Contact Information