First Quarter Revenues Increase 34%, Operating Margin Increases 28%
Harken Energy Corporation (AMEX: HEC) today reported quarterly financial results for the period ended March 31, 2006. During the period ended March 31, 2006, Harken's balance sheet remained strong. Harken ended the first quarter of 2006 with approximately $40 million in Cash and Short Term Investments and positive Working Capital of approximately $38 million. Total revenues in the first quarter of 2006 increased to approximately $9.9 million, an increase of 34% over the first quarter of 2005, due primarily to higher oil and gas prices. Non-GAAP Operating Margin increased to $3.2 million in the first quarter of 2006, representing 28% growth over the prior year. The following is a summary of Harken's Results of Operations for the period ended March 31, 2006, as compared to the prior year period:
Three Months Ended
March 31,
------------------
2005 2006
----------- -----------
Total Revenues and Other $ 7,347,000 $ 9,877,000
Oil and Gas Operating Expenses 2,206,000 3,212,000
General and Administrative Expenses 2,660,000 3,491,000
----------- -----------
Operating Margin (Non-GAAP; see
reconciliation below) 2,481,000 3,174,000
Depreciation, Depletion and Amortization 2,601,000 3,359,000
Share-based Compensation Expense 2,020,000 2,184,000
Increase in Global Warrant liability 3,796,000 -
Accretion Expense 92,000 101,000
Interest Expense and Other, net 269,000 368,000
Income Tax Expense 206,000 239,000
Minority Interest in Subsidiary (287,000) (2,175,000)
Cumulative Effect of a Change in Accounting
Principle - 868,000
----------- -----------
Net Loss $(6,216,000) $(1,770,000)
Accrual of Dividends Related to Preferred Stock (304,000) (57,000)
Modification of Preferred Stock and Common Stock
Warrants (90,000) (1,147,000)
----------- -----------
Net Loss Attributed to Common Stock $(6,610,000) $(2,974,000)
=========== ===========
Basic and Diluted Loss per Common Share $ (0.03) $ (0.01)
Basic and Diluted Weighted Average Shares
Outstanding 218,312,672 223,558,168
Operating Summary
Harken's domestic operations are conducted through its wholly owned subsidiary, Gulf Energy Management Company ("GEM"). GEM's operations consist of exploration, exploitation, development, production and acquisition efforts in the United States, principally in the onshore and offshore Gulf Coast regions of South Texas and Louisiana, as well as coal bed methane exploration and development activities in Indiana and Ohio. Harken has exposure to international crude oil exploration and production operations through its holding of approximately 34% of Global Energy Development PLC's ("Global") outstanding common shares. Global is listed on the AIM Market of the London Stock Exchange. Global has exploration, development and production activities in Colombia, and exploration activities in Panama and Peru. Harken's consolidated revenues are primarily derived from production from GEM's and Global's oil and gas properties.
Balance Sheet Summary:
December 31, March 31,
2005 2006
----------- -----------
(unaudited)
Current ratio (1) 4.13 to 1 4.16 to 1
Working capital (2) $45,163,000 $38,190,000
Cash and short term investments $46,235,000 $39,839,000
Total debt $12,500,000 $12,500,000
Cash and short-term investments less debt $33,735,000 $27,339,000
Stockholders' equity $92,162,000 $89,660,000
Total debt to equity 0.14 to 1 0.14 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
Share-Based Compensation Expense
A significant item in Harken's consolidated results of operations for the period ended March 31, 2006, as compared to the prior year period, was the cumulative effect of the change in accounting principle required by the adoption of Statement of Financial Accounting Standard No. 123 (As Amended) "Accounting for Share-Based Compensation" ("SFAS 123®") related to Global's share option plan. Global's common shares are traded on the AIM Market of the London Stock Exchange. Generally, SFAS 123® requires companies to measure and recognize in the financial statements compensation expense for share-based awards granted to employees based on the fair value of the award. Effective January 1, 2006, Harken adopted SFAS 123® and recognized a non-cash compensation expense of approximately $868,000 for the cumulative effect of the change in accounting principle representing the change in fair value of Global's granted share options from the date of grant up to January 1, 2006. Harken also recognized approximately $2.2 million of share-based compensation expense for the change in fair value of the share options during the quarter ended March 31, 2006. Under US GAAP, share options must be remeasured to fair value each reporting period with the change in fair value recognized in the statement of operations as an increase or decrease to compensation expense.
Gulf Energy Management Company (GEM)
GEM's oil and gas revenues during the first quarter of 2006 were generated from the operations in the onshore and offshore areas of the Texas and Louisiana Gulf Coast. During the first quarter of 2006, GEM's oil and gas revenues increased 19% to approximately $5.7 million, compared to $4.8 million for the prior year period primarily due to an increase in average oil and gas commodity prices received as compared to the prior year period. GEM's natural gas revenue increased 40% to approximately $3.7 million during the first quarter 2006, as compared to $2.6 million during the first quarter 2005, due to the $2.31 increase in average gas prices received from sales in the first quarter 2006. Also, natural gas volumes increased 4% from 396,000 mcf in the first quarter 2005 to 412,000 mcf for the first quarter 2006. This volume increase was attributed to new production at Allen Ranch field and improved production at Lapeyrouse field. GEM experienced a 26% decrease in oil sales and production volumes in the first quarter of 2006, as compared to the prior year period, due to the effects of the hurricanes at Main Pass 35, which occurred late in 2005. As of May 2006, GEM's net domestic production rate was at approximately 7.8 million cubic feet equivalent of natural gas per day. Prior to the hurricanes, GEM's net domestic production rate was approximately 7.6 million cubic feet equivalent of natural gas per day.
GEM's oil and gas operating expense increased 32% to approximately $2 million during the first quarter of 2006 from approximately $1.5 million during the first quarter 2005 primarily due to the cost of insurance, continuing repair costs related to storms of 2005 and demand-driven price increases for oilfield services and equipment associated with increased oilfield activity especially associated with offshore Louisiana.
Global Energy Development PLC (Global)
During the first quarter of 2006, as compared to the first quarter of 2005, Global experienced an increase in oil revenues, increased operating expenses and steady oil volumes. Global's first quarter of 2006 revenue was primarily related to production from its Bolivar, Alcaravan and Bocachico Association Contract Areas located in Colombia, South America.
Global's oil revenues increased approximately 48% from $2.5 million in the first quarter of 2005 to $3.7 million during the first quarter of 2006. Oil sales volumes remained steady at approximately 78,000 net barrels during both periods ended March 31, 2005 and 2006. Global's average oil commodity prices increased 48% to $47.99 during the first quarter 2006, compared to $32.33 during the first quarter 2005.
Global's operating expenses increased 73% from approximately $729,000 in the first quarter of 2005, to approximately $1.3 million during the first quarter of 2006, primarily due to increased equipment rentals and diesel fuel costs. Diesel fuel costs have continued to rise with the increase in the price of crude oil.
International Business Associates (IBA)
IBA's net loss for the period ended March 31, 2006 totaled approximately $616,000 compared to a net loss of $1 million for the period ended March 31, 2005. In February 2006, IBA redeemed 7,500 shares of its Series A Redeemable Preferred Stock, $0.01 par value per share, along with 24 shares of IBA common stock, $0.01 par value per share, held by Harken in exchange for cash consideration of $7.5 million.
More information is available in Harken Energy Corporation's Form 10-Q for the period ended March 31, 2006 which may be accessed through the Company's website at www.harkenenergy.com.
NON-GAAP FINANCIAL MEASURE
Reconciliation of Operating Margin to Net Loss
Three Months Ended
March 31,
------------------
2005 2006
----------- -----------
Net Loss (GAAP) $(6,216,000) $(1,770,000)
Cumulative Effect of a Change in Accounting
Principles - 868,000
Minority Interest in Subsidiary (287,000) (2,175,000)
Income Tax Expense 206,000 239,000
Interest Expense and Other, Net 269,000 368,000
Accretion Expense 92,000 101,000
Increase in Global Warrant Liability 3,796,000 -
Share-Based Compensation Expense 2,020,000 2,184,000
Depreciation, Depletion and Amortization 2,601,000 3,359,000
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Operating Margin $ 2,481,000 $ 3,174,000
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Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three months ended March 31, 2006, 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 and shareholdings. Additional information may be found at the Harken Energy Web site, www.harkenenergy.com. Please e-mail all investor inquiries to HECinquiries@ctapr.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 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 filed on February 28, 2006. Harken undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.
Source: Market Wire (May 9, 2006 - 12:51 PM EDT)
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