HKN Announces Small Net Loss for the Second Quarter 2009 and New Investment Opportunity

DALLAS, TX--(Marketwire - August 7, 2009) - HKN, Inc. (NYSE Amex: HKN) ("HKN") today reported its interim financial results for the three and six months ended June 30, 2009. HKN reported a reduced net loss of $159 thousand during the second quarter of 2009 as compared to a net loss of $1.1 million in the first quarter of 2009.

Focus on Efficient Operations:

During the first half of 2009, oil and natural gas prices have declined sharply as compared to the prior year period. In response to this challenge, we have worked to reduce our controllable costs in order to maintain positive cash flow from operations even during a low commodity pricing environment. We have no debt outstanding, and we have a cash balance of approximately $12.4 million at June 30, 2009. 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 2009, prices for oil and natural gas could remain reduced as compared to the prior year with the perception of future worldwide demand being altered by turmoil in the financial markets.

During 2009, our oil and gas revenue has been comprised of approximately 78% from oil sales and 22% from natural gas sales. During the six months ended June 30, 2009, oil commodity pricing was approximately 57% lower than the prior year period, and natural gas commodity pricing was approximately 63% lower than the prior year period. Our oil and gas revenues are generated from operations in onshore and offshore areas of the Texas and Louisiana Gulf Coast. In conjunction with lower oil and gas commodity pricing during the second quarter 2009, our oil and gas revenues decreased from $7.7 million in the second quarter 2008 to $2.8 million for the second quarter 2009. This decrease was primarily due to the significantly lower oil and gas prices received during the period.

Our oil and gas operating expense decreased 18%, decreasing from approximately $2.4 million during second quarter 2008 to $2 million during second quarter 2009 due primarily to lower operating costs at our Main Pass 35 field and lower production taxes which resulted from lower prices realized on our oil and gas sales during the current quarter.

General and administrative expenses decreased 40% from $1.1 million for the second quarter 2008 to $638 thousand for the second quarter 2009 primarily due to overall lower salary and personnel costs along with decreased professional fees.

OHSOL Investment:

During the second quarter 2009, we acquired an interest in a private company, UniPureEnergy Acquisition Co., LLC, ("UniPure") with a patented 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 was successfully tested with a mobile OHSOL unit in a demonstration in Prudhoe Bay, Alaska, proving the effectiveness of the OHSOL emulsion breaking technology to recover valuable hydrocarbons and reduce wastes. During the last half of 2009, we will focus on emulsion testing the OHSOL plant currently located in Texas and commercializing the OHSOL technology.

Under the UniPure Operating Agreement, effective June 30, 2009, we are the Managing Member of UniPure and, as such, possess the legal power to direct the operating policies and procedures of UniPure. Therefore, we have consolidated the assets and liabilities of UniPure as of June 30, 2009, the acquisition date. We did not consolidate the results of operations for the one day ended June 30, 2009, as it was determined to be immaterial.

During the remainder of 2009, we will continue to seek and identify further investment opportunities in undervalued energy-based companies which could provide future value for our shareholders.

Financial Results:

HKN's operating results for the three and six months ended June 30, 2009 and 2008 are as follows (in thousands except for share and per share amounts)

Three Months Ended ---------------------------- June 30, ---------------------------- 2009 2008 ------------- ------------- (unaudited) (unaudited) Oil Revenues $ 2,353 $ 5,269 Gas Revenues $ 430 $ 2,448 Trade Losses $ - $ (1,287) Fees, Interest and Other Revenues $ 611 $ 642 Oil and Gas Operating Expenses $ 1,988 $ 2,421 General and Administrative Expenses $ 638 $ 1,057 Provision for Doubtful Accounts $ (3) $ - Operating Margin (Non-GAAP; see reconciliation below) $ 771 $ 3,594 Depreciation, Depletion, Amortization and Accretion $ 885 $ 1,260 Net Income (Loss) $ (159) $ 2,345 Net Income Attributed to Noncontrolling Interests $ - $ (13) Net Income (Loss) Attributed to HKN, Inc. $ (159) $ 2,358 Net Income (Loss) Attributed to Common Stock $ (348) $ 2,256 Basic and Diluted Net Income (Loss) per Common Share $ (0.04) $ 0.23 Basic and Diluted Weighted Average Common Shares Outstanding 8,735,005 9,678,882 Six Months Ended ---------------------------- June 30, ---------------------------- 2009 2008 ------------- ------------- (unaudited) (unaudited) Oil Revenues $ 3,739 $ 9,125 Gas Revenues $ 1,064 $ 4,128 Trade Losses $ - $ (1,421) Fees, Interest and Other Revenues $ 1,319 $ 1,520 Oil and Gas Operating Expenses $ 3,812 $ 5,076 General and Administrative Expenses $ 1,189 $ 2,246 Provision for Doubtful Accounts $ 271 $ - Operating Margin (Non-GAAP; see reconciliation below) $ 850 $ 6,030 Depreciation, Depletion, Amortization and Accretion $ 1,985 $ 2,490 Net Income (Loss) $ (1,277) $ 3,459 Net Income Attributed to Noncontrolling Interests $ - $ (13) Net Income (Loss) Attributed to HKN, Inc. $ (1,277) $ 3,472 Net Income (Loss) Attributed to Common Stock $ (1,559) $ 3,309 Basic and Diluted Net Income (Loss) per Common Share $ (0.17) $ 0.34 Basic and Diluted Weighted Average Common Shares Outstanding 8,924,516 9,708,153

Balance Sheet Summary (in thousands)

June 30, December 31, ----------- -------------- 2009 2008 ----------- -------------- (unaudited) Current Ratio (1) 4.16 to 1 5.77 to 1 Working Capital (2) $ 11,686 $ 16,102 Cash and Marketable Securities $ 12,416 $ 15,219 Total Debt $ - $ - Stockholders' Equity $ 63,128 $ 59,904 Total Liabilities to Equity 0.16 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 (Loss) (in thousands)

Three Months Ended June 30, ---------------------------- 2009 2008 ------------- ------------- (unaudited) (unaudited) Net Income - GAAP $ (159) $ 2,345 Depreciation, Depletion, and Amortization 885 1,260 Interest Expense and Other Losses 12 (41) Equity in Losses of Spitfire 33 26 Income Tax Expense - 4 ------------- ------------- Operating Margin $ 771 $ 3,594 ============= ============= Six Months Ended June 30, ---------------------------- 2009 2008 ------------- ------------- (unaudited) (unaudited) Net Income (Loss) - GAAP $ (1,277) $ 3,459 Depreciation, Depletion, and Amortization 1,985 2,490 Interest Expense and Other Losses 59 45 Equity in Losses of Spitfire 123 29 Income Tax Expense (40) 7 ------------- ------------- Operating Margin $ 850 $ 6,030 ============= =============

Management believes the presentation of this non-GAAP financial measure, in connection with the results for the three and six months ended June 30, 2009 and 2008, 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 the 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 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 18, 2009. HKN undertakes no duty to update or revise any forward-looking statements. Actual results may vary materially.