Attached files
| file | filename |
|---|---|
| EX-24 - POWER OF ATTORNEY - HKN, Inc. | ex24.htm |
| EX-21 - SUBSIDIARIES - HKN, Inc. | ex21.htm |
| EX-23.1 - CONSENT OF IRPAF - HKN, Inc. | ex23-1.htm |
| EX-32.1 - SECTION 906 CERTIFICATION - CEO - HKN, Inc. | ex32-1.htm |
| EX-23.2 - CONSENT OF ENGINEERS & GEOLOGISTS - HKN, Inc. | ex23-2.htm |
| EX-99.2 - CREST RESERVE REPORT SUMMARY - HKN, Inc. | ex99-2.htm |
| EX-31.1 - CEO CERTIFICATION - HKN, Inc. | ex31-1.htm |
| EX-31.2 - CFO CERTIFICATION - HKN, Inc. | ex31-2.htm |
| EX-23.3 - CONSENT OF ENGINEERS & GEOLOGISTS - HKN, Inc. | ex23-3.htm |
| EX-32.2 - SECTION 906 CERTIFICATION - CFO - HKN, Inc. | ex32-2.htm |
| 10-K - ANNUAL REPORT - HKN, Inc. | hkn_10k-123109.htm |
EXHIBIT 99.1
 |
Collarini
Associates
11111
Richmond Avenue, Suite 126
Houston,
Texas 77082
Tel. (832)
251-0160
Fax (832)
251-0157
www.collarini.com
|
January
25, 2010
Mr. Kris
Hartmann
HKN,
Inc.
28259
Daystrum Lane
Katy, TX
77494
Dear Mr.
Hartmann:
In
accordance with your request and to enable HKN to satisfy the requirements of
HKN’s annual reporting, we have estimated the proved, probable, and possible
reserves and future revenue, as of January 1, 2010, to the interest of HKN, Inc.
(HKN) in and related to certain oil and gas properties located onshore and
offshore Texas and Louisiana. The estimate of proved reserves and the future
revenue therefrom conform to all standards and definitions promulgated in
Section 210.4–10 of Regulation S – X issued by the Securities and Exchange
Commission in November 1988 and amended in December 2008. Estimates of probable
and possible reserves and the future revenue therefrom are optional by
Regulation S - X, and are included herein at your request. It is estimated these
volumes represent 49% of HKN’s total proved reserves.
As
presented in the accompanying detailed projections by reservoir and by reserve
category, we estimate the net reserves and future net income to HKN’s interest,
as of January 1, 2010 to be:
| Net Remaining Reserves | Future Net Income (M$) | |||||||||||||||
| Reserve Category |
Oil
(MBO)
|
Gas
(MMCF)
|
Undiscounted |
Present
Worth
at 10%
|
||||||||||||
|
Proved
|
||||||||||||||||
|
Producing
|
116 | 259 | 4,966 | 4,001 | ||||||||||||
|
Shut-In
|
2 | 2 | 32 | 4 | ||||||||||||
|
Behind
Pipe
|
220 | 2,629 | 13,062 | 8,573 | ||||||||||||
|
Undeveloped
|
189 | 185 | 5,878 | 2,773 | ||||||||||||
|
Total
Proved
|
526 | 3,075 | 23,939 | 15,352 | ||||||||||||
|
Probable*
|
||||||||||||||||
|
Incremental
Producing
|
14 | 223 | 1,298 | 864 | ||||||||||||
|
Shut-In
|
0 | 6 | 6 | 5 | ||||||||||||
|
Behind
Pipe
|
5 | 277 | 850 | 670 | ||||||||||||
|
Undeveloped
|
103 | 638 | -72 | -1,219 | ||||||||||||
|
Total
Probable
|
121 | 1,144 | 2,082 | 320 | ||||||||||||
|
Possible*
|
840 | 1,250 | 24,531 | 11,432 | ||||||||||||
* Probable and possible reserves
have not been discounted for the risk associated with future recovery. See
reserve definitions
following this letter.
|
|
HKN,
Inc.
January
25, 2010
Page
Two
Oil
volumes are generally expressed in thousands of stock tank barrels (MBO), where
one barrel is equivalent to 42 United States gallons. Gas volumes are expressed
in millions of standard cubic feet (MMCF) at 60 degrees Fahrenheit and the
contract pressure base.
Net
sales, as defined in this report, are before deducting production taxes. Net income is after deducting these taxes,
and after deducting future capital costs and operating expenses, but before
consideration of federal income taxes. The future net income has also been shown
discounted at ten percent to determine its present worth as required by
Regulation S - X. This present worth is included to indicate a standard measure
and is not intended to represent the market value of the property. Our estimates
of future cash flows include estimates of all costs required to recover
reserves.
Oil and
gas prices used in this report are index prices of $61.18/bbl and $3.87/MMBtu,
which are the averages of the prices on the first of the month for the twelve
months from January to December, 2009. These index prices were assumed to
represent the prices received for NYMEX (WTI) and Henry Hub respectively, and
adjustments were made on a lease by lease basis for product quality,
transportation and marketing.
Operating
costs are based on actual expenses, as provided by HKN. Collarini did not
confirm the accuracy of these expenses. These current expenses are held constant
through the life of the property. These costs include processing fees where
applicable. Estimated lease fuel-gas usage has been included as a reduction to
produced volume in the cash flow forecast.
The
reserves presented in this report are estimates only and should not be construed
as being exact quantities. They may or may not be recovered, and if recovered,
the revenues, costs, and expenses therefrom may be more or less than the
estimated amounts. Because of governmental policies, uncertainties of supply and
demand, and international politics, the actual sales rates and the prices
actually received for the reserves, as well as the costs of recovery, may vary
from those assumptions included in this report. Also, estimates of reserves may
increase or decrease as a result of future operational decisions, mechanical
problems, and the price of oil and gas.
All
reserve estimates have been performed in accordance with sound engineering
principles and generally accepted industry practice. As in all aspects of oil
and gas evaluation, there are uncertainties inherent in the interpretation of
engineering data, and all conclusions represent only informed professional
judgments.
The
titles to the properties have not been examined by Collarini Associates, nor has
the actual degree or type of interest owned been independently confirmed. The
data used in our estimates were obtained from HKN and from sources which provide
publicly accessible data and are considered accurate.
HKN,
Inc.
January
25, 2010
Page
Three
A
detailed environmental and mechanical inspection of the properties was not made
by Collarini Associates. A visual inspection of the properties themselves was
not considered necessary for the purpose of this report. No assessment of
compliance with environmental regulations or future liability for site
remediation was made. We are independent consultants; we do not own any interest
in this property and are not employed contingent upon the value of this
property. All engineering calculations and basic data used in the analysis are
maintained on file in our office and are available for review.
Very
truly yours,
COLLARINI
ASSOCIATES
/s/ Mitch
Reece
Mitch
Reece, P.E.
President
MCR/ayh
Collarini
Engineering Inc.
Texas
Board of Professional Engineers Registration F-5660
RESERVE
DEFINITIONS
SEC PARAMETERS1
RESERVES
Reserves
are estimated remaining quantities of oil and gas and related substances
anticipated to be economically producible, as of a given date, by application of
development projects to known accumulations. In addition, there must exist, or
there must be a reasonable expectation that there will exist, the legal right to
produce or a revenue interest in the production, installed means of delivering
oil and gas or related substances to market, and all permits and financing
required to implement the project.
Note
to paragraph above: Reserves should not be assigned to adjacent reservoirs
isolated by major, potentially sealing, faults until those reservoirs are
penetrated and evaluated as economically producible. Reserves should not be
assigned to areas that are clearly separated from a known accumulation by a
non-productive reservoir (i.e., absence of reservoir, structurally low
reservoir, or negative test results). Such areas may contain prospective
resources (i.e., potentially recoverable resources from undiscovered
accumulations).
DEVELOPED OIL AND GAS
RESERVES are reserves of any category that can be expected to be
recovered:
|
|
(i)
Through existing wells with existing equipment and operating methods or in
which the cost of the required equipment is relatively minor compared to
the cost of a new well; and
|
|
|
(ii)
Through installed extraction equipment and infrastructure operational at
the time of the reserves estimate if the extraction is by means not
involving a well.
|
UNDEVELOPED OIL AND GAS
RESERVES are reserves of any category that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
(i)
Reserves on undrilled acreage shall be limited to those directly offsetting
development spacing areas that are reasonably certain of production when
drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater
distances.
(ii)
Undrilled locations can be classified as having undeveloped reserves only if a
development plan has been adopted indicating that they are scheduled to be
drilled within five years, unless the specific circumstances, justify a longer
time.
(iii)
Under no circumstances shall estimates for undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual projects in the same reservoir or an analogous reservoir, as
defined in Analogus Reservoirs below, or by other evidence using reliable
technology establishing reasonable certainty.
1 As
per Section 210.4-10 of SEC Regulation S-X dated November 1988 and as amended
December 29, 2008.
RESERVE
DEFINITIONS
SEC PARAMETERS
(Cont.)
1
PROVED OIL AND GAS
RESERVES
Proved Reserves are
those quantities of oil and gas, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be economically
producible—from a given date forward, from known reservoirs, and under existing
economic conditions, operating methods, and government regulations—prior to the
time at which contracts providing the right to operate expire, unless evidence
indicates that renewal is reasonably certain, regardless of whether
deterministic or probabilistic methods are used for the estimation. The project
to extract the hydrocarbons must have commenced or the operator must be
reasonably certain that it will commence the project within a reasonable
time.
(i) The area of the reservoir
considered as proved includes:
(a) The
area identified by drilling and limited by fluid contacts, if any,
and
(b)
Adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically
producible oil or gas on the basis of available geoscience and engineering
data.
(ii) In
the absence of data on fluid contacts, proved quantities in a reservoir are
limited by the lowest known hydrocarbons (LKH) as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology
establishes a lower contact with reasonable certainty.
(iii) Where
direct observation from well penetrations has defined a highest-known oil (HKO)
elevation and the potential exists for an associated gas cap, proved oil
reserves may be assigned in the structurally higher portions of the reservoir
only if geoscience, engineering, or performance data and reliable technology
establish the higher contact with reasonable certainty.
(iv)
Reserves which can be produced economically through application of improved
recovery techniques (including, but not limited to, fluid injection) are
included in the proved classification when:
|
|
(a)
Successful testing by a pilot project in an area of the reservoir with
properties no more favorable than in the reservoir as a whole, the
operation of an installed program in the reservoir or an analogous
reservoir, or other evidence using reliable technology establishes the
reasonable certainty of the engineering analysis on which the project or
program was based; and
|
|
|
(b)
The project has been approved for development by all necessary parties and
entities, including governmental
entities.
|
(v)
Existing economic conditions include prices and costs at which economic
producibility from a reservoir is to be determined. The price shall be the
average price during the 12month period prior to the ending date of the period
covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices
are defined by contractual arrangements, excluding escalations based upon future
conditions.
1 As
per Section 210.4-10 of SEC Regulation S-X dated November 1988 and as amended
December 29, 2008.
RESERVE
DEFINITIONS
SEC PARAMETERS
(Cont.)
1
Reasonable certainty
If deterministic methods are used, reasonable certainty means a high degree of
confidence that the quantities will be recovered. If probabilistic methods are
used, there should be at least a 90% probability that the quantities actually
recovered will equal or exceed the estimate. A high degree of confidence exists
if the quantity is much more likely to be achieved than not, and, as changes due
to increased availability of geoscience (geological, geophysical, and
geochemical), engineering, and economic data are made to estimated ultimate
recovery (EUR) with time, reasonably certain EUR is much more likely to increase
or remain constant than to decrease.
Reliable
technology Reliable technology is a grouping of one or more
technologies (including computational methods) that have been field tested and
have been demonstrated to provide reasonably certain results with consistency
and repeatability in the formation being evaluated or in an analogous
formation.
Deterministic
estimate The method of estimating reserves or resources is
called deterministic when a single value for each parameter (from the
geoscience, engineering, or economic data) in the reserves calculation is used
in the reserves estimation procedure.
Probabilistic
estimate The method of estimation of reserves or resources is
called probabilistic when the full range of values that could reasonably occur
for each unknown parameter (from the geoscience and engineering data) is used to
generate a full range of possible outcomes and their associated probabilities of
occurrence.
Analogous
Reservoir Analogous reservoirs, as used in resources
assessments, have similar rock and fluid properties, reservoir conditions
(depth, temperature, and pressure) and drive mechanisms, but are typically at a
more advanced stage of development than the reservoir of interest and thus may
provide concepts to assist in the interpretation of more limited data and
estimation of recovery. When used to support proved reserves, an “analogous
reservoir” refers to a reservoir that shares the following characteristics with
the reservoir of interest:
(i)
Same geological formation (but not necessarily in pressure communication with
the reservoir of interest);
(ii)
Same environment of deposition;
(iii)
Similar geological structure; and
(iv)
Same drive mechanism.
Instruction
to Analogous reservoir: Reservoir properties must, in the
aggregate, be no more favorable in the analog than in the reservoir
of interest.
Proved Producing
Reserves are those reserves which are expected to be recovered from
existing completion intervals open at the time of the estimate and producing in
existing wells.
Proved Nonproducing Shut-In
Reserves are those reserves which are expected to be recovered from
existing completion intervals open at the time of the estimate, but which had
not started producing, or were shut in for market conditions or minor pipeline
connection.
Proved Nonproducing Behind
Pipe Reserves are those reserves which are expected to be recovered from
zones behind casing in existing wells, which will require additional completion
work or a future recompletion prior to the start of production.
1 As
per Section 210.4-10 of SEC Regulation S-X dated November 1988 and as amended
December 29, 2008.
RESERVE
DEFINITIONS
SEC PARAMETERS
(Cont.)
1
PROBABLE
RESERVES
Probable reserves are
those additional reserves that are less certain to be recovered than proved
reserves but which, together with proved reserves, are as likely as not to be
recovered.
(i) When
deterministic methods are used, it is as likely as not that actual remaining
quantities recovered will exceed the sum of estimated proved plus probable
reserves. When probabilistic methods are used, there should be at least a 50%
probability that the actual quantities recovered will equal or exceed the proved
plus probable reserves estimates.
(ii)
Probable reserves may be assigned to areas of a reservoir adjacent to proved
reserves where data control or interpretations of available data are less
certain, even if the interpreted reservoir continuity of structure or
productivity does not meet the reasonable certainty criterion. Probable reserves
may be assigned to areas that are structurally higher than the proved area if
these areas are in communication with the proved reservoir.
(iii)
Probable reserves estimates also include potential incremental quantities
associated with a greater percentage recovery of the hydrocarbons in place than
assumed for proved reserves.
POSSIBLE RESERVES
Possible reserves are those additional reserves that are less certain to
be recovered than probable reserves.
(i) When
deterministic methods are used, the total quantities ultimately recovered from a
project have a low probability of exceeding proved plus probable plus possible
reserves. When probabilistic methods are used, there should be at least a 10%
probability that the total quantities ultimately recovered will equal or exceed
the proved plus probable plus possible reserves estimates.
(ii)
Possible reserves may be assigned to areas of a reservoir adjacent to probable
reserves where data control and interpretations of available data are
progressively less certain. Frequently, this will be in areas where geoscience
and engineering data are unable to define clearly the area and vertical limits
of commercial production from the reservoir by a defined project.
(iii)
Possible reserves also include incremental quantities associated with a greater
percentage recovery of the hydrocarbons in place than the recovery quantities
assumed for probable reserves.
(iv) The
proved plus probable and proved plus probable plus possible reserves estimates
must be based on reasonable alternative technical and commercial interpretations
within the reservoir or subject project that are clearly documented, including
comparisons to results in successful similar projects.
(v)
Possible reserves may be assigned where geoscience and engineering data identify
directly adjacent portions of a reservoir within the same accumulation that may
be separated from proved areas by faults with displacement less than formation
thickness or other geological discontinuities and that have not been penetrated
by a wellbore, and the registrant believes that such adjacent portions are in
communication with the known (proved) reservoir.
1 As
per Section 210.4-10 of SEC Regulation S-X dated November 1988 and as amended
December 29, 2008.
RESERVE
DEFINITIONS
SEC PARAMETERS
(Cont.)
1
Possible
reserves may be assigned to areas that are structurally higher or lower than the
proved area if these areas are in communication with the proved
reservoir.
(vi)
Pursuant to paragraph Proved Oil and Gas Reserves above,
(iii) Where
direct observation has defined a highest known oil (HKO) elevation and the
potential exists for an associated gas cap, proved oil reserves should be
assigned in the structurally higher portions of the reservoir above the HKO only
if the higher contact can be established with reasonable certainty through
reliable technology. Portions of the reservoir that do not meet this reasonable
certainty criterion may be assigned as probable and possible oil or gas based on
reservoir fluid properties and pressure gradient
interpretations.
1 As
per Section 210.4-10 of SEC Regulation S-X dated November 1988 and as amended
December 29, 2008.