HKN » Topics » Obligations and Commitments

This excerpt taken from the HKN 10-Q filed Nov 5, 2008.

Obligations and Commitments

 

Oil, Natural Gas and Coalbed Methane Commitments – During the nine months ended September 30, 2008, we expended approximately $5.0 million of capital expenditures and workovers in the United States. The majority of these capital expenditures were associated with development drilling in the Creole and N.W. Speaks fields in south Texas, as well as the development of our coalbed methane Indiana Posey Prospect. Our remaining expected capital expenditures for 2008 will be focused primarily on repairing and restoring our properties in the onshore and offshore Gulf Coast regions of Texas and Louisiana damaged in the Hurricanes. We expect to fund these capital expenditures with available cash on hand and through projected cash flow from operations. Possible continued weakening commodity prices, a decline in drilling success or substantial

 

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delays in bringing on production shut-in from the hurricanes could cause reduced projected expenditures for 2009.  However, our future capital expenditures for 2009 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing our interest in future development projects.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At September 30, 2008, our asset retirement obligation liability totaled approximately $5.4 million.

 

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable.

 

In addition to the above commitments, during 2008 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future expenditures at our discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2008 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of September 30, 2008, we had no material purchase obligations.

 

Also, we have written put options which may expose us to future obligations. Please see Item 3 for a discussion of these potential obligations.

 

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2008, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

 

Treasury Stock — Our Board has authorized the repurchase of 1.2 million shares of common stock.   As of September 30, 2008, we have purchased approximately 856 thousand shares under this repurchase program, and approximately 344 thousand shares remain available for repurchase.

 

This excerpt taken from the HKN 10-Q filed Aug 7, 2008.

Obligations and Commitments

 

Oil, Natural Gas and Coalbed Methane Commitments – During the six months ended June 30, 2008, we expended approximately $1 million of capital expenditures and workovers in the United States. The majority of these capital expenditures were associated with development drilling in the N.W. Speaks field in south Texas, as well as the development of our coalbed methane Indiana Posey Prospect. Our expected capital expenditures for 2008 will be focused primarily on our holdings in the onshore and offshore Gulf Coast regions of Texas and Louisiana as well as the phased delineation, pilot and development program for our coalbed methane prospects. We expect to fund the 2008 capital expenditures with available cash on hand and through projected cash flow from operations. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2008 expenditures.  However, our planned capital expenditures for 2008 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing our interest in future development projects.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At June 30, 2008, our asset retirement obligation liability totaled approximately $5.3 million.

 

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable.

 

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In addition to the above commitments, during 2008 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future expenditures at our discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2008 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of June 30, 2008, we had no material purchase obligations.

 

Also in addition to the contractual obligations discussed above, we have written put and call options which may expose us to future obligations. Please see Item 3 for a discussion of these potential obligations.

 

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2008, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

 

Treasury Stock — Our Board has authorized the repurchase of 1.2 million shares of common stock.   As of June 30, 2008, we have purchased approximately 548 thousand shares under this repurchase program, and approximately 652 thousand shares remain available for repurchase.

 

This excerpt taken from the HKN 10-Q filed May 6, 2008.

Obligations and Commitments

 

Oil, Natural Gas and Coalbed Methane Commitments – During the first quarter 2008, we expended approximately $519 thousand of capital expenditures and workovers in the United States. The majority of these capital expenditures were associated with development drilling in the N.W. Speaks field in south Texas, as well as continuing additions associated with our coalbed methane projects. Our expected capital expenditures for 2008 will be focused primarily on our holdings in the onshore and offshore Gulf Coast regions of Texas and Louisiana as well as the phased delineation, pilot and development program for our coalbed methane prospects. We expect to fund the 2008 capital expenditures with available cash on hand and through projected cash flow from operations. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2008 expenditures.  However, our planned capital expenditures for 2008 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing our interest in future development projects.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At March 31, 2008, our asset retirement obligation liability totaled approximately $5.2 million.

 

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From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable.

 

In addition to the above commitments, during 2008 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future expenditures at our discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2008 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of March 31, 2008, we had no material purchase obligations.

 

Also in addition to the contractual obligations presented in the above table, we have written put and call options which may expose us to future obligations. Please see Item 3 for a discussion of these potential obligations.

 

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2008, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

 

Treasury Stock — Our Board has authorized the repurchase of 1.2 million shares of common stock (adjusted for the 2007 reverse stock split). As of March 31, 2008, we have purchased approximately 530 thousand shares under this repurchase program, and approximately 670 thousand shares remain available for repurchase.

 

This excerpt taken from the HKN 10-Q filed Nov 6, 2007.

Obligations and Commitments

 

Oil, Natural Gas and Coalbed Methane Commitments – During the nine months ended September 30, 2007, we expended approximately $8.6 million of capital expenditures for our oil, gas and coalbed methane properties. The majority of these capital expenditures were associated with the development of our interests in the Creole field in Cameron Parish, Louisiana, the East Lake Verret field in Assumption Parish, Louisiana, the East Allen Ranch field in Colorado County, Texas and workovers at Main Pass field, as well as continuing additions associated with our coalbed methane projects. We expect to fund the remaining 2007 capital expenditures with available cash on hand and through projected cash flow from operations in 2007. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2007 expenditures. However, our planned capital expenditures for 2007 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing its interest in future development projects.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At September 30, 2007, our asset retirement obligation liability totaled approximately $5.1 million.

 

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable. In addition to the above commitments, during 2007 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future

 

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expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2007 will be curtailed if we do not have sufficient funds available. If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of September 30, 2007, we had no material purchase obligations.

 

Also in addition to these contractual obligations, we have written put options which may expose us to future obligations.

 

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2007, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

 

This excerpt taken from the HKN 10-Q filed Aug 7, 2007.

Obligations and Commitments

Oil, Natural Gas and Coalbed Methane Commitments – During the six months ended June 30, 2007, we expended approximately $6.1 million of capital expenditures for our oil, gas and coalbed methane properties. The majority of these capital expenditures were associated with the development of our interests in the Creole field in Cameron Parish, Louisiana, the East Lake Verret field in Assumption Parish, Louisiana, the Allen Ranch field in Colorado County, Texas and workovers at Main Pass field, as well as continuing additions associated with our coalbed methane projects. We expect to fund the remaining 2007 capital expenditures with

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available cash on hand and through projected cash flow from operations in 2007. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2007 expenditures.  However, our planned capital expenditures for 2007 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing its interest in future development projects.

Operational Contingencies – Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made.  At June 30, 2007, our asset retirement obligation liability totaled approximately $5.0 million.

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable. In addition to the above commitments, during 2007 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2007 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of June 30, 2007, we had no material purchase obligations.

Also in addition to these contractual obligations, we have written put options which may expose us to future obligations.

Off-Balance Sheet Arrangements – As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2007, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

This excerpt taken from the HKN 10-Q filed May 8, 2007.

Obligations and Commitments

Oil, Natural Gas and Coalbed Methane Commitments — During the three months ended March 31, 2007, we expended approximately $3.6 million of capital expenditures for our oil, gas and coalbed methane properties. The majority of these capital expenditures were associated with the development of our interests in

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the Creole field in Cameron Parish, Louisiana, and workovers at Main Pass field, as well as continuing additions associated with our coalbed methane projects. We expect to fund the remaining 2007 capital expenditures with available cash on hand and through projected cash flow from operations in 2007. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2007 expenditures.  However, our planned capital expenditures for 2007 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in us losing certain prospect acreage or reducing its interest in future development projects.

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At March 31, 2007, our asset retirement obligation liability totaled approximately $7.5 million.

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable. In addition to the above commitments, during 2007 and afterward, government authorities under our Louisiana state leases and other North American operators may also request us to participate in the cost of drilling additional exploratory and development wells. We may fund these future expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2007 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of March 31, 2007, we had no material purchase obligations.

Also in addition to these contractual obligations, we have written put options which may expose us to future obligations.

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2007, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

This excerpt taken from the HKN 10-Q filed Nov 7, 2006.

Obligations and Commitments

GEM Capital Commitments – GEM’s 2006 capital expenditure budget includes efforts to increase its oil and gas reserves and coalbed methane prospects through acquisition, exploitation and development drilling activities. For the nine months ended September 30, 2006, GEM has expended approximately $7.1 million of capital expenditures and workovers. The majority of these capital expenditures were associated with development drilling and completion at Point-au-Fer field, Lapeyrouse field, Allen Ranch field, workovers at Main Pass, Lake Raccourci and Lapeyrouse fields, as well as continuing additions associated with our coalbed methane projects. GEM’s remaining budgeted capital expenditures for 2006 are focused primarily on GEM’s holdings in the onshore and offshore Gulf Coast regions of Texas and Louisiana as well as the phased delineation, pilot and development program for its coalbed methane prospects. GEM expects to fund the budgeted 2006 capital expenditures with

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available cash on hand and through projected cash flow from operations in 2006. Possible weakening commodity prices, a decline in drilling success or substantial delays in bringing on production from wells drilled could cause reduced projected 2006 expenditures.  However, GEM’s planned capital expenditures for 2006 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in GEM losing certain prospect acreage or reducing its interest in future development projects

During August 2006, we started a new operating segment which engages in the active management of investments in energy industry securities traded on domestic securities exchanges.

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At September 30, 2006, GEM’s asset retirement obligation liability totaled approximately $7.3 million.

From time to time, we provide for reserves related to contingencies when a loss is probable and the amount is reasonably estimable.

In addition to the above commitments, during 2006 and afterward, government authorities under GEM’s Louisiana state leases and other North American operators may also request GEM to participate in the cost of drilling additional exploratory and development wells.  GEM may fund these future expenditures at their discretion.  Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2006 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of September 30, 2006, we had no material purchase obligations.

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2006, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

Treasury Stock — Our Board has authorized the repurchase of 10 million shares of common stock. To date, we have purchased approximately 4.6 million shares under this repurchase program, and approximately 5.4 million shares remain available for repurchase.

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This excerpt taken from the HKN 10-Q filed Aug 8, 2006.

Obligations and Commitments

GEM Capital Commitments — GEM’s 2006 capital expenditure budget includes efforts to increase its oil and gas reserves and coalbed methane prospects through acquisition, exploitation and development drilling activities. As of June 30, 2006, GEM has expended approximately $4.7 million of capital expenditures. The majority of these capital expenditures were associated with development drilling and completion at Point-au-Fer field, Lapeyrouse field, Allen Ranch field, workovers at Main Pass, Lake Raccourci and Lapeyrouse fields, as well as continuing additions associated with our coalbed methane projects. We anticipate GEM’s remaining capital expenditures could total approximately $12 million for the remainder of 2006. These remaining budgeted capital expenditures are focused primarily on GEM’s holdings in the onshore and offshore Gulf Coast regions of Texas and Louisiana as well as the phased delineation, pilot and development program for its coalbed methane prospects. GEM expects to fund the budgeted 2006 capital expenditures with available cash

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on hand and through projected cash flow from operations in 2006. Possible weakening commodity prices, a decline in drilling success or substantial delays on bringing on production from wells drilled could cause reduced projected 2006 expenditures.  However, GEM’s planned capital expenditures for 2006 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in GEM losing certain prospect acreage or reducing its interest in future development projects

Investment Activities - We have recently determined to start a new operating segment which will be engaged in the active management of investments in energy industry securities traded on domestic and international securities exchanges.  Although we have no present material commitments, we expect to fund this new trading segment with up to $20 million of initial capital.  We expect that this new segment will become operational during the third quarter of 2006.

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At June 30, 2006, GEM’s asset retirement obligation liability totaled approximately $5.8 million.

We are currently involved in various lawsuits and other contingencies, which in our opinion, will not result in a material adverse effect upon our financial condition or operations taken as a whole.

In addition to the above commitments, during 2006 and afterward, government authorities under GEM’s Louisiana state leases and other North American operators may also request GEM to participate in the cost of drilling additional exploratory and development wells.  GEM may fund these future expenditures at their discretion.  Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2006 will be curtailed if we do not have sufficient funds available.  If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of June 30, 2006, we had no material purchase obligations.

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2006, we were not involved in any unconsolidated SPE transactions. We have no off-balance sheet arrangements.

Treasury Stock - - Our Board has authorized the repurchase of 10 million shares of Common Stock. To date, we have purchased approximately 3.8 million shares under this repurchase program, and approximately 6.2 million shares remain available for repurchase.

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This excerpt taken from the HKN 10-Q filed May 9, 2006.

Obligations and Commitments

 

GEM Capital Commitments – GEM’s 2006 capital expenditure budget includes efforts to increase its oil and gas reserves and coalbed methane prospects through acquisition, exploitation and development drilling activities. We anticipate GEM capital expenditures could total approximately $17 million during 2006. GEM’s 2006 capital expenditure budget focuses on the onshore and offshore Gulf Coast regions of Texas and Louisiana as well as the phased delineation, pilot and development program for its coalbed methane prospects. The majority of this budgeted capital amount will be used to participate in the drilling of 15 to 20 exploratory and development wells along the Texas and Louisiana Gulf Coast. GEM expects to fund the budgeted 2006 capital expenditures with available cash on hand and through projected cash flow from operations in 2006. Possible weakening commodity prices, a decline in drilling success or substantial delays on bringing on production from wells drilled could cause reduced projected 2006 expenditures. However, GEM’s planned North American capital expenditures for 2006 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in GEM losing certain prospect acreage or reducing its interest in future development projects

 

Global Capital Commitments – Global anticipates international capital expenditures during 2006 will total up to $23 million to develop its crude oil assets in Latin America. The majority of Global’s 2006 capital expenditure plans are targeted for its Colombian operations in the Bolivar Field, the Rio Verde Field, and the El Miedo Field, as well as seismic work at the Valle Lunar Technical Evaluation Agreement area and Caracoli area under its existing Association and Exploration and Production Contracts in Colombia. Approximately $8.8 million of these capital expenditures result from commitments under the terms of certain of the Association and Exploration and Production Contracts entered into between Global’s subsidiary Harken de Colombia, Ltd. and Ecopetrol or the ANH. These contracts require Global to perform certain activities in

 

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Colombia in accordance with a prescribed timetable. As of May 9, 2006, Global was in compliance with the requirements of each of the Association and Exploration and Production Contracts. Global’s discretionary capital expenditures will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in Global losing certain prospect acreage or reducing its interest in future development projects.

 

Global Senior Convertible Notes — In October 2005, Global issued to qualified investors a total of $12.5 million principal amount of its Convertible Notes due 2012 (the “Global Notes”) in exchange for $12.5 million cash. The Global Notes are unsecured and rank equal to all other present and future unsecured indebtedness of Global. Interest accrues with an annual coupon of 5% for the first three years, 6% from October 2008 to October 2010 and 7% thereafter and is payable quarterly in arrears. The Global Notes are convertible into ordinary shares in Global at 305.8 UK pence per ordinary share. If not converted or previously redeemed, the Global Notes will be redeemed at their principal amount on October 30, 2012. We have included $148 thousand in accrued interest on these notes in Accrued Liabilities and other on our Consolidated Condensed Balance Sheet at March 31, 2006

 

As of March 31, 2006 all Global Notes remain outstanding, and the total principal amount of $12.5 million is classified as long-term debt in the Consolidated Condensed Balance Sheet. Global does not have any debt covenants pursuant to the terms of the Global Notes.

 

Deconsolidation of Global — As noted above, in the second quarter of 2006, Harken will cease consolidating the assets, liabilities and results of operations of Global. Harken has no liability or obligation to directly fund any portion of Global’s capital expenditures or debt obligations.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At March 31, 2006, GEM’s and Global’s asset retirement obligation liability totaled approximately $6.5 million.

 

We are currently involved in various lawsuits and other contingencies, which in our opinion, will not result in a material adverse effect upon our financial condition or operations taken as a whole.

 

In addition to the above commitments, during 2006 and afterward, government authorities under GEM’s Louisiana state leases and operators under other North American operators may also request GEM to participate in the cost of drilling additional exploratory and development wells. GEM may fund these future domestic expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2006 will be curtailed if we do not have sufficient funds available. If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of March 31, 2006, we had no material purchase obligations.

 

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Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2006, we were not involved in any unconsolidated SPE transactions.

 

Treasury Stock — Our Board has authorized the repurchase of 10 million shares of Common Stock. To date, we have purchased approximately 1.2 million shares, and approximately 8.8 million shares remain available for repurchase.

 

This excerpt taken from the HKN 10-Q filed Nov 9, 2005.

Obligations and Commitments

 

GEM Capital Commitments — GEM’s 2005 capital expenditure budget includes efforts to increase its oil and gas reserves through acquisition, exploitation and development drilling activities. GEM continued its recompletion and drilling program during the first nine months of 2005. In addition, during the first nine months of 2005, GEM executed two exploration and development agreements related to two coalbed methane projects in Indiana and Ohio. Each prospect provides for an area of mutual interest of approximately 400,000 acres. The agreements provide for a phased delineation, pilot and development program, with corresponding staged expenditures. We anticipate GEM capital expenditures will total approximately $15.9 million during 2005, including approximately $4.4 million associated with coalbed methane projects. The balance of GEM’s 2005 capital expenditures are expected to focus on the onshore and offshore Gulf Coast regions of Texas and Louisiana. With the effects of Hurricanes Katrina and Rita in the Gulf Coast and the increased demand for oilfield services and equipment currently being experienced by GEM, the timing and cost of such activities have delayed our participation in drilling activities in 2005. GEM’s planned North American capital expenditures for 2005 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in GEM losing certain prospect acreage or reducing its interest in future development projects.

 

GEM expects to fund the budgeted 2005 capital expenditures with available cash on hand and through projected cash flow from operations in 2005. Possible weakening commodity prices, a decline in drilling success or substantial delays on bringing on production from wells drilled could cause reduced projected 2005 expenditures. The majority of the planned capital expenditures for 2005 are discretionary and may be curtailed or reduced if sufficient funds are not available.

 

4.25% Convertible Notes — In December 2003, we issued $5 million principal amount of 4.25% Convertible Notes due 2006 to certain investors. In June 2005, we repaid in full the principal and accrued interest of the 4.25% Convertible Notes. As of September 30, 2005, these notes were no longer outstanding.

 

5% Senior Convertible Notes — In August 2004, we issued to qualified investors $5,245,000 aggregate principal amount of our 5% Senior Convertible Notes due June 30, 2009 (the “5% Notes”) in exchange for $5,245,000 in cash. The 5% Notes are convertible into shares of our common stock at a conversion price of $0.52 per share, subject to adjustments in certain circumstances. In 2005, in accordance with the original conversion terms of the agreement, we converted all of the $5.245 million of the 5% Notes into approximately 10.2 million shares of our common stock. As of November 9, 2005, the 5% Notes are no longer issued or outstanding.

 

Operational Contingencies — Our operations are subject to stringent and complex environmental laws

 

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and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At September 30, 2005, our asset retirement obligation liability was approximately $6.1 million.

 

We are currently involved in various lawsuits and other contingencies, which in our opinion, will not result in a material adverse effect upon our financial condition or operations taken as a whole.

 

In addition to the above commitments, during 2005 and afterward, government authorities under GEM’s Louisiana state leases and operators under other North American operators may also request GEM to participate in the cost of drilling additional exploratory and development wells. GEM may fund these future domestic expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2005 will be curtailed if we do not have sufficient funds available. If we do not have sufficient funds or otherwise choose not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of September 30, 2005, we had no material purchase obligations.

 

Off-Balance Sheet Arrangements — As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2005, we were not involved in any unconsolidated SPE transactions.

 

Deconsolidation of Global — As noted above, Harken could cease consolidating the assets, liabilities and results of operations of Global in the near future. As of September 30, 2005, Global had incurred approximately $11.3 million of its $18 million capital expenditures budget for 2005. Harken has no liability or obligation to fund any portion of these capital expenditures.

 

This excerpt taken from the HKN 10-Q filed Aug 9, 2005.

Obligations and Commitments

 

GEM Capital Commitments – GEM’s 2005 capital expenditure budget includes efforts to increase its oil and gas reserves through acquisition, exploitation and development drilling activities. GEM continued its recompletion and drilling program during the first six months of 2005. In addition, during the first six months of 2005, GEM executed two exploration and development agreements related to two coalbed methane projects in Indiana and Ohio. Each prospect provides for an area of mutual interest of approximately 400,000 acres. The agreements provide for a phased delineation, pilot and development program, with corresponding staged expenditures. We anticipate GEM capital expenditures will total approximately $16 million during 2005, including approximately $5.7 million associated with coalbed methane projects. The balance of GEM’s 2005 capital expenditures are expected to focus on the onshore and offshore Gulf Coast regions of Texas and Louisiana. With the increased demand for oilfield services and equipment currently being experienced by GEM, the timing and cost of such activities may be expected to affect our participation in drilling activities in 2005. GEM’s planned North American capital expenditures for 2005 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in GEM losing certain prospect acreage or reducing its interest in future development projects.

 

Global Capital Commitments – Global anticipates its international capital expenditures during 2005 will total approximately $18 million to develop its crude oil assets in Middle America. The majority of Global’s 2005 capital expenditure plans are targeted for its Colombian operations in the Palo Blanco Field, Bolivar Field and the Rio Verde Field under its existing Association and Exploration and Production Contracts in Colombia. Approximately $1 million is budgeted for other seismic and exploration costs in Peru, Panama and Colombia. Approximately $4.9 million of Global’s planned capital expenditures result from commitments under the terms of certain of the Association and Exploration and Production Contracts entered into between Global’s subsidiary Harken de Colombia, Ltd. and Ecopetrol or the National Hydrocarbons Agency of the Republic of Colombia. These contracts required Global to perform certain activities in Colombia in accordance with a prescribed timetable. As of August 9, 2005, Global was in compliance with the requirements of each of the Association, Concession and Exploration and Production Contracts. Global’s discretionary capital expenditures will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in Global losing certain prospect acreage or reducing its interest in future development projects.

 

GEM and Global expect to fund the budgeted 2005 capital expenditures with available cash on hand and through projected cash flow from operations in 2005. Possible weakening commodity prices, a decline in drilling success or substantial delays on bringing on production form wells drilled could cause reduced projected 2005 expenditures. The majority of the planned capital expenditures for 2005 are discretionary and may be curtailed or reduced if sufficient funds are not available.

 

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4.25% Convertible Notes — In December 2003, we issued $5 million principal amount of 4.25% Convertible Notes due 2006 to certain investors. In June 2005, we repaid in full the principal and accrued interest of the 4.25% Convertible Notes. As of June 30, 2005, these notes were no longer outstanding.

 

5% Senior Convertible Notes — In August 2004, we issued to qualified investors $5,245,000 aggregate principal amount of our 5% Senior Convertible Notes due June 30, 2009 (the “5% Notes”) in exchange for $5,245,000 in cash. The 5% Notes are convertible into shares of our common stock at a conversion price of $0.52 per share, subject to adjustments in certain circumstances. The 5% Notes bear interest at the rate of 5% per annum. Interest is payable semi-annually in arrears on December 31 and June 30. Upon registration with the SEC of the shares of Harken’s common stock into which the 5% Notes are convertible, the holders of the 5% notes may exercise their rights to convert the 5% Notes. The Notes may be converted in whole or in part, at our option, after the effective date of the registration statement, if at any time following such effective date the average market price of our common stock over any 20 consecutive business day period equals or exceeds 125% of the conversion price ($0.65 per share). The outstanding principal balance of the Notes becomes due and payable in full on June 30, 2009 in cash or, at our option, in shares of our common stock equal to 110% of the principal amount of the 5% Notes divided by the 20-day average market price of our common shares immediately preceding the date of notice of redemption.

 

Operational Contingencies – Our operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief. Global’s international oil exploration and production operations, including well drilling and seismic activities, require specific governmental environmental licenses and permits, the acquisition of which in the past have been subject to extensive delays. Global may continue to experience similar delays in the future. Failure to obtain these licenses and permits in a timely manner may prevent or delay our operational plans.

 

We recognize the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At June 30, 2005, our asset retirement obligation liability was approximately $6 million.

 

We are currently involved in various lawsuits and other contingencies, which in our opinion, will not result in a material adverse effect upon our financial condition or operations taken as a whole.

 

In addition to the above commitments, during 2005 and afterward, government authorities under GEM’s Louisiana state leases and operators under other North American operators may also request GEM to participate in the cost of drilling additional exploratory and development wells. GEM may fund these future domestic expenditures at their discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on factors out of our control, such as the timing of the request, the depth of the wells and the location of the property. Our discretionary capital expenditures for 2005 will be curtailed if we do not have sufficient funds available. If we do not have sufficient funds or otherwise chooses not to participate, we may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in us losing certain prospect acreage or reducing our interest in future development projects. As of June 30, 2005, we had no material purchase obligations.

 

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Off-Balance Sheet Arrangements - As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2005, we were not involved in any unconsolidated SPE transactions.

 

This excerpt taken from the HKN 10-Q filed Jun 23, 2005.

Obligations and Commitments

 

4.25% Convertible Notes — In December 2003, Harken issued $5 million principal amount of 4.25% Convertible Notes due 2006. Principal and interest on the 4.25% Convertible Notes is payable in six semi-annual installments beginning June 2004, in cash or shares of Harken common stock. If Harken elects to redeem the 4.25% Convertible Notes for shares of its common stock, each note will be redeemed for a number of shares of Harken common stock equal to 110% of the principal value of the notes to be redeemed, plus accrued and unpaid interest thereon to the date of redemption, divided by the average market price of the stock over the 10 calendar days immediately preceding the date of the notice of redemption. In June 2004, Harken chose to pay the first installment of principal and accrued interest, a total of approximately $939,000, with cash.

 

The 4.25% Convertible Notes are convertible into shares of Harken common stock at a conversion price of $1.25 per share, subject to adjustment in certain circumstances. The 4.25% Convertible Notes are also

 

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convertible by Harken into shares of Harken common stock if, for any period of 30 consecutive days commencing upon registration of the underlying conversion shares, the average of the closing prices of Harken common stock for each trading day during such 30-day period shall have equaled or exceeded 125% of the 4.25% Convertible Notes conversion price (or $1.56 per share of Harken common stock).

 

Pursuant to the terms of the 4.25% Convertible Notes, Harken is required to maintain unencumbered assets such that the ratio of (1) the fair market value of the unencumbered assets to (2) the outstanding principal amount of the 4.25% Convertible Notes, is equal to or greater than 1.5 to 1.0. At September 30, 2004, Harken was in compliance with the asset coverage ratio under the 4.25% Convertible Notes.

 

5% Senior Convertible Notes — In August 2004, Harken issued to qualified investors a total of $5,245,000 principal amount of its 5% Senior Convertible Notes due June 30, 2009 (the “ 5% Notes”) in exchange for $5,245,000 in cash. The Notes are convertible into shares of Harken’s common stock, at a conversion price of $0.52 per share, subject to adjustments in certain circumstances. The Notes will bear interest at the rate of 5% per annum and interest is payable semi-annually in arrears on December 31 and June 30, commencing December 31, 2004. Upon registration of the 5% Notes with the SEC, the Notes are convertible into shares of Harken common stock at the option of the security holder. The Notes may be converted in whole or in part, at Harken’s option, after the effective date of the registration statement, if at any time following such effective date, the average market price of Harken’s common stock over any 20 consecutive business day period equals or exceeds 125% of the conversion price ($0.65 per share). All of the remaining outstanding principal balance of the Notes becomes due and payable in full on June 30, 2009 in cash or, at Harken’s option, in shares of Harken common stock equal to 110% of the principal amount of the 5% Notes divided by the 20-day average market price of Harken’s common immediately preceding the date of notice of redemption.

 

Series J Convertible Preferred Stock and Warrants – In April 2004, Harken issued 50,000 shares of the Series J Preferred, warrants to purchase shares of Harken common stock and 10,000 unit purchase warrants in exchange for $5.0 million in cash. The Series J Preferred has a liquidation value of $100 per share, is non-voting and is convertible at the holders’ option into common stock at a conversion price of $0.85 per share, subject to adjustments in certain circumstances. The Series J Preferred is also convertible by Harken into freely tradable shares of Harken common stock at the conversion price, if for any period of thirty consecutive calendar days the average closing price of Harken common stock during such period has equaled or exceeded 150% of the conversion price. The Series J Preferred holders are entitled to receive dividends at an annual rate equal to 5% per share. All dividends on the Series J Preferred stock are payable quarterly in arrears, beginning on September 30, 2004. The September 30, 2004 dividend payment was paid in cash. For further discussion of the Series J Preferred, the Common Stock Warrants and the Unit Purchase Warrants, see Note 9 – Redeemable Preferred Stock in the Notes to the Consolidated Condensed Financial Statements contained in Part 1, Item 1.

 

Series L Convertible Preferred Stock and Warrants – In May 2004, the Company issued 50,000 shares of the Series L Preferred and warrants to purchase shares of Harken common stock for total cash consideration of $5 million. The Series L Preferred has a liquidation value of $100 per share, is non-voting and was convertible at the holders’ option into common stock at a conversion price of $0.71 per share, subject to adjustments in certain circumstances.

 

The Series L Preferred holder shall be entitled to receive dividends at an increasing rate starting at 4% per share. On the third anniversary from the date of issuance (May 28, 2007), the dividend rate increases to 8% per share with 1% annual increases thereafter to a maximum of 12% annually. All dividends on the Series L Preferred stock are payable semi-annually on June 30 and December 30. Dividends may be paid in cash or

 

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freely tradable shares of Harken common stock, at Harken’s option, until May 28, 2007 and in cash thereafter. The dividend rate may escalate to 12% under certain events of default, including failure to declare and pay dividends. At Harken’s option, the June 2004 dividend payment was paid in cash.

 

Subsequent Event – Series L Conversion / Redemption Agreement and Issuance of Series M Cumulative Convertible Preferred Stock — In October 2004, Harken entered into a Conversion/Redemption Agreement (the “Agreement”) with the holders of the Series L Preferred, pursuant to which Harken has modified the conversion terms of the Series L Preferred as a part of the agreement to issue the Series M Cumulative Convertible Preferred Stock, as described below.

 

Pursuant to the Agreement, each holder of the Series L Preferred has agreed to convert at least 20% of their holdings of Series L Preferred on each of October 8, 2004, November 2, 2004, December 1, 2004, December 30, 2004 and February 1, 2005, provided that Harken meets certain conditions. Harken has agreed that the conversion price will be the volume weighted average price of the Harken’s common stock for the twenty consecutive trading days immediately preceding the applicable conversion date. On October 8 and November 3, 2004, a total of $2 million, plus accrued dividends, of the Series L Preferred was converted into 3.6 million shares of Harken’s common stock.

 

Concurrent with the Agreement, in October 2004, Harken sold 50,000 shares of its Series M Cumulative Convertible Preferred Stock (the “Series M Preferred”) and issued warrants to purchase up to 4,385,965 shares of Harken’s common stock at an exercise price equal to $0.57 per share. The aggregate purchase price for the Series M Preferred and the related warrants was cash consideration of $5,000,000.

 

The Series M Preferred has a liquidation value of $100 per share, is non-voting and is convertible at the holders’ option into common stock at a conversion price of $0.60 per share, subject to adjustments in certain circumstances. If for any period of thirty consecutive days the average closing price of Harken common stock during such period trades above $0.75 per share for 30 consecutive days, up to 25,000 shares of the Series M Preferred is convertible by Harken into freely tradable shares of Harken common stock at $0.60 per share. If the average daily volume weighted average price of Harken’s common stock during a period of thirty trading days equals or exceeds $0.90, Harken may convert all the Series M Preferred into freely tradable shares of Harken common stock at $0.60 per share.

 

North America Commitments – Under Harken’s 2004 capital expenditure budget, Harken’s domestic operating strategy includes efforts to increase its oil and gas reserves in the onshore and offshore Gulf Coast regions of Texas and Louisiana through acquisitions, exploitation and development drilling activities. The majority of this budgeted capital amount has been and will be used to drill exploratory and development wells in the Raymondville and Lapeyrouse fields in Southern Louisiana. Harken currently holds an average working interest in the Raymondville producing wells of approximately 27% and holds an average working interest of approximately 10% in the Lapeyrouse producing wells. In addition, GEM has acquired mineral rights to several drill-ready prospects along the Louisiana and Texas Gulf Coast. However, Harken’s planned North American capital expenditures for 2004 are discretionary and, as a result, will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in Harken losing certain prospect acreage or reducing its interest in future development projects.

 

Middle American Commitments – Based on its current plans, Global anticipates international capital expenditures will total approximately $16 million. Approximately $3 million of these capital expenditures result from commitments under the terms of certain of the Association Contracts entered into between Global’s subsidiary Harken de Colombia, Ltd. and the National Hydrocarbons Agency of the Republic of Colombia.

 

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The required commitments for the Rio Verde Contract are the recompletion of two existing wells, the Tilodiran #1 and the Macarenas #1 and the acquisition of 50 kilometers of seismic. Total estimated costs for these commitments are approximately $3 million. As of November 4, 2004, Global was in compliance with the requirements of each of the Association Contracts. Global’s planned international capital expenditures remaining in 2004 includes approximately $5 million of discretionary expenditures for the continued development of the Alcaravan Contract area in Colombia, South America along with the commencement of the Catalina Gas Injection project in the Bolivar contract area. Global expects to drill approximately 6 development wells in the Palo Blanco field under the Alcaravan Contract area over the next twelve-month period. The first of those wells, the Estero #5, was spudded in October 2004 and has now set surface casing. Global’s discretionary capital expenditures will be curtailed if sufficient funds are not available. Such expenditure curtailments, however, could result in Global losing certain prospect acreage or reducing its interest in future development projects.

 

Operational Contingencies — Harken’s operations are subject to stringent and complex environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations are subject to changes that may result in more restrictive or costly operations. Failure to comply with applicable environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties or injunctive relief. Global’s international oil and gas exploration and production operations, including well drilling and seismic activities, require specific governmental environmental licenses and permits, the acquisition of which in the past have been subject to extensive delays. Global may continue to experience similar delays in the future. Failure to obtain these licenses and permits in a timely manner may prevent or delay Harken’s and Global’s operational plans.

 

Effective January 1, 2003, Harken changed its method of accounting for asset retirement obligations in accordance with FASB Statement No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143). Prior to the effective date of SFAS 143, Harken reflected asset retirement obligations for acquired assets net of related estimated salvage values to be realized at the time of retirement. Under SFAS 143, Harken recognizes the full amount of asset retirement obligations beginning in the period in which they are incurred if a reasonable estimate of a fair value can be made. At September 30, 2004, Harken’s asset retirement obligation liability was approximately $6.5 million.

 

In addition to the above commitments, during 2004 and afterward, government authorities under Harken’s Louisiana state leases and operators under Harken’s other North American operators may also request Harken to participate in the cost of drilling additional exploratory and development wells. Harken may fund these future domestic expenditures at its discretion. Further, the cost of drilling or participating in the drilling of any such exploratory and development wells cannot be quantified at this time since the cost will depend on many factors outside of Harken’s control, such as the timing of the request, the depth of the wells and the location of the property. Harken’s discretionary capital expenditures for 2004 will be curtailed if Harken does not have sufficient funds available. If Harken does not have sufficient funds or otherwise chooses not to participate, it may experience a delay of future cash flows from proved undeveloped oil and gas reserves. Such expenditure curtailments could also result in Harken losing certain prospect acreage or reducing its interest in future development projects. As of September 30, 2004, Harken had no material purchase obligations.

 

Off-Balance Sheet Arrangements - Harken does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPE’s”). As of September 30, 2004, Harken was not involved in any unconsolidated SPE transactions.

 

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