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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A-2
(Amendment No. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission file number 1-10262
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2841597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)Identification No.)
580 WestLake Park Boulevard, Suite 600 77079
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (281) 504-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ____ No [X]
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of May 1, 2002 was 20,996,546.
--------------------------------------------------------------------------------
EXPLANATORY NOTE
Harken Energy Corporation filed its original Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 with the Securities and Exchange Commission
("SEC") on May 15, 2002. This Amendment No. 2 to the Quarterly Report on Form
10-Q/A-2 is being filed solely for the purpose of responding to comments of the
SEC. In order to preserve the nature and character of the disclosures as of May
15, 2002, except as specifically discussed in this Amendment No. 2 to the
Quarterly Report on Form 10-Q/A-2, no attempt has been made in this amendment to
modify or update such disclosures for events which occurred subsequent to the
original filing on May 15, 2002. Accordingly, this Amendment No. 2 to the
Quarterly Report on Form 10-Q/A-2 should be read in conjunction with the
Company's subsequent filings with the SEC.
2
HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
March 31, 2002
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Condensed Balance Sheets .................................... 5
Consolidated Condensed Statements of Operations .......................... 6
Consolidated Condensed Statement of Stockholders' Equity ................. 7
Consolidated Condensed Statements of Cash Flows .......................... 8
Notes to Consolidated Condensed Financial Statements ..................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 17
PART II. OTHER INFORMATION ........................................................... 28
SIGNATURES ........................................................................... 32
3
PART I - FINANCIAL INFORMATION
4
ITEM 1. CONDENSED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
December 31, March 31,
2001 2002
------------- -------------
Assets
------
Current Assets:
Cash and temporary investments $ 8,523,000 $ 6,334,000
Restricted cash 944,000 954,000
Accounts receivable, net 3,248,000 4,013,000
Related party notes receivable 169,000 105,000
Prepaid expenses and other current assets 1,361,000 951,000
------------- -------------
Total Current Assets 14,245,000 12,357,000
Property and Equipment, net 78,335,000 74,403,000
Other Assets, net 3,226,000 2,503,000
------------- -------------
$ 95,806,000 $ 89,263,000
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Trade payables $ 2,664,000 $ 770,000
Accrued liabilities and other 6,197,000 5,680,000
Revenues and royalties payable 2,006,000 1,242,000
Current portion of long-term debt - 450,000
------------- -------------
Total Current Liabilities 10,867,000 8,142,000
Convertible Notes Payable 51,388,000 51,457,000
Bank Credit Facilities 7,937,000 7,487,000
Accrued Preferred Stock Dividends 3,942,000 4,987,000
Other Long-Term Obligations 5,458,000 5,594,000
Commitments and Contingencies (Note 10)
Minority Interest in Consolidated Subsidiary - 1,995,000
Stockholders' Equity
Series G1 Preferred Stock, $1.00 par value; $100 liquidation
value; 700,000 shares authorized; 446,417 and 438,647
shares outstanding, respectively 446,000 438,000
Series G2 Preferred Stock, $1.00 par value; $100
liquidation value; 400,000 shares authorized; 95,300
and 94,300 shares outstanding, respectively 95,000 94,000
Common stock, $0.01 par value; 225,000,000 shares
authorized; 18,713,038 and 18,816,730 shares issued,
respectively 187,000 188,000
Additional paid-in capital 385,710,000 384,219,000
Accumulated deficit (369,087,000) (373,688,000)
Accumulated other comprehensive income 296,000 (217,000)
Treasury stock, at cost, 542,900 shares held (1,433,000) (1,433,000)
------------- -------------
Total Stockholders' Equity 16,214,000 9,601,000
------------- -------------
$ 95,806,000 $ 89,263,000
============= =============
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
5
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
------------------------------
2001 2002
------------------------------
Revenues:
Oil and gas operations $ 8,915,000 $ 5,426,000
Interest and other income 277,000 66,000
------------- -------------
9,192,000 5,492,000
------------- -------------
Costs and Expenses:
Oil and gas operating expenses 3,254,000 2,320,000
General and administrative expenses, net 2,480,000 2,409,000
Depreciation and amortization 3,249,000 3,266,000
Interest expense and other, net 1,712,000 972,000
------------- -------------
10,695,000 8,967,000
------------- -------------
Loss before income taxes (1,503,000) (3,475,000)
Income tax expense 15,000 90,000
------------- -------------
Loss before extraordinary items and minority interest (1,518,000) (3,565,000)
Minority interest in loss of subsidiary - 9,000
------------- -------------
Loss before extraordinary item (1,518,000) (3,556,000)
Extraordinary item-gain on repurchase of
European Notes 106,000 -
------------- -------------
Net loss $ (1,412,000) $ (3,556,000)
============= =============
Preferred stock dividends (316,000) (1,045,000)
------------- -------------
Net loss attributed to common stock $ (1,728,000) $ (4,601,000)
============= =============
Basic and diluted loss per common share:
Loss per common share before extraordinary items $ (0.10) $ (0.25)
Extraordinary item-gain on repurchase of
European Notes 0.00 -
------------- -------------
Loss per common share $ (0.10) $ (0.25)
============= =============
Weighted average common shares outstanding 17,855,827 18,233,676
============= =============
The accompanying Notes to Consolidated Condendensed Financial Statements are
an integral part of these Statements.
6
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
G1 Preferred G2 Preferred Common Paid-in Treasury Accumulated
Stock Stock Stock Capital Stock Deficit
------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 446,000 $95,000 $187,000 $385,710,000 $(1,433,000) $(369,087,000)
Issuance of common stock - - - (4,000) - -
Conversions of preferred stock (8,000) (1,000) 1,000 8,000 - -
Preferred stock dividends - - - - - (1,045,000)
Issuance of stock subsidiary - - - (1,495,000) - -
Comprehensive income:
Net change in derivative fair value - - - - - -
Reclassification of derivative fair value
into earnings - - - - - -
Net loss - - - - - (3,556,000)
Total comprehensive income (loss)
------------------------------------------------------------------------------------
Balance, March 31, 2002 $ 438,000 $94,000 $188,000 $384,219,000 $(1,433,000) $(373,688,000)
====================================================================================
Accumulated
Other
Comprehensive
Income (Loss) Total
---------------------------
Balance, December 31, 2001 $ 296,000 $16,214,000
Issuance of common stock - (4,000)
Conversions of preferred stock - -
Preferred stock dividends - (1,045,000)
Issuance of stock subsidiary - (1,495,000)
Comprehensive income:
Net change in derivative fair value (513,000)
Reclassification of derivative fair value
into earnings -
Net loss -
Total comprehensive income (loss) (4,069,000)
----------------------------
Balance, March 31, 2002 $(217,000) $ 9,601,000
============================
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
7
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31,
------------------------------
2001 2002
------------ ------------
Cash flows from operating activities:
Net loss $ (1,412,000) $ (3,556,000)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,249,000 3,266,000
Amortization of issuance costs 679,000 117,000
Extraordinary items (106,000) -
Minority interest in loss of subsidiary - (9,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,101,000 (701,000)
Increase (decrease) in trade payables and other 326,000 (1,088,000)
------------ ------------
Net cash provided by (used in) operating activities 3,837,000 (1,971,000)
------------ ------------
Cash flows from investing activities:
Proceeds from sales of assets 1,815,000 936,000
Capital expenditures, net (9,020,000) (2,322,000)
------------ ------------
Net cash used in investing activities (7,205,000) (1,386,000)
------------ ------------
Cash flows from financing activities
Proceeds from issuances of stock - 1,425,000
Transaction costs - (257,000)
Repayments of long-term debt (140,000) -
Collection of note receivable 140,000 -
------------ ------------
Net cash used in financing activities - 1,168,000
------------ ------------
Net decrease in cash and temporary investments (3,368,000) (2,189,000)
Cash and temporary investments at beginning of period 19,763,000 8,523,000
------------ ------------
Cash and temporary investments at end of period $ 16,395,000 $ 6,334,000
============ ============
Supplement disclosures of cash flow information:
Cash paid during the period for:
Interest $ 220,000 $ 88,000
Income taxes - -
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
8
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001 and 2002
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Harken Energy Corporation ("Harken") have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to these rules and regulations, although
Harken believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of Harken, these financial statements
contain all adjustments necessary to present fairly its financial position as of
December 31, 2001 and March 31, 2002 and the results of its operations and
changes in its cash flows for all periods presented as of March 31, 2001 and
2002. All such adjustments represent normal recurring items. These condensed
financial statements should be read in conjunction with the financial statements
and the notes thereto included in Harken's Annual Report on Form 10-K for the
year ended December 31, 2001. Certain prior year amounts have been reclassified
to conform with the 2002 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
The results of operations for the three month period ended March 31, 2002
are not necessarily indicative of the results to be expected for the full year.
Comprehensive Loss. Comprehensive loss includes changes in stockholders'
equity during the periods that do not result from transactions with
stockholders. The Company's total comprehensive income (loss) is as follows:
Three Months Ended
March 31,
-----------------------
2001 2002
--------- ----------
(In Thousands)
Net (Loss) $ (1,412) $ (3,556)
Change in fair value of derivate 280 (423)
Reclassification of derivative fair value
into earnings 1,010 (90)
Cumulative effect of change in
accounting principle (3,025) -
--------- ---------
Total comprehensive (Loss) $ (3,147) $ (4,069)
========= =========
9
(2) ACQUISITIONS AND DISPOSITIONS
Sales of Certain Producing Interests - During 2001, certain wholly-owned
subsidiaries of Harken sold certain interests in oil and gas producing
properties located in Texas, Arkansas, New Mexico and Louisiana for
approximately $13,090,000 cash, which was used in part to support Harken's
exploration and development activities. During the first quarter of 2002, Harken
sold an additional interest in an oil and gas producing property located in
Texas for approximately $910,000. Subsequent to March 31, 2002, Harken sold
additional producing property interests for approximately $214,000.
Acquisition of Republic Properties - On January 30, 2002, a wholly-owned
subsidiary of Harken signed an agreement to acquire certain property interests
(the "Republic Properties") from Republic Resources, Inc., ("Republic"). Such
acquisition was closed on April 4, 2002 following approval by Republic
stockholders and debenture holders. The Republic Properties consist of 15
producing property interests located in southern Louisiana and the Texas Gulf
Coast region. The Republic Properties were acquired by Harken in exchange for
2,645,500 shares of Harken common stock. In addition, the Purchase and Sale
Agreement also provides for contingent additional consideration of cash or
additional shares of Harken common stock or any combination of the two as Harken
may decide, to be paid within 45 days after December 31, 2003, based on a
defined calculation to measure the appreciation, if any, of the reserve value of
the Republic Properties. Since Harken acquired only the proved oil and gas
properties from Republic, the entire purchase price was allocated to the
domestic full cost pool.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31, March 31,
2001 2002
------------- --------------
Unevaluated oil and gas properties:
Unevaluated Colombian properties $ 68,000 $ 103,000
Unevaluated Peru properties 635,000 671,000
Unevaluated Panama properties 166,000 189,000
Unevaluated domestic properties 2,603,000 2,189,000
Evaluated oil and gas properties:
Evaluated Colombian properties 182,945,000 183,043,000
Evaluated domestic properties 154,495,000 154,029,000
Facilities and other property 25,000,000 25,011,000
Less accumulated depreciation and
Amortization (287,577,000) (290,832,000)
------------ -------------
$ 78,335,000 $ 74,403,000
============ =============
10
(4) MIDDLE AMERICAN OPERATIONS
Harken's Middle American operations are conducted through Global Energy
Development PLC ("Global", a United Kingdom company listed on the AIM Exchange
in London). Effective March 25, 2002, Harken's ownership in Global decreased to
92.77%, as Global placed 7.23% of its stock to investors. The placement to these
investors consisted of 2,021,902 shares at a cost of approximately $0.70 per
share, of which less than 1% was purchased at the offering price by certain
officers, directors and employees of Harken and Global and a family member. The
issuance of stock by Global has been accounted for by Harken within
stockholders' equity, by reducing additional paid-in capital by $2,004,000,
which equals the underlying book value of the shares transferred to investors.
The proceeds received of approximately $1,425,000 were offset by transaction
costs of $1,177,000, of which $516,000 were incurred in 2002.
Colombian Operations - Global's Colombian operations are conducted through
Harken de Colombia, Ltd., a wholly-owned subsidiary of Global, which held four
exclusive Colombian Association Contracts with Empresa Colombiana de Petroleos
("Ecopetrol") as of March 31, 2002. Terms of each of the Association Contracts
commit Global to perform certain activities, such as seismic activities and/or
the drilling of a well, in accordance with a prescribed timetable. As of May 14,
2002, Global was in compliance with the requirements of each of the Association
Contracts.
Costa Rica Operations - Global's participation in Costa Rica is structured
whereby a wholly-owned Global subsidiary owns a 40% share of Harken Costa Rica
Holdings LLC ("HCRH", a Nevada limited liability company), with an affiliate of
MKJ Xploration, Inc. ("MKJ") owning the remaining stock of HCRH. MKJ is the
operator of this Costa Rica project.
In March 2002, the Costa Rica environmental agency SETENA denied its
approval of the requested environmental permit related to Harken's Costa Rica
Contract. HCRH has filed an appeal related to this ruling by SETENA. In January
2002, the Costa Rica Constitutional Court rendered a published opinion in a suit
that had been filed against another oil and gas operator and the Costa Rican
Ministry of Environment and Energy ("MINAE") by certain environmental groups. In
its opinion, in this case, the Constitutional Court of Costa Rica found, among
other issues, that SETENA did not have the current authority to grant
environmental permits. In addition, proposed legislation pending in the Costa
Rica legislature seeks to abolish the Costa Rica government's rights to grant
hydrocarbon exploration contracts. Due to the Costa Rica Constitutional Court
decision discussed above, even though it did not directly involve HCRH or the
Moin #2 well, as well as the pending legislation described above, Harken and
Global believe that HCRH's appeal to SETENA for reconsideration of its denial of
the requested permit, or any similar recourse, will be unsuccessful. Further,
recent political developments in Costa Rica, in the opinion of Harken and
Global, severely limit the opportunity for future oil and gas exploration in
Costa Rica. These significant adverse developments resulted in Harken fully
impairing its approximately $8.8 million investment in the Costa Rica project in
its Consolidated Balance Sheet as of December 31, 2001.
Peru Operations - In April 2001, Harken, through a wholly-owned subsidiary
of Global, signed a Technical Evaluation Agreement ("Peru TEA") with PeruPetro,
the national oil company of Peru. The Peru TEA covers an area of approximately
6.8 million gross acres in northeastern Peru. Under the terms of the Peru TEA,
Global has the option to convert the Peru TEA to a seven year exploration
contract, with a twenty-two year production period. Terms of the Peru TEA allow
Global to conduct a study of the area that will include the reprocessing of
seismic data and evaluation of previous well data.
11
Panama Operations - In September 2001, Harken, through a wholly-owned
subsidiary of Global, signed a Technical Evaluation Agreement ("Panama TEA")
with the Ministry of Commerce and Industry for the Republic of Panama. The
Panama TEA covers an area approximately 2.7 million gross acres divided into
three blocks in and offshore Panama. Under the terms of this Panama TEA, which
extends for a period of 24 months, Global is to perform certain work program
procedures and studies to be submitted to the Panamanian government with an
option to negotiate and enter into one or more Contracts for the Exploration and
Exploitation of Hydrocarbons with the Ministry of Commerce and Industry.
(5) BANK CREDIT FACILITY OBLIGATION
Certain Harken subsidiaries (the "Borrowers") entered into a three year
loan facility with Bank One, N.A. ("Bank One") which is secured by substantially
all of Harken's domestic oil and gas properties and a guarantee from Harken. The
Bank One facility provides borrowings limited by a borrowing base (as defined by
the Bank One facility) which was approximately $7,937,000 as of March 31, 2002
and as of May 14, 2002. Such borrowing base, which is net of outstanding letters
of credit, will be reduced by $225,000 per month beginning September 1, 2002
until the borrowing base is redetermined by Bank One on November 1 and May 1 in
accordance with the facility agreement. The Bank One facility provides for
interest based on LIBOR plus a margin of 2.350% (4.23% as of March 31, 2002),
payable at the underlying LIBOR maturities or lender's prime rate, and provides
for a commitment fee of 0.375 % on the unused amount. At December 31, 2001 and
March 31, 2002 Harken had $7,937,000 outstanding pursuant to the facility.
The Bank One facility requires the Borrowers, as well as Harken, to
maintain certain financial covenant ratios and requirements as calculated on a
quarterly basis. Harken and the Borrowers are in compliance with all
requirements under the Bank One facility, as amended and/or waived, as of March
31, 2002. The Borrowers received a waiver of the debt service coverage ratio
covenant for the quarter ended March 31, 2002. Such financial covenant ratios
and requirements for the Borrowers include a current ratio, as defined, of not
less than 1.0 to 1.0 and a total liabilities to net capital investment ratio, as
defined, of not more than 1.15 to 1.0. Effective beginning in the second quarter
of 2002, such requirements will also include a debt service coverage ratio, as
defined, for the Borrower of not less than 1.15 to 1.00. Required financial
covenants for Harken include a ratio of total liabilities to net worth, as
defined, of not more than 0.6 to 1.0, and a current ratio, as defined, of not
less than 1.15 to 1.0.
(6) CONVERTIBLE NOTES PAYABLE
A summary of convertible notes payable is as follows:
December 31, March 31,
2001 2002
--------------- --------------
5% European Notes $ 40,980,000 $ 40,980,000
Benz Convertible Notes 10,408,000 10,477,000
--------------- --------------
51,388,000 51,457,000
Less: Current portion - -
--------------- --------------
$ 51,388,000 $ 51,457,000
=============== ==============
12
5% European Notes -- On May 26, 1998, Harken issued certain 5% Senior
Convertible Notes (the "5% European Notes") which mature on May 26, 2003. Since
issuance and as of May 14, 2002, Harken has repurchased or exchanged to date an
aggregate of approximately $44,000,000 principal amount of the 5% European
Notes. As of May 14, 2002, the outstanding principal balance of 5% European
Notes was approximately $40,980,000.
Interest incurred on these notes is payable semi-annually in May and
November of each year to maturity or until the 5% European Notes are converted.
The 5% European Notes may be redeemed for cash, at Harken's option, at par, in
whole or in part, at any time after May 26, 2002, upon not less than 30 days
notice to the holders. In addition, beginning November 26, 2002, Harken may
redeem up to 50% of the 5% European Notes in exchange for shares of Harken
common stock at a defined redemption price based on an average market price of
Harken common stock. At maturity, on May 26, 2003, Harken may similarly redeem
all remaining 5% European Notes for shares of Harken common stock. If Harken
elects to redeem the 5% European Notes for shares of its common stock, each note
will be redeemed for a number of shares of Harken common stock equal to 115% of
the principal amount of the note 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 30 calendar days immediately preceding the date of the
notice of redemption. The 5% European Notes are listed on the Luxembourg Stock
Exchange.
Benz Convertible Notes --- On December 30, 1999, Harken issued $12,000,000
principal amount of 5% Convertible Notes Due 2003 (the "Benz Convertible Notes")
in exchange for certain prospects acquired from Benz Energy, Incorporated
("Benz"). The Benz Convertible Notes originally were to mature on May 26, 2003.
In March 2000, the maturity date of certain of the Benz Convertible Notes was
extended to November 26, 2003.
The Benz Convertible Notes bear interest at 5% per annum, payable
semi-annually in May and November of each year until maturity or until the Benz
Convertible Notes are redeemed, converted or purchased by Harken prior to their
maturity. The notes may be redeemed for cash, or shares of Harken common stock,
at Harken's option, at par, in whole or in part, at any time after May 26, 2002,
upon not less than 30 days notice to the holders. In addition, beginning
November 26, 2002, Harken may redeem up to 50% of the Benz Convertible Notes
then outstanding in exchange for shares of Harken common stock. At maturity, on
November 26, 2003, Harken may similarly redeem all remaining outstanding Benz
Convertible Notes for shares of Harken common stock. If Harken elects to redeem
the Benz Convertible Notes for shares of its common stock beginning November 26,
2002, each note will be redeemed for a number of shares of Harken common stock
equal to 115% of the principal amount of the note 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 30 calendar days immediately preceding the
date of the notice of redemption.
No Benz Convertible Notes were repurchased or redeemed by Harken during the
three months ended March 31, 2002.
(7) RELATED PARTY TRANSACTIONS
During 1997, 1998 and 1999, Harken made secured short-term loans to certain
members of Harken's Management, certain of whom also served on the Board of
Directors. Such notes receivable are reflected in
13
Harken's Consolidated Balance Sheet at December 31, 2000 and December 31, 2001
as Related Party Notes Receivable. In January 2001, Harken forgave the repayment
of a short-term loan in the principal amount of $250,000, plus accrued interest
of $45,000, to a former director and former member of management related to the
surrender of his Harken stock options and reflected the forgiveness as a charge
to earnings in 2000. Such loan was a recourse loan secured by such options. In
May 2002, Harken entered into a severance agreement and forgave the repayment of
a short-term loan in the principal amount of $64,000 to a member of management
related to his resignation as an officer of Harken due to health reasons. Harken
reflected the May 2002 forgiveness as a charge to earnings during the first
quarter of 2002, when such forgiveness was agreed to and discussed with the
former management member.
(8) HEDGING ACTIVITIES
Harken holds certain commodity derivative instruments which are effective
in mitigating commodity price risk associated with a portion of its future
monthly natural gas production and related cash flows. Harken's oil and gas
operating revenues and cash flows are impacted by changes in commodity product
prices, which are volatile and cannot be accurately predicted. Harken's
objective for holding these commodity derivatives is to protect the operating
revenues and cash flows related to a portion of its future natural gas sales
from the risk of significant declines in commodity prices.
As of March 31, 2002, Harken, holds natural gas zero cost collar contracts
consisting of a fixed price floor option of $2.75 per MMBTU and a fixed price
cap option of $3.47 per MMBTU, covering 135,000 MMBTUs per month over the period
of the contract through December 31, 2002. In addition, Harken also holds zero
cost collar contracts consisting of a fixed price floor option of $2.75 per
MMBTU and a fixed price cap option of $5.12 per MMBTU, covering 60,000 MMBTUs
per month over a period from January 1, 2003 through December 31, 2003. Such
natural gas collar contracts are reflected in accrued liabilities at March 31,
2002 with a market value of approximately $351,000.
Each of the above derivatives have been designated as cash flow hedges of
the exposure from the variability of cash flows from future specified production
from certain of Harken's domestic property operations. Gains and losses from
commodity derivative instruments are reclassified into earnings when the
associated hedged production occurs. Harken holds no derivative instruments
which are designated as either fair value hedges or foreign currency hedges.
Settlements of oil and gas commodity derivatives are based on the difference
between fixed swap or option prices and the New York Mercantile Exchange closing
prices for each month during the life of the contracts. Harken monitors its
natural gas production prices compared to New York Mercantile Exchange prices to
assure its commodity derivatives are effective hedges in mitigating its
commodity price risk.
Risk management policies established by Harken management limit Harken's
derivative instrument activities to those derivative instruments which are
effective in mitigating certain operating risks, including commodity price risk.
In addition to other restrictions, the extent and terms of any derivative
instruments are required to be reviewed and approved by executive management of
Harken.
(9) SEGMENT INFORMATION
Harken's accounting policies for each of its operating segments are the
same as those for its
14
consolidated financial statements. There are no intersegment sales or transfers.
Revenues and expenses not directly identifiable with either segment, such as
certain general and administrative expenses, are allocated by Harken based on
various internal and external criteria including an assessment of the relative
benefit to each segment. During the periods presented below, none of Harken's
Middle American segment operating revenues related to Costa Rica, Peru or
Panama.
Harken's financial information for each of its operating segments is as
follows for the periods ended March 31, 2001 and 2002:
North Middle
America America Total
--------------- ------------- --------------
For the three months ended
March 31, 2001:
Operating revenues $ 7,008,000 $ 1,907,000 $ 8,915,000
Interest and other income 119,000 158,000 277,000
Depreciation and amortization 1,819,000 1,430,000 3,249,000
Interest expense and other, net 876,000 836,000 1,712,000
Income tax expense 15,000 - 15,000
Segment income (loss) before
extraordinary items 766,000 (2,284,000) (1,518,000)
Capital expenditures 2,737,000 8,212,000 10,949,000
Total assets at end of period 99,434,000 47,613,000 147,047,000
For the three months ended
March 31, 2002:
Operating revenues $ 3,788,000 $ 1,638,000 $ 5,426,000
Interest and other income 21,000 45,000 66,000
Depreciation and amortization 2,123,000 1,143,000 3,266,000
Interest expense and other, net 664,000 308,000 972,000
Income tax expense 15,000 75,000 90,000
Segment loss before
extraordinary items (2,382,000) (1,174,000) (3,556,000)
Capital expenditures 107,000 192,000 299,000
Total assets at end of period 60,030,000 29,233,000 89,263,000
(10) COMMITMENTS AND CONTINGENCIES
Search Acquisition Corp. ("Search Acquisition"), also known as Harken Texas
Acquisition Corp., a wholly-owned subsidiary of Harken, was a defendant in a
lawsuit filed by Petrochemical Corporation of America and Lorken Investments
Corporation (together, "Petrochemical"). This lawsuit arose out of
Petrochemical's attempt to enforce a judgment of joint and several liability
entered in 1993 against a group of twenty limited partnerships known as the
"Odyssey limited partnerships." Petrochemical claimed that Search Exploration,
Inc. is liable for payment of the judgment as the successor-in-interest to eight
Odyssey limited partnerships. Search Acquisition was the surviving corporation
in Harken's 1995 acquisition of Search Exploration, Inc. On February 28, 1996,
the court granted Search Acquisition's motion for summary judgment
15
in this case. On July 3, 1998, the Fifth District Court of Appeals for the State
of Texas reversed the trial court's summary judgment and remanded the case to
the trial court. In December 2001, a jury trial was held in this matter. The
jury returned a verdict finding for Petrochemical in the amount of $1.1 million
of actual damages and $3 million in punitive damages. In April 2002, the court
entered judgment on the verdict rendered by the jury. Search Acquisition
promptly appealed this judgment. Search Acquisition will file with this court
post-judgment motions for a new trial with regard to this case and anticipates
that it will appeal if these motions are not granted. This lawsuit solely
involves Search Acquisition and does not involve Harken directly.
420 Energy Investment, Inc. and ERI Investments, Inc. (collectively "420
Energy") filed a lawsuit against XPLOR Energy, Inc., a wholly-owned subsidiary
of Harken, on December 21, 1999 in the New Castle County Court of Chancery of
the State of Delaware. 420 Energy alleges that they are entitled to appraisal
and payment of the fair value of their common stock in XPLOR as of the date
XPLOR merged with Harken. Harken has relied on an indemnity provision in the
XPLOR merger agreement to tender the costs of defense in this matter to former
stockholders of XPLOR. Although the outcome of this litigation is uncertain,
because the former stockholders of XPLOR have accepted indemnification of this
claim, Harken believes that any liability to Harken as a result of this
litigation will not have a material adverse effect on Harken's financial
condition.
In August 2001, a new lawsuit was filed by New West Resources, Inc. ("New
West"), a former XPLOR stockholder, against XPLOR, Harken and other defendants
in state court in Dallas, Texas. Harken received service of process in February
2002. New West claims that it lost its $6 million investment in XPLOR as a
result of misrepresentations by XPLOR and breach of fiduciary duties by certain
XPLOR directors. Harken believes this new suit is an adjunct of the prior
appraisal rights claim by 420 Energy. The former stockholders of XPLOR have
rejected Harken's request for indemnification of this claim under the XPLOR
merger agreement. However, Harken intends to continue to pursue and enforce,
through whatever steps are necessary, any indemnification from the third
parties. Harken has tendered the defense of this claim to National Union Fire
Insurance Company, pursuant to insurance policy coverage held by XPLOR. National
Union has accepted defense of this claim subject to a reservation of rights.
Based on the facts that (i) the allegations of New West's current petition focus
primarily on defendants other than Harken, (ii) New West has provided no
evidence supporting its claims in response to Harken's discovery requests, and
(iii) the case is set for trial in January 2003 but New West has not served
process upon certain of the defendants described in New West's petition as being
the primary wrongdoers, Harken does not believe the claims asserted against
Harken are meritorious. Therefore, in Harken management's opinion, the ultimate
outcome of this litigation will not have a material adverse effect on Harken's
financial condition.
Harken has accrued approximately $6,888,000 at March 31, 2002 relating to
certain other operational or regulatory contingencies related to Harken's
domestic operations. Approximately $4,400,000 of this accrued amount relates to
total future abandonment costs of $7,550,000 of certain producing properties
owned by XPLOR, a wholly owned subsidiary of Harken, which will be incurred at
the end of the properties' productive life. Harken and its subsidiaries
currently are involved in other various lawsuits and contingencies, any of which
in management's opinion, will not result in significant loss exposure to Harken.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Certain statements contained in this Quarterly Report, including
statements of Harken management's current expectations, intentions, plans and
beliefs, are "forward-looking statements", as defined in Section 21D of the
Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act
of 1995:
. statements before, after or including the words "may", "will",
"could", "should", "believe", "expect", "future", "potential",
"anticipate", "intend", "plan", "estimate", or "continue" or the
negative or other variations of these words; and
. other statements about matters that are not historical facts.
Such forward-looking statements involve known and unknown risk,
uncertainties and other factors which may cause the actual results, performance,
timing or achievements of Harken to be materially different from any results,
performance, timing or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the risks described in Harken's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed
with the Securities and Exchange Commission.
Overview
Harken's domestic operating segment has completed a period of
significant successful drilling activity over the past two years, and in light
of recent reduced prices for oil and natural gas, has reduced its exploration
and development activity at this time in favor of pursuing oil and gas reserve
growth through merger and acquisition activity. In April 2002, Harken, along
with a wholly-owned subsidiary, acquired certain producing property interests
(the "Republic Properties") in exchange for Harken common stock. Harken's
ability to make future acquisition transactions may be affected, however, by the
market value of Harken common stock. If the price of Harken common stock remains
low or decreases, Harken's ability to utilize its stock in acquisition
transactions could be negatively affected. Harken's Middle American operations
are conducted through Global Energy Development PLC ("Global", a United Kingdom
company listed on the AIM Exchange in London). Effective March 25, 2002,
Harken's ownership in Global decreased to 92.77%, as Global placed 7.23%
(2,085,282 shares) of its stock in a placement to investors, of which less than
1% (166,198 shares) of Global was purchased at the offering price by certain
officers, directors and employees of Harken and Global and a family member, in
exchange for approximately $1,425,000 cash. Global is seeking additional
financing and acquisition activities using shares of its newly listed common
stock. In addition, the sale, by Harken, of additional shares of Global common
stock which would reduce Harken's ownership to 90% was previously approved by
Harken's Board of Directors. As a part of Harken's business strategy, Harken has
taken steps to maximize its cash flow by decreasing its administrative costs
through reductions in personnel, reductions in salaries, increasing efficiencies
in its production operations, and by reducing its long-term debt obligations.
Harken's continued steps in these areas should continue to increase operating
efficiency and cash flow during 2002.
Harken reported a net loss for the three months ended March 31, 2002
of $3,556,000 compared to a net loss of $1,412,000 for the prior year period due
primarily to lower commodity prices compared to the prior year. Because of lower
product prices for both natural gas and crude oil, Harken worldwide oil and gas
revenues have decreased 39% during the first quarter of 2002 compared to the
prior year period, despite
17
increased production volumes both domestically and in Colombia. Gross profit
before depreciation and amortization, general and administrative and interest
expenses totaled approximately $3.1 million during the three months ended March
31, 2002 compared to approximately $5.7 million for the prior year period.
Critical Accounting Policies
Full cost accounting method -- Harken accounts for the costs incurred in
the acquisition, exploration, development and production of oil and gas reserves
using the full cost accounting method. Under full cost accounting rules, the net
capitalized costs of evaluated oil and gas properties shall not exceed an amount
(the "cost ceiling") equal to the present value of future net cash flows from
estimated production of proved oil and gas reserves, based on current economic
and operating conditions, including the use of oil and gas prices as of the end
of each quarter.
Given the volatility of oil and gas prices, it is reasonably possible that
the estimate of discounted future net cash flows from proved oil and gas
reserves could change in the near term. If oil and gas prices decline in the
future, even if only for a short period of time, it is possible that additional
impairments of oil and gas properties could occur. In addition, it is reasonably
possible that additional impairments could occur if costs are incurred in excess
of any increases in the cost ceiling, revisions to proved oil and gas reserves
occur, or if properties are sold for proceeds less than the discounted present
value of the related proved oil and gas reserves.
Colombia operations -- During the quarter ended March 31, 2002,
approximately 30% of Harken's consolidated revenues were generated from sales to
Ecopetrol, the state-owned Colombian oil company. The country of Colombia is
currently experiencing heightened security issues which could affect Harken's
Colombian operations as well as the strength and operations of Ecopetrol. If
Ecopetrol experiences significant adverse conditions in its operations, it may
not be able to meet its ongoing financial obligations to Harken for delivered
production or be able to purchase future production under the terms of existing
contract provisions. Harken's Colombian operations could also be directly
affected by guerilla activity or other instances or threats of violence,
preventing or interrupting Harken from producing, transporting or delivering
future production volumes.
Valuation of accounts receivable -- Harken sells its domestic oil and gas
production to a broad and diverse group of industry partners, many of which are
major oil and gas companies, and as a whole, do not represent a significant
credit risk. In addition, Harken charges certain industry partners, who
participate in Harken-operated wells, with their share of drilling costs and
operating expenses. In determining a reserve for potential losses in collection
of its accounts receivable, Harken considers, among other factors, the current
financial condition of its industry partners in light of current industry
conditions. In the event of a significant decline in oil and gas prices, many of
our industry partners may not be able to meet their ongoing financial
obligations to Harken or be able to meet the terms of existing contract
provisions.
Classification of long-term debt -- Harken's bank credit facility with Bank
One, N.A. ("Bank One") requires Harken, as well as certain of its subsidiaries
(the "Borrowers") to maintain certain financial covenant ratios and
requirements, as calculated on a quarterly basis. If Harken or the Borrowers are
not in compliance with their bank financial covenant ratios or requirements in
the future and are unable to obtain a waiver or amendment to the facility
requirements, the credit facility would be in default and callable by Bank One.
In addition, due to cross-default provisions in Harken's 5% European Note
agreement and 5% Convertible Notes Due 2002 (the "Benz Convertible Notes"), a
majority of Harken's debt obligations would become due in full if
18
any debt is in default. The classification of Harken's long-term debt
obligations at March 31, 2002 reflects Harken's expectations that future
operating results will result in Harken and the Borrowers being in compliance
with the bank financial covenant ratios and requirements in future quarters.
However, expectations of future operating results and continued compliance with
financial covenants cannot be assured and our lenders' actions are not
controllable by Harken. If Harken's projections of future operating results are
not achieved and its debt is placed in default, Harken would experience a
material adverse impact on its financial position and results of operations.
Accounting for derivatives - Harken holds commodity derivative financial
instruments designed to mitigate commodity price risk associated with a portion
of its future monthly natural gas production and related cash flows. These
commodity derivatives qualify for hedge accounting as discussed in Note 8 -
Hedging Activities in the Notes to Consolidated Condensed Financial Statements.
Harken does not participate in speculative derivatives trading. Hedge accounting
requires that commodity derivative instruments be designated as hedges and that
fluctuations in their market value are effective in mitigating the hedged
commodity price risk, and that such effectiveness be documented and monitored.
While Harken intends to continue to meet the conditions to qualify for hedge
accounting, if hedges are not highly effective, or if the forecasted hedged
production does not occur, the changes in the fair value of the commodity
derivative instruments would be reflected in earnings. During the first quarter
of 2002, the average percentage of Harken's natural gas production hedged was
approximately 30%.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Harken's earnings and balance sheet
during the periods included in the accompanying consolidated financial
statements.
Three Months Ended
March 31,
-------------------------------
2001 2002
----------- -------------
(unaudited)
Operating Revenues
------------------
Domestic Exploration and Production Operations
----------------------------------------------
Gas sales revenues $ 5,552,000 $ 2,467,000
Gas volumes in mcf 969,000 975,000
Gas price per mcf $ 5.73 $ 2.53
Oil sales revenues $ 1,456,000 $ 1,321,000
Oil volumes in barrels 54,000 65,000
Oil price per barrel $ 26.96 $ 20.32
Colombian Exploration and Production Operations
-----------------------------------------------
Oil sales revenues $ 1,907,000 $ 1,638,000
Oil volumes in barrels 94,000 131,000
Oil price per barrel $ 20.29 $ 12.50
Other Revenues
--------------
Interest income $ 245,000 $ 33,000
Other income $ 32,000 $ 33,000
19
For the quarter ended March 31, 2002 compared with the corresponding prior
period.
North American Operations
Domestic gross oil and gas revenues during the first quarter of 2002 relate
to the operations in the onshore and offshore areas of the Texas and Louisiana
Gulf Coast and the Western and Panhandle regions of Texas. During 2001, certain
wholly-owned subsidiaries of Harken sold certain interests in oil and gas
producing properties located in Texas, Arkansas, Louisiana and New Mexico for
approximately $13.1 million cash. In February 2002, another wholly owned
subsidiary of Harken sold interests in oil and gas producing properties located
in Texas for approximately $910,000. Subsequent to March 31, 2002, Harken sold
additional producing property interests for approximately $214,000.
Domestic gas revenues decreased 56% to $2,467,000 for the three months
ended March 31, 2002 compared to $5,552,000 for the prior year period due to the
decrease in average gas prices received during the first quarter of 2002, as
Harken received an overall average price of $2.53 per mcf of gas during the
first quarter of 2002 compared to $5.73 per mcf received during the first
quarter of 2001. Such decreases in natural gas prices offset a slight increase
in gas production volumes compared to the prior year period, as the production
during the quarter from wells drilled and / or completed during 2001 offset the
decrease in production caused by the sales of producing properties discussed
above.
Domestic oil revenues decreased 9% to $1,321,000 during the first quarter
of 2002 compared to $1,456,000 during the first quarter of 2001 primarily due to
reduced oil prices, which averaged $20.32 during the current year quarter
compared to $26.96 during the prior year. Despite the sales of producing
properties discussed above, Harken's domestic oil production volumes increased
during the quarter compared to the prior year period, as Harken's Gulf Coast oil
production was reduced by temporary operational curtailments during the first
quarter of 2001 at Harken's Main Pass area offshore Louisiana. Overall, domestic
oil production volumes increased 20% during the first quarter of 2002 compared
to the prior year period.
Domestic oil and gas operating expenses consist of lease operating expenses
and a number of production and reserve based taxes. Domestic oil and gas
operating expenses decreased 24% to $1,885,000 during the first quarter of 2001
compared to $2,491,000 during the prior year period primarily due to the above
mentioned sale of properties. Oil and gas operating expenses increased, however,
as a percentage of related oil and gas revenues due primarily to the decrease in
oil and gas prices during the first quarter of 2002 compared to the prior year
period. Oil and gas operating expenses decreased per unit of production due to
the replacement of sold producing fields with newly completed gas production.
Harken expects that oil and gas production volumes generated as a result of
drilling activities in late 2001 and continuing workover activities together
with the acquisition of the Republic Properties discussed above will continue to
help to mitigate the production decreases as a result of the sales of producing
properties discussed above. Harken's oil and gas production volumes are expected
to increase beginning in April 2002 from the Republic Properties, but could
decrease if Harken sells additional producing properties. Harken continues to
pursue opportunities to acquire additional producing properties, which would
also further increase domestic production. Through May 14, 2002, average second
quarter oil and gas prices have remained lower than prices received in the prior
year period. Harken's oil and gas revenues are highly dependent upon product
prices, which Harken is unable to predict.
20
Middle American Operations
Harken's Colombian oil revenues have decreased 14% from $1,907,000 during
the first quarter of 2001 to $1,638,000 during the first quarter of 2002. During
the first quarter of 2001 and 2002, Harken's Colombian operating revenues
consisted of production from Global's Bolivar and Alcaravan Association Contract
areas.
During the first quarter of 2001, sales of production from Global's Estero
#1 well on the Alcaravan Contract area were limited to approximately 1,000 gross
barrels of oil per day due to pipeline constraints and pumping capacity. During
the second quarter of 2001, Global took steps to resolve such limitations and,
though it is currently producing 1,500 gross barrels of oil per day, is now
allowed to transport up to approximately 3,000 gross barrels of oil per day from
both Estero #1 and Estero #2 wells. Estero #2 was completed during the first
quarter of 2001, and has mitigated the production declines related to Global's
Bolivar Contract area production, as the Bolivar Contract production has been
temporarily shut-in during the first quarter of 2002, pending recently completed
workover procedures. Harken's production volumes during the remainder of 2002
will continue to remain dependent on existing well production and pumping
efficiency.
Middle American operating expenses have decreased from $763,000 during the
first quarter of 2001 to $435,000 for the first quarter of 2002, as Global has
taken steps to reduce operating expenses related to its producing fields in
Colombia
Interest and Other Income
Interest and other income decreased during the first quarter of 2002
compared to the prior year period due to Harken's usage of cash during 2001 for
capital expenditures. Harken generated approximately $245,000 of interest income
during the first quarter of 2001, compared to approximately $33,000 of interest
income during the first quarter of 2002. Additional decreases in Harken's cash
balances could be mitigated or offset by additional capital sources.
Other Costs and Expenses
General and administrative expenses decreased during the first quarter of
2002 compared to the first quarter of 2001 despite certain one time employee
severance costs during the quarter related to staff reductions. Harken has taken
additional steps to further reduce personnel costs through personnel reductions,
salary reductions and other methods and to achieve other administrative cost
reductions beginning in the second quarter of 2002.
Depreciation and amortization expense increased slightly during the first
quarter of 2002 compared to the prior year period primarily due to increased
production volumes during the quarter. Depreciation and amortization on oil and
gas properties is calculated on a unit of production basis in accordance with
the full cost method of accounting for oil and gas properties.
Interest expense and other decreased during the first quarter of 2002
compared to the prior year period primarily due to the decrease in the amount of
outstanding 5% European Notes from early 2001. In addition, during the first
quarter of 2001, Harken expensed the remaining unamortized issuance costs
related to the IFC project loan finance facility, which was terminated in May
2001.
21
LIQUIDITY AND CAPITAL RESOURCES
Harken's working capital at March 31, 2002 was approximately $4.2 million,
compared to approximately $3.4 million at December 31, 2001. Harken's operations
used approximately $1.9 million of cash flow during the first quarter of 2002,
primarily due to the timing of certain working capital payments and collections
during the quarter. Harken's cash resources at March 31, 2002 totaled
approximately $6.3 million.
Harken's Middle American operations are conducted through Global Energy
Development PLC ("Global", a United Kingdom company listed on the AIM Exchange
in London). Effective March 25, 2002, Harken's ownership in Global decreased to
92.77%, as Global placed 7.23% (2,085,282 shares) of its stock in a placement to
investors, of which less than 1% (166,198 shares) of Global was purchased at the
offering price by certain officers, directors and employees of Harken and Global
and a family member in exchange for approximately $1,425,000 cash. Global is
seeking additional financing and acquisition activities using its shares of its
newly listed common stock. In addition, the sale, by Harken, of additional
shares of Global common stock which would reduce Harken's ownership to 90% was
previously approved by Harken's Board of Directors.
Capital Sources
During 2001, sales of certain domestic producing property interests
generated cash proceeds of approximately $13.1 million. In February 2002, Harken
sold certain additional domestic producing property interests for approximately
$910,000. Subsequent to March 31, 2002, Harken sold additional producing
property interests for approximately $214,000. Harken is currently considering
additional sales of producing properties that could generate additional cash
proceeds.
Harken's operating cash flows from its domestic oil and gas properties are
being strengthened by successful drilling activity in late 2001 in southern
Louisiana, which have begun to partially offset the reductions following the
sales of producing properties consummated in late 2000 and during the first half
of 2001. Recently completed wells, including the Thomas Cenac #1, the State
Lease 1480 #2, the State Lease 14589 #3 and the State Lease 1480 #3, all began
production in the last four months of 2001. In April 2002, a wholly-owned
subsidiary of Harken acquired the Republic Properties from Republic Resources,
Inc. The Republic Properties consist of 15 producing property interests located
in southern Louisiana and the Texas Gulf Coast region. The Republic Properties
were acquired by the Harken subsidiary in exchange for 2,645,500 shares of
Harken common stock. In addition, the Purchase and Sale Agreement also provides
for contingent additional consideration of cash or additional shares of Harken
common stock to be paid within 45 days after December 31, 2003, based on a
defined calculation to measure the appreciation, if any, of the reserve value of
the Republic Properties. The acquisition of the Republic Properties will
supplement Harken's domestic operating cash flows beginning in the second
quarter of 2002. Harken's domestic operating cash flows are particularly
dependent on the price of natural gas, which Harken is unable to predict.
Certain Harken subsidiaries entered into a three-year loan facility with
Bank One, N.A. ("Bank One"), which is secured by substantially all of those
subsidiaries' domestic oil and gas properties and a guarantee from Harken. The
Bank One facility provides borrowings subject to a borrowing base (as defined by
the Bank One facility), which was $7,937,000 as of March 31, 2002 and as of May
10, 2002. Such borrowing base, which is net of outstanding letters of credit,
will be reduced by $225,000 per month beginning
22
September 1, 2002 until the borrowing base is redetermined by Bank One. Such
borrowing base is scheduled to be re-determined by Bank One on May 1 and
November 1 of each year in accordance with the facility agreement. The Bank One
facility requires the Borrowers, as well as Harken, to maintain certain
financial covenant ratios and requirements.Bank One's commitments under the
facility terminate in August 2003.
As described above, approval of the March 2002 application by Global
for its common shares to trade on the AIM Exchange in London enables Harken,
through Global, to seek additional financing and acquisition activities using
shares of Global PLC common stock. Global PLC's ability to effectively use its
common stock will be dependent upon the market value of its shares on the AIM
Exchange. Global is also pursuing raising additional capital through potential
sales of assets. Additional capital raised by Global would be used exclusively
for Global's capital needs, as transfers to Harken would be limited or
restricted. Harken had previously received authorization from its Board of
Directors to sell Global shares held by Harken up to an amount which would
reduce Harken's ownership in Global to 90%. Global's operating cash flows
continue to be provided by ongoing production from its Alcaravan and Bolivar
Contract areas in Colombia.
In addition to the above sources, Harken has and may continue to raise
capital through the issuance of equity and convertible debt instruments, or
through the exchange of existing instruments through transactions that provide
Harken with additional capital.
Capital Commitments
In light of recent reduced oil and gas prices, Harken's domestic
operating strategy now includes efforts to increase its oil and gas reserves in
North America through acquisitions, with a decreased emphasis on exploration and
development drilling activities. Accordingly, Harken's domestic capital
expenditure plans have been greatly reduced compared to the prior two year
period. Certain of Harken's domestic prospects may be drilled through joint
venture arrangements, which Harken is currently pursuing in order to reduce its
capital commitment, while maintaining its exposure to the reserve potential.
Harken is actively pursuing various North American acquisition opportunities.
Harken has focused its operating strategy to acquire, explore, and produce oil
and gas properties located in the Gulf Coast region of Texas and Louisiana.
Harken's primary need for capital is to fund these planned domestic exploration
and development efforts. Harken anticipates domestic capital expenditures will
total approximately $1.5 million during 2002. A majority of Harken's planned
domestic capital expenditures 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 exploration and development projects.
5% European Convertible Notes Commitments - On May 26, 1998, Harken
issued a total of $85 million of 5% Senior Convertible Notes (the "5% European
Notes") which mature on May 26, 2003. During the second quarter of 2001, Harken
issued 325,150 shares of Series G1 Preferred stock in exchange for 5% European
Notes in the face amount of $9.0 million. In addition, in July 2001, Harken
issued 95,800 shares of Series G2 Preferred stock in exchange for 5% European
Notes in the face amount of approximately $9.6 million. Including these most
recent exchanges, since issuance and as of May 14, 2002, Harken has retired 5%
European Notes totaling approximately $44 million. Harken continues to consider
additional transactions with the 5% European Note holders whereby Harken may
retire additional Notes in exchange for shares of Harken common stock, cash,
convertible securities or other consideration. As of May 14, 2002, the remaining
principal balance of 5% European Notes was approximately $41.0 million. Interest
incurred on these notes is payable semi-annually in May and November of each
year to maturity or until the 5% European Notes are redeemed, converted or
purchased by Harken prior to their maturity.
23
The 5% European Notes may be redeemed for cash, at Harken's option, at
par, in whole or in part, at any time after May 26, 2002, upon not less than 30
days notice to the holders. In addition, beginning November 26, 2002, Harken may
redeem up to 50% of the 5% European Notes in exchange for shares of Harken
common stock at a defined conversion price based on an average market price of
Harken common stock. At maturity, on May 26,
2003, Harken may similarly redeem all remaining outstanding 5% European Notes
for shares of Harken common stock. If Harken elects to redeem the 5% European
Notes for shares of its common stock, each note will be redeemed for a number of
shares of Harken common stock equal to 115% of the principal amount 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 30
calendar days immediately preceding the date of the notice of redemption. The 5%
European Notes are listed on the Luxembourg Stock Exchange. Harken continues to
consider additional transactions with the 5% European Note holders whereby
Harken may retire additional 5% European Notes in exchange for shares of Harken
common stock, cash, convertible securities or other consideration.
Benz Convertible Notes Commitments - On December 30, 1999, Harken
issued $12 million principal amount of Benz Convertible Notes in exchange for
certain prospects acquired from Benz Energy, Incorporated ("Benz"). The Benz
Convertible Notes originally were to mature on May 26, 2003. In March 2000, the
maturity date of certain of the Benz Convertible Notes was extended to November
26, 2003. As of May 14, 2002, Harken has repurchased or redeemed approximately
$1.1 million principal amount of the Benz Convertible Notes for cash and/or
Harken common stock. As of May 14, 2002, the outstanding principal balance of
Benz Convertible Notes was approximately $10.9 million and had a maturity date
of November 26, 2003.
The Benz Convertible Notes bear interest at 5% per annum, payable
semi-annually in May and November of each year until maturity or until the Benz
Convertible Notes are redeemed, converted or purchased by Harken prior to their
maturity. The Benz Convertible Notes may be redeemed for cash, or shares of
Harken common stock, at Harken's option, at par, in whole or in part, at any
time after May 26, 2002, upon not less than 30 days notice to the holders. In
addition, beginning November 26, 2002, Harken may redeem up to 50% of the Benz
Convertible Notes then outstanding in exchange for shares of Harken common
stock. At maturity on November 26, 2003, Harken may similarly redeem all
remaining outstanding Benz Convertible Notes for shares of Harken common stock.
If Harken elects to redeem the Benz Convertible Notes for shares of its common
stock, beginning November 26, 2002, each note will be redeemed for a number of
shares of Harken common stock equal to 115% of the principal amount of the note
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 30
calendar days immediately preceding the date of the notice of redemption.
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.
24
Harken has accrued approximately $6,888,000 at March 31, 2002 relating
to operational or regulatory contingencies related to Harken's domestic
operations. Approximately $4,400,000 of this accrued amount relates to total
future abandonment costs of $7,550,000 of certain of Harken's producing
properties, which will be incurred at the end of the properties' productive
life. Approximately $900,000 of the total operational or regulatory liabilities
are expected to be paid during 2002 and are included in current liabilities.
Harken and its subsidiaries currently are involved in various lawsuits and other
contingencies, which in management's opinion, will not result in a material
adverse effect upon Harken's financial condition or operations taken as a whole.
International Commitments - Terms of certain of the Association
Contracts entered into between Global's subsidiary Harken de Colombia, Ltd. and
Ecopetrol commit Global to perform certain activities in Colombia in accordance
with a prescribed timetable. In addition, Global has certain scheduled capital
expenditure commitments related to its TEA Agreements in Peru and Panama.
Failure by Global to perform these activities as required could result in Global
losing its rights under the particular contract, which could potentially have a
material adverse effect on Harken's business. As of May 14, 2002, Global was in
compliance with the requirements of each of the Association and TEA Contracts,
as amended. In light of political and regulatory developments in Costa Rica,
Global is projecting no capital expenditure plans during 2002 with regard to the
Costa Rica Contract.
Consolidated Contractual Obligations - The following table presents a
summary of Harken's contractual obligations and commercial commitments as of
March 31, 2002. Harken has no off-balance sheet obligations other than in the
table set forth below.
Payments Due by Period
-------------------------------------------------------------------------------------------
Contractual Obligations 2002 2003 2004 2005 2006-2007 Thereafter Total
----------------------- ---- ---- ---- ---- --------- ---------- -----
Bank Credit Facility/(1)/ $ 450,000 $ 7,450,000 $ -- $ -- $ -- $ -- $ 7,900,000
Operating Leases/(2)/ 744,000 720,000 688,000 689,000 574,000 -- 3,415,000
International Commitments/(3)/ -- 2,500,000 -- -- -- -- 2,500,000
Domestic Commitments -- -- -- -- -- -- --
Convertible Notes Payable/(4)/ -- 51,855,000 -- -- -- -- 51,855,000
---------- ----------- ----------- ---------- --------- ---------- ------------
Total Contractual Cash
Obligations $1,194,000 $62,525,000 $688,000 $689,000 $574,000 $ -- $ 66,670,000
========== =========== ======== ======== ======== ========== ============
(1) Does not reflect impact of plans to modify or extend existing facility
through refinancing.
(2) Amount net of sublease arrangements in effect at March 31, 2002.
(3) Represents the estimated cost of completion of a well in Colombia
required to be drilled by Harken under Harken's Cajaro Association Contract
with Ecopetrol.
(4) Represents the outstanding principal obligations owing under the 5%
European Notes and the Benz Convertible Notes as of March 31, 2002. These
obligations are payable or redeemable for cash or with shares of Harken
common stock (See Part I, Item 1, Notes to Consolidated Condensed Financial
Statements, "Note 6 - Convertible Notes Payable" for further discussion).
In addition to the above commitments, Harken anticipates that its
discretionary domestic and international capital expenditures will total
approximately $1.5 million each during 2002. After 2002, government authorities
under Harken's Louisiana state leases and operators under Harken's other
domestic operations 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
25
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 2002 and afterward 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.
Adequacy of Capital Sources
Considering Harken's existing cash resources and the potential
additional capital sources discussed above, Harken believes that it will have
sufficient cash resources to fund all of its planned capital obligations during
2002. In 2003, Harken's most significant capital commitment is satisfying its
remaining obligations under the 5% European Notes, the Bank One credit facility
and the Benz Convertible Notes, which mature in May 2003, August 2003 and
November 2003, respectively. In order to fulfill the obligations under these
notes, Harken may: (i) repurchase these notes from their holders for cash,
securities (such as Harken common stock or other convertible debt) and/or other
property, (ii) redeem these notes by issuing Harken common stock on or before
maturity and/or (ii) raise additional capital to redeem these notes for cash.
The redemption of these notes by issuing common stock could result in
substantial dilution of the existing Harken common stock and could require
stockholder approval to complete. In addition, the number of new shares to be
issued could result in a change of control of Harken. No assurance can be given
that Harken will be successful in any redemption or repurchase of the 5%
European Notes and the Benz Convertible Notes.
In addition, if Harken's stock price were to decline significantly,
Harken's ability to convert a substantial amount of the 5% European Notes and
Benz Convertible Notes into common stock could be limited by the number of
authorized but unissued shares of Harken common stock. If there were an
insufficient number of authorized shares of common stock to redeem all of the
then-outstanding 5% European Notes and Benz Convertible Notes, Harken would have
to obtain stockholder approval to increase its authorized common stock before it
could redeem all such 5% European Notes and Benz Convertible Notes into common
stock. Absent such stockholder approval, Harken would have to otherwise
restructure the then-outstanding 5% European Notes and Benz Convertible Notes,
or pay such 5% European Notes and Benz Convertible Notes at maturity. There can
be no assurance that, in such an event, Harken would be successful in
restructuring its obligations under the then-outstanding 5% European Notes and
Benz Convertible Notes, or would have available sufficient funds to pay such 5%
European Notes and Benz Convertible Notes, in cash, upon maturity. In addition,
due to cross-default provisions in Harken's 5% European Notes and the Benz
Convertible Note agreements, a majority of Harken's debt obligations would
become due in full if any debt is in default. If Harken's ability to convert a
substantial amount of the 5% European Notes and Benz Convertible Notes into
common stock is unsuccessful, Harken could experience a material adverse affect
on it financial position and results of operations.
Even if Harken is successful in its efforts to redeem or repurchase the
5% European Notes and the Benz Convertible Notes, Harken will still require
additional financing in 2003 to fund its operations. Further, Harken may not be
able to generate sufficient cash from operations to fund its ongoing exploration
and development efforts and fulfill its other capital commitments after 2003.
Consequently, Harken expects to fund these operational and capital commitments
in 2003 and afterward through a combination of cash on hand, cash flows from
operations, issuances or exchanges of debt or equity securities, or through cash
provided by either existing or newly established financing arrangements.
26
Harken intends to continue to seek to raise equity or debt financing
through the issuance of debt, equity and convertible debt instruments, or
through the exchange of existing instruments through transactions that provide
Harken with additional capital to fund the capital commitments described above.
Such transactions may be affected, however, by the market value of Harken common
stock. If the price of Harken common stock remains low or decreases, Harken's
ability to utilize its stock either directly or indirectly through convertible
instruments for raising capital could be negatively affected. Further, raising
additional funds by issuing common stock or other types of equity securities
would further dilute Harken's existing stockholders, which dilution could be
substantial if the price of Harken common stock remains low or decreases. No
assurance can be given that Harken will be able to obtain additional financing
on favorable terms, if at all, to meet its operational and capital commitments
described above.
27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
6a) EXHIBIT INDEX
Exhibit
3.1 Certificate of Incorporation of Harken Energy Corporation as
amended (filed as Exhibit 3.1 to Harken's Annual Report on
Form 10-K for fiscal year ended December 31, 1989, File No.
0-9207, and incorporated by reference herein).
3.2 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 28.8 to the
Registration Statement on Form S-1 of Tejas Power
Corporation, file No. 33-37141, filed with the SEC on
October 3, 1990 and incorporated by reference herein.)
3.3 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3 to Harken's Quarterly
Report on Form 10-Q for fiscal quarter ended March 31, 1991,
File No. 0-9207, and incorporated by reference herein.)
3.4 Amendments to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3 to Harken's Quarterly
Report on Form 10-Q for fiscal quarter ended June 30,1991,
File No. 0-9207, and incorporated by reference herein.)
3.5 Amendments to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3.5 to Harken's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, File No. 0-9207, and incorporated herein by
reference).
3.6 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3.6 to Harken's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 0-9207 and incorporated by reference herein).
3.7 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3.6 to Harken's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1998, File No. 0-9207, and incorporated by
reference herein).
3.8 Bylaws of Harken Energy Corporation, as amended (filed as
Exhibit 3.2 to Harken's Annual Report on Form 10-K for
fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
4.1 Form of certificate representing shares of Harken common
stock, par value $.01 per share (filed as Exhibit 1 to
Harken's Registration Statement on Form 8-A, File No.
0-9027, filed with the SEC on June 1, 1989 and incorporated
by reference herein.)
4.2 Certificate of Designations, Powers, Preferences and Rights
of Series A Cumulative Convertible Preferred Stock, $1.00
par value, of Harken Energy Corporation (filed as Exhibit
4.1 to Harken's Annual Report on Form 10-K for the fiscal
year ended December 31,1989, File No. 0-9207, and
incorporated by reference herein).
28
4.3 Certificate of Designations, Powers, Preferences and Rights
of Series B Cumulative Convertible Preferred Stock, $1.00
par value, of Harken Energy Corporation (filed as Exhibit
4.2 to Harken's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein.).
4.4 Certificate of the Designations, Powers, Preferences and
Rights of Series C Cumulative Convertible Preferred Stock,
$1.00 par value of Harken Energy Corporation (filed as
Exhibit 4.3 to Harken's Annual Report on Form 10-K for
fiscal year ended December 31,1989, File No. 0-9207, and
incorporated by reference herein).
4.5 Certificate of the Designations of Series D Preferred Stock,
$1.00 par value of Harken Energy Corporation (filed as
Exhibit 4.3 to Harken's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30,1995, File No. 0-9207,
and incorporated by reference herein).
4.6 Rights Agreement, dated as of April 6, 1999, by and between
Harken Energy Corporation and ChaseMellon Shareholder
Services L.LC., as Rights Agent (filed as Exhibit 4 to
Harken's Current Report on Form 8-K dated April 7, 1998,
File No. 0-9207, and incorporated by reference herein).
4.7 Certificate of Designations of Series E Junior Participating
Preferred Stock (filed as Exhibit B to Exhibit 4 to Harken's
Current Report on Form 8-K dated April 7, 1998, File No.
0-9207, and incorporated by reference herein).
4.8 Certificate of Designations, Preferences and Rights of
Series F Convertible Preferred Stock (filed as Exhibit 4.8
to Harken's Quarterly Report on Form 10-Q for the period
ended June 30, 1998, File No. 0-9207, and incorporated by
reference herein).
4.9 Certificate of Designations of Series G1 Convertible
Preferred Stock (filed as Exhibit 4.9 to Harken's Annual
Report on Form 10-K for fiscal year ended December 31, 2000,
File No. 0-9207, and incorporated by reference herein).
4.10 Certificate of Designations of Series G2 Convertible
Preferred Stock (filed as Exhibit 4.10 to Harken's Annual
Report on Form 10-K for fiscal year ended December 31, 2001,
File No. 0-9207, and incorporated by reference herein.
10.1 Seventh Amendment and Restatement of Harken's Amended Stock
Option Plan (filed as Exhibit 10.1 to Harken's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991,
File No. 0-9207, and incorporated by reference herein).
10.2 Amended and Restated Non-Qualified Incentive Stock Option
Plan of Harken adopted by Harken's stockholders on February
18, 1991 (filed as Exhibit 10.2 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, File
No. 0-9207, and incorporated by reference herein).
29
10.3 Form of Advancement Agreement dated September 13, 1990,
between Harken and each director of Harken (filed as Exhibit
10.38 to Harken's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein).
10.4 Harken Energy Corporation's 1993 Stock Option and Restricted
Stock Plan (filed as Exhibit 4.3 to Harken's Registration
Statement on Form S-8, filed with the SEC on September 23,
1993 and incorporated by reference herein).
10.5 First Amendment to Harken Energy Corporation's 1993 Stock
Option and Restricted Stock Plan (filed as an Exhibit 4.4 to
Harken's Registration Statement on Form S-8, filed with the
SEC on July 22, 1996 and incorporated by reference herein).
10.6 Harken Energy Corporation's Directors Stock Option Plan
(filed as Exhibit 4.3 to Harken's Registration Statement on
Form S-8, and incorporated herein by reference).
10.7 Association Contract (Bolivar) by and between Harken de
Colombia, Ltd. and Empresa Colombia de Petroleos (filed as
Exhibit 10.4 to Harken's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, and incorporated
herein by reference).
10.8 Harken Energy Corporation 1996 Incentive and Nonstatutory
Stock Option Plan (filed as Exhibit 10.1 to Harken's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996, and incorporated herein by reference).
10.9 Association Contract (Alcaravan) dated as of December 13,
1992, but effective as of February 13, 1993, by and between
Empresa Colombia de Petroleos (filed as Exhibit 10.1 to
Harken's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 0-9207, and incorporated
herein by reference).
10.10 Amendment No. 1 to Harken Energy Corporation 1996 Incentive
and Nonstatutory Stock Option Plan (filed as Exhibit 4.5 to
Harken's Registration Statement on Form S-8, filed with the
SEC on August 19, 1997 and incorporated by reference
herein).
10.11 Amendment No. 2 to Harken Energy Corporation 1996 Incentive
and Nonstatutory Stock Option Plan (filed as Exhibit 4.6 to
Harken's Registration Statement on Form S-8, filed with the
SEC on August 19, 1997 and incorporated by reference
herein).
10.12 Association Contract (Bocachico) dated as of January 1994,
but effective as of April 1994, by and between Empresa
Colombia de Petroleos (filed as Exhibit 10.1 to Harken's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1994, File No. 0-9207, and incorporated herein by
reference).
10.13 Trust Indenture dated May 26, 1998, by and between Harken
and Marine Midland Bank plc (filed as Exhibit 10.1 to
Harken's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998, File No. 0-9207, and
incorporated herein by reference).
30
10.14 Credit Agreement between Harken Exploration Company, XPLOR
Energy, Inc. Harken Energy West Texas, Inc., Harken
Southwest Corporation, South Coast Exploration Co., Xplor
Energy SPV-1, Inc., McCulloch Energy, Inc. and Bank One,
Texas, N.A. dated August 11, 2000 and as amended December
21, 2000 and December 31, 2000 (filed as Exhibit 10.12 to
Harken's Annual Report on Form 10-K for fiscal year ended
December 31, 2000, File No. 09207, and incorporated by
reference herein).
10.15 Third Amendment to Credit Agreement between Harken
Exploration Company, XPLOR Energy, Inc., Harken Energy West
Texas, Inc., South Coast Exploration Co., XPLOR Energy
SPV-1, Inc., McCulloch Energy, Inc., Harken Gulf Exploration
Company, and Bank One, N.A. dated May 11, 2001 (Filed as
Exhibit 10.13 to Harken's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001, File No. 0-9207, and
incorporated herein by reference).
10.16 Association Contract (Cajaro) dated as of December 2001, but
effective as of February 2002, by and between Harken de
Colombia, Ltd. and Empresa Colombia de Petroleos (filed as
Exhibit 10.14 to Harken's Annual Report on Form 10-K for
fiscal year ended December 31, 2001, File No. 09207, and
incorporated by reference herein).
10.17 Purchase and Sale Agreement dated January 31, 2002 between
Republic Resources, Inc. and Harken Energy Corporation
(filed as Exhibit 10.15 to Harken's Annual Report on Form
10-K for fiscal year ended December 31, 2001, File No.
09207, and incorporated by reference herein).
10.18 Letter from Arthur Andersen LLP pursuant to Item 304(a)(3)
of Regulation S-K (field as Exhibit 16.1 in Harken's current
report on Form 8-K, filed on September 5, 2001, File No.
0-9207, and incorporated by reference herein).
*10.19 Waiver and Fourth Amendment to Credit Agreement between
Harken Exploration Company, XPLOR Energy, Inc., Harken
Energy West Texas, Inc., XPLOR Energy SPV-1, Inc., Harken
Gulf Exploration Company, and Bank One, N.A. dated March 21,
2002.
**99.1 Certificate of the Chairman of the Board and Chief Executive
Officer of Harken Energy Corporation.
**99.2 Certificate of the Chief Financial Officer of Harken Energy
Corporation.
* Previously filed
** Filed herewith
(b) REPORTS ON FORM 8-K
None filed.
31
HARKEN ENERGY CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harken Energy Corporation
--------------------------------------
(Registrant)
Date: December 20, 2002 By: /s/ Anna M. Williams
------------------------- ------------------------------------
Executive Vice President-Finance and
Chief Financial Officer
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Mikel D. Faulkner, Chief Executive Officer of Harken Energy Corporation
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harken Energy
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
Date: December 20, 2002 By: /s/ Mikel D. Faulkner
--------------------------
Mikel D. Faulkner
Chief Executive Officer
32
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Anna M. Williams, Chief Financial Officer of Harken Energy Corporation,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harken Energy
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
Date: December 20, 2002 By: /s/ Anna M. Williams
-----------------------------
Anna M. Williams
Executive Vice President-Finance
and Chief Financial Officer
33