I took a little deeper look at this oil company HKN because it looked like one of the best ones that I dug up recently based on the fact they can make money and the balance sheet is so nice. They just bought back some stock which is interesting but not amazing to me. I figured I'm on to something good here because I saw that famous value investorWhitman's Third Avenue Fund had a small position as of September and some other value firms like River Road Asset Management, LLC with 8% of the stock.

Hurricane cut their earnings

"During the third quarter 2008, both Hurricane Gustav and Hurricane Ike (the “Hurricanes”) hit the Gulf Coast of Mexico effectively shutting in most oil & gas production in the Texas and Louisiana coastal area. Production from our operated oil and gas properties (Main Pass 35, Lake Raccourci and Point a la Hache) along with most of our non-operated properties was shut-in during late August and September and certain of our pre-storm production currently remains curtailed. We are continuing to repair damage to our operations that remain shut-in which include Lake Raccourci and our non-operated properties at Branville Bay. Restoration of remaining curtailed production is also dependent on resumption of downstream infrastructure and the availability of service and equipment contractors necessary for over-water transportation and repairs.

Our net loss for the third quarter of 2008 reflects both decreased revenue, due to the interruption of production, and non-capitalizable net repair costs related to the Hurricanes both totaling approximately $3.0 million. Total gross direct damage costs to repair and rebuild the damaged properties are estimated at approximately $3.0 million ($2.0 million net of partner’s share) but could be higher as actual repairs and restoration efforts are completed during the remainder of 2008. In connection with our oil and gas properties, we have property damage insurance, but not business interruption coverage. We expect our fourth quarter 2008 financial results to reflect the subsequent continued decline in oil and gas commodity pricing and the residual effects of curtailed production from certain of our operated and non-operated properties which remain shut-in after the Hurricanes." -from recent quarterly report

At 33% of net tangible assets I like the asset valuation with HKN. It looks like a good hedge to an oil short position or just a pure contrarian buy for a double or triple maybe in a year or so. How much they will earn is the big question and that's what is killing this cheap oil stock. I doubt I'll be buying it soon but I'd probably average down buying a third or so of the position on its way down. There is a lot more to consider and read though as far as their latest reports. Management seemed to have a good plan going forward from what I read.


full disclosure: no position