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Note 2 - INVESTMENT IN BRITEWATER INTERNATIONAL, LLC
6 Months Ended
Jun. 30, 2011
Noncontrolling Interest Disclosure [Text Block]
(2)           INVESTMENT IN BRITEWATER INTERNATIONAL, LLC

We hold an interest in BWI, a company with a patented oilfield emulsion breaking “OHSOL” technology. Pursuant to the terms of our investment, HKN and the other BWI unit-holders granted to one another put and call options which are exercisable if certain conditions are satisfied prior to June 2012. At December 31, 2010, we held 57,299 units (52.09%) of BWI, and 16,477 restricted shares of our common stock were issuable in exchange for 762 units of BWI.  BWI's results of operations for the three and six months ended June 30, 2011 are consolidated in our results of operations.

In June 2011, HKN and Quadrant Management (“Quadrant”), a related party, entered into a Securities Exchange Agreement pursuant to which HKN agreed to purchase all of the outstanding shares of BWI over a period of several months. During June 2011, HKN purchased an additional 46.08% of the outstanding units of BWI in exchange for the issuance of 1,245,373 restricted shares of our common stock. We expect to exchange an additional 40,850 restricted shares of our common stock for the remaining 2,013 units (1.83%) of BWI during the third quarter 2011. Upon the purchase of these remaining shares, the remaining Put Option will expire. As of June 30, 2011, we own 98.17% of BWI and have the ability to direct their operations.

BWI Results of Operations – For the three and six months ended June 30, 2011, we recognized losses of $502 thousand and $789 thousand, respectively, related to our investment in BWI in our consolidated condensed statement of operations, of which $202 thousand and $319 thousand, respectively, were related to noncontrolling interests.

BWI Contingency – In 2009, BWI recorded a contingent liability of $800 thousand which may be payable upon the conclusion of certain performance events related to BWI’s equipment. There were no changes to the BWI liability recorded during the six months ended June 30, 2011.

BWI Put/Call Option - As a result of the rights offering completed by BWI in December 2010 and the resulting dilution of the ownership, the restricted shares to be issued under the remaining put option were adjusted from 181 thousand to 16 thousand. The put option remains exercisable, and 762 units of BWI may be exchanged for 16 thousand shares of our common stock.