Note 3 - HKN Bakken, Inc.

3 Months Ended

Mar. 31, 2013

Subsidiary Disclosure Gerrity Oil Joint Venture [Text Block]

(3)           HKN BAKKEN, INC.

In July 2012, we obtained a 50% interest in Gerrity Oil, a legal entity which held non-operated working interests in properties strategically located in the Bakken and Niobrara shale oil plays. In January 2013, we made the decision to dissolve the joint venture and obtain a direct ownership interest in our 50% portion of the Gerrity Oil assets and properties under the newly formed HBI entity. We invested in this entity because we believe it presents significant near-term growth potential and aligns well with our long term investment goals.

Prior to its dissolution, we accounted for Gerrity Oil under proportionate consolidation rules pursuant to which our 50% portion of the assets, liabilities and results of operations of Gerrity Oil were included in our consolidated condensed financial statements.  Effective January 1, 2013, we began consolidating 100% of HBI. Due to the fact that we followed the proportionate consolidation rules for Gerrity and our ownership interests in the underlying assets have not changed, these events did not affect our consolidated condensed balance sheets or statements of operations.

The following table presents the recognized amounts of identifiable assets acquired and liabilities assumed as of the formation date (in thousands).

Cash and cash equivalents	$	2,000
Accounts receivable, net		55
Oil and gas property		1,606
Other assets		448
Trade payables		(102	)
Asset retirement obligation		(7	)
Total identifiable net assets	$	4,000

As of the date of this quarterly report on form 10-Q, amounts related to HBI oil and gas properties and accounts receivable have not been finalized as we continue to receive joint interest billings and revenue for production periods prior to our ownership. We are also currently in the process of obtaining a third party valuation of these properties to aid in the finalization of this purchase price allocation.

Assuming our 50% portion of Gerrity Oil was acquired on January 1, 2012, proforma revenues and earnings for the three months ended March 31, 2012 would not be material to our financial statements.