- Net production for the third quarter increased to an average of 11,185 barrels of oil equivalent per day (Boe/d), of which 77% was oil and natural gas liquids (NGLs), compared to 3,924 Boe/d for the same period of 2011.
Halcón Resources Corporation (NYSE:HK) announced its third quarter 2012 financial results and provided an updated outlook for 2013.
Net production for the third quarter increased to an average of 11,185 barrels of oil equivalent per day (Boe/d), of which 77% was oil and natural gas liquids (NGLs), compared to 3,924 Boe/d for the same period of 2011. The increase was primarily attributable to the acquisitions of GeoResources, Inc. ("GeoResources") and certain assets in East Texas ("East Texas Assets"), both of which closed in early August 2012. Production for the third quarter was adversely impacted by Hurricane Isaac.
Revenues for the three months ended September 30, 2012 increased to $73.1 million, compared to $24.2 million for the three months ended September 30, 2011, largely due to increased production volumes related to the GeoResources and East Texas Assets acquisitions. The Company realized 102% of the average NYMEX oil price, 41% of the average NYMEX oil price for NGLs and 120% of the average NYMEX natural gas price during the third quarter (including the effect of hedges).
Halcón reported a net loss for the quarter of $0.9 million, or $0.01 per diluted share, after adjusting for selected items (primarily related to the non-cash impact of derivatives and acquisition and merger transaction costs), compared to a net loss of $2.6 million, or $0.10 per diluted share in the comparable quarter of 2011 (see Selected Item Review and Reconciliation table for additional information). Before adjusting for selected items, the Company reported a net loss available to common stockholders of $20.2 million, or $0.11 per diluted share for the quarter.
After adjusting for selected items, cash flow from operations before changes in working capital (see Condensed Consolidated Statements of Cash Flows and Selected Item Review and Reconciliation table for additional information) was $29.2 million for the quarter, or $0.15 per diluted share, compared to $9.4 million, or $0.36 per diluted share for the same period of 2011. Halcón reported cash flow from operations before changes in working capital (see Condensed Consolidated Statements of Cash Flows for a reconciliation to net cash provided by operating activities), before adjusting for selected items, of $17.4 million, or $0.09 per diluted share for the three months ended September 30, 2012. Cash operating costs per unit (including lease operating expense, workover expense, taxes other than income and general and administrative expense), after adjusting for selected items, were $34.10 per barrel of oil equivalent (Boe), for the three months ended September 30, 2012, compared to $33.22 per Boe for the comparable period of 2011. Lease operating expense decreased 26% to $15.07 per Boe, versus $20.40 per Boe in the third quarter of 2011, mainly due to the lower cost structure, on a per Boe basis, associated with the newly acquired properties. Workover expense was $1.09 per Boe compared to $0.38 per Boe for the three months ended September 30, 2011. Taxes other than income were $4.31 per Boe during the quarter, compared to $3.85 per Boe in the same period of 2011. General and administrative expense increased to $13.63 per Boe, after adjusting for selected items, compared to $8.59 per Boe for the same period of 2011 (see Selected Operating Data table for additional information), primarily to support Halcón's expanding business base and increased corporate activities subsequent to the recapitalization of the Company in February 2012.
Floyd C. Wilson, Chairman and Chief Executive Officer, commented, "We have achieved our goal of building an oil company with a multi-year drilling inventory in several liquids-rich basins. Now we turn to exploitation. The drill bit is spinning to the right in all three of our core plays, plus a few others. We have the knowledge, people and capital necessary to execute on our growth initiatives."
Liquidity and Capital Spending
As of September 30, 2012, the Company had liquidity of $356.8 million, which consisted of $18.1 million in cash and $338.7 million of borrowing capacity available on its $1.5 billion senior revolving credit facility.
During the third quarter, Halcón spent $156.6 million on leasehold acquisitions, $85.7 million on drilling and completions and $31.9 million on infrastructure and other. In addition, the Company used cash of $875.6 million to fund the cash consideration for the GeoResources and East Texas Assets acquisitions.
Halcón recently announced that it has entered into a privately negotiated definitive agreement with Petro-Hunt, L.L.C. and an affiliated entity, to acquire producing and undeveloped oil and gas assets in the Williston Basin ("Williston Basin Assets") for an aggregate purchase price of $1.45 billion, prior to closing adjustments, consisting of $700 million in cash and $750 million in equity. The $750 million equity consideration will initially be issued as preferred stock that will automatically convert into the Company's common stock at $7.45 per share following an increase in Halcón's authorized common shares to accommodate conversion and obtaining certain regulatory approvals.
The Company closed $750 million aggregate principal amount of senior unsecured notes due 2021 (the "Notes") into escrow on November 6, 2012. The escrowed funds will be released upon closing of the Williston Basin Assets acquisition. Halcón intends to use the net proceeds from the Notes of approximately $726 million to fund the cash portion of the Williston Basin Assets acquisition and for general corporate purposes.
The borrowing base under Halcón's senior secured revolving credit facility will be increased to $850 million upon closing of the Williston Basin Assets acquisition.
Additionally, Halcón previously disclosed that it has entered into an agreement pursuant to which Canada Pension Plan Investment Board has agreed to purchase $300 million of the Company's common stock at $7.16 per share, subject to customary closing conditions and the successful closing of the Williston Basin Assets acquisition.
The Williston Basin acquisition is fully financed and is expected to close in mid-December 2012. On a pro forma basis to include the Williston Basin Assets acquisition and related financings (including legal, advisory and bank fees), Halcón's liquidity as of September 30, 2012 was approximately $984 million.
During the quarter, the Company averaged four operated rigs and spud six operated wells across Leon, Madison and Grimes Counties, Texas.
Halcón now has approximately 200,000 net acres leased or under contract in the Woodbine/Eagle Ford play. There are currently 15 horizontal wells producing, 6 wells being completed or waiting on completion and 6 wells being drilled. All six wells being completed or waiting on completion are expected to be online before the end of 2012. The Company expects to run five to six operated rigs in the play throughout 2013.
In an effort to lower drilling costs, Halcón has reduced the size of the intermediate hole in the wells it is drilling to 8.75 inches from 9.875 inches, eliminated intermediate casing in some areas and is utilizing pad drilling in all areas. The Company expects to experience cost savings of approximately $1.0 million per well when these drilling efficiencies are applied, which represents a decrease of approximately 15% on the estimated total drilling and completion cost per well.
Halcón averaged three operated rigs and spud seven wells on its operated acreage in Williams County, North Dakota and three wells on its operated acreage in Roosevelt County, Montana during the third quarter. In addition, the Company participated in 16 non-operated wells in Mountrail County, North Dakota and 6 non-operated wells in Dunn, McKenzie and Williams Counties, North Dakota during the quarter.
Halcón has completed nine wells (seven in Williams County, North Dakota and two in Roosevelt County, Montana) in its operated Bakken program since August 1, 2012. Four of the wells have been online for less than 30 days and the other five wells have an average 30 day rate of 347 Boe/d (91% oil). These five wells flowed up casing during the initial 30 day period and performed 11% better than the Company's 30 day type curve forecast. There are currently 33 wells producing, 1 well being completed, 5 wells waiting on completion and 3 wells being drilled on Halcón's operated acreage.
Upon completion of the Williston Basin Assets acquisition, the Company will own in excess of 135,000 net acres across the play with eight operated rigs drilling. Halcón has identified several opportunities for operational and infrastructure improvements on the newly acquired properties and intends to shift one or two rigs from the Williams County area to the higher interest and more prolific Fort Berthold area in the first quarter of 2013.
During the quarter, the Company focused on positioning itself for a continuous drilling program and prepared to spud its first two wells in the play. The Allam 1H in Venango County, Pennsylvania was spud on October 25, 2012 and the Phillips 1H in Mercer County, Pennsylvania was spud on October 31, 2012.
Halcón currently has approximately 130,000 net acres leased or under contract in the play. Plans are to add a third operated rig in early 2013 and a fourth operated rig later in 2013. The first three wells drilled in the play will be spread across the Company's acreage position and plans are to core and log each well. First production is planned for late in the first quarter of 2013 as a 60 day resting period after fracture stimulation will be implemented.
Tuscaloosa Marine Shale ("TMS")
Drilling has commenced on Halcón's 70,000 net acre position prospective for the TMS in Louisiana. The Company spud its first well, the Broadway 1H, in Rapides Parish, Louisiana, during the quarter. The 14,100 foot vertical section of the well has been drilled, cored and logged. Preliminary results are encouraging and Halcón is currently in the process of drilling a 5,000 to 7,000 foot lateral.
The Company intends to drill three horizontal wells across its acreage position and evaluate the results prior to implementing a development strategy.
The Kollatschny 1 (95% working interest, 78% net revenue interest), located in Austin County, Texas, was completed in the Midway formation and had an initial gross production rate of approximately 595 Boe/d, or 95 barrels of 52 degree API gravity oil and 3 MMcf of 1,100 BTU natural gas, on a 15/64 choke. The vertical well was fracture stimulated over four stages in the Midway sands after original completion operations in the Navarro sands yielded dry gas. The Company is currently in the process of testing its second well, the Hillboldt 1.
Halcón averaged two rigs and spud six operated wells in Fayette and Gonzales Counties, Texas during the three months ended September 30, 2012.
Since August 2012, the Company has completed eight wells that have averaged 545 Boe/d (93% oil) during the first 30 days of production, which represents a 47% improvement when compared to the first three wells completed on this acreage position. There are currently 20 wells producing, 3 wells waiting on completion and 2 wells being drilled in this play.
Due to a non-compete agreement, Halcón plans to divest its 24,000 net acre Eagle Ford position. The marketing process is underway.
In anticipation of the completion of the Williston Basin Assets acquisition in mid-December 2012, Halcón has reiterated previously disclosed production guidance for the fourth quarter of 2012 and updated its guidance for 2013 as follows:
| || || Full Year |
| || 4Q12E || 2013E |
| Production (Boe/d) || || |
| Low || 17,000 || 40,000 |
| High || 20,000 || 45,000 |
| % Oil || || 80% |
| % NGLs || || 5% |
| % Gas || || 15% |
| Operating Costs and Expenses ($/Boe) || || |
| Lease Operating || || |
| Low || || $6.00 |
| High || || $8.00 |
| Production Taxes || || |
| Low || || $5.00 |
| High || || $6.00 |
| Cash G&A || || |
| Low || || $4.00 |
| High || || $6.00 |
| || || |
| Drilling & Completion Capex - Excluding A&D ($ in billions) (1) || $1.2 |
| || || |
| (1) Includes approximately $100 million directed towards the Eagle Ford assets that are currently being marketed for sale; Excludes discretionary capital related to leasehold acquisitions, infrastructure and other; Company expects to setup a separate credit line for infrastructure capital during 2013. |
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