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.