Halcón Resources Corp. (NYSE: HK) released its full year 2012 financial results and provided an operational update.
Full Year 2012 Financial Results
Revenues for the full year 2012 were $247.9 million, compared to $103.7 million for the full year 2011. The increases were primarily attributable to incremental production volumes related to the acquisitions of GeoResources Inc., certain producing and undeveloped assets in East Texas and two entities owning certain producing and undeveloped assets in the Williston Basin.
Production for the full year ended December 31, 2012 increased by 128% to 9,404 barrels of oil equivalent per day, compared to the same periods of 2011. Fourth quarter 2012 production was comprised of 75% oil, 6% NGLs and 19% natural gas. The company divested 500 barrels of oil equivalent per day of certain conventional assets in South Louisiana in November 2012, which impacted quarterly production by 150 barrels of oil equivalent per day. In addition, due to gas infrastructure constraints, 6 million cubic feet per day of net gas production (primarily related to the recently acquired Williston Basin Assets) is currently being flared. The gas flaring impacted production in 4Q 2012 by 300 barrels of oil equivalent per day.
After adjusting for selected items primarily related to the non-cash impact of derivatives and acquisition and merger transaction costs, Halcón reported net income of US $10.5 million, or US $0.02 per diluted share, and a net loss of US $4 million, or US $0.03 per diluted share, for the three months and full year ended Dec. 31, respectively. Before adjusting for selected items, the company reported a net loss available to common stockholders of US $8 million, or US $0.04 per diluted share for the quarter and US $142.3 million, or US $0.91 per diluted share for the year.
The company recently closed an additional US $600 million in aggregate principal amount of its 8.875% senior unsecured notes due 2021 in a private offering at an issue price of 105% of par, which yielded net proceeds to Halcón of US $619.5 million. A portion of the proceeds were used to repay outstanding indebtedness under the company's senior secured revolving credit facility.
As of Dec. 31, and pro forma for the January 2013 notes offering, Halcón had liquidity of US $1.2 billion, which consisted of US $324 million in cash and US $850 million of borrowing capacity available on its US $1.5 billion senior secured revolving credit facility.
The company's estimated proved reserves as of Dec. 31 were 108.8 million barrels of oil equivalent, which represents an increase of 417% over the prior year. Year-end 2012 estimated proved reserves were 80% oil, 5% NGLs and 15% natural gas on an equivalent basis.
Halcón currently has 15 operated rigs running and expects to add several operated rigs by year-end 2013.
The company currently has working interests in 130,000 net acres prospective for the Bakken and Three Forks formations in the Williston Basin. Halcón plans to operate six to eight rigs and spud 65 to 75 gross operated wells with an average working interest of 63% in 2013. The company also expects to participate in 90 to 100 gross non-operated wells in 2013 with an average working interest of 10% to 12%. Halcón is focused on the higher internal rate of return areas and anticipates spending US $475 million on drilling and completions in the Williston Basin in 2013.
Pro forma for the Williston Basin Assets acquisition that closed on Dec. 6, 31 wells have been put online in the play since Oct. 1, (17 wells in the Fort Berthold area, two wells in the Marmon area, 10 wells in the New Home II area and two wells in East Montana).
Of the 17 wells put online in the Fort Berthold area, 8 of them were Bakken completions and nine of them were Three Forks completions. The average initial and 30 day rates for the applicable Bakken wells were 1,544 barrels of oil equivalent per day (83% oil) and 780 barrels of oil equivalent per day (84% oil), respectively. These eight Bakken wells have an average effective lateral length of 10,020 feet and were completed with an average of 26 frac stages. Similarly, the average initial and 30 day rates for the applicable Three Forks wells were 1,472 barrels of oil equivalent per day (84% oil) and 823 barrels of oil equivalent per day (82% oil), respectively. These nine Three Forks wells have an average effective lateral length of 9,987 feet and were completed with an average of 25 frac stages.
One Bakken well and one Three Forks well was put online in the Marmon area. The initial and 30 day rates for the Bakken well were 836 barrels of oil equivalent per day (91% oil) and 505 oil equivalent per day (96% oil), respectively. This Bakken well had an effective lateral length of 10,023 feet and was completed with 25 frac stages. The initial and 30 day rates for the Three Forks well were 531 barrels of oil equivalent per day (100% oil) and 245 barrels of oil equivalent per day (90% oil), respectively. This Three Forks well had an effective lateral length of 9,872 feet and was completed with 25 frac stages.
All ten wells put online in the New Home II area were Bakken completions. The average initial and 30 day rates for the applicable wells were 646 barrels of oil equivalent per day(90% oil) and 282 barrels of oil equivalent (88% oil), respectively. These Bakken wells have an average effective lateral length of 9,742 feet and were completed with an average of 30 frac stages.
The company does not plan to drill any wells in Eastern Montana in 2013, but the average initial and 30 day rates for the applicable Bakken wells in Eastern Montana put online since Oct. 1 were 408 barrels of oil equivalent per day (88% oil) and 193 barrels of oil equivalent per day (79% oil), respectively.
There are currently 95 Bakken wells producing, six Bakken wells being completed or waiting on completion and five Bakken wells being drilled on Halcón's operated acreage. Similarly, there are currently 28 Three Forks wells producing, two Three Forks wells being completed or waiting on completion and three Three Forks wells being drilled on the company's operated acreage.
Halcón is in the process of optimizing all of its Williston Basin activities. Numerous drilling and completion modifications intended to improve economics are being implemented and should begin to yield benefits in 2Q 2013. Specifically, on the drilling side, the company has begun full scale pad drilling and plans to preset surface casing, implement batch drilling on intermediate and production intervals, modify motor/bit configurations in curves and laterals, utilize a combination of geosteering tools/practices and mudlogging and incorporate new high efficiency skid capable AC rigs.
On the completion side, Halcón expects to utilize core and log analysis in all areas to develop a petrophysical model, geomechanics and integrated reservoir simulation to design and optimize its completion techniques. Increasing proppant per stage to 120,000 pounds from 100,000 pounds, changing the fluid design to 28 pound from 35 pound XL gels, increasing stage density to 30 from 25, eliminating blast joints in favor of swell packers for positive isolation, conducting perf and plug completion projects in the Fort Berthold and Marmon areas and incorporating frac strings for improved safety and flow back operations are examples of other measures being taken to increase recoveries.
The company currently has 235,000 net acres leased or under contract across East Texas that are prospective for the Woodbine, Eagle Ford and other formations. Expectations are to spud 75 to 85 gross operated wells in 2013 with an average working interest of 90%. Halcón plans to operate five to seven rigs in the play throughout the year and anticipates spending US $490 million on drilling and completions. Efforts will be focused on developing acreage in Leon, N. Madison and Brazos counties in 2013. However, a 330 square mile 3D seismic survey is underway and covers the more exploratory area of the play in Madison, Grimes and Walker Counties. In addition, the company intends to spud its first horizontal Woodbine well in Polk County in 2Q 2013.
Halcón has put nine wells online in the play since Oct. 1. The natural gas being produced from all these wells is currently being flared. Based on the amount of natural gas being flared, the company estimates that the oil being produced from each well accounts for more than 90% of the total hydrocarbon volume.
Six of the wells are located in Leon and Northern Madison counties have an average effective lateral length of 6,246 feet and were completed with an average of 22 frac stages. The average initial and 30 day rates for the applicable wells were 948 barrels of oil equivalent per day and 388 barrels of oil equivalent per day, respectively. Of these six wells, the Keeling 1H in Leon County is performing the best and had an initial rate of 1,407 barrels of oil equivalent per day and a 30 day rate of 749 barrels of oil equivalent per day. This well was drilled to a total measured depth of 15,897 feet with a 6,300 foot effective lateral section and was completed with a 25 stage frac.
Of the three remaining wells, two are located in Brazos County and have an average initial rate of 1,463 barrels of oil equivalent per day. These two wells have an average effective lateral length of 6,143 feet and were completed with an average of 31 frac stages. Only one of the wells in Brazos County has been producing for at least 30 days and has an average 30 day rate of 724 barrels of oil equivalent per day. The most recent well completed in Brazos County, the Coyote 1H, had an initial rate of 1,230 barrels of oil equivalent per day. This well was drilled to a total measured depth of 14,333 feet with a 5,944 foot effective lateral section and was completed with a 30 stage frac. The other well is located in the more exploratory area of the play where the 3D seismic survey in underway.
There are currently 29 wells producing, 11 wells being completed or waiting on completion and 5 wells being drilled across the company's operated acreage.
Halcón continues to modify its Woodbine drilling and completion practices in an effort to increase recoveries while reducing costs. To date, the company has reduced hole size in the curve to 8.75 inches from 9.875 inches and eliminated intermediate casing where applicable, which results in a well cost reduction of 15%. In addition, Halcón has increased the amount of proppant placed while decreasing the total volume of fluid and the associated pump time. The company also continues to adjust its cluster configuration and count by area. Initial results are encouraging with jet lift assemblies providing for higher initial flowback rates and additional flow control. Looking ahead, Halcón anticipates costs will decline further as it continues to exploit opportunities for batch drilling and brings electric power to new and existing locations.
Halcón Field Services (HFS) is in the process of building infrastructure in the play capable of handling gas, NGLs and produced water. More than 50 miles of pipeline are planned and a processing plant with residue gas and liquids takeaway capacity is expected to be in service by the end of the first quarter 2013.
The company currently has 130,000 net acres leased or under contract in the play and expects to spud 20 to 25 gross wells on its operated acreage in 2013 with an average working interest of 91% and a drilling and completions budget of US $200 million. The first 10 wells will be drilled to delineate acreage, which will allow for a more focused approach to wells drilled in the second half of 2013. Halcón currently operates two rigs in the play and expects to add one to two additional rigs by year end.
The Allam 1H (TMD 14,300', 5,580' lateral) in Venango County, Pa., and the Phillips 1H (TMD 12,411', 5,360' lateral) in Mercer County, Pa.,have each been drilled and completed with a 21 stage and 20 stage frac, respectively, and are currently resting for 60 days. Production tests are expected to occur on these two wells in 2Q 2013.
There are currently two wells resting after completion, two wells being completed or waiting on completion and two wells being drilled. HFS continues to identify and implement infrastructure solutions in the play. Third party infrastructure solutions will be utilized if available and competitive; however, consistent with the HFS strategy, a multi-modal approach to building and owning infrastructure is underway.
Tuscaloosa Marine Shale
The company currently has 75,000 net acres prospective for the Tuscaloosa Marine shale in Louisiana. The first well drilled, the Broadway H1 in Rapides Parish, is currently being completed with a 21 stage frac. The well was drilled to a total measured depth of 19,442 feet with a 5,192 foot effective lateral section.
In late January, Halcón spud a stratigraphic test well, the Lambright, located 16 miles northwest of the Broadway 1H in Rapides Parish. This vertical test found the zone too thin for commercial production.
The company intends to review completion results of the Broadway H1 prior to implementing a development strategy.
Headquartered in Houston, Halcón Resources is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich assets in the US.