Halcón Sets 2014 Agenda To Sell Non-Core Assets, Lower Spending

Halcón Resources Corp. (NYSE: HK) aims to deal more of its non-core properties in 2014 and slash its drilling and competitions budget without affecting production.

The company is in the midst of finishing off the 2013 sale of its non-core conventional assets in the Midcontinent, Gulf Coast and Permian, the company said Dec. 16. The company split the divestment into three transactions for total proceeds of about $300 million. Two of the sales have closed and Halcón expects the third to wrap up Dec. 20.

Halcón plans more of the same in 2014, managing its portfolio with expectations that it will divest additional non-core assets for about $300-$400 million.

"We expect to fund our entire 2014 capital budget with a combination of cash flow from operations, borrowings under our revolving credit facility and proceeds from additional non-core asset sales,” said Floyd C. Wilson, chairman and CEO. “We are well positioned to deliver significant growth of reserves, production and cash flow while maintaining capital discipline.

“In addition, we are focused on capital efficiency and intend to achieve higher rates of return across our asset portfolio via a persistent emphasis on technological innovation."

The company also announced a reduction to its 2014 capital spending program. Halcón is lowering its drilling and completions budget guidance by 14% to about $950 million, which is inclusive of planned drilling activity in all areas.

Halcón also expects to spend $100-$125 million in on leasehold, infrastructure, seismic and other expenses, excluding capitalized interest and G&A. It reaffirmed its 2014 production guidance of 38,000 to 42,000 barrels of oil equivalent per day (BOE/d).

Halcón’s 2014 E&D capex falls to $950 million from $1.1 billion, driven by efficiency gains in the Bakken and Texas’ El Halcón play, which should comprise about 90% of capex, said Gordon Douthat, Senior Analyst, Wells Fargo

The company’s remaining activity would likely be in the Utica and Tuscaloosa Marine Shale (TMS). Because the company budget spends more than it takes in, the company will likely sell any non-core asset outside of the Bakken, El Halcón and Utica.

Halcón has 150,000 acres in the Bakken/Three Forks, 142,000 in Utica/Point Pleasant and 60,000 in El Halcón in Texas.

Douthat estimates 2014 cash flow at $700 million, which translates to a $360 million outspend.

“Longer term, with the Bakken largely de-risked, continued momentum at El Halcón and success in the Utica, or another play, are necessary to drive share performance in our view,” he said.

Mike Kelly, an analyst for Global Hunter Securities, said the move is a positive development for Halcón.

Should the sales take place as planned, Halcón’s outspending of its operated cash flow becomes less concerning, he said.

“We note, however, that these asset sales will likely impact production and thus we would expect guidance to be adjusted downward when they come to fruition,” Kelly said.