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Waiting For More Results, Halcon Puts Brakes On Utica Drilling

Halcon Resources Corp. said Tuesday that its Utica Shale drilling program is on hold pending the results of two wells, with no plans to move a rig into the play this year until more data is on hand.

Halcon spokeswoman Kelly Weber stopped short of saying the program has been suspended but added that Halcon has one well flowing back and one well resting in the play. She said no rig will be deployed until the company can analyze the results from those wells.

The company's drilling program in the area has struggled to gain traction, and it reported mixed results there in the second half of 2013.

In August, Halcon said its Kibler 1H well in Trumbull County, OH, was producing at 2,233 boe/d and called the well one of the Utica's best (see Shale Daily, Aug. 5, 2013). But just months earlier, it disappointed financial analysts with a test at its Phillips 1H well in Mercer County, PA, reporting that the well tested at a peak rate of 2.5 MMcf/d of natural gas and 120 b/d of condensate (see Shale Daily, May 27, 2013).

Halcon holds about 140,000 acres in a largely unproved area of northeast Ohio and northwest Pennsylvania, where a few other operators have reported limited Utica results (see Shale Daily, Nov. 18, 2013; Dec. 12, 2013).

Currently, Halcon has three producing wells in Trumbull County and one in Mahoning County, OH. It has 11 permits to drill in that state and holds 22 permits in Mercer, Crawford and Venango counties in Pennsylvania.

The company's stock has underperformed industry peers. Last week it announced the acquisition of 307,000 net acres prospective in the Tuscaloosa Marine Shale (TMS) of southwest Mississippi and Louisiana’s Florida Parishes (see Shale Daily, Feb. 27).

Company officials said they've been exploring that opportunity for years and are now planning to focus on the TMS as a new core area, where there are plans to operate two rigs and spud 10-12 gross operated wells this year.

BMO Capital Markets analyst Dan McSpirit said last week that uncertainty over the TMS -- where mechanical difficulties have challenged some operators (see Shale Daily, Dec. 27, 2013) -- could overshadow Halcon's recent gains in the Williston Basin and East Texas.

But Will Green, senior vice president of exploration and production research at Stephens investment bank, told NGI's Shale Daily that Halcon's move to temporarily stop drilling in the Utica and switch its focus to the TMS was not unexpected.

"They have been quick to cut their losses when they feel like they're not getting the growth they expect in some of these burgeoning plays," Green said. "The fact that they've quit talking about [the Utica] doesn't completely condemn their acreage there, but I do think they got weaker results than what they expected entering the play."

A graphic on the company's website detailing its operational footprint no longer includes the Utica. Halcon also made no mention of the play when it issued a 14% reduction in its 2014 capital expenditures budget (see Shale Daily, Dec. 17, 2013), or when it provided a year-end operational update last week.

Green said the company's stock is distressed, consistently trading around $4/share, but added that he didn't believe it was in trouble. He said Halcon's debt-to-earnings ratio is high but said its success with oil and natural gas hedges has created enough "surety of cash flow" to keep the company "growing through these pains."

"My point is that we can't count the TMS out yet. We've seen some good results from a handful of players there, with some mixed results, but that has more to do with mechanical issues on the whole," Green said. "Having more players there, like Halcon, allows more shots on goal and the play will be figured out quicker with more operators drilling. One thing is definitely true; the resource potential is there, the ability to make big wells is there, but the question is can you do it economically. Hopefully, we get that answered this year."

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