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Halcon, GeoResources Combo to Create Onshore 'Resource Powerhouse'

Halcon Resources Corp., run by the former chief of shale powerhouse Petrohawk Energy Corp., and GeoResources Inc. have agreed to merge in a cash-and-stock transaction worth an estimated $1 billion. The combined company would have an onshore portfolio of opportunities across the Midcontinent, with a core area in the Bakken Shale.

The new-and-improved Halcon, based in Houston, would continue to be run by CEO Floyd C. Wilson, who founded and had run Petrohawk until it was bought by BHP Billiton for close to $12 billion last year (see Shale Daily, July 18, 2011). Halcon CFO Mark Mize also would continue in his position.

Under terms of the acquisition, Halcon agreed to pay $37.97 per GeoResources share, with $20.00 in cash and 1.932 in Halcon shares. Once the transaction is completed, which is expected in the second half of this year, GeoResources shareholders would own 18% of Halcon. The boards have unanimously approved the agreement; shareholder approval other customer approvals still are needed.

"The combination will create a resource powerhouse with exposure to some of the most prolific unconventional liquids plays in the United States," said Wilson. "The transaction will effectively increase our estimated proved reserves by over 150% to approximately 52.8 million boe, 69% of which is liquids, and substantially increase our average net daily production by over 170% to approximately 11,070 boe based on 4Q2011 production rates."

GeoResources CEO Frank Lodzinski said his management team had watched Wilson and his executives "create significant value for their shareholders over the years through their focused strategy, excellent technical capabilities and efficient operations..."

Halcon at the end of 2011 had proved reserves that totaled 2.2 million boe. In Texas the producer has about 5.1 million boe of proved reserves in South Texas, as well as 6.2 million boe in the Electra/Burkburnett formation in West Texas. About 2.4 million boe of proved reserves are held in Louisiana. In Oklahoma Halcon has a 100% interest in the Osage concession in the Mississippian Lime, which includes 45,280 net acres. Also in Oklahoma it has 5.2 million boe of proved reserves in the Fitts-Allen play in the southern part of the state.

GeoResources, also headquartered in Houston, has a Southern Bay unit that primarily operates in Texas and Louisiana, most of which are operated. The company also serves as general partner for two master limited partnerships that own interests in Texas and Oklahoma, which are mostly operated as well. The Denver-based G3 Operating LLC unit has stakes in and/or operates properties in North Dakota, Montana, Colorado and Kansas. The core areas currently are in North Dakota, where the company operates more than 90 wells.

In a January operations update, GeoResources reported that its operated Bakken Shale project area had about 25,000 net operated acres in northwest Williams County, ND, and 8,200 net operated acres in eastern Montana, with two contracted drilling rigs running and a contracted third rig scheduled to be delivered in the second quarter. Among other capabilities, the new rig would be able to "walk," allowing it to move easily and quickly from one location to the next when drilling on pad locations.

GeoResources said in January it had well costs in the Bakken of $7.5-8.0 million and expected "the walking rig and other efforts to further reduce these costs." Also, in 4Q2011, the company successfully completed its first well in eastern Montana, the Olson 1-21-16H (31.4% working interest), which averaged 300 boe/d in the first 30 days of production.

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