Houston-based Halcon Resources Corp., which became a public company about a year ago, has been building acreage positions in several unconventional oil and gas plays and last year grew proved reserves to 108.8 million boe, an increase of 417% from the end of 2011.
Fourth quarter revenue was nearly five times that of the year-ago quarter while full-year revenue of $247.9 million was up substantially from $103.7 million in 2011.
Adjusted net income was $10.5 million (2 cents/share) for the fourth quarter. The company reported an adjusted net loss of $4 million (minus 3 cents/share) for the full year. Excluding special items, the fourth quarter saw a net loss of $8 million (minus 4 cents/share). For the full year Halcon reported a net loss of $142.3 million (minus 91 cents/share).
"Halcon has been public for about a year now and we have built an oil company with core assets in some of the most prolific established and emerging unconventional resource plays in the Lower 48," said CEO Floyd Wilson. "Our balance sheet is healthy and we are well positioned to execute on our business plan. We are in the early innings of implementing efficiencies and performance enhancements in our core areas with a focus on growing production, reserves and cash flow."
Halcon has been one of the pioneers in the emerging Tuscaloosa Marine Shale (TMS) and has about 75,000 net acres prospective for the TMS in Louisiana. Its first well drilled, the Broadway H1 in Rapides Parish, is currently being completed with a 21 stage frack. In late January, Halcon spud a stratigraphic test well, the Lambright, located 16 miles northwest of the Broadway 1H. The well was a disappointment, finding the zone too thin for commercial production. Halcon said it will review the completion results of the Broadway H1 before implementing a development strategy.
"Information flow out of the Tuscaloosa Marine Shale has picked up recently," Wilson told analysts during an earnings conference call. "Well results continue to improve within the industry. Longer laterals and enhanced completion designs are the reasons. And costs are coming down."
The TMS is earlier in the development stage than the company's Woodbine formation and Utica Shale plays, which are generating more near-term excitement among analysts who follow Halcon. "...[I]formation is starting to come out in the Woodbine and should be soon be here for the Utica," Wunderlich Securities said in a note. "While there is still much to be learned, we feel that the rapid production growth of late is a sign of things to come."
Halcon has about 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 this year with an average working interest of 90%. Halcon plans to operate five to seven rigs in the play throughout the year and anticipates spending $490 million on drilling and completions.
The company has put nine wells online in the play since Oct. 1. The natural gas being produced from all of these wells is currently being flared. Based on flared volumes, Halcon estimates that the oil being produced from each well accounts for more than 90% of the total hydrocarbon volume. 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.
Halcon Field Services (HFS) is building infrastructure in the play capable of handling gas, natural gas liquids (NGL) and produced water. "...[I]t looks like it could end up being pretty lucrative," Wilson said of the HFS infrastructure. "As you go to the south in the play, there's a little more gas and a little more natural gas liquids, and there's not a good market for rich gas in that area, so you make money by processing your gas. So we're going about setting our first processing plant down there right now. And it's going to be an extensive system."
Halcon has about 130,000 net acres leased or under contract in the Utica/Point Pleasant and expects to spud 20-25 gross wells on its operated acreage this year with an average working interest of 91% and a drilling and completions budget of $200 million. The first 10 wells will be drilled to delineate acreage. Halcon currently operates two rigs in the play and expects to add one to two more by year-end.
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, Halcon said. Third-party infrastructure could be used if economic.
The Bakken/Three Forks is one of Halcon's anchor plays, Wilson said. Here the company has working interests in approximately 130,000 net acres in the Williston Basin and this year plans to operate six to eight rigs and spud 65-75 gross operated wells with an average working interest of 63%. It also expects to participate in 90-100 gross non-operated wells in 2013 with an average working interest of 10-12%. Halcon is focused on the higher internal rate of return areas and anticipates spending $475 million on drilling and completions in the Williston Basin in 2013.
There are currently 95 Bakken wells producing, six being completed or waiting on completion and five being drilled on Halcon's operated acreage. There are 28 Three Forks wells producing, two being completed or waiting on completion and three being drilled.
"We have literally hundreds of middle Bakken locations to drill and a lot of Three Forks locations to drill," Wilson said. "Since the lease capture is essentially done up there, we're able to take all of our rigs and put them down in the Fort Berthold [ND] area and drill the very best of the best, first. And then...as we branch out to the other areas, we would hope to be able to improve results...But for this year and next, our plans are to focus right in the middle of the play and drill Three Forks and Bakken wells."
"Information flow will increase substantially from us now that our core areas are all in development mode," Wilson said.
Year-end 2012 estimated proved reserves were 80% oil, 5% NGLs and 15% natural gas on an equivalent basis.
Halcon generated revenues of $124.7 million in the fourth quarter, compared to $25.6 million in the year-ago quarter. Revenues for the full year were $247.9 million, compared to $103.7 in 2011. Production for the fourth quarter full-year 2012 increased by 349% and 128% to 18,348 boe/d and 9,404 boe/d, respectively, compared to the same periods of 2011. Fourth quarter production was 75% oil, 6% NGLs and 19% natural gas.
BMO Capital Markets analyst Dan McSpirit said in a note that it expects Halcon capital spending to be about $1.4 billion this year, with much going to drilling and completions. "Our model yields a cash flow outspend of about $580 million this year," he waid. "That looks like a large amount, but [we] believe it shouldn't come as a shocker given the early stage nature of development and hyper pace of drilling activity in these early stages. We see the cash flow beginning to catch up in 2014, by our estimates."