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Must-know: Halcon Resources compared to its peers
Halcon Resources (HK) has the highest EV to earnings before interest, taxes, depreciation, and amortization (or EBITDA) multiple at 7.2x. XCO has the lowest EV to EBITDA in the group at 6.1x. HK is a component of the Energy Select Sector SPDR (XLE).
In order to finance growth, Halcon Resources (HK) raised $6 billion in debt and equity from 2012 to 2013. By the end of 2Q14, its long-term debt stands at ~3.4 billion. The debt-to-equity ratio is high at 2.61. A ratio higher than one usually implies increased risk associated with debt management.
Halcon Resources (HK) grew between 2011 and 2013. The growth was due to acquisitions and developments in some of the fastest growing liquids-rich basins in the U.S. HK decreased its drilling programs in the Bakken and El Halcon. It had four rigs in each area. It decreased the rigs to three in each area for the rest of 2014.
In 2014, Halcon Resources (HK) outperformed the industry and broader market. HK’s stock has returned ~34% year-to-date (or YTD). On an annualized basis, this means a return of ~50%. In comparison, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has returned ~12% YTD—or ~17% annualized.
Halcon Resources (HK) decreased its lease operating costs—the primary cost component—over the past three years. The company has a strategy to pursue long-term contracts. The contracts will allow it to maintain flexible development plans and avoid short-term obligations to drill wells.
From 2011 to 2013, Halcon Resources’ (HK) oil production increased from 884 thousand barrels to 10.1 million barrels—a jump of more than ten times. The growth continued in 2014. In the first half of 2014, it produced ~6 million barrels of oil—or 46% higher than production in the first half of 2013.
Halcon has ~305,000 net acres in the TMS. HFS holds HK’s net acreage in TMS. In June 2014, it sold 150,000 preferred shares to Apollo Global Management for $150 million. Apollo bought the rights to royalty interest in future wells. HK intends to use the funds to develop assets it already identified in the TMS.
Halcon’s most prolific region in 2013 and 2014 has been the El Halcon area. It’s located in Brazos, Burleson, and Lee counties in Texas. In 2013, HK used four rigs to drill ~40 wells in the area. By the end of June 2014, HK had 101,000 net acres in El Halcon. In 2Q14, Halcon produced an average of 9,111 boe/d from El Halcon.
The Eagle Ford is considered to be an oil play—even though it produces oil and gas. Most of the drilling activity is oil-targeted. The prices are higher for oil than natural gas. As a result, it’s more profitable to drill for oil. The Eagle Ford’s monthly oil production increased more than ten times from 2011 to 2014.
In 2013, Halcon Resources’ (HK) production surged ~254% to an average of 33,329 barrels of oil equivalent per day (or boe/d)—compared to 9,404 boe/d in 2012. The surge continued during the first half of 2014. Production averaged 39,354 boe/d. It was up 43% compared to the average daily production of 27,602 boe/d during the same period last year.
Halcon Resources’ (HK) revenues for the first half of 2014 increased 49% to $602.3 million—from $405.2 million in the first half of 2013. This was mainly due to increased production volumes. The increased volumes were associated with property development in the Bakken or Three Forks and El Halcon areas.
Operating costs per unit of production decreased by 8% to $28.40 per boe in 1Q14—compared to the same period in 2013. The costs are taken out of the revenues. This gives the operating income. However, on an absolute basis, operating costs increased 78% to $283.5 million in 2Q14—from $158.2 million in 2Q13.
Between 2Q12 and 2Q14, Halcon Resources’ (HK) earnings before interest, taxes, depreciation, and amortization (or EBITDA) increased more than nine times. It increased ~70% from $126 million in 2Q13 to $214 million in 2Q14. Reported EBITDA fell short of the consensus EBITDA for most of the last nine quarters.
Halcon recorded $327.1 million in total revenues for 2Q14—up 53% from $213.6 million recorded in 2Q13. The increase was mainly due to higher production. Production for 2Q14 increased 44% over 2Q13. It increased to an average of 42,055 barrels of oil equivalent per day (or boe/d).
Halcon Resources (or HK) has been making strategic acquisitions. It has been restructuring its core resource plays to maximize its oil and liquids-rich natural gas production. It looks for shale resources that provide repeat drilling opportunities and significant initial production rates. Its operations are geographically diversified.
Halcon Resources (HK) is a Texas-based energy exploration and production company. The company mainly focuses on developing onshore liquids-rich oil and natural gas assets. As of June 30, 2014, Halcon Resources’ estimated total proved oil and natural gas reserves were ~120 million barrels of oil equivalent (or MMBoe).
The U.S. natural gas rig count was down by two rigs—from 340 to 338—during the week ending September 12. The Eagle Ford and Cana Woodford each lost two rigs last week. This was the first decline in weekly rig count after five consecutive weeks. Rig counts have been in a downward trend for about three years.
Last week, the Baker Hughes oil rig count increased by eight—from 1,584 to 1,592. The addition was driven by the Permian at +4 and the Eagle Ford at +3. Regions falling outside the major shale plays added four more rigs last week. This marks the highest oil rig count since February 2005.
The Permian Basin is located in western Texas and southern New Mexico. The name “Permian Basin” generally refers to a combination of the Delaware Basin and the Midland Basin. Currently, there are 1,592 oil rigs at work. The majority of the rigs—roughly 561—are in the Permian Basin.
For the week ending September 12, 2014, the number of horizontal rigs increased by nine to 1,342—compared to 1,333 a week ago. This is the highest horizontal rig count on record. This also broke last week’s record number of horizontal rigs. This week’s addition also marked the 12th horizontal rig additions in the past 13 weeks.