Oil price trend
In the previous section of this series, we discussed Halcon Resources’ (HK) oil production growth. But if the crude oil price slump continues, it may take its toll on HK’s revenues. This article will analyze how much the fall in crude oil price has affected HK this year.
The simple reason that HK has been trying to maximize its crude oil and liquids production is because in recent years, they have been priced higher than gas on an energy or barrel equivalent basis, and are therefore more profitable to produce.
With falling crude oil price, the company’s strategy is going through a tough test in recent times. Since June of this year, WTI (or West Texas Intermediate) price, which represents energy producers’ price in the US, has come down by ~38%.
Oil revenue loses steam
Even though HK’s oil production has continued to increase in 3Q14, revenues have started to show the effect of falling oil price. Oil revenues were $287.86 million in 3Q14, marginally lower than the $288.25 million in 3Q13. This is primarily because of HK’s 13% lower average realized crude oil price in 3Q14 compared to 3Q13.
In September 2014, oil revenues increased 26% to $848.1 million from $672.16 million in September 2013. Revenues from oil increased from $223 million in 2012 to $944 million in 2013.
The crude price fall has negatively affected other upstream oil producers like Chevron Corporation (CVX), Concho Resources (CXO), Continental Resources (CLR), and Laredo Petroleum (LPI). Some of these are components of the Energy Select Sector SPDR ETF (XLE).
Look for HK’s gas and natural gas liquids production and revenue growth in the following section.