Halcón Enters Southern Delaware Basin, Plans to Expand in Bakken

Halcón Enters Southern Delaware Basin, Plans to Expand in Bakken

Halcón Resources Corporation (NYSE:HK) has announced agreements that will mark the company’s entry into the Southern Delaware Basin and released preliminary details on its planned activity for 2017, including expanded activity in the Williston Basin.

New Deals Mark Halcón’s Entry Into Delaware Basin

The company announced its entry into the Southern Delaware Basin through two key agreements:

  • A purchase and sale agreement with a private operator to acquire 20,748 net acres in the Southern Delaware Basin (the “Pecos County Assets”) for $705 million, with a November 1, 2016 effective date
  • An option agreement to purchase an additional 15,040 net acres in Ward County, Texas from a private operator for $11,000/acre (the “Ward County Option”)

(Source: Halcón Resources Investor Relations Presentation, January 2017)

Halcón projects that 61% of the wells in the area will have a lateral length of 7,500 feet or greater, with the highest projected concentration of long laterals (90%) located in Ward County (Wolfcamp A):

(Source: Halcón Resources Investor Relations Presentation, January 2017)

The company also announced a purchase and sale agreement to sell its East Texas Eagle Ford assets (“El Halcón”), which currently produce approximately 6,000 net boe/d, for $500 million, with a January 1, 2017 effective date. Proceeds from the sale of the El Halcón assets, along with private placement of automatically convertible preferred stock, will be used to fund the acquisition of the Pecos County Assets.

In its January 2017 investors’ presentation, Halcón revealed that the type curve for its Delaware Basin properties, assuming 900 Mboe and 500 lbs/ft of sand, has an IRR of 83% at strip pricing (as of 12/30/16):

(Source: Halcón Resources Investor Relations Presentation, January 2017)

Update on Operations in the Bakken

Halcón currently runs one operated rig in Dunn and McKenzie Counties in the Williston Basin. Plans for 2017 include keeping this rig in the Dunn/McKenzie area and adding a second operated rig in the basin. The new rig is planned for the second quarter of 2017 and is expected to drill a five-well pad in Williams County before moving to the Dunn/McKenzie area in late 2017.

(Source: Halcón Resources Investor Relations Presentation, January 2017)

Since 2015 Halcón has reduced drill and case costs in the Bakken by 27% (from 3.6 million to $2.7 million) and average drilling days from intermediate spud to rig release by 28% (from 18 days to 13 days). Overall fixed well costs have decreased by more than 50% since Q1 2015. Last year the company averaged 5.1 days per well from start of frac to POL.

In 2017 the company expects to spud a total of 42 gross operated wells in the area with 1.75 rigs running, anticipating an average EUR of ~900 Mboe in Dunn/McKenzie and ~700 Mboe in Williams County. Between 25 and 30 gross operated wells are expected to be put online, and the company expects to spend about $20 million on non-operated wells.

In January Halcón revealed to investors that the Tier 1 (600 Mboe) type curve for its Bakken properties, assuming 500 lbs/ft of sand, has an IRR of 30% at strip pricing (as of 12/30/16):

Halcón’s Preliminary Guidance for 2017

This year Halcón has a drilling and completion budget of approximately $280 million and to generate 37,000 to 39,000 boe/d of production (80% oil, 10% gas, 10% NGL).

Halcón’s 2017 outlook marks a significant increase from its 2016 drilling and completions budget of $180 – $210 million.

The company expects to be cash flow neutral in 2017 based on its capital program and current strip prices for oil and gas.

 

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