Halcon Resources is focusing
on its core producing assets to achieve higher production with low capital
spending. Recently, the company reduced this year’s total capital expenditure
for its drilling and completion cost by 14% to approximately $950 million for
all drilling areas. Despite this cost reduction, the company is still
optimistic about its production guidance of 38,000 to 42,000 barrels of oil
equivalent per day (boepd), which is higher than the 2013 production guidance
of 30,000 to 34,000 boepd. The company’s application of advanced drilling
techniques, like pad drilling and long lateral length, will make its production
guidance achievable even with reduced capital spending.
One of the company’s core
oil producing assets is El Halcon, its Eagle Ford shale play in Texas. Halcon
has 90,000 net acres in El Halcon and has a total proven reserve of 2.5 million
barrels of oil equivalent (Mmboe). The total reserves of this play are 94% oil
and 3% each of natural gas liquid and natural gas. With the amount of oil in
this play, the company has experienced massive growth of roughly 800% in
production to 6,500 boepd from the initial production rate of 734 boepd.
This growth in production is
made possible because of Halcon’s drilling and completion techniques. To
continue the increasing production, Halcon integrated the pad drilling
technique in its Eagle Ford play. Pad drilling is a technique where the
operator can drill multiple wells per site with high mobility rigs that can
move quickly to the next pad, which in turn saves drilling time. As a result,
during the third quarter, Halcon successfully reduced its average drilling days
(starting to reaching total depth) of an oil well to 14.4 days, a decrease of
around 37% quarter-over-quarter, and the decrease is expected to continue in
2014.
By reducing the number of
drilling days, Halcon will enhance the well completion efficiency while
continuing to reduce its operating costs. The savings from operating costs will
then enable the company to reduce the capital expenditure, which in turn helps
Halcon to meet its capital guidance without hampering the total well production
rate.
Apart from the pad drilling
technique, Halcon also drilled wells with a longer lateral length, which can
increase the total recovery of oil and gas, considering proper optimization. If
the lateral length is extended from 800 meters to 1800 meters, it could add
600,000 m3 of oil to the total oil recovery. Currently, Halcon’s oil producing
wells are located at depth around 7500 to 8000 feet in the Eagle Ford
formation, and it reported continuous increasing production. Although it is
very costly to extend the laterals, the company has managed to reduce the
average cost per foot by 19% during its third quarter compared to the previous
quarter. This decreased cost clearly indicates the company’s efficient
operating rigs, and it will help the company maintain lower capital expenditure
in drilling and completion.
Halcon continued its average
three rig program in El Halcon last year and projected to operate an average of
three to four rigs in 2014. Despite fewer rigs, Halcon has already completed
drilling of 13 wells and brought 19 wells to sales during the third quarter,
and currently the company’s total 31 wells are in production in the Eagle Ford play.
Additionally, another eight wells are in the completion stage, and it drilled
three more wells in the third quarter, which were expected to come in
production by 2014. With these additional producing wells, which are in the
completion stages, Halcon will be able to increase its total oil production to
meet its production guidance for this year.
More opportunities with
step-out wells
Halcon is also using step
out wells to increase its footprint in its Eagle Ford formation. Step-out wells
are drilled to an unknown reservoir to extend the company’s productive zone.
Although it is very risky to drill step out wells since the reservoirs are
unknown, Halcon has witnessed better initial production results. One of the
company’s initial step out wells in Brazos County, Stasny-Honza 1H, reported a
record initial production (IP) rate of 1262 boepd during the third quarter.
Apart from Halcon’s
Stasny-Honza 1H, Bumble Bee and 1H Hedge Hog topped the charts with more than
1000 boepd. With these promising step out wells, Halcon has become a primary
player in the Aguila Vado field and accounted for more than 50% of the drilling
to date. Halcon extended its Aguila Vado field into Brazos County, and it is
expanding its reserves capacity with the above producing wells. With the
present lateral length and impressive results from the step-out wells, Halcon
will witness increasing production from this shale in the coming quarters.
Asset Divestiture will
improve cash flow
Halcon decided to pursue its
asset divestiture program to increase its funding for its core assets this
year. Halcon’s core assets include the Bakken/Three forks formation, Eagle Ford
shale, and its Utica shale. Halcon will divest its additional non-core assets
like Woodbine, Wilcox, and Tuscaloosa Marine shale (TMS) etc. in 2014, and the
total proceeds are expected to be between $300 and $400 million.
The company has already
announced a cut in its 2014 capital expenditure by 14% to around $950 million
and expects to add the asset sale proceedings to its total projected capital
expenditure for drilling and completion activity in 2014.
Since the beginning of last
year, Halcon has witnessed higher capital expenditure, which in turn affected
the company’s free cash flow throughout the period. Since the company is
focusing on production efficiencies to achieve higher production while spending
less capital, the projected asset sale will improve the free cash flow
structure of the company going forward. This will enable the company to witness
improved operating cash flow this year, which in turn will strengthen its free
cash flow in the coming quarters and lower capital expenditure.
Conclusion
With its efficient drilling
and completion technique in Eagle Ford, Halcon is optimistic about meeting its
production guidance. Moreover, less drilling days and reduced cost per foot
will improve the company’s long-term financial performance. Despite its reduced
capital expenditure, Halcon is optimistic about its total production output in
the coming quarters, which will help it strengthen its free cash flow
structure.
About MissionIR
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
Please see disclaimer on the MissionIR website http://www.missionir.com/disclaimer.html
