~36,000 Net Acres in Pecos and Ward Counties for
~$20,000 per Acre (1)
Halcón Resources Corporation (NYSE:HK) (“Halcón” or the “Company”),
today announced it has entered into 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, in addition to entering into 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”). Finally, Halcón also announced it has entered into
a purchase and sale agreement to sell its East Texas Eagle Ford
assets (“El Halcón”), which currently are producing approximately
6,000 net boe/d, for $500 million with a January 1, 2017 effective
date. The acquisition of the Pecos County Assets, which will be
funded with the proceeds of the previously announced private
placement of automatically convertible preferred stock and the sale
of the El Halcón assets is expected to close by early March 2017,
and is subject to customary closing adjustments and conditions.
Floyd Wilson, Halcón’s Chairman, CEO and
President commented, “These transactions represent a strategic
pivot for us into the Delaware Basin. After the consummation
of these transactions, we will have core operating areas in two of
the most attractive North American oil basins with decades of
highly economic development drilling ahead of us. The proceeds from
the sale and the equity offering provide sufficient funds to
acquire the Delaware assets and fund drilling capital to grow our
asset base over the next several years, while at the same time
improving our leverage profile.”
Acquisition Highlights
- Attractive acquisition price of ~$20,000/acre(1) (assuming Ward
County Option is exercised in full)
- A significant percentage of the acreage has been de-risked by
recent drilling on and around acreage
- ~85% average working interest and ~90%+ operated
- >70% oil and ~85% liquids
- ~700 highly economic gross Wolfcamp A and Wolfcamp B drilling
locations (750+ additional upside locations in the 1st, 2nd and 3rd
Bone Spring and the Avalon Shale)
- 12 years of Wolfcamp A and B drilling inventory assuming a 4
rig program (24+ years including upside locations)
- Largely contiguous acreage position allows for extended lateral
development (expected average lateral of >7,500’)
- Existing infrastructure valued at approximately $55 million
with significant additional value opportunities
- Financing structure improves Halcón’s leverage and liquidity
profile
- Significantly accretive to NAV/share and future CFPS
Delaware Basin Highlights
The Pecos County Assets include 20,748 net acres
in Pecos and Reeves Counties, Texas and are currently producing
approximately 2,600 net boe/d. The Pecos County Assets
include 495 gross Upper Wolfcamp A & B locations and 771 gross
locations in the Lower Wolfcamp A, 1st, 2nd and 3rd Bone Springs
and the Avalon. Based on recent drilling results, Halcón
estimates the Wolfcamp A & B locations (7,500’ lateral) will
generate EURs of 803 Mboe and 975 Mboe, respectively, with IRRs in
excess of 45% at the current strip. Halcón plans to run two
rigs on the Pecos County Assets shortly after closing and may
consider running as many as four rigs in 2018 depending on oil
prices.
In addition to the Pecos County Assets, Halcón
has entered into an agreement with a private operator for the right
to purchase up to 15,040 net acres located primarily in Ward
County, Texas. The Ward County assets are divided into two tracts:
the Southern Tract (6,720 net acres) and the Northern Tract (8,320
net acres) with separate options for each tract. Pursuant to
the terms of the agreement, Halcón is currently drilling a
commitment well on the Southern Tract and has until June 15, 2017
to exercise the option on either the Southern Tract acreage or on
all 15,040 net acres, in each case for $11,000/acre. If the Company
initially elects only to exercise its option on the Southern Tract,
it would then be required to pay $5 million and drill a commitment
well on the Northern Tract by September 1, 2017 to earn an option
to acquire the Northern Tract acreage for $11,000/acre by December
31, 2017.
Transaction Financing
Halcón plans to finance the acquisitions with
the proceeds from the $400 million private placement as well as the
divestiture of its El Halcón assets for $500 million. Excess
cash from these two transactions will be used to repay the
Company’s revolver and put cash on its balance sheet. The closing
of the private placement is contingent upon the acquisition of the
Pecos County Assets. Pro forma for the acquisition of the Pecos
County Assets and disposition of the El Halcón assets, the Company
expects its borrowing base under its senior revolving credit
agreement (the “Revolver”) to remain at $600 million. As of
December 31st, Halcón had $186 million drawn on its Revolver
resulting in pro forma liquidity of $429 million assuming
consummation of the Pecos County Assets acquisition, the private
placement, the divestiture of the El Halcón assets and exercising
the Ward County option.
Pro Forma Preliminary 2017
Guidance
Pro forma for the pending acquisition and the
sale of the El Halcón assets currently generating ~6,000 boe/d of
net production, the Company is preliminarily revising its full year
2017 production guidance to a range of 37,000 to 39,000 boe/d (80%
oil, 10% gas and 10% NGL). As a result of the anticipated
increased activity from the pending acquisition, the Company is
also increasing its preliminary 2017 drilling and completion
capital expenditure guidance to $280 million from a prior estimate
of $200 million. Separately, the Company is planning to spend
approximately $15 million on its acquired infrastructure assets in
the Delaware basin. The Company plans to provide formal guidance
after further operational review.
Please see Halcón “Southern Delaware Acquisition” investor
presentation located in the Investor Relations folder at the
Company’s website for more information
(www.halconresources.com).
Advisor
BofA Merrill Lynch acted as exclusive financial advisor to
Halcón in connection with the acquisition of the Pecos County
Assets. BofA Merrill Lynch and J.P. Morgan Securities acted
as placement agents in the private placement of preferred
stock.
Jefferies LLC served as financial advisor to the seller of the
Pecos County Assets.
Conference
Call
Halcón will host a conference call for investors
on Wednesday, January 25, 2017 at 11:00 a.m. EST (10:00 a.m. CST).
Investors may participate in the conference call via telephone by
dialing (877) 810-3368 for domestic callers or (914) 495-8561 for
international callers, in both cases using conference ID 59847462,
and asking for the Halcón call a few minutes prior to the start
time.
Investor slides highlighting the transaction are
available on the Company's website at
http://www.halconresources.com in the Investor Relations section
under Events & Presentations.
About Halcón Resources
Halcón Resources Corporation is an independent
energy company engaged in the acquisition, production, exploration
and development of onshore oil and natural gas properties in the
United States.
For more information contact Quentin Hicks,
Senior Vice President of Finance & Investor Relations, at
832-538-0557 or qhicks@halconresources.com.
Forward-Looking Statements
This release may contain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Statements that are not strictly
historical statements constitute forward-looking statements
and may often, but not always, be identified by the use
of such words such as "expects", "believes", "intends",
"anticipates", "plans", "estimates", "potential",
"possible", or "probable" or statements that certain
actions, events or results "may", "will", "should", or "could" be
taken, occur or be achieved. Statements regarding our pending
acquisitions and divestitures are forward-looking statements; there
can be no guarantee that these transactions close on the timeframe
described herein or that they close at all. Forward-looking
statements are based on current beliefs and
expectations and involve certain assumptions or
estimates that involve various risks and uncertainties
that could cause actual results to differ materially from
those reflected in the statements. These risks include, but
are not limited to the risks set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2015 and
other filings submitted by the Company to the SEC, copies
of which may be obtained from the SEC's website at
www.sec.gov or through the Company's website
at www.halconresources.com. Readers should not place
undue reliance on any such forward-looking statements, which are
made only as of the date hereof. The Company has no
duty, and assumes no obligation, to update forward-looking
statements as a result of new information, future events
or changes in the Company's expectations.
Additionally, we use the term “EUR” in this
release to describe estimates of potentially recoverable
hydrocarbons that the SEC rules prohibit from being included in
filings with the SEC. These are based on the Company’s internal
estimates of hydrocarbon quantities that may be potentially
discovered through exploratory drilling or recovered with
additional drilling or recovery techniques. These quantities do not
constitute “reserves” within the meaning of the Society of
Petroleum Engineer’s Petroleum Resource Management System or SEC
rules and are subject to substantially greater uncertainties
relating to recovery than reserves. “EUR,” or Estimated Ultimate
Recovery, refers to our management’s internal estimates based on
per well hydrocarbon quantities that may be potentially recovered
from a hypothetical future well completed as a producer in the
area. For areas where the Company has no or very limited operating
history, EURs are based on publicly available information relating
to operations of producers operating in such areas. For areas where
the Company has sufficient operating data to make its own
estimates, EURs are based on internal estimates by the Company’s
management and reserve engineers.
This press release is neither an offer to sell
nor a solicitation of an offer to buy any of the securities to be
issued in the private placement.
(1) Assumes $40,000 per boe/d for current production; adjusted
to exclude $55 million of midstream/infrastructure assets related
to the Pecos County Assets.
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