Monday, June 9, 2014

Halcon Provides TMS Update

Halcon made an announcement covering several aspects of their TMS project. Here's my commentary:
-Horseshoe Ill 11-22H-1:
----excellent initial potential; Using a boepd/1000' factor from the Blades well, I estimated an IP of 1930 boepd. Using a boepd/stage factor from the Blades well, I esimated an IP of 2032 boepd but that was using 32 stages. With 24 stages confirmed, that would equate to 1524 boepd.  The IP without the estimated NGL's for the Horseshoe Hill well is 1391 boepd.  This equates to a 9% error compared to the 12% error on the Lewis well estimate. These are starting to get close now that the completion "recipe" is more consistent.  Being that the stage spacing is still varying, using the boepd/1000' factor will be less accurate in the near term.
----Gas/Oil Ratio higher than expected; high GOR is good because the gas helps to lift the oil; it enhances flow rate and ultimately long term production. The Crosby 12H-1 also had a higher than expected GOR.
----long lateral of 7060' drilled quickly - major improvement
----39 days to drill spud to TD is excellent especially considering the long lateral
-Significant commitment: spud 10 to 12 operated wells in the TMS running an average of two rigs in 2014.  The Company also expects to participate in 15 to 20 non-operated TMS wells in 2014.
-Apollo funding: significant capital provider endorses the play; hard to calculate a $/Acre value on the deal; indicates long term commitment to the project
-Midstream commitments: also indicates long term commitment to the play

Press Release
June 9, 2014

Halcon Provides Tuscaloosa Marine Shale ("TMS") Operational Update and Announces TMS Development Partnership

1,548 Boe/d IP Rate on Horseshoe Hill 11-22H-1

HOUSTON, TEXASJune 9, 2014 (GLOBE NEWSWIRE) -- Halcón Resources Corporation (NYSE: HK) ("Halcón" or the "Company") today provided an operational update related to its 314,000 net acre position in the Tuscaloosa Marine Shale ("TMS").
The Horseshoe Hill 11-22H-1 (92% WI) well in Wilkinson County, Mississippi, achieved a 24-hour average initial production rate of 1,208 barrels of oil per day and 1.1 million cubic feet per day of 1,551 BTU natural gas on a 19/64 inch choke.  Based on gas composition analysis and assuming full ethane recovery, the Company estimates that the well would produce an additional 212 barrels of NGLs per day for a total 24-hour average initial production rate of 1,548 barrels of oil equivalent per day.  The well has a 7,060' effective lateral and was completed with 24 frac stages, 21 of which were effectively pumped and 3 of which were partially pumped (less proppant placed than designed).  Halcón drilled this well in 39 days (spud to TD).
The Company has drilled the Black Stone 4H-2 (87% WI) well in Wilkinson County, Mississippi, in 28 days (spud to TD) with a 5,400' lateral.  Completion operations are expected to commence this month.
Halcón recently spudded the Fassman 9H-1 (84% WI), located in Wilkinson County, Mississippi, with a second rig and is planning a 6,030' lateral for this well.
The Company has also spudded the SD Smith 1H (62% WI), located in Wilkinson County, Mississippi, and is planning a 7,660' lateral for this well. 
Halcón plans to spud 10 to 12 operated wells in the TMS running an average of two rigs in 2014.  The Company also expects to participate in 15 to 20 non-operated TMS wells in 2014.
In addition, Halcón announced the signing of a definitive agreement with credit funds and accounts managed by affiliates of Apollo Global Management, LLC (NYSE: APO) (together with its consolidated subsidiaries, "Apollo"), which will invest up to $400 million in the Company's wholly owned subsidiary, HK TMS, LLC ("HK TMS").  Upon closing, HK TMS will hold all of Halcón's acreage in Mississippi and Louisiana that is prospective for the TMS formation.  The Company holds 100% of the common shares of HK TMS and is the sole manager of HK TMS.  Apollo will contribute $150 million in cash consideration for 150,000 of HK TMS preferred shares, and under certain circumstances, may acquire up to an additional 250,000 preferred shares of HK TMS on the same terms.  Holders of the HK TMS preferred shares will receive quarterly cash dividends of 8% per annum.     
In conjunction with the issuance of the preferred shares, HK TMS agreed to assign a 4.0% overriding royalty interest ("ORRI"), subject to reduction to 2.0% under certain circumstances, in 75 net wells to be drilled and completed on its TMS acreage. The number of wells subject to the ORRI will increase to the extent that Apollo subscribes for additional preferred shares, with a maximum of 200 net wells subject to such ORRI if Apollo subscribes for the full additional 250,000 preferred shares.
Jefferies LLC acted as exclusive financial advisor to Halcón in connection with the TMS partnership with Apollo.
The Company's midstream subsidiary, Halcón Field Services, has acquired rights to develop an oil handling terminal at the Port of Natchez, a location with direct access to more than two million barrels per day of refining capacity on the Lower Mississippi River.  The Port of Natchez has existing infrastructure including loading docks, pipelines and direct access to the Canadian National railroad. 
Floyd C. Wilson, Chairman and Chief Executive Officer, commented, "We are off to a solid start in the TMS, and the capital from our partnership with Apollo will help us to accelerate activity.  The TMS is quickly evolving into a world-class oil play."
Source: http://investors.halconresources.com/releasedetail.cfm?ReleaseID=853041

4 comments:

  1. Your projections were for 7751 lateral and 32 stages. Any idea why 700 feet shorter and 8 stages less? Also why were 3 stages "partially pumped (less proppant placed than designed)"? Did they run out of proppant?

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  2. Big Ed,
    It's hard to estimate the exact "completed lateral length" from the state records. Once the operator releases that footage, then calculations can be adjusted. The number of stages were based on an assumed spacing. Number of stages can then be calculated from the spacing distance and on the completed lateral length. Once again, only estimates until actual figures are released. I understand that a few stages "screened out"...somewhere around the 11th stage.

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  3. From the Crosby announcement:The well is continuing to improve with a current production rate of 1,250 barrels of oil equivalent ("BOE") per day and a 24 hour average rate of 1,130 BOE per day comprised of 1,050 barrels of oil and 469 Mcf of gas, on a 15/64" choke with 2,700 psi.

    Can you comment on the significance of the choke size difference between Crosby and the new Horseshoe Hill? It would seem the EUR would be similar? Thank you.

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  4. Kirk,
    Thanks for the response. HK IR wasn't interested in giving any detail about the completion when I talked to them the day after the announcement. I was curious of the issues they ran into but all they would say is they would have fully placed the 3 stages, knowing what they know now.

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