Friday, August 1, 2014

Halcon Earnings Call - TMS Notes

Halcon had their earnings call yesterday. Here are my takeaways:
-DRILLING: 2 rigs in TMS; drilling days reducing 15-20%; all operators expected to increase rig counts; 50 wells drilled so far; last 10 mostly good; Blackstone 4H-2: 22 stages all frac-ed well; in clean out process and we'll start flow back here; get the cost down within 2 years from where they are down to that under $12 million range
-COMPLETION: tight range of frac job volumes of proppant and water being used; everyone's following fairly similar programs and you're going to see more comparable results across the industry going forward; it's a tough nut to crack down here, but we expect to significantly reduced cost over a couple of years
-PRODUCTION: performing to expectations; type curve remain exactly where they've been
-RESERVOIR: just record 200 feet of continuous conventional core in the Smith well; about 10 cores taken in last 3 years; got fantastic data in the Smith well, in the core, and all the modern suite of logs we ran in. That well maps out as being having one of the highest original oil in place of any well in the whole play
-FACILITIES: expect to build first compression nat-gas facility next year; building a 3-phase gathering system in centralized gathering facilities; plan to build a crude oil handling facility at the Port of Natchez in Mississippi
-LAND/LEASE:  acreage is pretty tight in the TMS, and we have so much that it would be like gluttony to just to think we have to have more.
-FINANCIAL: signed agreement with Apollo Global management, which may invest up to $400 million in our wholly-owned subsidiary, HK TMS.

Halcon Earnings Call Transcript - TMS Highlights
We have -- company-wide we've got 14 operated wells being completed or waiting on completion and probably 3x as many non-op wells as that. We're running 8 rigs right now, 3 in the Williston, 3 in East Texas, El Halcón and 2 in the TMS.
Tuscaloosa Marine Shale, of course, is on everybody's radar screen these days. We're running 2 rigs in the play. And with continued progress and success, our rig count could easily double early next year. Economics are expected to improve over time as they have in every other resource play in the United States. We believe the quick win -- we believe we can reduce the number of drilling days by 15% to 20% on average throughout the remainder of this year.
We understand that other operators expect to increase rig counts and all this leads to a lot more information in the field. If you think about the play, I guess there's been about 50 wells drilled so far. The first large number of those were not so good. A few good ones in there. The last 10 wells drilled in the play has been mostly good wells, so it's a traditional learning curve situation that's going on there and we're pretty happy to be there.
We are working interest partner in several wells that are performing to expectations and give us added confidence that the industry as a whole has continued and will continue to make progress in this play. Specifically, the average IP rate of the producing non-op wells that are near us, that we have an interest in, has been about 1,100 barrels of oil a day, not including gas. Include gas as over 1,300 barrel of oil equivalent. So it's an early stage play and, as I said, we're very happy to be there.Our field services unit continues to work on several initiatives they have the potential to improve, realize prices and margins in all of our plays. Our first compression natural gas facility is expected to be in service by end of this quarter at El Halcón. We'll use CNG to displace diesel fuel. This isn't only green but is also could result in a nearly 50% savings on fuel cost in frac-ed jobs and with drilling rigs.
We expect to build similar facilities and service operations at the Williston Basin and in the TMS next year.
HFS continues to provide low pressure gathering services in El Halcón and plans to support the TMS by building a 3-phase gathering system in centralized gathering facilities located throughout the play where we have clusters of wells.
Centralized aggregation points are expected to reduce the overall cost of facilities and allow for more efficient transportation of both crude oil natural gas and produced water.
Our central facilities will be located with access to one or more gas pipelines as well. The system design and layout are both substantially complete, and we plan to begin permitting for a processing plant at our facilities during this quarter. We also continue to develop a crude oil handling facility at the Port of Natchez in Mississippi. This is in the planning stage. That will be a facility capable of handling truck and pipe offloading from the TMS. And to market the crude via barge on Mississippi River or by rail. We're working on that as we speak as well.
As mentioned, we have sold certain non-core assets in East Texas for about $450 million during the second quarter, which had an effect on our borrowing base of a reduction of about $100 million to our current base of $700 million. And, as previously disclosed, we also announced the signing and the closing of a agreement with Apollo Global management, which may invest up to $400 million in our wholly-owned subsidiary, HK TMS.
In about mid-June of this year, Apollo did fund the first phase and contributed $150 million in cash consideration for 150,000 of HK TMS preferred shares, and they can acquire an additional 250,000 preferred shares of HK TMS on the same terms.
Lease acquisition, seismic, infrastructure and other came in at about $224 million for the quarter. As part of our agreement with Apollo, we accelerated about $127 million payment to Encana on the acquisition of certain properties perspective for the TMS. We had originally planned on deferring these payments throughout 2014 and then 2015, but that was accelerated. We expect lease acquisition, seismic and infrastructure expenditures to be significantly lower for the remainder of the year.
Jason A. Wangler - Wunderlich Securities Inc., Research Division
I'm curious on the Black Stone well. You just kind of give us a little bit of indication of the well was pumped all through the frac stages, but then there was some issues. Do you have an idea yet of how -- will the frac stages still be able to go off? Or will that shortened kind of the effective laterals? Or just kind of give us some color on that?
Floyd C. Wilson - Chairman and Chief Executive Officer
We don't know yet. All the -- I think there are 22 stages, they're all frac-ed well. We are just in that clean out process and we'll start flow back here. We're just not quite there.
Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division
So, Floyd, just wondering what you've seen so far in these 3 TMS wells. Obviously, just the one you have down and, obviously, you've got a lot going on right now. As your thoughts changed as far as the way you're going to obviously drill and complete these? A lot of these guys talking about, above or below the rubble zone? Just wonder what you've seen -- 2 questions around this. Have your thoughts changed on how you want to sort of tackle these? And number two, just -- you had early EUR estimates sort of on your type curve -- is that changed either?
Floyd C. Wilson - Chairman and Chief Executive Officer
It's pretty interesting what's going on there, and Charles can add to this if there's something to be added. But you've got 3 operators running multiple rigs there now. All of those operators are targeting about the same area, if there aren't any other conditions that direct you to go somewhere else in terms of the placement of lateral. And the operators are actually a pretty tight range of frac job volumes of proppant and water. There are some differences, but -- so what you've got is currently everyone's following fairly similar programs and you're going to see more comparable results across the industry going forward than you've been able to see in the past between targeting and small fracs and large fracs and slickwater back in the day. It's just hasn't been as consistent as it is right now. Our thoughts on the type curve remain exactly where they've been. Our thoughts on cost remained at -- it's a tough nut to crack down here, but we expect to significantly reduced cost over a couple of years. And we haven't changed our thoughts along those lines at all. Anything else, Charles?
Charles E. Cusack - Chief Operating Officer and Executive Vice President
No, that's pretty well covered it.
Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division
And then as more -- with almost 20 rigs in the play, it seems like that play is just being delineated much greater. I know you've concentrated your position in a -- that 100,000 acres and where it's located. Any opportunities to expand in that area and/or even in the TMS, as some of that play has moved a little bit to the Southeast into especially Tangipahoa?
Floyd C. Wilson - Chairman and Chief Executive Officer
Well, again, the acreage is pretty tight in the TMS, and we have so much that it would be like gluttony to just to think we have to have more. And at El Halcón, we were probably a little too conservative when we drew our map the first time. And I mean, we outlined a bull's-eye there. That has been 100% accurate, but our bull's-eye could have been a little bit larger. Some of the smart Companies who come in there and bought land all around the edges of where our bull's-eye was and they're doing quite well. So it's very tight there too. So I -- we're always looking in any of our areas, but we're not seeing any large deals in the Williston or the TMS, or in El Halcón that are in the area that we'd want to be and at this time.
Robert Bellinski - Morningstar Inc., Research Division
Okay. And then in the TMS, how many core samples do you expect to recover? And are those just planned for Wilkinson County at this point? Or are you looking to pull some samples across your position? And then as a follow-up, do you guys have any preliminary thoughts that you can share at this point?
Floyd C. Wilson - Chairman and Chief Executive Officer
We just record 200 feet of continuous conventional core in the Smith well. And that was an area of the play that did not previously have conventional core. But between us and the other operators, there's about 10 cores now. Few other operators would be getting a couple of others that we'll have access to, so that we don't plan on taking any others near-term right now. But we got fantastic data in the Smith well, in the core, and all the modern suite of logs we ran in. That well maps out as being having one of the highest original oil in place of any well in the whole field .
Dan McSpirit - BMO Capital Markets Canada
A question on the TMS. If we look out 12 months from now, on the play, what should we expect to see in terms of drilling complete cost, production profiles and maybe ultimate recoveries? That's a, I guess, it's a long way of asking about expectations on fuel level of returns. And how they're expected to change? And what is the internal hurdle at the company that is the internal rate at the company that needs to be met?
Floyd C. Wilson - Chairman and Chief Executive Officer
Well, taking this in reverse order, the -- our internal hurdle is our published type curve. And the cost side of that is to get the cost down within 2 years from where they are down to that under $12 million range, somewhere within that range. We're very comfortable. We're going to make it on the production side, and that the industry is going to make it by the way. The costs -- it's a tough deal down there, and it's a hard area to drill in and hard area to complete wells in. But I think 1 year out, you would expect to see less trouble from all the operators. You'd expect to see more consistency in terms of completion, design and targeting because we're all conversely -- we've got a really awesome information sharing agreement with the other large operators in the play, and we're very open and supportive with all of them. They're great, great people to be in business with. So I think you're going to see a steady inching down of cost. And if it follows the pattern of these other plays, Dan. You have to understand that the type curves in other basin started out at where there's 300,000 barrels or 2 or 3 Bs or something, and I didn't find the best wells early. They didn't find the best geologic spot early, nor did they find the best completion technology early. So I'd be surprised if there's not a few million barrel wells down in here within the next year, but I don't know that.
Jeffrey W. Robertson - Barclays Capital, Research Division
Floyd, just a question on Halcón Field Services. Can you talk in a little bit more detail about the port -- oil handling facility at Natchez and how you -- what kind of capital you might have for that in 2015? And is there an initial number of barrels that you plan to be able to handle in that project? And then lastly, would you, at some point, start to look for a partner to come in and help that project like you all did back in the Haynesville?
Floyd C. Wilson - Chairman and Chief Executive Officer
The capital associated with this best project, if it's fully -- if it's gets fully built, as what we examine -- as what we think, it's not that much. So for right now, the idea is to get your crude oil away from a local market, which would be a truck market controlled by refiners and perhaps local buyers, and get it floating on the Mississippi river or get it to a rail to where it can be used for others. Most of refining capacity in the United States is available to that area. It can be used for blending or whatever. So for now, we're doing all the planning. We've acquired some land and, which is very small amounts of money. We haven't really published the numbers on that, but it wouldn't happen until later in '15 in terms of the spend, but it could be $15 million or $20 million initially. And it's not a ton of money and -- but what you could find yourself is gaining dollars per barrel in terms of price discovery as opposed to just spending money. And so I -- we're really high on it. What we've done in the past, is make sure that if an idea is going to -- is working that we built far enough out that our own plans are going to be served, if you bring someone in that maybe has a different capital plan in sales or something. So it's so premature to talk about bringing anyone in and anything like that, but we would intend to get storage capacity up pretty high in the hundreds of thousands of barrels. We would think that it would be a good outlook for others, but it's early to get into that.
Jeffrey W. Robertson - Barclays Capital, Research Division
Then one other question, Floyd. Have you all learned anything from your activity in the TMS that makes you thing differently about the acreage you have over to the West?
Floyd C. Wilson - Chairman and Chief Executive Officer
No, we just have so much acreage in Wilkinson County, just South of Wilkinson County. We just don't have to think about that acreage to the West for some longtime. What we've learned is that we had a really good show there, and we lost a well before we were able to get the full things drilled, but we had a really good show. It's a different part of the basin. It's a little hotter. It's a little gassier. A lot of crude oil over there, but we just don't have to -- we're just not going over there right now. I mean, it's pretty interesting, but it's just not on our radar screen this year or next for sure.
Andrew Coleman - Raymond James & Associates, Inc., Research Division
Okay. And then, I guess, if we look at the oil mix, I mean, at this point, the differentials are primarily, I guess, skewed by Bakken barrels at this point. I think that was your previous discussion, one of the questions, a couple of seconds ago. But as you bring on the extra TMS barrels in that, do you have a view as to where differentials may trend to, aside from tighter?
Floyd C. Wilson - Chairman and Chief Executive Officer
Well, we're going to expect that -- if you just think of this in a general sense. Since it's closer to refineries, both El Halcón and the TMS and the Williston Basin, it's always going to be a price advantage just because of the simple cost to transportation. In terms of Louisiana Light brand, heavy crude from the Canada or -- and all this stuff, I don't know about all that is, it's a pretty complex thing that's going on. We just think that, that area is going to be -- have a small advantage over other areas just because of its location.

SOURCE:
http://seekingalpha.com/article/2367725-halcon-resources-hk-ceo-floyd-wilson-on-q2-2014-results-earnings-call-transcript

2 comments:

  1. There is a rumor of a salt water problem in Beech Grove and possibly the SLC. Is this possible or just unfounded rumor? I didn't think they could have a salt water intrusion problem unless they got into the Tuscaloosa sands.

    ReplyDelete
  2. FM,
    I would expect thorough details from Goodrich on Thursday during their earnings call.

    ReplyDelete