Morningstar | Halcon Announces Major Leadership Shakeup
On Feb. 21, Halcon Resources announced a slew of leadership changes. Chairman, CEO, and president Floyd Wilson and executive vice president, CFO, and treasurer Mark Mize are stepping down to pursue other opportunities, along with Steve Herod, executive vice president, corporate development. James Christmas, who currently serves as lead independent director, will become nonexecutive chairman of the board. A search process for a new CEO will be initiated shortly. In the meantime, the company will be managed by a committee led by David Elkouri, executive vice president and chief legal officer.The departures create a leadership vacuum at an inopportune time. Halcon has high-quality acreage in the Permian Basin, but it is a recent entrant to the play and its development program has not yet achieved scale. The goal is to increase production while minimizing outspending, and the recent decline in crude prices has made that more difficult. The firm does have enough liquidity to get by over the next couple of years, and it does have the potential to generate sustainable free cash flows eventually, but given its current financial leverage, there isn’t much breathing room. A further decline in commodity prices would weigh heavily on Halcon’s financials and severely inhibit its ability to deleverage and scale its operations in the Permian. That said, the same leverage also magnifies the upside for the firm and for shareholders if crude prices rise above current expectations (we currently project $55, $56, and $55 a barrel for West Texas Intermediate in the next three years).
We plan to update our valuation model after Halcon reports fourth-quarter results, but for now, our fair value estimate, no-moat rating, and extreme uncertainty rating are unchanged.
Halcon Resources is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the U.S. The company focuses on oil and natural gas acquisition, production, exploration and development in the Delaware Basin. The company's properties and drilling activities are focused in the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, TX.
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