Morningstar | Halcon Meets 3Q Guidance Despite Excess Gas Flaring
Halcon delivered production of 14.6 mboe/d in the third quarter, which was 14% higher sequentially and just above the low end of the guidance range of 14.5-15.5 mboe/d. Management commented that volumes would have been above 15.0 mboe/d if not for excessive gas flaring in the Monument Draw area, due to the unexpected loss of a third-party sales line. Though the issue is likely to be resolved within a couple of quarters via the buildout of in-house treating infrastructure, guidance for the fourth quarter was lowered to 18-20 mboe/d (from 19-21 mboe/d). Despite this underperformance the firm's financial results were in line with Street forecasts, with adjusted EBITDA and adjusted earnings per share coming in at $28 million and negative $0.06, respectively (consensus estimates were $24 million and negative $0.05). Our fair value estimate is unchanged, and after the recent sell-off the implied upside is close to 50%. However, we consider the stock fairly valued on an uncertainty adjusted basis, consistent with our 3-star rating.From a liquidity perspective we note that the previously announced sale of water infrastructure assets for $325 million ($200 million up front, with $25 million annual installments thereafter, contingent on certain incentive thresholds) is just what the doctor ordered. Though we have previously expressed concern in this regard we now agree that the firm has sufficient cash to fund a three-rig program through the end of 2020 (by which time it should be generating free cash flows).
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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