Morningstar | Halcon Misses Guidance on Power Reliability and Weather Issues
Halcon delivered production of 12.8 thousand barrels of oil equivalent per day, or mboe/d, in the second quarter, which was 16% higher sequentially but below the bottom end of guidance. While the firm did recently drop to three rigs from four due to Midland Basin pricing weakness (announced previously), this did not take place until July and had no impact on the second quarter. Instead, the disappointment was attributed to downtime triggered by power reliability issues and inclement weather. With normal operations, management estimates that second-quarter volumes would have come in at 13.3 mboe/d, which is below the midpoint but within the range of prior guidance.Current production has risen to 13.8 mboe/d, and full-year guidance was lowered to 14-16 mboe/d (from 15-20 mboe/d, reflecting the operating issues in the second quarter as well as the impact of reducing the rig count). At the midpoint, approximately 68% of this is expected to be oil, implying second half oil volumes of about 11.9 mbbls/d to be sold at Midland-linked prices. Almost all of this is protected by WTI hedges, and in addition the firm has established 8 mbbls/d of Midland-Cushing basis hedges for the remainder of the year (rising to 12 mbbls/d for the first half of next year). Thus, then by dialing back on planned growth and layering basis hedges, the firm has minimized its remaining exposure to regional takeaway bottlenecks, which are likely to be alleviated in the second half of next year.
We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain 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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