Photo credit: Flickr/Dawn Huczek
Halcon Resources (HK) delivered very strong first-quarter results last week. The company beat analysts' earnings expectations by a penny as its production soared. Let's take a closer look at what fueled Halcon Resources' successful results.
Mother Nature was no match
Despite rough winter weather Halcon Resources was able to deliver production that was actually 3% above what analysts' were expecting. That's pretty surprising as peers like Kodiak Oil & Gas (NYSE: KOG) actually blamed the weather as the reason why it missed production guidance in the first quarter.
(HK)
In fact, first quarter production for Kodiak Oil & Gas actually dropped 6% sequentially. That drop in production was so significant that Kodiak Oil & Gas doesn't think it will be able to meet its previous production guidance for the full year. Meanwhile, Halcon Resources actually saw its Bakken production surge 73% over last year's first quarter achieving a rate that was 7% above its own guidance for the quarter.
(HK)
Strong well results really led the way for Halcon Resources. Instead of being forced to drill weaker wells in the dead of winter just to hold on to leases like Kodiak Oil & Gas, we saw Halcon Resources drill some of its best wells last quarter. The company's wells in its Fort Berthold area saw a 32% surge in the average 30-day initial production rates compared to wells drilled just last quarter.
(HK)
Looking ahead, Halcon Resources sees continued improvement in its well economics in the play. It's on pace to reduce its well costs by 5%-10% by the end of the year while also expecting to see continued strong initial production rates. As the following slide notes, Halcon Resources continues to optimize its drilling in order to improve its economic results.
(HK)
(HK)
Source: Halcon Resources Investor Presentation (Link opens a PDF)
(HK)
In addition to strong Bakken Shale results, Halcon Resources also enjoyed strong results in its El Halcon play in East Texas. Production was up 843% over the first quarter of last year. Strong 30-day initial production rates that were 11% higher than last quarter helped lead the surge in production. The company still believes it still has room for improvement as it hasn't yet found the optimal lateral well length in this part of the play, suggesting future well results could come in at even stronger rates.
(HK)
Looking ahead
Investors can expect to see continued strong growth from both of those two core plays. But next up is the company's initial well results in the Tuscaloosa Marine Shale. Halcon Resources is expecting big results from the first well it drilled in the play (though CEO Floyd Wilson used more colorful language on the company's conference call to describe what he expects to see).
(HK)
That first well is the Horseshoe Hill 11-22H-1 well, which was drilled to a total depth of 21,171 feet in just 39 days. The company expects to see report results from that well later this year. That's just the first of many as the company expects to drill a total of 10 to 12 operated wells in the play this year while participating with industry partners on 15-20 nonoperated wells.
(HK)
The hope is that Halcon's position will have well results that turn out as well as those drilled by peers like Goodrich Petroleum (NYSE: GDP). As the following slide notes many of Goodrich Petroleum's Tuscaloosa Marine Shale wells turned in 24-hour initial production rates of more than 1,000 barrels of oil equivalent.
(HK)
(HK)
Source: Goodrich Petroleum Investors Presentation (Link opens a PDF)
(HK)
Halcon Resources has amassed a similarly sized lease position as Goodrich Petroleum in the play. Moreover, a good portion of its leases are in the drilling core seen in the above map. That's why Halcon Resources is so excited about the play and its ability to fuel future growth.
(HK)
Investor takeaway
Halcon Resources is off to a really good start to 2014. It was able to do a much better job weathering the winter than peers like Kodiak Oil & Gas. Moreover, its future looks solid as the company has three oil-rich plays that it can use to fuel future growth for its investors.
