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Why Halcon Resources Corp. Stock Popped Today

By Matthew DiLallo - Aug 2, 2018 at 3:39PM

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The oil and gas driller unveiled a pleasant surprise.

What happened

Shares of Halcon Resources Corp. (HK) rallied more than 10% by 2:30 p.m. EDT on Thursday after the company reported a surprise profit in the second quarter.

So what

Halcon Resources generated $24.2 million, or $0.15 per share, of adjusted net income in the second quarter. That profit caught the market by surprise since analysts expected the company to report a loss of $0.05 per share. What made that result even more impressive was that inclement weather and some power-reliability issues hurt production in the second quarter. Because of those problems, output averaged 12,769 barrels of oil equivalent per day (BOE/D), which came in below the low end of its 13,000 to 14,000 BOE/D guidance range. However, Halcon was able to offset its production troubles by capturing higher oil prices.

Oil workers at a drilling rig site.

Image source: Getty Images.

Halcon also unveiled its revised full-year production outlook. This change came as a result of its decision in June to reduce its rig count in the Permian Basin from four to three due to pipeline constraints in the region. With fewer rigs now operating, the company anticipates that full-year output will average between 14,000 to 16,000 BOE/D, down from its prior range of 15,000 to 20,000 BOE/D.

Halcon addressed that infrastructure issue by securing space for its oil on a new pipeline via a comprehensive takeaway solution agreement with Salt Creek Midstream. The deal will enable the company to get the majority of its oil from the Permian to the Gulf Coast when a new pipeline starts up in the second half of 2019. That contract will ensure that the company has access to the infrastructure it needs so it can reaccelerate its drilling activities later next year. 

Now what

Halcon is still in the early stages of developing its acreage in the Permian Basin, which it anticipates will be a key growth driver. While that growth engine is slowing down in the near term due to some infrastructure issues, the company is working to address them so that it can reaccelerate. However, as intriguing as its growth potential might be, several other oil stocks look like better ones to buy right now.

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