Halcon Resources: Resources Announces Third Quarter 2016 Results

The following excerpt is from the company's SEC filing.

HOUSTON, TEXAS — November 9, 2016 — Halcón Resources Corporation (NYSE:HK) (“Halcón” or the “Company”) today announced its third quarter 2016 results.

Production for the three months ended September 30, 2016 averaged 34,185 barrels of oil equivalent per day (Boe/d).  Production was comprised of 76% oil, 13% natural gas liquids (NGLs) and 11% natural gas for the quarter.  The Company shut-in approximately 7,000 Boe/d of net production during the third quarter due to low commodity prices.  This production was brought back online in early October 2016.  Halcón expects fourth quarter net production to be betwee n 39,000 and 41,000 Boe/d and D&C capex to be approximately $45 to $50 million.

Halcón generated total revenues of $102.5 million for the third quarter of 2016.  In addition,

Halcón realized a net gain on settled derivative contracts of $80.0 million during the quarter.

Excluding the impact of hedges, Halcón realized 89% of the average NYMEX oil price, 18% of the average NYMEX oil price for NGLs and 54% of the average NYMEX natural gas price during the third quarter of 2016.

Total operating costs per unit were $24.89 per Boe during the third quarter.  After adjusting for selected items, total operating costs per unit (

see Selected Operating Data table for additional information), were $17.33 per Boe and $17.12 per Boe for the three and nine months ended September 30, 2016, respectively, a 5% decline from the nine month period ended a year earlier.

Liquidity and Capital Spending

As of September 30, 2016

Halcón’s liquidity was approximately $369 million, which consisted of $367 million of undrawn capacity on the Company’s revolver plus $2 million in cash and cash equivalents.  The Company’s senior revolving credit facility is scheduled for its next borrowing base redetermination in May of 2017.  Based on current strip pricing, Halcón is anticipated to generate positive cash flow for the remainder of 2016 and be approximately break-even for 2017 based on its preliminary 2017 drilling plan of one rig growing to two rigs in April of 2017.

During the third quarter of 2016, the Company incurred capital costs of $36 million on drilling and completions, and $2 million on infrastructure, seismic and leasehold acquisitions.  In addition, Halcón incurred $18 million for capitalized interest, G&A and other in the third quarter.

Hedging Update

Halcón has 26,000 Bbl/d of oil hedged for the last three months of 2016 at an average price of $76.60 per barrel.  For 2017, the Company has 14,750 Bbl/d of oil hedged at an average price of $55.02 per barrel. 

Halcón estimates the pre-tax mark-to-market value of its hedge portfolio to be approximately $92 million as of November 7, 2016.

Operations Update

The Company is currently running 1 operated rig in the Fort Berthold area of the Williston Basin and plans to keep this rig running there through 2017.  Halcón is tentatively planning to add a second operated rig in the Williston Basin in April of 2017 depending on oil prices and other factors.  This second rig will initially drill a 5 well pad in the Company’s Williams County area before moving to the Fort Berthold area. 

Halcón currently has 16 wells in the Bakken being completed or waiting on completion.

Bakken/Three Forks

The Company operated an average of 1 rig in the Williston Basin during the third quarter of 2016.

Halcón spudded 6 wells and put 2 wells online in the Fort Berthold area of the Williston Basin during the three months ended September 30, 2016.  The Company participated in 15 non-operated wells with an average working interest of 9% during the third quarter.  Production averaged 25,231 Boe/d during the third quarter of 2016 in the Williston Basin including the impact of approximately 7,000 boe/d shut in during the quarter.

Halcón currently has working interests in approximately 119,000 net acres prospective for the Bakken and Three Forks formations in the Williston Basin, substantially all of which is held by production (HBP).  With one operated rig running, the Company plans to spud 7 gross operated wells with an average working interest of approximately 89% and expects to put approximately 15 gross operated wells online over the remaining three months of 2016.  Halcón also expects to participate in 5 to 10 gross non-operated wells over the last three months of 2016 with an average working interest of approximately 5%.  Halcón expects operated wells put online over the remainder of 2016 and 2017 in Fort Berthold to have an average EUR in excess of 900 MBoe.  The Company expects the wells it puts online in Williams County in 2017 to have average EURS in excess of 700 MBoe.  The Company estimates it has approximately 100 gross operated locations that are economic at current strip pricing in Williams County.  Current operated drilling and completion costs are anticipated to be $5.9 million in Fort Berthold and $5.2 million in Williams County.

Halcón is currently the operator of 216 producing Bakken wells and 68 Three Forks wells.

“El Halcón” - East Texas Eagle Ford

The Company did not run an operated rig in El Halcón during the third quarter of 2016 and no wells were put online during the quarter.  Halcón anticipates adding a rig back to this area when oil prices improve.  Halcón is currently evaluating the impact of enhanced frac designs on its El Halcón acreage with the goal of improving ultimate recoveries and economics.

Halcón currently has working interests in approximately 80,000 net acres prospective for the Eagle Ford formation in East Texas, approximately 82% of which is HBP.  The Company currently operates 112 El Halcón wells. Production for the quarter averaged 6,693 Boe/d in the El Halcón area.

Fresh Start Accounting

Halcón adopted fresh-start accounting as of September 9, 2016, the effective date of its emergence from chapter 11 bankruptcy proceedings, resulting in the Company becoming a new entity for financial reporting purposes.  Upon the adoption of fresh-start accounting, Halcón’s assets and liabilities were recorded at their fair values as of the fresh-start reporting date, and as a result the Company’s unaudited condensed consolidated financial statements subsequent to September 9, 2016 may not be comparable to its financial statements prior to September 9, 2016.  Please review Halcón’s Form 10-Q for the third quarter of 2016 for further details regarding fresh-start accounting and the financial information presented at the end of this release.

Conference Call Information

Halcón Resources Corporation has scheduled a conference call for Thursday, November 10, 2016, at 10:00 a.m. EST (9:00 a.m. CST).  Investors may participate in the conference call via telephone by dialing (877) 810-3368 for domestic callers or (914) 495-8561 for international callers, in both cases using conference ID 94707346, and asking for the Halcón call a few minutes prior to the start time.

The conference call will also be webcast live over the Internet on the Company’s website at http://www.halconresources.com in the Investor Relations section under Events & Presentations.

About Halcón Resources

is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States.

For more information contact Quentin Hicks, Senior Vice President of Finance & Investor Relations, at 832-538-0557 or qhicks@halconresources.com.

Forward-Looking Statements

This release

may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as “expects”, “believes”, “intends”, “anticipates”, “plans”, “estimates”, “potential”, “possible”, or “probable” or statements that certain actions, events or results “may”, “will”, “should”, or “could” be taken, occur or be achieved.  This release may also use the term “EUR” to describe estimates of potentially recoverable hydrocarbons that the SEC rules prohibit from being included in filings with the SEC. These are based on the Company’s internal estimates of hydrocarbon quantities that may be potentially discovered through exploratory drilling or recovered with additional drilling or recovery techniques. These quantities do not constitute “reserves” within the meaning of the Society of Petroleum Engineer’s Petroleum Resource Management System or SEC rules and are subject to substantially greater uncertainties relating to recovery than reserves. “EUR,” or Estimated Ultimate Recovery, refers to our management’s internal estimates based on per well hydrocarbon quantities that may be potentially recovered from a hypothetical future well completed as a producer in the area. For areas where the Company has no or very limited operating history, EURs are based on publicly available information relating to operations of producers operating in such areas.  For areas where the Company has sufficient operating data to make its own estimates, EURs are based on internal estimates by the Company’s management and reserve engineers. Forward-looking statements are based on current beliefs and expectations and involve certain assumptions or estimates that involve various risks and uncertainties that could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, effects on market price of the Company’s common stock and on the Company’s ability to access the capital markets, and the risks set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and other filings submitted by the Company to the SEC, copies of which may be obtained from the SEC’s website at www.sec.gov or through the Company’s website at www.halconresources.com.  Readers should not place undue reliance on any such forward-looking statements, which are made only as of the date hereof. The Company has no duty, and assumes no obligation, to update forward-looking statements as a result of new information, future events or changes in the Company’s expectations.

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)

Successor

Predecessor

Period from

September 10, 2016

July 1, 2016

Three Months

September 30, 2016

September 9, 2016

September 30, 2015

Operating revenues:

Oil, natural gas and natural gas liquids sales:

21,260

74,002

121,845

Natural gas

Natural gas liquids

Total oil, natural gas and natural gas liquids sales

22,881

79,100

129,518

Total operating revenues

23,107

79,347

129,939

Operating expenses:

Production:

Lease operating

12,473

22,248

Workover and other

Taxes other than income

12,102

Gathering and other

Restructuring

General and administrative

16,681

17,317

21,027

Depletion, depreciation and accretion

25,618

77,071

Full cost ceiling impairment

420,934

511,882

Total operating expenses

456,832

77,122

658,624

Income (loss) from operations

(433,725

(528,685

Other income (expenses):

Net gain (loss) on derivative contracts

(7,575

17,783

204,621

Interest expense and other, net

(5,479

(16,136

(57,977

Reorganization items

913,722

Gain (loss) on extinguishment of debt

535,141

Total other income (expenses)

(13,610

915,369

681,785

Income (loss) before income taxes

(447,335

917,594

153,100

Income tax benefit (provision)

(3,357

(6,025

Net income (loss)

(450,692

926,260

147,075

Series A preferred dividends

(2,451

(4,196

Preferred dividends and accretion on redeemable noncontrolling interest

(7,388

(19,351

Net income (loss) available to common stockholders

(451,483

916,421

123,528

Net income (loss) per share of common stock:

Diluted

Weighted average common shares outstanding:

91,071

120,905

117,211

151,876

150,958

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Continued)

January 1, 2016

Nine Months

248,064

404,368

17,595

10,572

265,504

432,535

266,843

434,157

50,032

81,266

22,507

11,614

24,453

37,246

29,279

30,583

83,641

68,098

120,555

297,409

754,769

2,014,518

Other operating property and equipment impairment

28,056

1,118,460

2,543,398

(851,617

(2,109,241

(17,998

216,805

(122,249

(180,206

81,434

557,907

Gain (loss) on extinguishment of Convertible Note and modification of February 2012 Warrants

(8,219

854,909

586,287

(1,522,954

(6,224

11,958

(1,529,178

(8,847

(13,999

(35,905

(39,069

(32,794

(1,582,246

(15.28

120,513

103,525

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share amounts)

December 31, 2015

Current assets:

Accounts receivable

125,244

173,624

Receivables from derivative contracts

70,835

348,861

Restricted cash

16,812

Prepaids and other

Total current assets

205,968

556,593

Oil and natural gas properties (full cost method):

Evaluated

1,202,727

7,060,721

Unevaluated

329,218

1,641,356

Gross oil and natural gas properties

1,531,945

8,702,077

Less - accumulated depletion

(429,361

(5,933,688

Net oil and natural gas properties

1,102,584

2,768,389

Other operating property and equipment:

Gas gathering and other operating assets

38,097

130,090

Less - accumulated depreciation

(22,435

Net other operating property and equipment

37,894

107,655

Other noncurrent assets:

16,614

Debt issuance costs, net

Funds in escrow and other

Total assets

1,351,048

3,458,692

Current liabilities:

Accounts payable and accrued liabilities

170,992

295,085

Liabilities from derivative contracts

Total current liabilities

177,345

295,248

Long-term debt, net

1,004,524

2,873,637

Other noncurrent liabilities:

Asset retirement obligations

31,082

46,853

Commitments and contingencies

Mezzanine equity:

Redeemable noncontrolling interest

183,986

Stockholders’ equity:

Predecessor Preferred stock: 1,000,000 shares of $0.0001 par value authorized; 244,724 shares of 5.75% Cumulative Perpetual Convertible Series A, issued and outstanding

Predecessor Common stock: 1,340,000,000 shares of $0.0001 par value authorized; 122,523,559 shares issued and outstanding

Predecessor Additional paid-in capital

3,283,097

Successor Common stock: 1,000,000,000 shares of $0.0001 par value authorized; 92,638,093 shares issued and outstanding

Successor Additional paid-in capital

584,310

Retained earnings (accumulated deficit)

(3,230,695

Total stockholders’ equity

132,836

52,414

Total liabilities and stockholders’ equity

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

through

Ended

Cash flows from operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Share-based compensation, net

13,196

Unrealized loss (gain) on derivative contracts

30,338

39,451

(89,741

Amortization and write-off of deferred loan costs

Non-cash interest and amortization of discount and premium

(929,084

Loss (gain) on extinguishment of debt

(535,141

Accrued settlements on derivative contracts

(22,695

23,072

(11,022

Other income (expense)

(8,206

Cash flow from operations before changes in working capital

81,928

106,186

Changes in working capital

11,347

(49,323

Net cash provided by (used in) operating activities

12,322

32,605

114,664

Cash flows from investing activities:

Oil and natural gas capital expenditures

(10,289

(56,359

(123,990

Other operating property and equipment capital expenditures

(2,435

Funds held in escrow and other

(1,721

Net cash provided by (used in) investing activities

(12,241

(56,397

(126,449

Cash flows from financing activities:

Proceeds from borrowings

30,000

461,000

283,000

Repayments of borrowings

(32,000

(332,000

(263,000

Cash payments to Noteholders and Preferred Holders

(10,013

(97,521

(7,091

(4,656

Offering costs and other

Net cash provided by (used in) financing activities

(12,013

30,562

Net increase (decrease) in cash

(11,932

(3,719

Cash at beginning of period

13,943

Cash at end of period

Supplemental cash flow information:

Cash paid (received) for reorganization items

15,362

Disclosure of non-cash investing and financing activities:

Accrued capitalized interest

(21,579

Preferred dividends on redeemable noncontrolling interest paid-in-kind

3,209

Accretion of redeemable noncontrolling interest

16,142

Accrued debt issuance costs

Third Lien Notes issued on conversion of senior notes

1,017,994

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

11,245

263,732

93,972

(81,434

(557,907

Loss (gain) on extinguishment of Convertible Note and modification of February 2012 Warrants

(37,803

(4,233

177,081

314,311

(1,733

17,883

175,348

332,194

(226,617

(531,741

(9,913

(227,774

(538,666

886,000

1,579,000

(727,648

(1,392,000

(1,977

(25,703

Common stock issued

15,354

(2,982

58,343

169,013

(37,459

43,713

(23,966

Series A preferred dividends paid in common stock

26,576

Change in fair value of redeemable noncontrolling interest

Common stock issued on conversion of senior notes

231,383

SELECTED OPERATING DATA

Three Months Ended September 30,

Nine Months Ended September 30,

Production volumes:

Crude oil (MBbls)

Natural gas (MMcf)

Natural gas liquids (MBbls)

Total (MBoe)

10,007

11,383

Average daily production (Boe/d)

40,739

36,522

41,696

Average prices:

Crude oil (per Bbl)

Natural gas (per Mcf)

Natural gas liquids (per Bbl)

Total per Boe

Cash effect of derivative contracts:

Average prices computed after cash effect of settlement of derivative contracts:

Average cost per Boe:

Gathering and other, as adjusted

General and administrative, as adjusted

(1) Represents gathering and other and general and administrative costs per Boe, adjusted for items noted in the reconciliation below:

General and administrative:

General and administrative, as reported

Share-based compensation:

Transaction costs, key employee retention agreements and other:

Gathering and other, as reported

Rig termination / stacking charges

Total operating costs, as reported

Total adjusting items

Total operating costs, as adjusted

(2) Represents lease operating, workover and other expense, taxes other than income, gathering and other expense and general and administrative costs per Boe, adjusted for items noted in reconciliation above.

(3) For illustrative purposes, the Company has combined the Successor and Predecessor results to derive combined results for the three and nine-month periods ended September 30, 2016. The combination was generated by addition of comparable financial statement line items. However, because of various adjustments to the consolidated financial statements in connection with the application of fresh-start reporting, including asset valuation adjustments and liability adjustments, the results of operations for the Successor may not be comparable to those of the Predecessor. The financial information preceding the table above provides the Successor and the Predecessor GAAP results for the applicable periods. The Company believes that subject to consideration of the impact of fresh-start reporting, combining the results of the Predecessor and Successor provide meaningful information about, for instance, production, revenues and costs, that assist a reader in understanding the Company’s financial results for the applicable periods.

SELECTED ITEM REVIEW AND RECONCILIATION (Unaudited)

As Reported:

Net income (loss) available to common stockholders, as reported

Net income (loss), as reported

Impact of Selected Items:

Unrealized loss (gain) on derivatives contracts:

30,323

39,271

(90,760

Total mark-to-market non-cash charge

Deferred financing costs expensed, net

(913,722

Rig termination / stacking charges, key employee retention agreements, transaction costs and other

Selected items, before income taxes

452,752

(871,592

(109,056

Income tax effect of selected items

(16,843

Selected items, net of tax

(125,899

As Adjusted:

Net income (loss) available to common stockholders, excluding selected items

54,668

21,176

Interest on convertible debt, net

Net income (loss) available to common stockholders after assumed conversions, excluding selected items

56,191

Basic net income (loss) per common share, as reported

Impact of selected items

items

Diluted net income (loss) per common share, as reported

Diluted net income (loss) per common share, excluding selected items 

(3)(4)

(11,347

(8,478

Cash components of selected items

23,615

13,830

(1,040

Cash flow from operations before changes in working capital, adjusted for selected items

24,590

82,734

118,976

Represents charges related to the write-off of debt issuance costs associated with the Predecessor Credit Agreement.

For the 2016 (Successor) columns, this represents tax impact using an estimated tax rate of 0.0% due to the Company maintaining a full valuation allowance. For the 2015 (Predecessor) column, this represents tax impact using an estimated tax rate of 37.04%. This column also includes an adjustment for the change in valuation allowance of $(57.2 million) for the three months ended September 30, 2015 (Predecessor).

Net income (loss) and earnings per share excluding selected items and cash flow from operations before changes in working capital adjusted for selected items are non-GAAP measures presented based on management’s belief that they will enable a user of the financial information to understand the impact of these items on reported results. Additionally, this presentation provides a beneficial comparison to similarly adjusted measurements of prior periods. These financial measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income, earnings per share and cash flow from operations, as defined by GAAP. These financial measures may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Halcón’s performance.

The impact of selected items for the period of September 10, 2016 through September 30, 2016 (Successor) and the period of July 1, 2016 through September 9, 2016 (Predecessor) was calculated based upon weighted average diluted shares of 91.1 million and 151.9 million, respectively, due to the net income available to common stockholders, excluding selected items. The impact of selected items for the three months ended September 30, 2015 (Predecessor) was calculated based upon weighted average diluted shares of 117.2 million, due to the net income available to Predecessor common stockholders excluding selected items.

SELECTED ITEM REVIEW AND RECONCILIATION (Unaudited) (Continued)

262,813

90,150

40,689

20,083

100,840

1,582,752

(39,517

1,543,235

Net income (loss) available to common stockholders, excluding selected items

112,798

14,057

10,778

123,576

(17,883

66,092

54,849

(6,314

243,173

362,846

For the 2016 (Successor) columns, this represents tax impact using an estimated tax rate of 0.0% due to the Company maintaining a full valuation allowance. For the 2015 (Predecessor) column, this represents tax impact using an estimated tax rate of 37.04%. This column also includes an adjustment for the change in valuation allowance of $546.7 million for the nine months ended September 30, 2015 (Predecessor).

Net income (loss) and earnings per share excluding selected items and cash flow from operations before changes in working capital adjusted for selected items are non-GAAP measures presented based on management’s belief that they will enable a user of the financial information to understand the impact of these items on reported results. Additionally, this presentation provides a beneficial comparison to similarly adjusted measurements of prior periods. These financial measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income, earnings per share and cash flow from operations, as defined by GAAP. These financial measures may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Halcón’s performance.

The impact of selected items for the period of September 10, 2016 through September 30, 2016 (Successor) and the period of January 1, 2016 thorugh September 9, 2016 (Predecessor) was calculated based upon weighted average diluted shares of 91.1 million and 144.3 million, respectively, due to the net income available to common stockholders, excluding selected items. The impact of selected items for the nine months ended September 30, 2015 (Predecessor) was calculated based upon weighted average diluted shares of 103.6 million, due to the net income available to Predecessor common stockholders excluding selected items.

EBITDA RECONCILIATION (Unaudited)

475,568

(438,734

29,780

57,259

132,933

174,666

34,669

129,606

1,175,703

Other operating property and equipment impairment

Income tax provision (benefit)

(5,309

14,420

18,072

Interest income

(Gain) loss on sale of other assets

970,641

802,380

1,040,724

976,175

Impact of non-recurring items:

(913,166

Loss (gain) on mark-to-market of embedded derivative and tranche rights

(8,754

(5,734

69,789

294,070

37,883

Adjusted EBITDA

127,950

181,067

386,975

539,131

(1)  EBITDA and Adjusted EBITDA are non-GAAP measures. These financial measures are presented based on management’s belief that they will enable a user of the financial information to understand the impact of these items on reported results. Additionally, this presentation provides a beneficial comparison to similarly adjusted measurements of prior periods. These financial measures are not measures of financial performance under GAAP and should not be considered as an alternative to GAAP. These financial measures may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Halcón’s performance.

(2) For illustrative purposes, the Company has combined the Successor and Predecessor results to derive combined results for the three and nine-month periods ended September 30, 2016. The combination was generated by addition of comparable financial statement line items. However, because of various adjustments to the consolidated financial statements in connection with the application of fresh-start reporting, including asset valuation adjustments and liability adjustments, the results of operations for the Successor may not be comparable to those of the Predecessor. The financial information preceding the table above provides the Successor and the Predecessor GAAP results for the applicable periods. The Company believes that subject to consideration of the impact of fresh-start reporting, combining the results of the Predecessor and Successor provide meaningful information about, for instance, production, revenues and costs, that assist a reader in understanding the Company’s financial results for the applicable periods.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

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