Halcon Resources to Enter into the Delaware Basin

Source: www.gulfoilandgas.com 1/24/2017, Location: North America

Halc?n Resources Corporation (Halcon), has entered into a purchase and sale agreement with a private operator to acquire 20,748 net acres in the Southern Delaware Basin (the "Pecos County Assets") for $705 million with a November 1, 2016 effective date, in addition to entering into an option agreement to purchase an additional 15,040 net acres in Ward County, Texas from a private operator for $11,000/acre (the "Ward County Option"). Finally, Halcon also announced it has entered into a purchase and sale agreement to sell its East Texas Eagle Ford assets (El Halcon), which currently are producing approximately 6,000 net boe/d, for $500 million with a January 1, 2017 effective date. The acquisition of the Pecos County Assets, which will be funded with the proceeds of the previously announced private placement of automatically convertible preferred stock and the sale of the El Halcon assets is expected to close by early March 2017, and is subject to customary closing adjustments and conditions.

Floyd Wilson, Halcon's Chairman, CEO and President commented, "These transactions represent a strategic pivot for us into the Delaware Basin. After the consummation of these transactions, we will have core operating areas in two of the most attractive North American oil basins with decades of highly economic development drilling ahead of us. The proceeds from the sale and the equity offering provide sufficient funds to acquire the Delaware assets and fund drilling capital to grow our asset base over the next several years, while at the same time improving our leverage profile."

Acquisition Highlights

- Attractive acquisition price of ~$20,000/acre(1) (assuming Ward County Option is exercised in full)
- A significant percentage of the acreage has been de-risked by recent drilling on and around acreage
- ~85% average working interest and ~90%+ operated
- > 70% oil and ~85% liquids
- ~700 highly economic gross Wolfcamp A and Wolfcamp B drilling locations (750+ additional upside locations in the 1st, 2nd and 3rd Bone Spring and the Avalon Shale)
- 12 years of Wolfcamp A and B drilling inventory assuming a 4 rig program (24+ years including upside locations)
- Largely contiguous acreage position allows for extended lateral development (expected average lateral of > 7,500')
- Existing infrastructure valued at approximately $55 million with significant additional value opportunities
- Financing structure improves Halcon's leverage and liquidity profile
- Significantly accretive to NAV/share and future CFPS

Delaware Basin Highlights

The Pecos County Assets include 20,748 net acres in Pecos and Reeves Counties, Texas and are currently producing approximately 2,600 net boe/d. The Pecos County Assets include 495 gross Upper Wolfcamp A & B locations and 771 gross locations in the Lower Wolfcamp A, 1st, 2nd and 3rd Bone Springs and the Avalon. Based on recent drilling results, Halcon estimates the Wolfcamp A & B locations (7,500' lateral) will generate EURs of 803 Mboe and 975 Mboe, respectively, with IRRs in excess of 45% at the current strip. Halcon plans to run two rigs on the Pecos County Assets shortly after closing and may consider running as many as four rigs in 2018 depending on oil prices.

In addition to the Pecos County Assets, Halcon has entered into an agreement with a private operator for the right to purchase up to 15,040 net acres located primarily in Ward County, Texas. The Ward County assets are divided into two tracts: the Southern Tract (6,720 net acres) and the Northern Tract (8,320 net acres) with separate options for each tract. Pursuant to the terms of the agreement, Halcon is currently drilling a commitment well on the Southern Tract and has until June 15, 2017 to exercise the option on either the Southern Tract acreage or on all 15,040 net acres, in each case for $11,000/acre. If the Company initially elects only to exercise its option on the Southern Tract, it would then be required to pay $5 million and drill a commitment well on the Northern Tract by September 1, 2017 to earn an option to acquire the Northern Tract acreage for $11,000/acre by December 31, 2017.

Transaction Financing

Halcon plans to finance the acquisitions with the proceeds from the $400 million private placement as well as the divestiture of its El Halcon assets for $500 million. Excess cash from these two transactions will be used to repay the Company's revolver and put cash on its balance sheet. The closing of the private placement is contingent upon the acquisition of the Pecos County Assets. Pro forma for the acquisition of the Pecos County Assets and disposition of the El Halcon assets, the Company expects its borrowing base under its senior revolving credit agreement (the "Revolver") to remain at $600 million. As of December 31st, Halcon had $186 million drawn on its Revolver resulting in pro forma liquidity of $429 million assuming consummation of the Pecos County Assets acquisition, the private placement, the divestiture of the El Halcon assets and exercising the Ward County option.

Pro Forma Preliminary 2017 Guidance

Pro forma for the pending acquisition and the sale of the El Halcon assets currently generating ~6,000 boe/d of net production, the Company is preliminarily revising its full year 2017 production guidance to a range of 37,000 to 39,000 boe/d (80% oil, 10% gas and 10% NGL). As a result of the anticipated increased activity from the pending acquisition, the Company is also increasing its preliminary 2017 drilling and completion capital expenditure guidance to $280 million from a prior estimate of $200 million. Separately, the Company is planning to spend approximately $15 million on its acquired infrastructure assets in the Delaware basin. The Company plans to provide formal guidance after further operational review.

Advisor

BofA Merrill Lynch acted as exclusive financial advisor to Halcon in connection with the acquisition of the Pecos County Assets. BofA Merrill Lynch and J.P. Morgan Securities acted as placement agents in the private placement of preferred stock.

Jefferies LLC served as financial advisor to the seller of the Pecos County Assets.


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Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 


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