Business context and reporting period
Filing identity: The supplied filing is Halcón Resources Corporation’s Form 10-K for the fiscal year ended December 31, 2012 (filed February 28, 2013), formerly RAM Energy Resources—not a filing identified as Battalion Oil Corp. Confirm the issuer before relying on this summary.
Halcón was an independent U.S. oil and gas company pursuing growth through acquisitions and development of liquids-rich acreage. It completed major acquisitions in 2012, including GeoResources, East Texas properties and Williston Basin assets. Its 2012 results therefore are not directly comparable with 2011.
Financial and operating highlights
| Metric | 2012 | 2011 |
|---|---|---|
| Operating revenue | $247.9 million | $103.7 million |
| Operating income (loss) | $(29.7) million | $19.8 million |
| Net income (loss) | $(53.9) million | $(1.4) million |
| Net income (loss) available to common stockholders | $(142.3) million | $(1.4) million |
| Cash from operating activities | $118.2 million | $29.8 million |
| Cash used in investing activities | $(2.87) billion | $(25.4) million |
| Cash from financing activities | $2.75 billion | $(4.4) million |
- Fourth-quarter 2012 revenue was $124.7 million, operating loss was $8.1 million and net loss was $8.0 million. Fourth-quarter 2011 revenue was $25.6 million and net loss was $12.2 million.
- Average production was 9,404 Boe/d for 2012, up 128% from 4,121 Boe/d; fourth-quarter production averaged 18,348 Boe/d. Acquisitions drove much of the increase.
- Average realized price was $71.64/Boe, versus $68.83/Boe in 2011. Average crude oil price was $92.36/barrel; natural gas was $2.74/Mcf; NGLs were $41.37/barrel.
- Per-Boe costs included lease operating expense of $14.51 (down from $19.98), production taxes of $5.59 (up from $4.80), and depletion of $25.05 (up from $13.55).
- The $88.4 million difference between net loss and loss available to common stockholders was a non-cash preferred dividend. General and administrative expense rose to $111.3 million, including $41.0 million of acquisition transaction costs and $8.9 million tied to the recapitalization.
- At year-end, cash was $2.5 million, current assets were $287.9 million and current liabilities were $678.0 million, a working capital deficit of $390.1 million. Long-term debt was $2.03 billion, plus $74.7 million of current promissory notes. The company reported $550.7 million of available borrowing capacity under its revolving facility.
- Proved reserves were 108.8 MMBoe, approximately 47% developed; proved undeveloped reserves were 57.4 MMBoe. Net oil and gas properties were $4.41 billion. No full-cost ceiling impairment was recorded at year-end.
Material changes versus prior period
- Revenue more than doubled, largely as acquired properties added production; oil and gas sales increased by $143.1 million. Operating results moved from $19.8 million of income to a $29.7 million loss, reflecting higher depletion, corporate costs, acquisition costs and interest expense.
- Annual capital expenditures for drilling, completion and leasehold costs were approximately $1.3 billion, above the $1.1 billion budget. Investing cash outflow also included acquisition spending.
- Halcón issued $750 million of 9.75% senior notes due 2020 and $750 million of 8.875% notes due 2021, and raised equity. Year-end debt and preferred stock reflected this rapid expansion and acquisition financing.
- Proved reserves increased substantially through acquisitions and drilling. The 2012 reserve estimate was prepared by Netherland, Sewell; prior-year estimates were prepared by another independent engineering firm.
- Prior-year balance sheet and equity amounts were restated for correction of immaterial deferred-tax and property-basis errors: year-end 2011 assets and equity each decreased by $4.3 million.
Outlook, risks and unusual items
- Management budgeted approximately $1.2 billion for 2013 drilling and completion, allocated principally to the Bakken/Three Forks ($475 million), Woodbine/Eagle Ford ($490 million) and Utica/Point Pleasant ($200 million). Funding was expected from operating cash flow, possible asset sales and borrowing; management said spending could be curtailed if funding or sale proceeds fell short.
- On January 14, 2013, the company issued an additional $600 million of 8.875% notes at 105% of par, receiving approximately $619.5 million net. Proceeds repaid all then-outstanding revolver borrowings and supported general purposes, including 2013 capital spending. On January 18, 2013, the Williston acquisition preferred shares converted into 108.8 million common shares.
- Key risks include substantial debt and interest burden, commodity-price volatility, access to capital, reserve and drilling uncertainty, lease expirations, and gathering/transportation constraints—particularly in the Bakken and Utica. Approximately 53% of proved reserves were undeveloped and require development capital; the company had no proved reserves in the Utica/Point Pleasant at year-end.
- Shell Trading and Sunoco represented approximately 20% and 19% of 2012 sales, respectively. A North Dakota gas sales agreement commits substantially all gas production from the relevant project area to one purchaser for the life of the leases.
- Contractual commitments included $75.3 million of notes due in 2013, $79.4 million of drilling-rig commitments (with $50.8 million early-termination penalties), $53.8 million of operating leases and $1.25 billion of scheduled future interest expense. Asset retirement obligations were $75.1 million. Management reported no pending legal matter expected to have a material adverse effect.
- Commodity derivatives produced a $6.1 million net loss in 2012; no interest-rate swaps were open at year-end. The company’s financial statements and internal-control audit opinions were unqualified, but management and the auditor excluded the recently acquired GeoResources from the internal-control assessment.
Most important facts to verify
- Confirm the issuer and filing match the intended company: this source is Halcón Resources Corporation, not Battalion Oil Corp.
- Review acquisition accounting and final purchase-price allocations, including the preliminary Williston and East Texas allocations and GeoResources goodwill of $227.8 million.
- Assess whether operating cash flow and financing access could support the $1.2 billion 2013 drilling budget, debt service and near-term $75.3 million note maturity.
- Evaluate dilution from the 108.8 million post-year-end shares issued to Williston sellers and the company’s broader capital structure.
- Test reserve quality and development assumptions, particularly the large undeveloped reserve inventory and the economics and infrastructure needs of newer plays.