Halcón Resources Corporation — Q1 2017 Form 10-Q
Entity note: The supplied filing is for Halcón Resources Corporation, not Battalion Oil Corp. Confirm that this is the intended filing before relying on this summary.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2017. Halcón is a U.S. onshore oil and natural gas company. It acquired Southern Delaware Basin assets and sold its East Texas Eagle Ford assets during the quarter. Halcón emerged from Chapter 11 in September 2016 and adopted fresh-start accounting; accordingly, Q1 2017 “Successor” results are not directly comparable with Q1 2016 “Predecessor” results.
Key financial and operating metrics
Amounts below are in millions of dollars, except per-share and operating data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenue | $135.6 | $81.3 |
| Net income (loss) | $189.4 | $(540.0) |
| Net income (loss) available to common shareholders | $188.6 | $(566.9) |
| Diluted earnings (loss) per share | $1.69 | $(4.72) |
| Cash from operating activities | $45.6 | $34.4 |
| Cash from investing activities | $(289.6) | $(117.8) |
| Cash from financing activities | $306.1 | $84.0 |
| Average production | 38,478 Boe/d | 39,527 Boe/d |
| Realized price, excluding hedge settlements | $38.92/Boe | $22.42/Boe |
Q1 2017 operating income of $256.7 million included a $231.2 million gain on the East Texas asset sale; net income therefore substantially reflects this unusual item. The quarter also included a $56.9 million loss on extinguishment of debt and a $12.0 million income tax provision. Production costs per Boe included lease operating expense of $5.96, workover and other expense of $3.30, production taxes of $3.34, and gathering and other expense of $3.45. The filing does not provide a clear comparable operating-margin measure.
At March 31, 2017, cash was $62.2 million, current assets $202.9 million, and current liabilities $166.9 million (current ratio approximately 1.22). Long-term debt, net, was $940.6 million; principal debt was $962.8 million. Stockholders’ equity was $698.8 million. The revolving facility had no borrowings and approximately $593.6 million available under the then-effective $600 million borrowing base, after letters of credit.
Material changes versus the prior comparable period
- Revenue increased approximately 67%, primarily as realized prices improved; the average realized price rose while average production declined about 3%.
- Net income swung from a large loss to a profit, but the comparison is affected by fresh-start accounting and by the prior-year $496.9 million full-cost impairment and $28.1 million other-asset impairment. Q1 2017’s result included the $231.2 million asset-sale gain.
- Halcón acquired approximately 20,901 net acres in Pecos and Reeves Counties, Texas, for an estimated $698.2 million consideration (approximately $703.9 million stated purchase price before adjustments). Funding included preferred-stock proceeds and credit-facility borrowings.
- Halcón sold approximately 80,500 net acres in the East Texas Eagle Ford for an adjusted stated sale price of $483.5 million. Sale proceeds were used to repay revolving borrowings and for general corporate purposes.
- Halcón issued $850 million of 6.75% senior unsecured notes due 2025 and repurchased or redeemed approximately $700 million principal of 8.625% second-lien notes due 2020. Reported debt carrying value decreased modestly, while maturity and debt mix changed materially.
- Halcón raised approximately $400.1 million gross through 8% automatically convertible preferred stock. It converted into 55.2 million common shares on April 6, 2017, after quarter-end.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific production, earnings, or capital-spending guidance. Management says near-term capital needs are expected to be funded by operating cash flow and the revolving facility, while emphasizing that plans depend on commodity prices, liquidity, and development results.
- Management targets hedging approximately 70%–80% of anticipated production over the next 18–24 months when acceptable contracts are available. At quarter-end, derivative positions had a net fair-value asset of approximately $13.2 million after potential netting; Q1 derivative gain was $26.4 million.
- Commodity-price volatility, reserve replacement, access to capital, development execution, production declines, transportation capacity, and credit-facility borrowing-base/covenant constraints are key risks. Halcón reported compliance with credit covenants at March 31. The borrowing base was increased from $600 million to $650 million on May 2, 2017.
- Lease and equipment commitments included approximately $14.5 million of office/equipment leases and $21.7 million of remaining drilling-rig commitments; early termination penalties were estimated at $12.6 million. A Ward County acreage option required a decision by June 15, 2017, at $11,000 per acre under specified terms.
- Management stated that pending ordinary-course legal proceedings were not expected to have a material effect. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing’s issuer: this source is Halcón Resources Corporation, not Battalion Oil Corp.
- Review the accounting and comparability effects of fresh-start reporting, and distinguish recurring earnings from the $231.2 million asset-sale gain and debt-extinguishment loss.
- Verify post-quarter preferred-stock conversion, resulting share dilution, and the amended 2016 incentive-plan share authorization.
- Check the May 2017 borrowing-base redetermination, current facility availability, covenant headroom, and the status of the Ward County option.
- Assess whether production, realized pricing, hedges, and development spending support liquidity and debt service under weaker commodity-price scenarios.