SEC Filing Summary
Entity note: The request identifies Battalion Oil Corp., but the supplied Form 10-Q is for Halcón Resources Corporation. Confirm that this is the intended filing.
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2016, with comparisons to 2015. Halcón was an independent U.S. onshore oil and gas producer. On July 27, 2016, after the quarter-end, the company and certain subsidiaries filed Chapter 11 petitions to implement a pre-packaged restructuring plan. The filing was signed July 28, 2016.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial-statement amounts are in millions unless noted.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Operating revenue | $106.1 | $168.0 | $187.5 | $304.2 |
| Net loss | $(374.3) | $(1,088.6) | $(914.3) | $(1,676.3) |
| Operating cash flow | Not separately provided | Not separately provided | $142.7 | $217.5 |
| Capital expenditures for oil and gas | Not separately provided | Not separately provided | $170.3 | $407.8 |
- Revenue fell about 37% in Q2 and 38% for the first half, reflecting lower realized prices and reduced production. Average realized price excluding hedging was $32.39/Boe in Q2 and $27.16/Boe for the first half, down 27% and 32%, respectively, year over year.
- Average daily production was 35,879 Boe in Q2 and 37,703 Boe for the first half, down 13% and 11% year over year. About 5,000 net Boe/d was shut in during Q2; further declines were anticipated.
- Large non-cash impairments drove reported losses: full-cost ceiling impairments were $257.9 million in Q2 and $754.8 million for the first half. The first-half also included a $28.1 million impairment of gas-gathering assets. The filing does not provide a clear standardized operating-margin measure; reported operating results are materially affected by these impairments.
- First-half operating cash flow included $188.5 million of realized derivative gains. Cash declined $0.9 million to $7.2 million; investing outflows were $171.4 million and financing inflows were $27.8 million.
- At June 30, cash was $7.2 million, restricted cash $17.2 million, current assets $288.4 million and current liabilities $3,068.4 million. Total debt was $2.826 billion, all classified as current following the subsequent Chapter 11 filing; stockholders’ deficit was $885.1 million.
- Interest expense and other was $58.3 million in Q2 and $106.1 million for the first half. Approximately 96.5% of debt bore fixed rates, at a weighted average 10.5%; variable-rate debt averaged 3.2%.
Material changes versus prior periods
- Lower commodity prices and curtailed drilling reduced production and sales; lease operating costs per Boe fell, but workover costs per Boe rose. First-half workover expense increased to $15.7 million from $6.8 million.
- First-half general and administrative expense rose to $66.3 million from $47.1 million, including $29.5 million of restructuring-related fees and other specified costs, partly offset by lower payroll costs. First-half restructuring expense was $5.1 million.
- First-half capital spending fell to $170.3 million from $407.8 million. The company reported an average 1.3-rig plan for 2016.
- First-half debt repurchases totaled about $91.8 million principal for approximately $9.7 million cash and generated an $81.4 million accounting gain. Total operating revenue and operating cash flow were both lower than in the 2015 comparable period.
Outlook, restructuring, and risks
- Management said it expected to operate in the ordinary course during Chapter 11 and believed it had sufficient funds through the process, but disclosed substantial doubt about the company’s ability to continue as a going concern. The statements were prepared on a going-concern basis and do not reflect possible restructuring adjustments.
- The proposed plan would reinstate $812.8 million of second-lien notes. Third-lien holders were to receive 76.5% of reorganized equity and $33.8 million cash; unsecured noteholders 15.5%, $37.6 million cash and warrants; the convertible noteholder 4%, $15.0 million cash and warrants; preferred holders $11.1 million cash; and existing common holders 4% of reorganized equity. Equity allocations are subject to dilution from warrants and a management incentive plan. Plan confirmation and effectiveness were not assured.
- Following the Chapter 11 filing, debt obligations were accelerated and enforcement stayed. A committed $600 million debtor-in-possession facility and $600 million exit facility were subject to conditions and court approval; interim DIP availability was to be $500 million, increasing to $600 million upon final approval. Halcón had drawn approximately $338 million on July 25, bringing revolving-credit borrowings to about $444 million.
- Management cited prolonged low commodity prices, limited hedging beyond 2016, liquidity and financing access, Chapter 11 milestones, counterparty termination rights on derivatives, operational and lease-renewal risks, and possible disruption to employees, vendors and customers. Approximately 72% of anticipated remaining 2016 oil production was hedged at a weighted average $81.44/Bbl, according to the filing.
- Other notable exposures include about $46.8 million of office and equipment lease commitments, $20.8 million of remaining rig commitments (with an estimated $14.8 million termination penalty), and possible additional $3.0 million rig-contract penalties. The company also disclosed an NYSE minimum-share-price deficiency and risk of suspension or delisting. Series A preferred dividends had been suspended; cumulative undeclared dividends were about $7.5 million.
Most important facts for investors to verify
- Whether the intended issuer is Halcón Resources or Battalion Oil Corp.
- Bankruptcy Court confirmation, timing and effective terms of the restructuring plan, including the final treatment and dilution of existing common equity.
- Approval, availability, covenants and refinancing mechanics for the DIP and exit facilities, and actual liquidity during the proceedings.
- Production trends, commodity prices, hedge volumes and terms, and the effect of hedge-counterparty waivers.
- NYSE listing status, rig and lease obligations, and the potential for further impairments or changes to going-concern assumptions.