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Halcon Resources Shares Fall on TMS Concern Post Q2 Earnings

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Shares of Houston, TX-based upstream energy company, Halcon Resources Corp. (HK - Free Report) , fell more than 10% despite excellent second-quarter 2014 results. After taking a closer look, we understand that investors got tensed with the feasibility of Tuscaloosa Marine Shale (TMS) – where the company is planning to drill eight operating wells by the second half of this year.

TMS is a complex play, where the cost to drill wells is significantly higher than other resources. The fact that the company is delaying the results of the TMS-based Black Stone 4H-2 well brought back fears in investors’ mind.

Hence, with the concern of rising drilling expenses in the near future – which might hamper the near-term profitability of the company – the market reacted negatively, as we see in the falling share price.

Strong Q2 Results

On Jul 30, 2014, Halcon Resources reported strong second-quarter 2014 results, primarily on higher output from Williston Basin. Increased oil price realization along with lower operating cost also favored the results.

The company announced operating earnings per share (excluding one-time items) of 7 cents, which surpassed the Zacks Consensus Estimate of 4 cents. The bottom line also increased 75% from the year-ago adjusted profit of 4 cents per share.

Revenues came in at $327.1 million, up 52.6% from the prior-year figure of $214.3 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $307.0 million.

Production & Prices

In the second quarter, total production came at 42,055 barrels of oil equivalent per day (BOE/D), representing a hike of 44.2% from 29,165 BOE/D in the year-ago quarter, owing to significantly higher production from Williston Basin.

Total liquid production improved 49.3% year over year to 3,494 thousand barrels (MBbl), while natural gas increased 6.4% to 2,002 million cubic feet (MMcf) from 1,881 MMcf in the second quarter of 2013.

Oil was sold at $94.01 per barrel, higher than $91.54 in the prior-year quarter. Moreover, Halcon Resources’ realized natural gas prices surged 41.5% year over year to $5.15 million cubic feet.

Operating Expenses

During the second quarter, Halcon Resources’s adjusted total operating expenses was reported at $24.45 per BOE, down 21.3% from $31.07 in the year-ago quarter.  

Cash Flows and Drilling Statistics

Halcon Resources generated cash flows from operations of $251.4 million against $185.7 million during the second quarter of 2013.

Capital Spending and Balance Sheet

The company’s capital investments – for drilling and completion activities − during the quarter were $268.7 million. As of Jun 30, 2014, cash on hand was $161.3 million and long-term debt (including current portion) was $3,447 million, representing a debt-to-capitalization ratio of 72.3%. 


Halcon Resources projects third quarter production between 41,000 BOE/D and 43,000 BOE/D.  

For full-year 2014, the company expects output of 40,000 BOE/D to 42,000 BOE/D. Halcon Resources increased the lower end of the range from the previous expectation, thereby raising the midpoint of the full year output guidance.

Zacks Rank

Halcon Resources currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.

One can also consider players in the same industry like Callon Petroleum Company (CPE - Free Report) , Clayton Williams Energy, Inc. and VOC Energy Trust . All these stocks sport a Zacks Rank #1 (Strong Buy).

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