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Halcon (HK) Closes One Acquisition, Opts Out of Another

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Halcón Resources Corporation (HK - Free Report) recently announced the closure of the acquisition of West Quito Draw — an actively developed area of the Delaware Basin — for $200 million.

Deal Highlights

With the acquisition, the upstream player has scooped up 10,524 net acres in central and western Ward County, TX. The region has a production capacity of 1,200 barrels of oil equivalent per day (Boe/d). The acquisition adds 251 drilling locations in the Wolfcamp and 3rd Bone Spring Sand zones.

During the announcement of the acquisition deal on Feb 6, 2018, Halcón also had the option to buy 7,680 acres on the eastern side of its existing Monument Draw region. However, the company chose not to exercise that option. The decision was reached following a technical review of all payzones across the entire Monument Draw region, along with focus on the company’s financials.  

Notably, in January 2018, the company had closed the acquisition of 8,946 net acres in the northern region of Monument Draw for $108 million. It had further closed the purchase of 4,413 net acres, adjacent to its Monument Draw area that had increased its location inventory by 48 operated locations.

Halcón Strengthens Foothold in the Delaware Basin

Halcón had acquired several acreages in Eagle Ford, Tuscaloosa Marine, Utica and Bakken plays. The CEO, Floyd Wilson was of the opinion that these buyouts will be profitable for the company. However, with the industry’s downturn, all his hopes were crushed. The company, being one of the biggest sufferers of the weak crude environment, filed for bankruptcy in July 2016. A couple of months later in September, it completed financial restructuring and emerged from bankruptcy. Since then, the company has been divesting assets in most of its basins to concentrate on the prolific Delaware play and strengthen its financials.

Halcón’s has thus transformed into a single-basin company, focused on the Delaware Basin portion of the Permian Basin — one of the most active and economic plays in North America. With the deal, the company will be joining the likes of Lilis Energy Inc (LLEX - Free Report) , Jagged Peak Energy Inc. (JAG - Free Report) and Centennial Resource Development (CDEV - Free Report) that are well established Delaware Pure plays.

Since the beginning of 2017, the company has been strengthening its foothold in the Delaware Basin through acquisitions. This has enabled Halcón to increase its acreage in the region at a reasonable price and has poised it for growth. In the Delaware Basin, the company currently owns 59,152 net acres comprising 21,839, 10,524 and 26,790 acres in Monument Draw, West Quito Draw and Hackberry Draw, respectively. Collectively, the Delaware Holdings held by the company have a production capacity of more than 13,500 Boe/d, comprising 70% oil.

Other Operational Updates

In the West Quito Draw, Halcón intends to commence drilling operations in the 10,000-foot Wolfcamp laterals during the second quarter of 2018. The company’s three recently completed wells in Monument Draw reached an average peak 30-day rate of 1,680 Boe/d, comprising 83% oil. During the second quarter of 2018, Halcón plans to put three more wells online in the Monument Draw region. In the Hackberry Draw, the company’s two recently completed wells reached an average peak 30-day rate of 1,010 Boe/d, comprising 86% oil. Additionally, Halcón plans to put four more wells online in the region during the second quarter of 2018.

The company remains committed to maintain a strong balance sheet with manageable leverage and ample liquidity that will help it tap on further strategic acquisitions in the coming period. Halcón has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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