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Start Time: 08:25

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Halcon Resources Corporation (NYSE:HK)

Company Conference Presentation

September 12, 2013, 08:25 AM ET

Executives

Floyd C. Wilson - Chairman and CEO

Unidentified Analyst

We'd like to start our next presentation. I'm pleased to welcome Floyd Wilson who is Halcon's Chairman and CEO to our conference this year.

With that, I'll turn it over to Floyd.

Floyd C. Wilson

Thanks. Halcon Resources, we're down in Houston. We operate in three core areas today. I've got a couple of Wildcats running in the background. We've done a little of this before. We're focused on oil and we have some interesting things going on. There's a couple of data points here if you want to read those after this. Here's a map.

So we've got a significant spot up in the Bakken/Three Forks which accounts for about half of our daily production today. Utica/Point Pleasant, quite a bit of land, couple of good wells so far, waiting on infrastructure. No production to speak of from there yet. And then our newest play is down at East Texas in Brazos County, that's El Halcón which is the East Texas Eagle Ford which we brought to life here early this year. What's on this slide? So daily production rate today about 40,000 Boe per day, 80% oil, 5% NGLs, 15% natural gas.

There are some data points on the different plays and as I've pointed out, we've got some Wildcats run along the background which we're always doing a little bit of that and if any of them get to the point of talking about, we'll talk about them. We're growing dramatically. Inverse of this would be our share price, it's been un-growing dramatically but maybe we can turn that around. And we expect to keep growing at about this rate for the next couple of years with similar CapEx or even a bit less. So we have a strong outlook for continued growth.

Up in the Williston Basin we've got quite a bit of acreage. We're involved in several increased density tests operated by others and we have a couple going ourselves. The main thing that's going on since we got into the basin, we started employing and deploying different ideas on fracs and targeting and whatnot. So we've been able to take wells that were producing in the 400,000 to 600,000 barrel range up to another 100,000, 150,000 barrels per well higher just with new completions.

Cost side of things, these new completions actually cost more so we haven't really been decreasing cost much. We're just embarking on pad drilling now and that should do – might even be a slide in here, but that should do quite a bit on the cost side over time. It shows where our land is out there and we've got six rigs running today. We'll keep that pretty steady for the next couple of years, maybe add a few.

Again, most of the improvements up there were things that we're quite experienced with, just mainly frac techniques. The density project at Fort Berthold is we're testing 660 foot spacing and we've got a significant interest in one of the Continental increased density test that's going on right next door to our own test.

So over time batch drilling, batch completions, all this business you can save quite a bit of money on a pad. You can't save a 1 million per well, it doesn't seem, but you can certainly save 1 million or 2 million on however many wells you have on a pad. So if it's three, four, five, six wells, you can probably save $250,000 to $400,000 per well just by the economies of scale when you're working on several wellbores at one time.

East Texas El Halcón, it's an Eagle Ford zone, it's just like what we were heavily involved in at the last company in South Texas. It's about 300 feet thick. We're making great wells there. We're just getting that play going. We announced that the 1st of this year we're dramatically higher on daily production and what that second quarter shows there, I think we have three or four rigs running there now. The economics are we're looking for wells to make 400,000 to 500,000 barrels, about $9 million right now. Hope to get that cost down a little bit.

There's a snapshot of where it is in East Texas. Of course the South Texas Eagle Ford play is down to the left and down to the south across the San Marcos Arch and into a different environment for Eagle Ford.

This is where we are, actually we're ahead of these numbers that you see on the far right of this slide. So it's growing dramatically. We'll run three or four, five rigs here for the next several years. We're adding land here. We'll make our target or maybe exceed it of acreage. It's 100,000 acres at the low end, we'll exceed that number here hopefully this year. It's tough going out here. It's highly competitive. It's not that expensive but very competitive.

Most of our wells we're getting drilled in a couple of weeks now, so that's a big improvement from the month and that's how all of these plays go. So you try to get your rigs in and out of there as quickly as you can. You try to do pad drilling where you can. When these plays are new you don't – pad drilling is a little bit more difficult because you don't really know the spacing. You do volume metrics and you do some calculations, but the fact is until you physically test a well that's 600 feet or 800 feet or a 1,000 feet, you really don't know and then you have to produce those wells for several months to determine whether you really had the data that you need to decide what the spacing ought to be. It's a little different in every single play. This is the true shale, of course.

There's a picture of the section where the landing zone is, it's on towards the bottom of the Eagle Ford, not that many feet above the Buda and it's a good thick section. The red or orange bars towards the bottom that are the main pay in the areas that we're operating in. Up in Ohio and Pennsylvania we've drilled nine wells. We've just got one rig started today I think on an offset to one of best wells, the Kibler well. The wells that we've drilled that are good are waiting on infrastructure, we'll have those on here awfully soon.

Got quite a bit of land up here. We've found some mediocre production in part of it and which is to expect when you're drilling Wildcat wells. We found two great areas and one that's significantly oily around the – it's near the Trumbull and Mahoning county lines here in Ohio. Let's see what else is…

Here's a cool picture of a flare which is not very popular up there. The Kibler well ranks pretty well amongst the wells in the entire play. It's in the top 10 or 15 wells and it's a workhorse of a well. It will be on here this month. We're drilling the offsets to that. Since it's an oily well, we'll concentrate all of our drilling in the Utica/Point Pleasant down in this area for the next two years. That will be at least through the middle of '15, so we've got quite a good plan and a good growth plan there. We're making hardly any production on a daily basis here now, so that has the opportunity to really increase our daily production rates.

We do okay on realizations. We don't have too much NGL production today. We'll grow with the Utica. These realizations might go down a little bit because of that, because of the markets for ethane and propane aren't quite what they were a few years ago. But we do pretty good on that. Having said that, we don't really know where these prices are going so we hedge a lot. There might be a slide in here, might not, but we try to hedge about 80% of what we think we're going to produce.

As we've done in the past, we try to build our own infrastructure wherever it makes sense. It's a very valuable business, but more importantly to us it gets our production to market on time and out of the local markets. It's really important to try to move away from logjams and these new shale fields where you get a big price of new production and there's no place for it to go, so we work that hand in hand with our drilling schedule. So we're doing quite a bit of work in East Texas and Utica/Point Pleasant and actually we're doing some work on a couple of Wildcats plays already.

Mark Mize is here so if you want to finances, you can talk to him about it. We're in good shape. Here it is. We're very liquid. We'll spend a little under 1.4 billion this year. Next year we're going to try to spend a bit less than that, maybe 15% less. Keep the same growth rate. You can see how it's spread right now across these areas. One takeaway from this is that we are waiting on some seismic out in the Woodbine, so we have totally deemphasized that in terms of capital intensity in favor of El Halcón in East Texas. Woodbine being a sandstone and not a true shale, it's not a blanket. It's a blanket cover but you don't get blanket production, so you have to get supply a little bit more exploration signs to that play.

Yes, here's the hedging side. Anyway, that's all I had and be around for whatever you have.

Unidentified Analyst

We've got some time to take questions. Over here.

Question-and-Answer Session

Unidentified Analyst

Floyd, if I can start. In the Bakken, how far – given what you all have done this year, how much more improvement do you think you can achieve? And also how much of what you've done this year will be reflected in yearend '13 reserves out there?

Floyd C. Wilson

Yearend '13 reserves there will be quite a change, upward change just because all of this activity happened in '13. Any new procedures or new completions have happened during this year, so there will be some really nice changes. The slick water fracs we're doing up in Williams County about double production reserves and IPs on those wells, so that's going to be quite a big change. So good representation this year I think at the end of the year.

You had a first part, what was it?

Unidentified Analyst

How much more improvement do you think you can make out of this versus…?

Floyd C. Wilson

Yes, it's not just us it's out in the whole industry. Guys like you ask that kind of question every few years. Every few years there's lot of improvements, right? I'm going to tell you over the next five or 10 years, you're going to see a lot more in all these shale plays. There's just a lot of smart people working them. So in our small company, I think we can continue to make some improvements and as others figure out some things and as well as ourselves, we'll gain that information because we share it with everyone in the business, in all the plays and we use it. So I'd say there's still significant room for improvement.

Unidentified Analyst

Any questions from the floor?

Floyd C. Wilson

All right then, thanks a lot.

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