Halcon Resources: Quickly Getting Down To Business In The TMS

Mar.14.14 | About: Halcon Resources (HK)

Summary

Halcón acquires additional 235,000 net acres in core of TMS.

Last week 12 drilling permits transferred to Halcón from EnCana.

All transferred permits are in Wilkinson County within 10 miles of Goodrich’s Crosby 12H-1 well.

Reports that Halcón rig arrived on Friday at Horseshoe Hill 11-22/11-32H pad and is setting up.

In conjunction with its earnings press release on February 26, 2014 Halcón Resources (NYSE:HK) announced a substantial increase in its position in the Tuscaloosa Marine Shale (TMS) play to 307,000 net acres. Previously, Halcón held 71,500 net acres in Rapides and Avoyelles Parishes, Louisiana. The newly acquired acreage is in the so-called "Eastern TMS" counties of Wilkinson and Amite, Mississippi and the Louisiana parishes of West Feliciana, East Feliciana, St. Helena and Tangipahoa. [See image below].

Halcon TMS Acreage PositionClick to enlarge

(Source: Halcon Resources, Company Presentation, March, 2014)

Halcón also announced in the press release its intention to operate an average of 2 rigs in the Eastern TMS for the remainder of 2014, spud "10 to 12 gross operated wells" and spend 10% of its capital budget in the TMS this year (about $95MM).

Although the announcement was vague about where it was going to drill those wells (other than to say "near producing TMS wells in Wilkinson County"), there has been speculation that the first of the wells would be located near Goodrich Petroleum's (GDP) Crosby 12H-1 well in Wilkinson County. The reasoning was that the Crosby well was one of the few true success stories in the play, having produced over 154,000 Boe in 12 months and that Halcón would want to try to replicate Goodrich's success and develop this as a "core area" first before "stepping out" to other areas.

Last week Halcón's plans became much clearer when it was learned that 12 drilling permits had been transferred from EnCana Corporation (NYSE:ECA) to Halcón. Below is a list of the 12 drilling permits with a short analysis of their "vital statistics", so to speak. Significantly, all of the permits are for wells located within 10 miles of the Crosby well.

PERMITS TRANSFERRED TO HALCON

1) Shuckrow 10H-1 & Shuckrow 10H-2

  • Well pad location: Sec.10, T2N-R1W; GPS: 31.1528530, -91.2076780;
  • DSU: 1,948 acres; Sections 3, 10 & 15, T2N-R1W;
  • Permit allows up to 6 additional wells on DSU;
  • Goodrich's Crosby 12H-1 well (31.14601, -91.16338) approx. 6.5 miles east.

2) Fassmann 9H-1 & Fassmann 9H-2

  • Well pad location: Sec. 9 T2N-R1W; GPS: 31.15609,-91.21145;
  • Fassmann pad is .2 mile from Shuckrow pad.
  • DSU: 2,028 acres; Sec. 4, 9 & 16, T2N-R1W;
  • Permit allows up to 6 additional wells on DSU;
  • Goodrich's Crosby 12H-1 well approx. 6.7 miles east.

3) Horseshoe Hill 11-22H-1

  • Well pad location: Sec. 11 T1N-R1W; GPS: 31.06621,-91.23260;
  • DSU: 946.6211 acres; Sec 11, 12, 21 & 22, T1N-R1W;
  • Permit allows up to 3 additional wells on DSU;
  • Pad is located approx. 1 miles S of Mississippi Highway 24 ["Highway 24 Corridor"]
  • Goodrich's Crosby 12H-1 well approx. 8.5 miles NE.

4) Horseshoe Hill 11-32-1

  • Well pad location: 11 T1N-R1W; GPS: 31.06635,-91.23260;
  • Horseshoe Hill 11-22H-1 & Horseshoe Hill 11-32-1 share the same pad but are in separate units;
  • DSU: 1,000.5265 acres; Sec. 6, 7, 11 & 12, T1N-R1W & Sec. 32 & 33, T2N-R1W;
  • Permit allows up to 3 additional wells on DSU.

5) Black Stone 4H-1 & Black Stone 4H-2

  • Well pad location: Sec. 4 T1N-R1W; GPS: 31.078313,-91.179317;
  • DSU: 1,948 acres; Sec. 4 & 15, T1N-R1W & Sec. 35 T2N-R1W;
  • Permit allows up to 6 additional wells on DSU;
  • Pad is located on Highway 24, 7.0 miles W of Centerville, MS
  • Goodrich's Crosby 12H-1 well is approx. 4.5 miles N.

6) Leak 2H-1 & Leak 2H-2

  • Well pad location: Sec. 2 T1N-R1W; GPS: 31.079119,-91.161879;
  • DSU:1946 acres; Sec. 2, 3 & 16 T1N-R1W & Sec. 36 & 37 T2N-R1W;
  • Permit allows up to 6 additional wells in DSU;
  • Pad is located on Highway 24, 6.0 miles W of Centerville, MS (1 mi. east of Black Stone pad);
  • Goodrich's Crosby 12H-1 well is approx. 4.5 miles N.

7) Branex Resources 30H-1 & Branex Resources 30H-2

  • Well pad location: Sec. 30 T2N-R1W; GPS: 31.105372,-91.249554;
  • DSU: 2,144 acres; Sec. 30 & 19 T2N-R1W & Sec. 8 T1N-R1W;
  • Permit allows up to 6 additional wells in DSU;
  • Pad is located approx. 3 miles N of Mississippi Highway 24, 5.0 miles E of Woodville, MS;
  • Goodrich's Crosby 12H-1 well is approx. 7.5 miles NE.

It is not surprising Halcón would choose this central part of Wilkinson County to develop first. Below is a net isopatch map of the resistive TMS from the authoritative 1997 TMS study conducted by LSU's Basin Research Institute. Although somewhat tricky to read, Figure 19 indicates that central Wilkinson County could be the "core of the core". If so, it is very important that Halcón get off to a good start; otherwise it could call into question its entire investment in the TMS. That is something it can ill afford, especially in light of the poor results in the western TMS and lack of good results to date, put it mildly, in the Utica.

Net Isopatch Map of the Resistive TMSClick to enlarge

Source: Basin Research Institute, Louisiana State University,1997

As the professors used to say to us: for those of you interested in further reading, here is the link to the entire LSU-BRI study. Very technical, but interesting.

www.lgs.lsu.edu/deploy/uploads/Tuscaloosa%20Marine%20Shale.pdf

Finally, there are recent reports from the field that a drilling rig has arrived at the Horseshoe Hill 11-22H-1/11-32H-1 pad and begun setting up. It is not known, at this point, which well will be drilled. If it is the Horseshoe Hill 11-22H-1 the drill path will go, as the name suggests, from Section 11 south to Section 22. If it is the 11-32H-1 well the drill path will be north to Section 32 in Township 2N. Either way I'll be following what happens here, and elsewhere in the TMS, closely this year and expect to provide periodic updates on this important developing shale play.

Disclosure: I am long HK, GDP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.