Halcon Resources: Strong Read-Across From Goodrich's TMS Result

| About: Halcon Resources (HK)


The outstanding Blades 33H-1 well result in the TMS reported this morning by Goodrich Petroleum has a strong positive read-across to Halcon.

Halcon's first TMS well, the Horseshoe Hill 11-22H-1, is expected next month, and another five wells are planned to be spudded by July.

The Blades well provides a potent catalyst for Halcon's stock. Another half a dozen offset operator well results are expected within two months.

Goodrich Delivers On Its Promise

This morning, Goodrich Petroleum (GDP) announced the result of its Blades 33H-1 well in Tangipahoa Parish, Louisiana, which was anticipated sometime this week. According to the company's press release, the well has achieved peak 24-hour average production rate of 1,250 barrels of oil and 115 Mcf of gas per day on a 14/64-inch choke from a 5,000-foot completed lateral. The result is excellent and in line with the early performance of GDP's Crosby 12H-1 well, the strongest well in the play to date that has produced almost 170 Mboe in the first 13 months.

The Blades 33H-1 result is outstanding, albeit expected. Goodrich had hinted earlier that no significant mechanical issues had been encountered in this well (the spud-to-completion time will likely be one of the best so far) and the flowback was in progress without complications.

Goodrich landed the Blades' lateral in the TMS' lower target interval, and completed the well with 20 frac stages using composite plugs that were drilled out prior to flowback.

The result validates Goodrich's claim that the modifications that the company incorporated in its latest well design should help address key execution issues in this challenging formation on both drilling and completion side.

The Blades well is a much-needed home run for the TMS play that comes after a significant activity slowdown experienced during the second half of last year and some disappointing wells. The confirms several important expectations:

  • TMS' strong EUR potential (the Blades and Crosby wells have very similar IP rates - the Crosby has tracked along the 800 Mboe EUR type curve; please note, the Blades' lateral length is only 5,000 feet).
  • The long extent of the play's productive fairway (the Blades is located approximately 48 miles southeast from the Crosby 12H-1).
  • The feasibility of a substantial drill and complete cost reduction (persistently high costs have been one of the key challenges for the play).

Most importantly, the success of the Blades well should help restore investors' confidence in the play in general. Investors' sentiment about the play has been impacted by recurring mechanical issues encountered in several recent wells and general slowdown in the drilling activity in the TMS.

Implications for Halcon

The read-across to Halcon Resources (NYSE:HK) from the Blades well is quite powerful, given the company's massive ~236,000 net acre position in the "eastern" portion of the TMS (map below).

The Blades well not only confirms the success of the Crosby well, but also, being the easternmost horizontal test in the TMS, effectively delineates Halcon's eastern acreage all the way from its western edge to the eastern edge.

The well's result has the ability to move Halcon's stock, even in the absence of Halcon's own equal success (if the Horseshoe Hill well result is not particularly strong, it may be "forgiven" by the market, given Halcon's "new to the play" status).

Well Calendar

The Blades well is a strong start to what is shaping up as a very busy drilling calendar for the play in the next few months.

The anticipation of the Blades' positive result has already contributed to the strong recent performance in the past few weeks of all the TMS-focused small-capitalization stocks, including Goodrich, Halcon, Comstock Resources (NYSE:CRK) and Sanchez Energy (NYSE:SN).

The calendar of well announcements will accelerate from here. To highlight just a few wells:

  • Encana is finishing completion operation on its Lyons 35H-1 well in Amite County. The result may be available within few weeks. In Wilkinson County, Encana has completed its Pintard 28H-1 and should begin fracking operations shortly. Encana is also well underway drilling its Mathes 29-22H-1 well in Amite County.
  • Goodrich has drilled its C.H. Lewis 30-19H-1 well in Amite County. Fracking operations are expected to commence by the end of April. Goodrich's Nunnery 12-1H-1 well is currently drilling.
  • Halcon's Horseshoe Hill well should be close to reaching total depth and will likely be fracked by early next month. Halcon is scheduled to spud its second well, the Blackstone 4H-2, imminently.

Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.