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Summary

  • Halcón will report its Q2 results after the market’s close on Wednesday.
  • I expect Halcón to report at least one well result and provide progress report on two additional wells in its TMS operational update.
  • I estimate the company to post net production of 26,000 boe/d in the Bakken and 10,000 boe/d in El Halcón.

Halcón Resources (NYSE:HK) is scheduled to release its second quarter 2014 financial results on Wednesday, July 30 after the market's close. The conference call will be held on Thursday, July 31 at 10:00 a.m. EDT.

The company will provide operational update for its three core assets: the Bakken, El Halcón and TMS.

The TMS - What To Expect

The TMS is currently contributing no more than 5% of the company's production (depending on the number of wells being online). Nonetheless, given the play's strategic significance to Halcón and its potential impact on the stock's valuation, new TMS well results will be the most important area of focus for many investors during the company's conference call.

I expect Halcón to report the results of its Black Stone 4H-2 (87% WI) well in Wilkinson County, Mississippi. The well was successfully drilled in June and had a 5,400' lateral. Completion operations were expected to be completed in July. Based on the well's lateral length, I would consider an IP rate in the 700-1,000 boe/d range to be a solid result. An IP rate above 1,000 boe/d would be a convincing success.

Halcón is also likely to provide a progress report and qualitative commentary with regard to two additional wells, the Fassman 9H-1 (84% WI) and SD Smith 1H (62% WI), both located in Wilkinson County. Both wells were spudded in early June and are likely to still be in-progress at the time of the call. The Fassman 9H-1 was designed to have a 6,030' lateral and the SD Smith 1H was designed to have a 7,660' lateral. In the event production test data is still unavailable for these wells, an indication of a trouble-free progress would be important.

After a sting of positive announcements from the TMS in April-June of this year and a wave of renewed investor excitement that followed, several disappointing data points appear to have shaken investor confidence in the play's strong momentum. Goodrich's (NYSE:GDP) most recent two wells showed IP rates well below the cutting-edge rate in the play that the market was expecting. Last week, Encana (NYSE:ECA) did not provide any specific operating data points with regard to the TMS (which is not particularly surprising given the new reporting style that seems to have been adopted at ECA under the new management) and only commented that its wells are tracking closely the normalized 650 Mboe type curve. Most recently, last week, Sanchez Energy (NYSE:SN) announced that its inaugural well experienced broken drillpipe during the clean-out after the drilling operation and is now being sidetracked.

The next important set of operating data from the play is expected to be discussed in detail on Goodrich's conference call on August 7. Therefore, during the conference call this Thursday Halcón will be "on its own" defending the play's potential.

Bakken and El Halcón

In the Bakken, the sole truly important variable that the market will likely focus on will be the production for the quarter. While notable IP rates may be impressive, they would not compensate for any shortfall on the total production side. In the Bakken, I model the average production for the quarter to be in the 26,000 Boe/d range.

In El Halcón, I estimate the company's net production for the quarter to be in the 10,000-10,500 boe/d range. Individual well results in El Halcón are still very important, in my opinion. I would focus on data points that Halcón may share in relation to wells brought online during the month of July. Those wells are not in the public domain yet and would represent incremental information from the market's perspective.

Utica

Given the market's renewed interest in the Utica exploration, it would be interesting to see if Halcón would touch upon the status of its Utica assets.

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.

Source: Update: Halcón Resources - What To Expect From The Q2 Report