After long run, HK has fallen so down, company has published their financial forecast for 2014, once you looked at the financial forecast, you will see some good news; the good news is cutting down the unnecessary expenses. Cutting down the unnecessary expenses does not mean that will effect on production. That will definitely drive company in positive territory Read more. 2014 financial date looks way better than 2013. Stock is way down than they should not be. Obama administration is focusing on creating more jobs on natural gas and oil industry in country. So I believe this stock is very cheap now and this is very good time to buy and build your portfolio for 2014.
Higher Capital Efficiency
Halcón is cutting its 2014 drilling and completions capex guidance by approximately $150 million to $950 million. The budget will also include $100-$125 million for land, infrastructure, seismic and other spending, bringing the total to $1,050-$1,075 million (before including capitalized interest and G&A).
Halcón also specified that it expects proceeds from additional non-core asset divestitures in 2014 to be approximately $300 to $400 million (the company stated previously that it planned to pursue material sales of non-core assets in 2014).
The announcement is positive news for the stock: in spite of reduced drilling capex, Halcón reaffirmed its previously issued 2014 production guidance of 38,000 to 42,000 Boe/d.
The reduction in spending is likely achieved in part by eliminating exploration dollars and greater focus on the most productive drilling inventory and in part reflects management's confidence in improving well performance in the Bakken and El Halcón. The impact of the anticipated divestiture program was, most likely, already factored in to the previous production guidance and does not represent real news.
The combination of the spending cut and divestitures should help close the gap in the company's funding for the next year. A more balanced rate of spending is a positive change from the break-neck pace seen earlier this year. In the third quarter alone, Halcón spent $671 million ($390 million on drilling and completions; $125 million on land, infrastructure, seismic and other; and $156 million on acquisitions and new acreage). The spending compared to $179 million of discretionary cash flow reported during the quarter.
Assuming Halcon generates $700-$800 million in discretionary cash flow during 2014 and adding estimated $300-$400 million of divestiture proceeds, the company may now be able to avoid draw-downs on its revolver and should see its credit metrics incrementally improve as a result of stronger cash flow. Still, Halcón's leverage and coverage ratios will remain uncomfortably high even at the end of 2014.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HK over the next 72 hours.
Additional disclosure: Halcón Resources Corporation is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States.