Halcon exits Eagle Ford to focus on Bakken, Permian
Halcon Resources is going west. The independent exploration and production company that has been focused on the Williston Basin and the Eagle Ford of East Texas for several years has dealt away its Eagle Ford assets to move into the Delaware Basin of West Texas’ greater Permian Basin. Through an overnight raise of $400 million—that required the operator to acquire the Delaware assets—Halcon was able to fund its operations in North America for the next few years. Floyd Wilson, CEO, said the pivot from the Eagle Ford was about the company’s ability to access stacked pay zone inventory that would also bring better rates of return on initial investments.
“We wanted to have longer dated inventory of locations,” Wilson said.
For more than one year, the company that was an early developer and player in the Eagle Ford, has not drilled a well in the play it is now leaving. The new acreage block acquired by Halcon is roughly half the size of its previously owned Eagle Ford assets.
The Eagle Ford assets sold for $500 million and the Delaware assets were purchased for roughly $705 million and averaged roughly $20,000 per acre. According to Wilson, current members of the management team that were involved in a previous endeavor were some of the first to drill and complete wells in the Wolfcamp. Halcon will focus on the Wolfcamp A and B zones of the basin. There are roughly 700 possible drilling locations already, with another 700 possible in the future. At today’s oil price on the strip—roughly $53/b—the company can achieve a 45 percent IRR. In the Bakken, at today’s strip, the IRR is even better for the company.
Although well results in nearby acreage blocks are positive, Wilson believes new technologies and approaches to fracking can improve their productivity in the Permian. “It’s early days here. This basin has had a new onslaught of new rigs and operators. It is a huge basin with a lot to figure out,” he said.
While the team will initially drill horizontal laterals to 7,500 feet, Wilson expects the lateral distance to increase to 10,000 feet. Most operators are completing wells using 2,500 to 3,000 pounds of sand per lateral foot—another element of the regional play that will change and increase over time, he said. The paybacks in the area, combined with the gains operators are achieving in the Permian and the Williston Basin will make operators rethink their investment strategies in the near-term future, he added. There will be ample reasons to rethink future budgets, he said.
A portion of the acreage will still need to be held by production, but other portions are ready to be developed. Halcon intends to run 1 to 2 rigs for the foreseeable future.
The operator is also committed as ever to the Williston Basin. “I’ll put our Fort Berthold wells up against any wells in the U.S.,” Wilson said.
In the Eagle Ford, Wilson said the company had a great position there. The capital efficiency in the Williston Basin and the Permian were just so much higher that the company had to make a move. Well results in East Texas paled in comparison to those in the Williston Basin, and wells in the Permian can be competitive with those in the Williston, he added.
Wells in the Permian acreage acquired by Halcon will produce a mix of roughly 80 percent oil, 10 percent gas and 10 percent natural gas liquids.
The company’s altered direction isn’t the only major change it has gone through in the past six months. Last year, the company completed the process of Chapter 11 bankruptcy and the formation of a new board of directors.
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