Halcón Resources Corporation has announced that it has entered into a purchase and sale agreement with a private operator to acquire 20 748 net acres in the Southern Delaware Basin for US$705 million with a November 1, 2016 effective date, in addition to entering into an option agreement to purchase an additional 15 040 net acres in Ward County, Texas from a private operator for US$11 000/acre.
Finally, Halcón also announced it has entered into a purchase and sale agreement to sell its East Texas Eagle Ford assets, which currently are producing approximately 6000 net boe/d, for US$500 million with a January 1, 2017 effective date. The acquisition of the Pecos County Assets, which will be funded with the proceeds of the previously announced private placement of automatically convertible preferred stock and the sale of the El Halcón assets is expected to close by early March 2017, and is subject to customary closing adjustments and conditions.
Floyd Wilson, Halcón's Chairman, CEO and President commented, "These transactions represent a strategic pivot for us into the Delaware Basin. After the consummation of these transactions, we will have core operating areas in two of the most attractive North American oil basins with decades of highly economic development drilling ahead of us. The proceeds from the sale and the equity offering provide sufficient funds to acquire the Delaware assets and fund drilling capital to grow our asset base over the next several years, while at the same time improving our leverage profile."
- Attractive acquisition price of ~US$20 000/acre(1) (assuming Ward County Option is exercised in full).
- A significant percentage of the acreage has been de-risked by recent drilling on and around acreage.
- ~85% average working interest and ~90%+ operated.
- > 70% oil and ~85% liquids.
- ~700 highly economic gross Wolfcamp A and Wolfcamp B drilling locations (750+ additional upside locations in the 1st, 2nd and 3rd Bone Spring and the Avalon Shale).
- 12 years of Wolfcamp A and B drilling inventory assuming a 4 rig programme (24+ years including upside locations).
- Largely contiguous acreage position allows for extended lateral development (expected average lateral of >7500 ft).
- Existing infrastructure valued at approximately US$55 million with significant additional value opportunities.
- Financing structure improves Halcón's leverage and liquidity profile.
- Significantly accretive to NAV/share and future CFPS.
Delaware Basin Highlights
The Pecos County Assets include 20 748 net acres in Pecos and Reeves Counties, Texas and are currently producing approximately 2600 net boe/d. The Pecos County Assets include 495 gross Upper Wolfcamp A & B locations and 771 gross locations in the Lower Wolfcamp A, 1st, 2nd and 3rd Bone Springs and the Avalon. Based on recent drilling results, Halcón estimates the Wolfcamp A & B locations (7500 ft lateral) will generate EURs of 803 Mboe and 975 Mboe, respectively, with IRRs in excess of 45% at the current strip. Halcón plans to run two rigs on the Pecos County Assets shortly after closing and may consider running as many as four rigs in 2018 depending on oil prices.
In addition to the Pecos County Assets, Halcón has entered into an agreement with a private operator for the right to purchase up to 15 040 net acres located primarily in Ward County, Texas. The Ward County assets are divided into two tracts: the Southern Tract (6720 net acres) and the Northern Tract (8320 net acres) with separate options for each tract. Pursuant to the terms of the agreement, Halcón is currently drilling a commitment well on the Southern Tract and has until June 15, 2017 to exercise the option on either the Southern Tract acreage or on all 15 040 net acres, in each case for US$11 000/acre. If the Company initially elects only to exercise its option on the Southern Tract, it would then be required to pay US$5 million and drill a commitment well on the Northern Tract by September 1, 2017 to earn an option to acquire the Northern Tract acreage for US$11 000/acre by December 31, 2017.
Halcón plans to finance the acquisitions with the proceeds from the US$400 million private placement as well as the divestiture of its El Halcón assets for US$500 million. Excess cash from these two transactions will be used to repay the company's revolver and put cash on its balance sheet. The closing of the private placement is contingent upon the acquisition of the Pecos County Assets. Pro forma for the acquisition of the Pecos County Assets and disposition of the El Halcón assets, the company expects its borrowing base under its senior revolving credit agreement to remain at US$600 million. As of December 31st, Halcón had US$186 million drawn on its Revolver resulting in pro forma liquidity of US$429 million assuming consummation of the Pecos County Assets acquisition, the private placement, the divestiture of the El Halcón assets and exercising the Ward County option.
Pro Forma Preliminary 2017 Guidance
Pro forma for the pending acquisition and the sale of the El Halcón assets currently generating ~6000 boe/d of net production, the Company is preliminarily revising its full year 2017 production guidance to a range of 37 000 to 39 000 boe/d (80% oil, 10% gas and 10% NGL). As a result of the anticipated increased activity from the pending acquisition, the Company is also increasing its preliminary 2017 drilling and completion capital expenditure guidance to US$280 million from a prior estimate of US$200 million. Separately, the company is planning to spend approximately US$15 million on its acquired infrastructure assets in the Delaware basin. The company plans to provide formal guidance after further operational review.
Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/25012017/halcn-resources-announces-entry-into-the-delaware-basin/