Halcón Resources Corporation (NYSE: HK) announced Jan. 17 that its stockholders have approved the issuance of approximately 108.8 million shares of Halcón common stock upon the conversion of the convertible preferred stock issued to Petro-Hunt Holdings LLC, and an affiliated entity in connection with Halcón’s previously announced acquisition of two entities owning producing and undeveloped oil and gas assets in the Williston Basin.
Halcón’s stockholders have also approved the amendment of the company’s certificate of incorporation to increase its authorized common stock by approximately 333.3 million shares for a total of 670.0 million authorized shares of common stock.
Also on Jan. 17, Stifel initiated coverage of Halcón with a Hold rating and fair value range of $8.50-$9.50/share, stating that, while Halcón is positioned well to deliver over 90% organic growth in 2013, Stifel believes this growth is already factored into valuation, especially once dilutive in-the-money securities, which could convert in early 2014, are included.
Halcón, which is led by chairman and CEO Floyd C. Wilson, is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States.
Stifel acknowledged that Halcón has been very aggressive on the acquisition front, announcing deals for GeoResources (6.9 mboe/d) on April 25, 2012, East Texas assets (2.8 mboe/d) on June 5, 2012, and Williston Basin Assets (10.5 mboe/d) on October 22, 2012.
These acquisitions caused production to grow from 11.2 mboe/d in the third quarter of 2012 to an estimated 29.9 mboe/d in the first quarter of 2013. Production growth should continue and is expected to average 40-45 mboe/d in 2013 based on guidance, Stifel said.
Stifel reported that, in 2013, Halcón is developing its three core areas: Bakken/Three Forks, Woodbine, and Utica/Point Pleasant, with 90% of total capex being directed to these plays.
Stifel noted that, while the Bakken/Three Forks has meaningful production history, the Woodbine area shows variability, especially in the Eastern and Southeast extension of the play, and, in the Utica, drilling is not in the proven part of the play with no current production history. Key upcoming events include the expected release of Halcón’s first TMS well (1H13), first production in the Utica (late 1Q13/early 2Q13), and potential Eagle Ford disposition (1H13).
Stifel said that, while Halcón only provides production guidance at a corporate level, in its view, the agency believes that there is more downside risk than upside surprise potential in stated guidance range based on capital efficiency metrics and the fact that of the three core areas, only the Bakken has a good track record/visibility, while the Woodbine exhibits variability, and the Utica is still in its testing phase.
In addition, Stifel stated that Halcón is fairly in line with the group based on the agency’s 2014E EBITDA valuation (5.0x), with downside risk to 2014 consensus in its view. Bottom line, Stifel said, given the limited upside potential to the 2013 fair value range and 2014 fair valuation and the risks in Halcón delivering on the strong growth guidance, Stifel is initiating coverage with a Hold rating.