After first announcing a preliminary 2015 drilling and completion budget of $750 million to $800 million in November, Halcon Resources said Jan. 8 that it has revised that budget downward and is now planning to spend between $375 million and $425 million which will be spent in its two key resource plays in the Fort Berthold area of the Williston Basin and in the El Halcon play in East Texas. The company has also earmarked an additional $20 million for other expenditures including leaseholds, infrastructure and seismic studies.
Halcon is “significantly hedged” through 2015 and into 2016 with approximately 88 percent of its estimated 2015 production hedged at a weighted average price of $87.29 per barrel. However, amid the weak crude oil market coupled with “elevated service costs,” the company is focusing on its higher producing assets.
“Our plan is to deploy capital to assets where results indicate EURs (estimated ultimate recoveries) and initial production rates higher than our published type curves,” Chief Executive Officer Floyd Wilson said in a Jan. 8 press release. “We are comfortable with our current liquidity position and we expect our strong hedge portfolio to continue generating income well into 2016.”
In discussing the preliminary budget in a Nov. 11, 2014, conference call, Wilson described service costs as being “out of sync” with the price of crude oil at the time but added that he was expecting the service side of the industry to “react according to changing conditions and reach a comfortable space.” On that day, West Texas Intermediate settled at $77.94 per barrel on the New York Mercantile Exchange, whereas on Jan. 8 WTI settled at $48.79.
Wilson still sees service costs as too high and is still expecting adjustments. “Although we are significantly hedged, the continued weakness in crude oil prices, combined with elevated service costs, calls for conservative planning. We expect to see these costs come down dramatically during 2015,” he said. (Halcon is not the only Bakken operator citing high service costs - Canadian Bakken operator Crescent Point Energy is also trimming spending based not only on crude prices but also on service costs - see story on page 6).
Rig cuts and guidance
In November, the company said it was cutting the number of rigs planned for 2015 from 11 to six as a result of lower oil prices. In its Jan 8 press release, Halcon said it is further cutting its 2015 rigs to three, two of which will operate in the Bakken and one in East Texas.
Halcon has put its 2015 production guidance at between 40,000 and 45,000 barrels of oil equivalent per day with a product breakdown of 85 percent oil, 8 percent natural gas liquids and 8 percent natural gas. The company’s 2014 guidance stands at between 40,000 and 42,000 boepd. At the end of the third quarter the company was looking at finishing the year at the high end of that guidance.
The company puts its lease operating and workover costs at $8 to $10 per boe; production taxes at $4 to $6 per boe; cash G&A (general and administrative) also at $4 to $6 per boe; and gathering, transport and other costs at $1.50 to $2.50 per barrel bringing total operating costs and expenses to $17.50 to $24.50 per boe.
In the Williston Basin Halcon holds approximately 131,000 net acres with two core operated areas, one in Williams County and the other in its Fort Berthold area in McKenzie and Dunn counties, North Dakota. The company holds approximately 101,000 net acres in its El Halcon play in East Texas. Halcon also has approximately 315,000 acres either leased or under contract in the Tuscaloosa marine shale. The company was running an average of two rigs in that play in the third quarter but is not currently planning for any drilling in the Tuscaloosa marine shale in 2015.
