Chief executive Floyd Wilson shifted his latest business venture, Halcon Resources Corp., into high gear with the acquisition of GeoResources, Inc., a fellow Houston, Texas-based E&P independent that complements Halcon’s liquids-rich portfolio; and perhaps more important, gives Halcon a firm start in the Bakken.
“We have always envisioned an entry into the Bakken shale,” Wilson said in an April 25 conference call with analysts. “I think it is an area where we can grow that footprint.”
GeoResources will merge with Halcon in a cash and stock transaction for about $985 million, according to the companies.
GeoResources entered the Bakken in 2007 with a small non-operated position, but quickly accumulated acreage where today the company operates some 40,000 of its 55,000-net acres across four project areas, three in western North Dakota and one in eastern Montana. About a quarter of the company’s total year-end reserves were located in the Bakken, primarily in northwest Williams County. About half of the company budget is dedicated to the Bakken.
Reserves boosted 10 fold
And over the past five years, GeoResources has increased its reserve base from some 3 million barrels of oil equivalent to roughly 30 million boe.
“We have a base of bullet-proof reserves and production that generates a lot of cash flow to help us develop these properties,” Robert Anderson, GeoResources’ chief operating officer, told the 2nd Annual Bakken Investor Conference last month in Minot, N.D.
GeoResources’ operational portfolio, in addition to 55,000 net acres in the Bakken, consists of two other key plays in the Lower 48: 24,000 net acres in the Eagle Ford shale play and 200,000 net acres in the Austin Chalk. As of Jan.1, 2012, GeoResources reported 2011 fourth-quarter daily production of 6,982 boe, of which 62 percent is oil.
The deal, pending shareholder approval, increases Halcon’s estimated proved reserves by a whopping 150 percent to nearly 52.8 million boe (69 percent liquids); and significantly boosts the new company’s average net daily production by over 170 percent to about 11,070 boe.
“We believe size and scale are important factors to successful development of resource plays in today’s oil and gas industry,” Frank A. Lodzinski, chief executive officer of GeoResources, said in the conference call.
Under terms of the deal, Halcon will acquire all outstanding shares of GeoResources common stock. In return, GeoResources shareholders will receive $20 in cash and 1.932 shares of Halcon common stock for each share of GeoResources common stock, representing a total consideration to GeoResources shareholders of $37.97 per share. GeoResources shareholders are expected to own roughly 18 percent of the combined company’s outstanding shares on a fully diluted basis.
Deal to close in Q3
The companies anticipate completing the transaction in this year’s third quarter, pending shareholder approval.
The first step in Wilson’s new business venture was the $550 million recapitalization of RAM Energy Resources Inc. late in 2011 to form Halcon. The transaction addressed RAM’s considerable debt and opened up investment for oil-rich plays across the mid-continent. The company targeted oil and gas projects in the Utica Shale of Ohio, Wilcox of Louisiana, Woodbine of Texas, and the Mississippi Lime of Kansas and Oklahoma.
Wilson took the same road nearly a decade ago with Beta Oil and Gas, which became Petrohawk Energy Corp. He started with a $60 million recapitalization and built up the company into the Petrohawk giant that was sold for about $15 billion to Australian company BHP Billiton.
Step two for Halcon, after cleaning up the RAM assets, was to accelerate the company’s growth by adding a strategic acquisition, namely GeoResources.
“This announcement should come as no surprise to existing Halcon stockholders, as this transaction complements our strategy of concentrating our efforts at building core positions in liquid-prone plays,” Wilson said.
Halcon reported a net loss for the 2011 fourth quarter of $12.2 million on $25.5 million in oil and gas sales, and a net loss for the full year 2011 of $1.4 million on $103.5 million in oil and gas revenues.
In contrast, GeoResources’ net income for the 2011 fourth quarter was $6.7 million on $39.4 million in oil and gas revenues, and net income for the full year 2011 of $31.2 million on $130.6 million in oil and gas revenues.
