Dan - your thoughts please on their ER today.
Thanks,
Bob
HK
Re: HK
Halcon (HK) beat my forecast on top line revenues and production. Very Good! I will update my forecast model and post it under the Watch List tab this afternoon. - Dan.
Revenues for the three months ended June 30, 2014 totaled $327.1 million, an increase of 53% compared to the three months ended June 30, 2013. Production for the quarter came in above guidance and increased 44% year-over-year to an average of 42,055 barrels of oil equivalent per day (Boe/d). Second quarter 2014 production was 85% oil, 7% natural gas liquids (NGLs) and 8% natural gas.
Revenues for the three months ended June 30, 2014 totaled $327.1 million, an increase of 53% compared to the three months ended June 30, 2013. Production for the quarter came in above guidance and increased 44% year-over-year to an average of 42,055 barrels of oil equivalent per day (Boe/d). Second quarter 2014 production was 85% oil, 7% natural gas liquids (NGLs) and 8% natural gas.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: HK
My forecast model for HK has been posted under the Watch List tab.
My FVE is $8.25. First Call’s price target is $6.93.
2nd quarter results were very good and I now think this year’s production will be close to the high end of their guidance (40,000 to 42,000 boepd). I used mid-point in my valuation.
Production should be above 44,000 boepd (85% crude oil) by year-end.
My forecast is 47,500 boepd in 2015.
Lots of upside in the TMS if that play works out.
They have a lot of their production hedged, hence the big mark-to-market adjustment on their derivatives. Ignore GAAP earnings and focus on cash flow per share. HK is on-track to generate about $1.60 CFPS, net of pfd stock dividends.
HK is definitely one we will be keeping an eye on and a candidate for our Small-Cap Growth Portfolio.
Their good El Halcon results are bullish for CRK, which has a lot of acreage just to the north of HK.
My FVE is $8.25. First Call’s price target is $6.93.
2nd quarter results were very good and I now think this year’s production will be close to the high end of their guidance (40,000 to 42,000 boepd). I used mid-point in my valuation.
Production should be above 44,000 boepd (85% crude oil) by year-end.
My forecast is 47,500 boepd in 2015.
Lots of upside in the TMS if that play works out.
They have a lot of their production hedged, hence the big mark-to-market adjustment on their derivatives. Ignore GAAP earnings and focus on cash flow per share. HK is on-track to generate about $1.60 CFPS, net of pfd stock dividends.
HK is definitely one we will be keeping an eye on and a candidate for our Small-Cap Growth Portfolio.
Their good El Halcon results are bullish for CRK, which has a lot of acreage just to the north of HK.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: HK
Morgan Stanley Analyst's comment on HK. I agree that TMS has yet to be proven, but I think a valuation of $4.00 is too low. HK is on my Watch List, but I'm not ready to "graduate it" to our Small-Cap Growth Portfolio yet. - Dan
After outperforming 40% YTD, and on the back of our deep dive analysis on the Tuscaloosa Marine Shale (TMS), we believe HK's risk-reward looks unattractive.
HK discounts optimistic assumptions on well performance and resource potential, particularly for the TMS. In our view, the stock should trade at a discount to oil weighted peers that have higher growth, lower leverage, and higher quality drilling inventory.
Premium to oil weighted peers is unjustified
, in our view.
Halcon's premium to oil weighted peers is unjustified, given its slower growth profile, lower quality drilling inventory, higher leverage, and tighter liquidity, in our view. Halcon trades at 7.2x 2015e EBITDA vs. BCEI and OAS at 5.7x and 5.9x. Relative to the high growth, larger cap oil peers (XEC, CXO, and CLR) Halcon trades in line to a 1.0x premium. We think Halcon should trade at a discount to these stocks. On 2016e EBITDA HK trades at a 1.7-1.9x premium to both BCEI and OAS and at a 0.5-1.0x premium to CLR, CXO, and XEC.
Slower growth and higher leverage. Relative to the oil weighted peers, Halcon has a below average production growth profile at a 3-year CAGR of 20% vs. peers at 30%, based on our estimates. It also has higher leverage with Net Debt-to-EBITDA of 4.6x vs. peers at 1.8x (at YE-14).
Could raising liquidity be a possibility? Our funding analysis suggests HK may need to increase its liquidity by mid-2015, assuming that its borrowing base commitments are increased 43% to $1.0 billion.
Tuscaloosa: discounts $5,600/acre for a position that is lightly tested. Halcon has greater downside risk relative to peers due to the optimistic level of success in the Tuscaloosa Marine Shale (TMS) currently reflected in the stock. We estimate shares are discounting value for development of 40% of its 315,000 net acres (on 320-acre spacing at $90 WTI) vs. ~25% that has been delineated.
Lowering price target to $4 from $8. We are lowering our price target primarily to reflect TMS well performance
After outperforming 40% YTD, and on the back of our deep dive analysis on the Tuscaloosa Marine Shale (TMS), we believe HK's risk-reward looks unattractive.
HK discounts optimistic assumptions on well performance and resource potential, particularly for the TMS. In our view, the stock should trade at a discount to oil weighted peers that have higher growth, lower leverage, and higher quality drilling inventory.
Premium to oil weighted peers is unjustified
, in our view.
Halcon's premium to oil weighted peers is unjustified, given its slower growth profile, lower quality drilling inventory, higher leverage, and tighter liquidity, in our view. Halcon trades at 7.2x 2015e EBITDA vs. BCEI and OAS at 5.7x and 5.9x. Relative to the high growth, larger cap oil peers (XEC, CXO, and CLR) Halcon trades in line to a 1.0x premium. We think Halcon should trade at a discount to these stocks. On 2016e EBITDA HK trades at a 1.7-1.9x premium to both BCEI and OAS and at a 0.5-1.0x premium to CLR, CXO, and XEC.
Slower growth and higher leverage. Relative to the oil weighted peers, Halcon has a below average production growth profile at a 3-year CAGR of 20% vs. peers at 30%, based on our estimates. It also has higher leverage with Net Debt-to-EBITDA of 4.6x vs. peers at 1.8x (at YE-14).
Could raising liquidity be a possibility? Our funding analysis suggests HK may need to increase its liquidity by mid-2015, assuming that its borrowing base commitments are increased 43% to $1.0 billion.
Tuscaloosa: discounts $5,600/acre for a position that is lightly tested. Halcon has greater downside risk relative to peers due to the optimistic level of success in the Tuscaloosa Marine Shale (TMS) currently reflected in the stock. We estimate shares are discounting value for development of 40% of its 315,000 net acres (on 320-acre spacing at $90 WTI) vs. ~25% that has been delineated.
Lowering price target to $4 from $8. We are lowering our price target primarily to reflect TMS well performance
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group