HK Provides Operational Update , Additional Information Regarding The Tuscaloosa Marine Shale

Updates

June 9, 2014: Zeits' "take" on the press release over at Seeking Alpha:

Based on my estimate, the 4% overriding royalty interest in one well could have an NPV-10% in the $1.1-$1.7 million range, which may increase the total return to preferred stock investors to over 20% per annum. (This is an estimate based on certain assumptions: detailed terms of the preferred stock have not been disclosed yet).

The good news, the financing is structured to limit the effective sell-down of the TMS asset in the financing and may be the lesser of all possible "necessary evils."

Original Post

Halcon appears to be moving quickly in the Tuscaloose Marine Shale. Three items from this press release:

1. Halcon's midstream subsidiary, Halcón Field Services, has acquired rights to develop an oil handling terminal at the Port of Natchez, a location with direct access to more than two million barrels per day of refining capacity on the Lower Mississippi River.  The Port of Natchez has existing infrastructure including loading docks, pipelines and direct access to the Canadian National railroad.

2. Signs a joint venture to expedite development of the TMS: Halcón announced the signing of a definitive agreement with credit funds and accounts managed by affiliates of Apollo Global Management, LLC, which will invest up to $400 million in the Company's wholly owned subsidiary, HK TMS, LLC.  Upon closing, HK TMS will hold all of Halcón's acreage in Mississippi and Louisiana that is prospective for the TMS formation.  The Company holds 100% of the common shares of HK TMS and is the sole manager of HK TMS.  Apollo will contribute $150 million in cash consideration for 150,000 of HK TMS preferred shares, and under certain circumstances, may acquire up to an additional 250,000 preferred shares of HK TMS on the same terms.  Holders of the HK TMS preferred shares will receive quarterly cash dividends of 8% per annum.    

3. Operational update: The Horseshoe Hill 11-22H-1 (92% WI) well in Wilkinson County, MS, achieved a 24-hour average initial production rate of 1,208 barrels of oil per day and 1.1 million cubic feet per day of 1,551 BTU natural gas on a 19/64 inch choke.  Based on gas composition analysis and assuming full ethane recovery, Halcón estimates that the well would produce an additional 212 barrels of NGLs per day for a total 24-hour average initial production rate of 1,548 barrels of oil equivalent per day.  The well has a 7,060' effective lateral and was completed with 24 frac stages, 21 of which were effectively pumped and 3 of which were partially pumped (less proppant placed than designed).  Halcón drilled this well in 39 days (spud to TD).

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