Richard Zeits Update On Halcon -- February 27, 2015

Richard Zeits over at Seeking Alpha on Halcon:

• Recent wells in Fort Berthold area continue to track well above Halcón’s 801 Mboe type curve.
• The current AFEs are running at $8.5 million per well; $8.0 million per well expected by mid-year.
• Ceramic proppant has been fully replaced with white sand, with no reduction in performance expected.
• At the type curve, wells are strongly economic assuming the current strip pricing. 

According to Richard Zeits:

Halcón's FBIR data points are impressive and suggest that the company should be able to realize significant full drill-out value for its FBIR asset, even assuming only moderate recovery in oil prices.

The obvious challenge is that Halcón's FBIR holdings are limited in size. The company controls ~20 operated drilling units in this area. With the high-density drilling that has been proven successful, Halcón's "core of the core" inventory likely exceeds a hundred locations and therefore represents at least several years of active drilling. In this regard, the FBIR acreage should allow Halcón to sustain its company-wide production at a relatively stable level, even in the event of a protracted commodity price trough.

However, this crown jewel asset alone is not sufficient to support the company's entire enterprise value. Other assets must also "work" well and therefore a meaningful recovery in the price of oil would certainly help.