5 Things Halcon Resources Corp. Wants You to Know

HK Net Financial Debt (Quarterly) Chart
HK Net Financial Debt (Quarterly) Chart

HK Net Financial Debt (Quarterly) data by YCharts .

While the company hasn't yet put a target on total debt reduction, it likely will still need to remove several hundred million dollars in additional debt from its balance sheet before its finances are on solid ground.

3. We're OK ... for now

Wilson addressed its options for future debt reduction by noting:

We have several levers we can pull. We're evaluating all of them constantly. We're in good shape at this moment. We're not in good shape forever, but we're in good shape at this moment. So we understand what's going on in the market, and we're evaluating lots of different ideas and when one comes to the forefront, you'll hear about it after we did it.

Halcon clearly does need to make additional moves. That said, it is worth noting that while it has several options, one thing Mize did point out on the call is the fact that it does not have any additional capacity to take on more third-lien debt for the purpose of another debt swap.

4. We're making permanent cost reductions

While balance sheet improvements are a big focus for Halcon right now, another major focus of the company has been to push its costs down. Wilson noted:

Lease operating costs are also down about a third since this time last year. Completed well costs on our property in the Williston Basin have been running at about $7.2 million this quarter, while new [wells are] projecting [at] $6.8 million. ... About a third of the reduction -- this is kind of a good point -- in total completed well costs since last year for us is related to design modifications. These efficiencies will stick even in a higher commodity price environment.

Two of the company's biggest costs -- lease operating expenses and completed well costs -- have experienced meaningful reductions over the past year. Even better, about a third of the well cost reductions are going to be permanent due to design modifications. This will enable Halcon to enjoy even better drilling returns when oil prices and, therefore, service costs, eventually begin to rebound.

5. Here are our initial thoughts on 2016

While Halcon Resources isn't yet ready to put out official guidance for 2015, here are Wilson's current thoughts:

We're operating three rigs today. We will likely keep three rigs running next year as well. Our three-rig program in 2016 should run about 25% less in CapEx than this year and allow us to keep production relatively flat. Those are comments -- not perfect guidance at this time.

He estimates that Halcon will need to spend just three quarters of the $325 million it spent this year, or roughly $250 million, on capex to keep its production flat. While that's a steep reduction, it's not as steep as what Whiting Petroleum expects to see next year, with the company estimating that it can cut its capex budget in half to roughly $1 billion and still keep its production flat.

Investor takeaway

There were two major themes running through management's comments. First, it's making tremendous progress to improve its costs and its balance sheet, which is buying valuable time for the company to seek out additional improvements. So, while it's clearly not out of the woods, it isn't in the dire straits either.

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The article 5 Things Halcon Resources Corp. Wants You to Know originally appeared on

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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