Friday, November 08, 2013YOUNGSTOWN, Ohio – A transcript of the conference call Nov. 5 with the CEO of Halcon Resources contains language (Warning: expletive not deleted in this report) that leaves no doubt about his negative view of “wildcat wells” his company drilled in northern tier of the Utica shale play.
But exactly where? Which wells failed to produce?
Halcon has leaseholds on 143,000 net acres in Ohio and Pennsylvania in the Utica and Point Pleasant shale formations. Last October the company paid $43 million to acquire from Carrizo Oil and Gas shale leasehold positions in Trumbull County as well as in Mercer and Crawford counties in Pennsylvania.
“Well, we won’t drill any more wells near the shitty ones we drilled already,” said Floyd C. Wilson chairman and CEO of Halcon, in response to a question Tuesday from a researcher at Canaccord Genuity, New York. “We’ll concentrate all of our drilling in the south part of our acreage. We have lots of room.”
The day after Halcon’s conference call, Canaccord Genuity downgraded its rating on the company’s stock from "buy" to "hold," citing in part “the Utica taking longer to pan out.” Other research firms also announced cautionary downgrades.
At the close of the markets Thursday, Halcon’s common shares were trading at $4.51, down from a 52-week high of $8.28.
The company reported Nov. 5 that it has finished drilling nine Utica wells but connected just three wills into sales pipelines, including the Kibler 1H in Lordstown. At the Kibler site, Halcon recently spud its first offset well, and has permits to drill five wells there.
“We plan to limit near-term drilling to the southwest portion of our acreage in Trumbull and Mahoning counties, Ohio,” the company said.
During his prepared remarks delivered at the conference call, Wilson elaborated.
“In Ohio, we recently spud out the -- an offset to our Kibler #1 well. We used the slickwater frac to complete this well. That will be the first for us in this area, and our current plans include slickwater fracs on all wells going forward,” he said. “Our plans for that area involve one rig for the next few quarters. All drilling would be concentrated on our southern acreage, were we have hundreds of locations.”
In addition to Lordstown, Halcon has secured horizontal well permits for sites in Vienna, Hartford and Warren townships in Trumbull County, and for Jackson Township in Mahoning County.
“…Our main initiative up there is to consolidate our position in the southern end and drill a bunch of wells down there over time,” Wilson said. “We are, of course, more cautious than we were, and we were cautious before. But we've had a lot of drilling results from these wildcat wells, and our focus will be on the south end of the play at this time.”
Wilson also commented on Halcon’s anticipated spending on midstream infrastructure in the Utica play, reiterating that northern Trumbull, Mercer and Crawford counties are no longer his company’s focus.
“It’s interesting,” he told analysts. “In the north end, the infrastructure spend was going to be enormous with literally 50 and maybe 80 miles of large pipe being needed to be laid across inhospitable areas in terms of culture and surface and wetlands and whatnot. …[In] northern Mahoning, Southern Trumbull County -- there's some infrastructure in place down there. There's a lot of mature production, not so much that the pipes are all that viable, but the right of ways and the pathways for egress are there. So our infrastructure spend is going to be dramatically less down there, where all of our future drilling is situated than it would have been up in the wildcat areas.”
Wilson made no mention of Halcon’s potential $70 million project to build oil storage and rail loading terminal at the Ohio Commerce Park in Lordstown. That project was presented to village officials in July.
Questioned by The Business Journal about the status of the $70 million project, Dan Crouse, the Routh-Hurlbert broker who is marketing the Ohio Commerce Center, says he is "waiting to hear officially from Halcon about their position moving forward. Halcon's Kibler well is just east of OCC so we are very optimistic," he says.
In June, Halcon released a status report on its Utica wells. At that time, the company said its Phillips 1H well in Mercer County, Pa., was “flowing to a sales pipeline and is undergoing flow optimization”; its Allam 1H well in Venango County, Pa., was shut-in awaiting infrastructure, and additional wells in Mercer and Crawford counties were awaiting testing that was to begin this summer.
In addition to the Kibler well, Halcon reported in June on two more wells in Trumbull County. The Avalon Farms well in Vienna Township was being drilled, the company said, and the Brugler well in Warren Township had been tested and is awaiting infrastructure.
In Mahoning County, Halcon said testing would begin in August at its Davidson well in Jackson Township. The company previously said it expected the testing phase for its Utica positions would be completed in the fourth quarter.
Halcon reported a few weeks ago that the Kibler well was originally scheduled to connect into Blue Racer Midstream's Warren 2 pipeline, but production had to be rerouted as a result of a fire at Mark West’s Natrium (West Virginia) gas processing plant. A temporary alternate route was made available for the early October 2013 sales start-up, the company noted. The well produced an average of 358 barrels of condensate per day and 1.6 million cubic feet of gas per day into sales over the first 30 days on a restricted 24/64 choke, which is in line with internal expectations, Halcon said. Production from the Kibler well is expected to be flowing into Blue Racer Midstream's Warren 2 pipeline in the first quarter.
In its Nov. 4 third quarter earnings release, Halcon said it would reduce by 20% capital expenditures in 2014 for drilling and well completion. The company said it earned adjusted third-quarter net income of $18.1 million compared to a loss of $900,000 in the third quarter of 2012.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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