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Exploration & Production | Quarterly / Earnings Reports | Second Quarter (2Q) Update

Halcon's Unconventional Ops Fuel Strong Growth in 2Q

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   |    Wednesday,July 30,2014

Halcon Resources Corporation has reported its second quarter 2014 results.

The company has updated each of its E&P sectors, which can be accessed below:

Halcon's Eagle Ford Production Skyrockets 453% YOY

Halcon Cuts Bakken Rig Count; Sets Spud-to-TD Record

Halcon Continues Delineating Ops at TMS Acreage

Financials Results

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.

Excluding the impact of hedges, the Company realized 91% of the average NYMEX oil price, 35% of the average NYMEX oil price for NGLs and 113% of the average NYMEX natural gas price during the period.

Total operating costs per unit (including lease operating expense, workover and other expense, taxes other than income, gathering and other expense, and general and administrative expense), after adjusting for selected items (see Selected Operating Data table for additional information), decreased by 21% to $24.45 per Boe in the second quarter of 2014, compared to the second quarter of 2013.

After adjusting for selected items primarily related to the non-cash impact of derivatives (see Selected Item Review and Reconciliation table for additional information), net income was $32.5 million, or $0.07 per diluted share, for the three months ended June 30, 2014. Halcon reported a net loss available to common stockholders of $73.3 million, or $0.18 per diluted share for the quarter.

Steve W. Herod, President, commented, "Second quarter results were solid and reflect our ongoing efforts to maximize returns. We believe we are well positioned to continue delivering strong growth in our core plays, and we are comfortable with our current liquidity position. Leverage metrics should also improve over time."

Liquidity and Capital Spending

The Company closed on the $450 million sale of certain non-core assets in East Texas on May 9, 2014. These properties contributed 1,645 Boe/d to Halcon's 42,055 Boe/d of production during the second quarter of 2014.

As previously disclosed, Halcon announced the signing and closing of a definitive agreement with credit funds and accounts managed by affiliates of Apollo Global Management, LLC, which may invest up to $400 million in the Company's wholly owned subsidiary, HK TMS, LLC. On June 16, 2014, Apollo contributed $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. The initial $150 million capital investment by Apollo, as well as potential future investments, will reduce Halcon's capital requirements in the TMS over the next several quarters.

As of June 30, 2014, the Company had undrawn capacity on its senior secured revolving credit facility plus cash on hand totaling approximately $618 million.

During the second quarter of 2014, Halcon incurred capital costs of $268.7 million on drilling and completions, $13.1 million on infrastructure/seismic and $164.2 million for leasehold acquisitions primarily in the TMS. Per the terms of the Apollo agreement and during the quarter, the Company accelerated a $126.9 million payment to Encana Oil & Gas (USA) Inc. associated with the previously disclosed acquisition of certain properties prospective for the Tuscaloosa Marine Shale ("TMS"). Halcon originally planned to defer and pay these amounts during the second half of 2014 and throughout 2015. In addition, the Company incurred $47.0 million for capitalized interest, G&A and other.

Recent Developments

On July 29, 2014, Halcon's Board of Directors declared a quarterly dividend on shares of its 5.75% Series A Cumulative Perpetual Convertible Preferred Stock equal to accrued dividends for the three months ending August 31, 2014. The Company will pay the dividend on September 2, 2014 to holders of record on August 15, 2014. The dividend payments on all of the outstanding 5.75% Series A Cumulative Perpetual Convertible Preferred Stock will total approximately $5.0 million, and will be paid in shares of Halcon's common stock having a fair market value (as determined under the certificate of designation governing such preferred stock) equal to the aggregate dividend amount. The Company will pay cash in lieu of issuing any fractional shares.

Halcon Field Services

Halcon's midstream subsidiary, Halcon Field Services (HFS), is currently working on several initiatives that could ultimately improve realized pricing and margins across its portfolio.

The Company's first compressed natural gas ("CNG") facility is expected to be in service by the end of the third quarter of 2014 and will serve operations in El Halcon. Halcon believes using CNG to displace diesel fuel used in drilling and completion operations is not only better for the environment but should also result in a nearly 50% savings on fuel costs when fully implemented. The Company expects to build similar facilities to service its operations in the Williston Basin and the TMS in 2015.

HFS continues to provide low pressure gathering services in El Halcon. With continued progress in the play, HFS plans to support the TMS by building a three-phase gathering system with centralized aggregation points located strategically throughout the play. Centralized aggregation points are expected to reduce the cost of individual well facilities and allow for more efficient transportation of both crude oil and produced water. Gas will also be processed at a central facility with access to one or more residue gas outlets. System design and layout are substantially complete and HFS plans to begin permitting for a processing plant and other relevant facilities in the third quarter of 2014.

HFS also continues to develop a scalable crude oil handling facility at the Port of Natchez in Mississippi that will be capable of handling truck and pipeline offloading from the TMS. HFS will have the ability to market the crude oil via barge on the Mississippi River or by rail via the port's direct access to the Canadian National railroad. Halcon expects to begin the permitting process during the third quarter of 2014, with an expected in-service date of mid-2015.