Shares of Halcon Resources Surge After Management Hit Reset Button With Asset Sale

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What happened

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Shares of oil and gas producer Halcon Resources (NYSE: HK) are up 41% as of 11 a.m. EDT Tuesday. The impetus for Tuesday's big surge came after management announced it was selling the entirety of its Williston Basin assets for $1.4 billion.

So what

A look into Halcon Resources' past several years, shows a company that does more wheeling and dealing for acreage than it does drilling for oil. Before its Chapter 11 bankruptcy proceedings a little over a year ago, the company had acreage in the Eagle Ford, Tuscaloosa Marine, Utica, and Bakken/Three Forks shale basins. The company was notorious for acquiring acreage in newer, less established shale basins in hopes of striking it big. It had worked once before for Halcon's CEO, Floyd Wilson, who had sold his previous company, Petrohawk Energy, to BHP Billiton in 2011 because of its early work in the Eagle Ford.  

Since that bankruptcy, though, the company has tacked in a different direction. It has sold its stake in the Tuscaloosa Marine shale to its joint venture partner, sold its Eagle Ford assets, and purchased a 45,000-acre stake in the Delaware Basin -- part of the Permian Basin. Now, it's unloading its operated Bakken stake to pay down debt and give the company ample liquidity to pay for its drilling program.

In signing this deal, it drastically resets the company's product portfolio. The company's guidance for 2017 was in the 39,000 to 41,000 barrels of oil equivalent per day (boe/d) range prior to the sale, but the deal will leave Halcon with only 7,500 boe/d. The benefit is that the cash from the sale will be used to pay off $735 million in outstanding debt, much of which carried high-interest rates.

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Now what

The hope is that Halcon's Delaware Basin position will be prolific enough that it will make up for all the current production from the Williston Basin. Based on the well economics from several of Halcon's peers, it's possible that this will work. The other bonus is that the company bought itself some extra wiggle room with its creditors. 

Looking at this stock as a long-term investment, though, there are reasons to give pause. The company has struck out several times before thinking that previous shale basins were the next big thing. Until the company proves it can operate an acreage efficiently and produce enough cash to justify its spending habits, this is probably a stock worth avoiding.

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Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.