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TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
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|
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015 |
OR |
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
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Commission File Number: 001-35467
Halcón Resources Corporation
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization) |
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1311
(Primary Standard Industrial
Classification Code Number) |
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20-0700684
(I.R.S. Employer
Identification Number) |
1000 Louisiana Street, Suite 6700, Houston, TX 77002
(Address of principal executive offices)
(832) 538-0300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer ý |
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Accelerated Filer o |
|
Non-Accelerated Filer o (Do not check if a
smaller reporting company) |
|
Smaller Reporting Company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý
At May 1, 2015, 570,675,110 shares of the Registrant's Common Stock were outstanding.
Table of Contents
TABLE OF CONTENTS
2
Table of Contents
Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All
statements, other than statements of historical facts, concerning, among other things, planned capital expenditures, potential increases in oil and natural gas production, the number and location of
wells to be drilled in the future, future cash flows and borrowings, pursuit of potential acquisition or divestiture opportunities, our financial position, business strategy and other plans and
objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project,"
"plan," "objective," "believe," "predict," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could" and similar terms and phrases. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated
in these forward-looking statements. Readers should consider carefully the risks described under the "Risk Factors" section of our previously filed Annual Report on Form 10-K for the fiscal
year ended December 31, 2014 and the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in the
forward-looking statements, including, but not limited to, the following factors:
-
- volatility in commodity prices for oil and natural gas, including continued declines in the price for oil;
-
- our ability to generate sufficient cash flow from operations and to borrow or access other sources of capital to enable us to fund our
operations, satisfy our obligations and fully develop our undeveloped acreage positions;
-
- we have substantial indebtedness and may incur more debt;
-
- higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business;
-
- our ability to replace our oil and natural gas reserves;
-
- our ability to successfully integrate acquired oil and natural gas businesses and operations;
-
- the possibility that acquisitions and divestitures may involve unexpected costs or delays, and that acquisitions may not achieve
intended benefits and may divert management's time and energy;
-
- our ability to successfully develop our large inventory of undeveloped acreage in our resource plays;
-
- access to and availability of water and other treatment materials to carry out fracture stimulations in our resource plays;
-
- access to adequate gathering systems, processing facilities, transportation take-away capacity to move our production to market and
marketing outlets to sell our production at market prices;
-
- the presence or recoverability of estimated oil and natural gas reserves and the actual future production rates and associated costs;
-
- contractual limitations that affect our management's discretion in managing our business, including covenants that, among other
things, limit our ability to incur debt, make investments and pay cash dividends;
-
- the potential for production decline rates for our wells to be greater than we expect;
-
- our ability to retain key members of senior management, board members, and key technical employees;
3
Table of Contents
-
- competition, including competition for acreage in resource play holdings;
-
- environmental risks;
-
- drilling and operating risks;
-
- exploration and development risks;
-
- the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes and changes
in environmental regulations);
-
- general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business,
may be less favorable than expected, including the possibility that economic conditions in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for
oil and natural gas and make it difficult to access capital;
-
- social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such
as the Middle East, and armed conflict or acts of terrorism or sabotage;
-
- other economic, competitive, governmental, regulatory, legislative, including federal, state and tribal regulations and laws,
geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices;
-
- the insurance coverage maintained by us may not adequately cover all losses that we may sustain;
-
- title to the properties in which we have an interest may be impaired by title defects;
-
- senior management's ability to execute our plans to meet our goals;
-
- the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars; and
-
- our dependency on the skill, ability and decisions of third party operators of the oil and natural gas properties in which we have a
non-operated working interest.
All
forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the
securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.
4
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
HALCÓN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
|
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|
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|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
Operating revenues: |
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales: |
|
|
|
|
|
|
|
Oil |
|
$ |
124,413 |
|
$ |
256,029 |
|
Natural gas |
|
|
6,959 |
|
|
9,409 |
|
Natural gas liquids |
|
|
4,068 |
|
|
8,759 |
|
|
|
|
|
|
|
|
|
Total oil, natural gas and natural gas liquids sales |
|
|
135,440 |
|
|
274,197 |
|
Other |
|
|
754 |
|
|
952 |
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
136,194 |
|
|
275,149 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
|
Lease operating |
|
|
33,785 |
|
|
36,638 |
|
Workover and other |
|
|
3,114 |
|
|
2,789 |
|
Taxes other than income |
|
|
12,241 |
|
|
24,160 |
|
Gathering and other |
|
|
13,746 |
|
|
5,073 |
|
Restructuring |
|
|
1,921 |
|
|
987 |
|
General and administrative |
|
|
24,409 |
|
|
32,798 |
|
Depletion, depreciation and accretion |
|
|
119,144 |
|
|
119,908 |
|
Full cost ceiling impairment |
|
|
554,003 |
|
|
61,165 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
762,363 |
|
|
283,518 |
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(626,169 |
) |
|
(8,369 |
) |
Other income (expenses): |
|
|
|
|
|
|
|
Net gain (loss) on derivative contracts |
|
|
99,748 |
|
|
(33,656 |
) |
Interest expense and other, net |
|
|
(61,307 |
) |
|
(30,939 |
) |
|
|
|
|
|
|
|
|
Total other income (expenses) |
|
|
38,441 |
|
|
(64,595 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(587,728 |
) |
|
(72,964 |
) |
Income tax benefit (provision) |
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(587,641 |
) |
|
(72,964 |
) |
Series A preferred dividends |
|
|
(4,901 |
) |
|
(4,959 |
) |
Preferred dividends and accretion on redeemable noncontrolling interest |
|
|
(8,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(601,193 |
) |
$ |
(77,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common stock: |
|
|
|
|
|
|
|
Basic |
|
$ |
(1.43 |
) |
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted |
|
$ |
(1.43 |
) |
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
|
419,684 |
|
|
413,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
419,684 |
|
|
413,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
Table of Contents
HALCÓN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
Current assets: |
|
|
|
|
|
|
|
Cash |
|
$ |
18,611 |
|
$ |
43,713 |
|
Accounts receivable |
|
|
219,790 |
|
|
276,559 |
|
Receivables from derivative contracts |
|
|
351,785 |
|
|
352,530 |
|
Restricted cash |
|
|
16,322 |
|
|
16,131 |
|
Inventory |
|
|
4,379 |
|
|
4,693 |
|
Prepaids and other |
|
|
10,235 |
|
|
9,079 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
621,122 |
|
|
702,705 |
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method): |
|
|
|
|
|
|
|
Evaluated |
|
|
6,526,440 |
|
|
6,390,820 |
|
Unevaluated |
|
|
1,838,093 |
|
|
1,829,786 |
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties |
|
|
8,364,533 |
|
|
8,220,606 |
|
Lessaccumulated depletion |
|
|
(3,623,652 |
) |
|
(2,953,038 |
) |
|
|
|
|
|
|
|
|
Net oil and natural gas properties |
|
|
4,740,881 |
|
|
5,267,568 |
|
|
|
|
|
|
|
|
|
Other operating property and equipment: |
|
|
|
|
|
|
|
Gas gathering and other operating assets |
|
|
129,116 |
|
|
126,804 |
|
Lessaccumulated depreciation |
|
|
(16,779 |
) |
|
(14,798 |
) |
|
|
|
|
|
|
|
|
Net other operating property and equipment |
|
|
112,337 |
|
|
112,006 |
|
|
|
|
|
|
|
|
|
Other noncurrent assets: |
|
|
|
|
|
|
|
Receivables from derivative contracts |
|
|
135,428 |
|
|
151,324 |
|
Debt issuance costs, net |
|
|
53,659 |
|
|
55,904 |
|
Deferred income taxes |
|
|
136,627 |
|
|
136,826 |
|
Equity in oil and natural gas partnership |
|
|
4,315 |
|
|
4,309 |
|
Funds in escrow and other |
|
|
2,094 |
|
|
3,833 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,806,463 |
|
$ |
6,434,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
415,378 |
|
$ |
607,750 |
|
Asset retirement obligations |
|
|
142 |
|
|
106 |
|
Current portion of deferred income taxes |
|
|
136,627 |
|
|
136,826 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
552,147 |
|
|
744,682 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
3,892,321 |
|
|
3,746,736 |
|
Other noncurrent liabilities: |
|
|
|
|
|
|
|
Liabilities from derivative contracts |
|
|
747 |
|
|
9,387 |
|
Asset retirement obligations |
|
|
39,895 |
|
|
38,371 |
|
Other |
|
|
5,755 |
|
|
5,964 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
Mezzanine equity: |
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
125,817 |
|
|
117,166 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
Preferred stock: 1,000,000 shares of $0.0001 par value authorized; 340,960 and 345,000 shares of 5.75% Cumulative Perpetual Convertible Series A,
issued and outstanding at March 31, 2015 and December 31, 2014, respectively |
|
|
|
|
|
|
|
Common stock: 1,340,000,000 shares of $0.0001 par value authorized; 436,192,820 and 427,808,306 shares issued and outstanding at March 31, 2015 and
December 31, 2014, respectively |
|
|
42 |
|
|
42 |
|
Additional paid-in capital |
|
|
3,014,207 |
|
|
2,995,402 |
|
Accumulated deficit |
|
|
(1,824,468 |
) |
|
(1,223,275 |
) |
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
1,189,781 |
|
|
1,772,169 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
5,806,463 |
|
$ |
6,434,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
6
Table of Contents
HALCÓN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital |
|
Accumulated
Deficit |
|
Stockholders'
Equity |
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Balances at December 31, 2013 |
|
|
345 |
|
$ |
|
|
|
415,730 |
|
$ |
41 |
|
$ |
2,953,786 |
|
$ |
(1,506,217 |
) |
$ |
1,447,610 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,956 |
|
|
315,956 |
|
Dividends on Series A preferred stock |
|
|
|
|
|
|
|
|
3,262 |
|
|
|
|
|
14,878 |
|
|
(19,838 |
) |
|
(4,960 |
) |
Preferred dividends on redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,543 |
) |
|
(6,543 |
) |
Accretion of redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,633 |
) |
|
(6,633 |
) |
Offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
39 |
|
Long-term incentive plan grants |
|
|
|
|
|
|
|
|
9,388 |
|
|
1 |
|
|
(1 |
) |
|
|
|
|
|
|
Long-term incentive plan forfeitures |
|
|
|
|
|
|
|
|
(455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in shares to cover individuals' tax withholding |
|
|
|
|
|
|
|
|
(117 |
) |
|
|
|
|
(453 |
) |
|
|
|
|
(453 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,153 |
|
|
|
|
|
27,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2014 |
|
|
345 |
|
|
|
|
|
427,808 |
|
|
42 |
|
|
2,995,402 |
|
|
(1,223,275 |
) |
|
1,772,169 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(587,641 |
) |
|
(587,641 |
) |
Dividends on Series A preferred stock |
|
|
|
|
|
|
|
|
2,528 |
|
|
|
|
|
4,901 |
|
|
(4,901 |
) |
|
|
|
Conversion of Series A preferred stock |
|
|
(4 |
) |
|
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends on redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,019 |
) |
|
(3,019 |
) |
Accretion of redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,632 |
) |
|
(5,632 |
) |
Common stock issuance |
|
|
|
|
|
|
|
|
4,979 |
|
|
|
|
|
8,201 |
|
|
|
|
|
8,201 |
|
Offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
(168 |
) |
Long-term incentive plan grants |
|
|
|
|
|
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive plan forfeitures |
|
|
|
|
|
|
|
|
(756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in shares to cover individuals' tax withholding |
|
|
|
|
|
|
|
|
(395 |
) |
|
|
|
|
(762 |
) |
|
|
|
|
(762 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,633 |
|
|
|
|
|
6,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2015 |
|
|
341 |
|
$ |
|
|
|
436,193 |
|
$ |
42 |
|
$ |
3,014,207 |
|
$ |
(1,824,468 |
) |
$ |
1,189,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
7
Table of Contents
HALCÓN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(587,641 |
) |
$ |
(72,964 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depletion, depreciation and accretion |
|
|
119,144 |
|
|
119,908 |
|
Full cost ceiling impairment |
|
|
554,003 |
|
|
61,165 |
|
Share-based compensation, net |
|
|
4,772 |
|
|
4,332 |
|
Unrealized loss (gain) on derivative contracts |
|
|
8,001 |
|
|
26,021 |
|
Amortization and write-off of deferred loan costs |
|
|
1,559 |
|
|
842 |
|
Non-cash interest and amortization of discount and premium |
|
|
1,107 |
|
|
554 |
|
Accrued settlements on derivative contracts |
|
|
(37,592 |
) |
|
|
|
Other income (expense) |
|
|
2,541 |
|
|
354 |
|
Change in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
56,276 |
|
|
12,062 |
|
Inventory |
|
|
314 |
|
|
280 |
|
Prepaids and other |
|
|
(1,156 |
) |
|
4,662 |
|
Accounts payable and accrued liabilities |
|
|
(27,393 |
) |
|
2,284 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
93,935 |
|
|
159,500 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Oil and natural gas capital expenditures |
|
|
(264,626 |
) |
|
(432,783 |
) |
Proceeds received from sale of oil and natural gas assets |
|
|
964 |
|
|
1,533 |
|
Advance on carried interest |
|
|
|
|
|
(62,500 |
) |
Other operating property and equipment capital expenditures |
|
|
(4,345 |
) |
|
(16,036 |
) |
Funds held in escrow and other |
|
|
(5 |
) |
|
288 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(268,012 |
) |
|
(509,498 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
361,000 |
|
|
614,000 |
|
Repayments of borrowings |
|
|
(217,000 |
) |
|
(266,000 |
) |
Debt issuance costs |
|
|
|
|
|
(126 |
) |
Common stock issued |
|
|
6,019 |
|
|
|
|
Restricted cash |
|
|
(191 |
) |
|
|
|
Offering costs and other |
|
|
(853 |
) |
|
(344 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
148,975 |
|
|
347,530 |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(25,102 |
) |
|
(2,468 |
) |
Cash at beginning of period |
|
|
43,713 |
|
|
2,834 |
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
18,611 |
|
$ |
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
Accrued capitalized interest |
|
$ |
(8,270 |
) |
$ |
(4,763 |
) |
Asset retirement obligations |
|
|
1,120 |
|
|
(730 |
) |
Series A preferred dividends paid in common stock |
|
|
4,901 |
|
|
4,959 |
|
Accretion of redeemable noncontrolling interest |
|
|
5,632 |
|
|
|
|
Preferred dividends on redeemable noncontrolling interest paid-in-kind |
|
|
3,019 |
|
|
|
|
Common stock issued |
|
|
2,182 |
|
|
|
|
Offering costs |
|
|
(78 |
) |
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
8
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
Basis of Presentation and Principles of Consolidation
Halcón Resources Corporation (Halcón or the Company) is an independent energy company focused on the
acquisition, production, exploration and development of onshore liquids-rich assets in the United States. The unaudited condensed consolidated financial statements include the accounts of all
majority-owned, controlled subsidiaries and an equity method investment. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development.
The Company's oil and natural gas properties are managed as a whole rather than through discrete operating areas. Operational information is tracked by operating area; however, financial performance
is assessed as a whole. Allocation of capital is made across the Company's entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These
unaudited condensed consolidated financial statements reflect, in the opinion of the Company's management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly
the financial position as of, and the results of operations for, the periods presented. During interim periods, Halcón follows the accounting policies disclosed in its 2014 Annual
Report on Form 10-K, as filed with the United States Securities and Exchange Commission (SEC) on February 26, 2015. Please refer to the notes in the 2014 Annual Report on
Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of the Company's unaudited condensed consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods.
Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue, capital and operating expense accruals, oil and natural gas reserves,
depletion relating to oil and natural gas properties, asset retirement obligations, fair value estimates and income taxes. The Company bases its estimates and judgments on historical experience and on
various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty
and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual
results may differ from the estimates and assumptions used in the preparation of the Company's unaudited condensed consolidated financial statements.
Interim
period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date
of issuance of these unaudited condensed consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts
receivable are recorded at the amount due, less an allowance for
9
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
doubtful
accounts, when applicable. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The
Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. There were no material allowances for
doubtful accounts as of March 31, 2015 or December 31, 2014.
Other Operating Property and Equipment
Gas gathering systems and equipment are recorded at cost. Depreciation is calculated using the straight-line method over a 30-year or
10-year estimated useful life applicable to gas gathering systems and a compressed natural gas facility, respectively. Upon disposition, the cost and accumulated depreciation are removed and any gains
or losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an
asset are capitalized and depreciated over the estimated remaining useful life of the asset. The Company capitalized $84.3 million and $83.1 million as of March 31, 2015 and
December 31, 2014, respectively, related to the construction of its gas gathering systems, after any amounts impaired.
Other
operating assets are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: automobiles and computers, three years;
computer software, fixtures, furniture and equipment, five years or the lesser of the lease term; trailers, seven years; heavy equipment, ten years; an airplane and buildings, twenty years and
leasehold improvements, lease term. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are
charged to operating expense as incurred. Material expenditures which increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.
The
Company reviews its gas gathering systems and equipment and other operating assets for impairment in accordance with ASC 360, Property, Plant, and
Equipment (ASC 360). ASC 360 requires the Company to evaluate gas gathering systems and equipment and other operating assets for impairment as events occur or circumstances
change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from an asset's undiscounted cash flows, then the Company recognizes
an impairment loss for the difference between the carrying amount and the current fair value. The Company also evaluates the remaining useful lives of its gas gathering systems and other operating
assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.
Recently Issued Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-05, Intangibles-Goodwill and
Other-Internal-Use Software (ASU 2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing
arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent
with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public
business entities, the guidance is effective for annual periods, including interim periods within those annual periods,
10
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
beginning
after December 15, 2015. Early adoption is permitted. The Company is in the process of assessing the effects of the application of the new guidance.
In
April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). To simplify
presentation of debt issuance costs, ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent
with debt discounts. ASU 2015-03 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is
permitted. The Company is in the process of assessing the effects of the application of the new guidance.
In
February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02). The amendments in ASU
2015-02 eliminate the previous presumption that a general partner controls a limited partner. ASU 2015-02 may impact the Company's accounting for its general partner interest in SBE Partners LP
(SBE Partners), which is currently accounted for as an equity method investment. ASU 2015-02 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of ASU 2015-02 on its accounting for its general partner interest in SBE Partners.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (ASU 2014-15). ASU
2014-15 is effective for annual reporting periods (including interim periods within those periods) ending after December 15, 2016. Early
application is permitted. The amendments in ASU 2014-15 create a new ASC Sub-topic 205-40, Presentation of Financial StatementsGoing
Concern and require management to assess for each annual and interim reporting period if conditions exist that raise substantial doubt about an entity's ability to continue as
a going concern. The rule requires various disclosures depending on the facts and circumstances surrounding an entity's ability to continue as a going concern. The Company is in the process of
assessing the effects of the application of the new guidance.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 states that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. The standard provides five steps an entity should apply in determining its revenue recognition. ASU 2014-09 must be applied retrospectively and is effective for annual
reporting periods, and interim periods with that reporting period, beginning after December 15, 2016. Early adoption is not permitted. The Company is currently assessing the impact of the
adoption of ASU 2014-09 on the Company's operating results, financial position and disclosures.
2. ACQUISITIONS AND DIVESTITURES
Divestiture
East Texas Assets
On May 9, 2014, the Company completed the divestiture of certain non-core assets in East Texas (the East Texas Assets) to a
privately-owned company for a total purchase price of $424.5 million after closing adjustments for operating expenses, capital expenditures and revenues between the effective
11
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. ACQUISITIONS AND DIVESTITURES (Continued)
date
and the closing date, title and environmental defects, and other purchase price adjustments customary in oil and gas purchase and sale agreements. The effective date of the transaction was
April 1, 2014. Proceeds from the sale were recorded as a reduction to the carrying value of the Company's full cost pool with no gain or loss recorded.
3. OIL AND NATURAL GAS PROPERTIES
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and
development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal
costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed
the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.
The
Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an
individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term;
geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period
in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost
pool and are then subject to depletion and the full cost ceiling test limitation.
Investments
in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or
development activities are in progress, qualify for interest capitalization. The capitalized interest is determined by multiplying the Company's weighted-average borrowing cost on debt by the average
amount of qualifying costs incurred that are excluded from the full cost pool; however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given
period. The capitalized interest amounts are recorded as additions to unevaluated oil and natural gas properties on the unaudited condensed consolidated balance sheets. As the costs excluded are
transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool. For the three months ended March 31, 2015 and 2014, the Company capitalized
interest costs of $24.6 million and $46.6 million, respectively.
At
March 31, 2015, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended March 31, 2015 of the
West Texas Intermediate (WTI) spot price of $82.71 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for
the 12-months ended March 31, 2015 of the Henry Hub price of $3.88 per million British thermal units (MMBtu), adjusted by lease or field for energy content, transportation fees, and regional
price differentials. Using these prices, the Company's net book value of oil and natural gas properties at March 31, 2015 exceeded the ceiling amount by $554.0 million
($348.8 million after taxes) which resulted in a ceiling test impairment of that amount for the quarter. The ceiling test impairment was driven by a 13% decrease in the first-day-of-
12
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. OIL AND NATURAL GAS PROPERTIES (Continued)
the-month
average prices for crude oil used in the ceiling test calculation, which were $94.99 and $82.71 per barrel at December 31, 2014 and March 31, 2015, respectively.
At
March 31, 2014, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended March 31, 2014 of the
WTI spot price of $98.46 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials,
and the first-day-of-the-month average for the 12-months ended March 31, 2014 of the Henry Hub price of $3.99 per MMBtu, adjusted by lease or field for energy content, transportation fees, and
regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at March 31, 2014 exceeded the ceiling amount by $61.2 million
($39.0 million after taxes) which resulted in a ceiling test impairment of that amount for the quarter.
The
Company recorded the full cost ceiling test impairments in "Full cost ceiling impairment" in the Company's unaudited condensed
consolidated statements of operations and in "Accumulated depletion" in the Company's unaudited condensed consolidated balance sheets. Changes in
commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties, and other factors will determine the Company's ceiling test calculations and
impairment analyses in future periods.
4. LONG-TERM DEBT
Long-term debt as of March 31, 2015 and December 31, 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
|
|
(In thousands)
|
|
Senior revolving credit facility |
|
$ |
701,000 |
|
$ |
557,000 |
|
9.25% senior notes due 2022 |
|
|
400,000 |
|
|
400,000 |
|
8.875% senior notes due 2021(1) |
|
|
1,369,422 |
|
|
1,370,032 |
|
9.75% senior notes due 2020(2) |
|
|
1,151,750 |
|
|
1,151,821 |
|
8.0% convertible note due 2017(3) |
|
|
270,149 |
|
|
267,883 |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,892,321 |
|
$ |
3,746,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts are net of a $4.5 million and a $4.6 million unamortized discount at March 31, 2015 and
December 31, 2014, respectively, related to the issuance of the original 2021 Notes. The unamortized premium related to the additional 2021 Notes was approximately $23.9 million and
$24.6 million at March 31, 2015 and December 31, 2014, respectively. See "8.875% Senior Notes" below for more details.
- (2)
- Amounts are net of a $7.6 million and a $7.9 million unamortized discount at March 31, 2015 and
December 31, 2014, respectively, related to the issuance of the original 2020 Notes. The unamortized premium related to the additional 2020 Notes was approximately $9.3 million and
$9.7 million at March 31, 2015 and December 31, 2014, respectively. See "9.75% Senior Notes" below for more details.
- (3)
- Amount is net of a $19.5 million and a $21.8 million unamortized discount at March 31, 2015 and
December 31, 2014, respectively. See "8.0% Convertible Note" below for more details.
13
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LONG-TERM DEBT (Continued)
Senior Revolving Credit Facility
On February 8, 2012, the Company entered into a senior secured revolving credit agreement (the Senior Credit Agreement) with
JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. The Senior Credit Agreement currently provides for a $1.5 billion facility with a borrowing base of
$900.0 million. Amounts borrowed under the Senior Credit Agreement will mature on August 1, 2019. The borrowing base will be redetermined semi-annually, with the lenders and the Company
each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the Company's oil and natural gas
properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. The borrowing base is subject to a reduction (in most cases,
equal to the product of 0.25 multiplied by the stated principal amount (without regard to any initial issue discount)) of any future notes or other long-term debt securities that the Company may
issue. Funds advanced under the Senior Credit Agreement may be paid down and re-borrowed during the term of the facility. Amounts outstanding under the Senior Credit Agreement bear interest at
specified margins over the base rate of 0.75% to 1.75% for ABR-based loans or at specified margins over LIBOR of 1.75% to 2.75% for Eurodollar-based loans. These margins fluctuate based on the
Company's utilization of the facility. Advances under the Senior Credit Agreement are secured by liens on substantially all of the Company's and its restricted subsidiaries' properties and assets. The
Senior Credit Agreement contains customary representations, warranties and covenants including, among others, restrictions on the payment of dividends on the Company's capital stock and financial
covenants, including minimum working capital levels (the ratio of current assets plus the unused commitment under the Senior Credit Agreement to current liabilities) of not less than 1.0 to 1.0 and a
ratio of total secured debt to EBITDA of no greater than 2.75 to 1.0.
On
May 1, 2015, the Company entered into the Tenth Amendment to the Senior Credit Agreement (the Tenth Amendment) which among other things, replaced the interest coverage test and
reduced the borrowing base. See Note 15, "Subsequent Events," for further information regarding the Tenth Amendment. Prior to the Tenth
Amendment, under the Ninth Amendment executed on February 25, 2015, the Senior Credit Agreement had a required minimum coverage of interest expenses of not less than 2.0 to 1.0 through
March 31, 2016 and not less than 2.5 to 1.0 for subsequent periods.
At
March 31, 2015, under the then effective borrowing base of $1.05 billion, the Company had $701.0 million of indebtedness outstanding, $1.1 million of
letters of credit outstanding and approximately $347.9 million of borrowing capacity available under the Company's Senior Credit Agreement.
At
March 31, 2015, the Company was in compliance with the financial covenants under the Senior Credit Agreement.
9.25% Senior Notes
On August 13, 2013, the Company issued at par $400.0 million aggregate principal amount of 9.25% senior notes due 2022
(the 2022 Notes). The net proceeds from the offering of approximately $392.1 million (after deducting commissions and offering expenses) were used to repay a portion of the then outstanding
borrowings under the Company's Senior Credit Agreement.
14
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LONG-TERM DEBT (Continued)
The
2022 Notes bear interest at a rate of 9.25% per annum, payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2014. The 2022
Notes will mature on February 15, 2022. The 2022 Notes are senior unsecured obligations of the Company, rank equally with all of its current and future senior indebtedness and are jointly and
severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company's existing 100% owned subsidiaries, except for the subsidiary, HK TMS, LLC. Halcón, the
issuer of the 2022 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries.
8.875% Senior Notes
On November 6, 2012, the Company issued $750.0 million aggregate principal amount of its 8.875% senior notes due 2021
(the 2021 Notes), at a price to the initial purchasers of 99.247% of par. The net proceeds from the offering of approximately $725.6 million (after deducting the initial purchasers' discounts,
commissions and offering expenses) were used to fund a portion of the cash consideration paid in the acquisition of two wholly-owned subsidiaries of Petro-Hunt Holdings, LLC and Pillar
Holdings, LLC, which owned acreage prospective for the Bakken / Three Forks formations located in North Dakota, in Williams, Mountrail, McKenzie and Dunn Counties.
On
January 14, 2013, the Company issued an additional $600.0 million aggregate principal amount of the 2021 Notes at a price to the initial purchasers of 105% of par. The
net proceeds from the sale of the additional 2021 Notes of approximately $619.5 million (after the initial purchasers' premiums, commissions and offering expenses) were used to repay all of the
then outstanding borrowings under the Senior Credit Agreement and for general corporate purposes, including funding a portion of the
Company's 2013 capital expenditures program. These notes were issued as "additional notes" under the indenture governing the 2021 Notes and under the indenture are treated as a single series with
substantially identical terms as the 2021 Notes previously issued.
The
2021 Notes bear interest at a rate of 8.875% per annum, payable semi- annually on May 15 and November 15 of each year, beginning on May 15, 2013. The Notes will
mature on May 15, 2021. The 2021 Notes are senior unsecured obligations of the Company and rank equally with all of its current and future senior indebtedness. The 2021 Notes are jointly and
severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company's existing 100% owned subsidiaries, except for the subsidiary, HK TMS, LLC. Halcón, the
issuer of the 2021 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries.
In
conjunction with the issuance of the 2021 Notes, the Company recorded a discount of approximately $5.7 million to be amortized over the remaining life of the 2021 Notes using
the effective interest method. The remaining unamortized discount was $4.5 million at March 31, 2015. In conjunction with the issuance of the additional 2021 Notes, the Company recorded
a premium of approximately $30.0 million to be amortized over the remaining life of the additional 2021 Notes using the effective interest method. The remaining unamortized premium was
$23.9 million at March 31, 2015.
The
Company exchanged a portion of the principal amount of the 2021 Notes for shares of its common stock in April 2015. See Note 15, "Subsequent
Events," for a further discussion of the exchanged notes.
15
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LONG-TERM DEBT (Continued)
9.75% Senior Notes
On July 16, 2012, the Company issued $750.0 million aggregate principal amount of 9.75% senior notes due 2020 issued at
98.646% of par (the 2020 Notes). The net proceeds from the offering were approximately $723.1 million after deducting the initial purchasers' discounts, commissions and offering expenses and
were used to fund a portion of the cash consideration paid in the merger with GeoResources, Inc., and the acquisition of certain oil and gas leaseholds located in East Texas.
On
December 19, 2013, the Company issued an additional $400.0 million aggregate principal amount of the 2020 Notes at a price to the initial purchasers of 102.750% of par.
The net proceeds from the sale of the additional 2020 Notes of approximately $406.3 million (after the initial purchasers' fees, commissions and offering expenses) were used to repay a portion
of the then outstanding borrowings under the Senior Credit Agreement. These notes were issued as "additional notes" under the indenture governing the 2020 Notes and under the indenture are treated as
a single series with substantially identical terms as the 2020 Notes previously issued.
The
2020 Notes bear interest at a rate of 9.75% per annum, payable semi- annually on January 15 and July 15 of each year, beginning on January 15, 2013. The 2020
Notes will mature on July 15, 2020. The 2020 Notes are senior unsecured obligations of the Company and rank equally with all of its current and future senior indebtedness. The 2020 Notes are
jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company's existing 100% owned subsidiaries, except for the subsidiary, HK TMS, LLC.
Halcón, the issuer of the 2020 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries.
In
conjunction with the issuance of the 2020 Notes, the Company recorded a discount of approximately $10.2 million to be amortized over the remaining life of the 2020 Notes using
the effective interest method. The remaining unamortized discount was $7.6 million at March 31, 2015. In conjunction with the issuance of the additional 2020 Notes, the Company recorded
a premium of approximately $11.0 million to be amortized over the remaining life of the additional 2020 Notes using the effective interest method. The remaining unamortized premium was
approximately $9.3 million at March 31, 2015.
The
Company exchanged a portion of the principal amount of the 2020 Notes for shares of its common stock in April 2015. See Note 15, "Subsequent
Events," for a further discussion of the exchanged notes.
8.0% Convertible Note
On February 8, 2012, the Company issued to HALRES, LLC (HALRES), a note in the principal amount of $275.0 million
due 2017 (the Convertible Note) together with five year warrants (February 2012 Warrants) for an aggregate purchase price of $275.0 million. The Convertible Note bears interest at a rate of 8%
per annum, payable quarterly on March 31, June 30, September 30 and December 31 of each year. Through the March 31, 2014 interest payment date, the Company was
permitted to elect to pay the interest in kind, by adding to the principal of the Convertible Note, all or any portion of the interest due on the Convertible Note. The Company elected to pay the
interest in kind on March 31, June 30 and September 30, 2012, and added $3.2 million, $5.7 million and $5.8 million of interest incurred, respectively, to the
Convertible Note, increasing the principal amount to $289.7 million. The
16
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LONG-TERM DEBT (Continued)
Company
did not elect to pay-in-kind interest for the quarterly payments subsequently. The Convertible Note is a senior unsecured obligation of the Company.
On
March 9, 2015, the Company entered into an amendment (the HALRES Note Amendment) to its Convertible Note. The HALRES Note Amendment extends the maturity date of the Convertible
Note by three years, from February 8, 2017 to February 8, 2020. The Convertible Note originally provided for prepayment without premium or penalty at any time after February 8,
2014, at which time it also became convertible into shares of the Company's common stock at a conversion price of $4.50 per share. These dates have been extended pursuant to the HALRES Note Amendment
and the conversion price has been adjusted, such that at any time after February 8, 2017, the Company may prepay the Convertible Note without premium or penalty, and HALRES may elect to convert
all or any portion of unpaid principal and interest outstanding under the Convertible Note to shares of the Company's common stock at a conversion price of $2.44 per share, subject to adjustments for
stock splits and other customary anti-dilution provisions as set forth in the Convertible Note. At the same time, the Company also entered into an amendment to the February 2012 Warrants (the Warrant
Amendment) which extends the term of the February 2012 Warrants from February 8, 2017 to February 8, 2020 and adjusts the exercise price of the February 2012 Warrants to $2.44 per share.
In
connection with the HALRES Note Amendment and the Warrant Amendment (the Amendments), the Company and HALRES also amended and restated the Registration Rights Agreement, dated
February 8, 2012, as amended (the Amended Registration Rights Agreement), which provides for certain demand and piggyback registration rights for the shares of the Company's common stock
issuable upon conversion of the Convertible Note and exercise of the February 2012 Warrants.
The
Amendments are subject to approval by the Company's stockholders, in accordance with the rules of the New York Stock Exchange. In the event the Company's stockholders do not approve
the Amendment on or before December 31, 2015, the Amendments will never become effective and the original terms of the Convertible Note and February 2012 Warrants shall continue in effect.
The
Company allocated the proceeds received for the Convertible Note and February 2012 Warrants on a relative fair value basis. Consequently, the Company recorded a discount of
$43.6 million to be amortized over the remaining life of the Convertible Note utilizing the effective interest rate method. The remaining unamortized discount was $19.5 million at
March 31, 2015.
Issuance of Senior Secured Notes due 2020
On May 1, 2015, the Company completed the issuance of $700 million aggregate principal amount of its 8.625% senior
secured notes due 2020 (the Secured Notes) in a private offering. The Secured Notes were issued at par. The net proceeds from the sale of the Secured Notes were approximately $687.8 million
(after deducting offering fees and expenses). The Company used the net proceeds from the offering to repay outstanding borrowings under its Senior Credit Agreement. See Note 15, "Subsequent Events,
" for further details.
Debt Issuance Costs
The Company capitalizes certain direct costs associated with the issuance of long-term debt and amortizes such costs over the lives of
the respective debt. At March 31, 2015 and December 31, 2014,
17
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LONG-TERM DEBT (Continued)
the
Company had approximately $53.7 million and $55.9 million, respectively, of unamortized debt issuance costs.
5. FAIR VALUE MEASUREMENTS
Pursuant to ASC 820, the Company's determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in
receivables on the Company's unaudited condensed consolidated balance sheets, but also the impact of the Company's nonperformance risk on its own liabilities. ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly
or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies
fair value balances based on the observability of those inputs.
The
following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value as of March 31, 2015
and December 31, 2014. As required by ASC 820, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value
measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the three months ended March 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
(In thousands)
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts |
|
$ |
|
|
$ |
487,213 |
|
$ |
|
|
$ |
487,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts |
|
$ |
|
|
$ |
560 |
|
$ |
187 |
|
$ |
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
(In thousands)
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts |
|
$ |
|
|
$ |
503,854 |
|
$ |
|
|
$ |
503,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts |
|
$ |
|
|
$ |
8,068 |
|
$ |
1,319 |
|
$ |
9,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE MEASUREMENTS (Continued)
Derivative
contracts listed above as Level 2 include collars, swaps and put options that are carried at fair value. The Company records the net change in the fair value of these
positions in "Net gain (loss) on derivative contracts" in the Company's unaudited condensed consolidated statements of operations. The Company is able
to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes
the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 6, "Derivative
and Hedging Activities" for additional discussion of derivatives.
Derivative
contracts listed above as Level 3 include extendable collars that are carried at fair value. The significant unobservable inputs for these Level 3 contracts
include unpublished forward strip prices and market volatilities. The following table sets forth a reconciliation of changes in the fair value of the Company's extendable collar contracts classified
as Level 3 in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
Significant Unobservable
Inputs (Level 3) |
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
Beginning Balance |
|
$ |
(1,319 |
) |
$ |
(2,816 |
) |
Net gain (loss) on derivative contracts |
|
|
1,132 |
|
|
1,497 |
|
Settlements |
|
|
|
|
|
|
|
Purchase of derivative contracts |
|
|
|
|
|
|
|
Buy out of derivative contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
(187 |
) |
$ |
(1,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) included in earnings related to derivatives still held at March 31, 2015 and December 31, 2014 |
|
$ |
1,132 |
|
$ |
1,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2015 and December 31, 2014, the Company's derivative contracts were with major financial institutions with investment grade credit ratings which are
believed to have a minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not
anticipate such nonperformance. As of March 31, 2015, each of the counterparties to the Company's current derivative contracts was a lender or an affiliate of a lender in the Company's Senior
Credit Agreement. The Company did not post collateral under any of these contracts as they are secured under the Senior Credit Agreement.
The
following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825, Financial
Instruments. The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. The
estimated fair value of the Company's Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates. The following table presents the estimated fair
19
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE MEASUREMENTS (Continued)
values
of the Company's fixed interest rate, long-term debt instruments as of March 31, 2015 and December 31, 2014 (excluding discounts and premiums):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
December 31, 2014 |
|
Debt
|
|
Carrying
Amount |
|
Estimated
Fair Value |
|
Carrying
Amount |
|
Estimated
Fair Value |
|
|
|
(In thousands)
|
|
9.25% $400 million senior notes |
|
$ |
400,000 |
|
$ |
278,252 |
|
$ |
400,000 |
|
$ |
300,000 |
|
8.875% $1.35 billion senior notes |
|
|
1,350,000 |
|
|
945,000 |
|
|
1,350,000 |
|
|
1,005,750 |
|
9.75% $1.15 billion senior notes |
|
|
1,150,000 |
|
|
816,500 |
|
|
1,150,000 |
|
|
872,862 |
|
8.0% $289.7 million convertible note |
|
|
289,669 |
|
|
255,294 |
|
|
289,669 |
|
|
260,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,189,669 |
|
$ |
2,295,046 |
|
$ |
3,189,669 |
|
$ |
2,439,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair value of the Company's fixed interest debt instruments was calculated using Level 2 criteria at March 31, 2015 and December 31, 2014. The fair value of the
Company's senior notes is based on quoted market prices from trades of such debt. The fair value of the Company's convertible note is based on published market prices for similar instruments and
risk-free rates.
On
June 16, 2014, the Company entered into a transaction to develop its Tuscaloosa Marine Shale assets with funds and accounts managed by affiliates of Apollo Global
Management, LLC. See Note 9, "Mezzanine Equity," for a discussion of the valuation approach used to allocate the investment proceeds to
the transaction's components, for the classification of the estimate within the fair value hierarchy, and for a reconciliation of the beginning and ending liability balances for the tranche rights and
the embedded derivative.
The
Company follows the provisions of ASC 820 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company's initial
recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management's expectation of future cost
environments; consequently, the Company has designated these liabilities as Level 3. See Note 7, "Asset Retirement Obligations," for a
reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.
6. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. Derivative contracts are utilized to
economically hedge the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil and natural gas production. The
Company generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed
consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change
occurs. The Company's hedge policies and objectives may change significantly as its operational profile changes and/or commodities prices change. The Company does not enter into derivative contracts
for speculative trading purposes.
It
is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive
market
20
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
makers.
As March 31, 2015, each of the counterparties to the Company's derivative contracts was a lender or an affiliate of a lender in its Senior Credit Agreement. The Company did not post
collateral under any of these contracts as they are secured under the Company's Senior Credit Agreement.
At
March 31, 2015 and December 31, 2014, the Company's crude oil and natural gas derivative positions consisted of swaps, swaptions, costless put/call "collars," and
extendable costless collars. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. Swaptions are
swap contracts that may be extended annually at the option of the counterparty on a designated date. A costless collar consists of a sold call, which establishes a maximum price the Company will
receive for the volumes under contract and a purchased put that establishes a minimum price. Extendable collars are costless put/call contracts that may be extended annually at the option of the
counterparty on a designated date. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market
valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in "Net gain (loss) on derivative
contracts" on the unaudited condensed consolidated statements of operations.
At
March 31, 2015, the Company had 76 open commodity derivative contracts summarized in the following tables: four natural gas collar arrangements, 44 crude oil collar
arrangements, 18 crude oil swaps, eight crude oil swaptions and two crude oil extendable collars.
At
December 31, 2014, the Company had 72 open commodity derivative contracts summarized in the following tables: four natural gas collar arrangements, 42 crude oil collar
arrangements, 16 crude oil swaps, eight crude oil swaptions and two crude oil extendable collars.
All
derivative contracts are recorded at fair market value in accordance with ASC 815 and ASC 820 and included in the unaudited condensed consolidated balance sheets as
assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of March 31, 2015
and December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivative
contracts |
|
|
|
Liability derivative
contracts |
|
Derivatives not
designated as hedging
contracts under
ASC 815
|
|
Balance sheet
location |
|
March 31,
2015 |
|
December 31,
2014 |
|
Balance sheet
location |
|
March 31,
2015 |
|
December 31,
2014 |
|
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
Commodity contracts |
|
Current assetsreceivables from derivative contracts |
|
$ |
351,785 |
|
$ |
352,530 |
|
Current liabilitiesliabilities from derivative contracts |
|
$ |
|
|
$ |
|
|
Commodity contracts |
|
Other noncurrent assetsreceivables from derivative contracts |
|
|
135,428 |
|
|
151,324 |
|
Other noncurrent liabilitiesliabilities from derivative contracts |
|
|
(747 |
) |
|
(9,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging contracts under ASC 815 |
|
$ |
487,213 |
|
$ |
503,854 |
|
|
|
$ |
(747 |
) |
$ |
(9,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
The following table summarizes the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's unaudited condensed
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or
(loss) recognized in
income on derivative
contracts for the Three
Months Ended
March 31, |
|
|
|
Location of gain or (loss) recognized in
income on derivative contracts |
|
Derivatives not designated as hedging
contracts under ASC 815
|
|
2015 |
|
2014 |
|
|
|
|
|
(In thousands)
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on commodity contracts |
|
Other income (expenses)net gain (loss) on derivative contracts |
|
$ |
(8,001 |
) |
$ |
(26,916 |
) |
Realized gain (loss) on commodity contracts |
|
Other income (expenses)net gain (loss) on derivative contracts |
|
|
107,749 |
|
|
(6,740 |
) |
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on derivative contracts |
|
$ |
99,748 |
|
$ |
(33,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2015 and December 31, 2014, the Company had the following open crude oil and natural gas derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
|
|
|
|
|
|
|
Floors |
|
Ceilings |
|
Period
|
|
Instrument |
|
Commodity |
|
Volume in
Mmbtu's/
Bbl's |
|
Price /
Price Range |
|
Weighted
Average
Price |
|
Price /
Price Range |
|
Weighted
Average
Price |
|
April 2015 - June 2015 |
|
Collars |
|
Crude Oil |
|
|
796,250 |
|
$ |
85.00 - 90.00 |
|
$ |
86.29 |
|
$ |
91.00 - 98.50 |
|
$ |
93.14 |
|
April 2015 - December 2015(1) |
|
Collars |
|
Crude Oil |
|
|
5,362,500 |
|
|
82.50 - 90.00 |
|
|
86.60 |
|
|
90.00 - 100.25 |
|
|
94.14 |
|
April 2015 - December 2015 |
|
Collars |
|
Natural Gas |
|
|
4,812,500 |
|
|
4.00 |
|
|
4.00 |
|
|
4.55 - 4.85 |
|
|
4.68 |
|
April 2015 - December 2015(2) |
|
Swaps |
|
Crude Oil |
|
|
1,375,000 |
|
|
91.00 - 92.75 |
|
|
91.76 |
|
|
|
|
|
|
|
July 2015 - December 2015 |
|
Collars |
|
Crude Oil |
|
|
1,104,000 |
|
|
85.00 - 87.50 |
|
|
85.83 |
|
|
90.00 - 92.50 |
|
|
90.92 |
|
January 2016 - June 2016 |
|
Collars |
|
Crude Oil |
|
|
182,000 |
|
|
90.00 |
|
|
90.00 |
|
|
96.85 |
|
|
96.85 |
|
January 2016 - December 2016 |
|
Collars |
|
Crude Oil |
|
|
2,562,000 |
|
|
60.00 - 90.00 |
|
|
80.42 |
|
|
65.00 - 95.10 |
|
|
85.63 |
|
January 2016 - December 2016 |
|
Collars |
|
Natural Gas |
|
|
732,000 |
|
|
4.00 |
|
|
4.00 |
|
|
4.22 |
|
|
4.22 |
|
January 2016 - December 2016(3) |
|
Swaps |
|
Crude Oil |
|
|
4,758,000 |
|
|
62.00 - 91.73 |
|
|
85.43 |
|
|
|
|
|
|
|
22
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
Floors |
|
Ceilings |
|
Period
|
|
Instrument |
|
Commodity |
|
Volume in
Mmbtu's/
Bbl's |
|
Price /
Price Range |
|
Weighted
Average
Price |
|
Price /
Price Range |
|
Weighted
Average
Price |
|
January 2015 - June 2015 |
|
Collars |
|
Crude Oil |
|
|
1,583,750 |
|
$ |
85.00 - 90.00 |
|
$ |
86.29 |
|
$ |
91.00 - 98.50 |
|
$ |
93.14 |
|
January 2015 - December 2015(1) |
|
Collars |
|
Crude Oil |
|
|
6,205,000 |
|
|
82.50 - 90.00 |
|
|
86.47 |
|
|
90.00 - 100.25 |
|
|
94.39 |
|
January 2015 - December 2015 |
|
Collars |
|
Natural Gas |
|
|
6,387,500 |
|
|
4.00 |
|
|
4.00 |
|
|
4.55 - 4.85 |
|
|
4.68 |
|
January 2015 - December 2015(2) |
|
Swaps |
|
Crude Oil |
|
|
1,825,000 |
|
|
91.00 - 92.75 |
|
|
91.76 |
|
|
|
|
|
|
|
March 2015 - December 2015 |
|
Collars |
|
Crude Oil |
|
|
306,000 |
|
|
87.50 |
|
|
87.50 |
|
|
92.50 |
|
|
92.50 |
|
April 2015 - December 2015 |
|
Collars |
|
Crude Oil |
|
|
412,500 |
|
|
87.50 |
|
|
87.50 |
|
|
92.50 |
|
|
92.50 |
|
July 2015 - December 2015 |
|
Collars |
|
Crude Oil |
|
|
1,104,000 |
|
|
85.00 - 87.50 |
|
|
85.83 |
|
|
90.00 - 92.50 |
|
|
90.92 |
|
January 2016 - June 2016 |
|
Collars |
|
Crude Oil |
|
|
182,000 |
|
|
90.00 |
|
|
90.00 |
|
|
96.85 |
|
|
96.85 |
|
January 2016 - December 2016 |
|
Collars |
|
Crude Oil |
|
|
1,830,000 |
|
|
87.50 - 90.00 |
|
|
88.55 |
|
|
92.70 - 95.10 |
|
|
93.84 |
|
January 2016 - December 2016 |
|
Collars |
|
Natural Gas |
|
|
732,000 |
|
|
4.00 |
|
|
4.00 |
|
|
4.22 |
|
|
4.22 |
|
January 2016 - December 2016(3) |
|
Swaps |
|
Crude Oil |
|
|
4,026,000 |
|
|
88.00 - 91.73 |
|
|
89.65 |
|
|
|
|
|
|
|
- (1)
- Includes an outstanding crude oil collar which may be extended by the counterparty at a floor of $85.00 per Bbl and a
ceiling of $96.20 per Bbl for a total of 732,000 Bbls for the year ended December 31, 2016. Also includes an outstanding crude oil collar which may be extended by the counterparty at a floor of
$85.00 per Bbl and a ceiling of $96.00 per Bbl for a total of 366,000 Bbls for the year ended December 31, 2016.
- (2)
- Includes an outstanding crude oil swap of which may be extended by the counterparty at a price of $91.25 per Bbl for
732,000 Bbls for the year ended December 31, 2016. Also includes certain outstanding crude oil swaps which may be extended by the counterparty at a price of $91.00 per Bbl totaling 366,000 Bbls
for the year ended December 31, 2016.
- (3)
- Includes an outstanding crude oil swap which may be extended by the counterparty at a price of $88.25 per Bbl for a
total of 730,000 Bbls for the year ended December 31, 2017. Also includes certain outstanding crude oil swaps which may be extended by the counterparty at a price of $88.00 per Bbl totaling
912,500 Bbls for the year ended December 31, 2017. Includes an outstanding crude oil swap which may be extended by the counterparty at a price of $88.87 per Bbl totaling 547,500 Bbls for the
year ended December 31, 2017.
The
Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential
effects of master netting arrangements on the fair value of the Company's derivative contracts at March 31, 2015 and December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
Derivative Liabilities |
|
Offsetting of Derivative Assets and Liabilities
|
|
March 31,
2015 |
|
December 31,
2014 |
|
March 31,
2015 |
|
December 31,
2014 |
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Gross Amounts Presented in the Consolidated Balance Sheet |
|
$ |
487,213 |
|
$ |
503,854 |
|
$ |
(747 |
) |
$ |
(9,387 |
) |
Amounts Not Offset in the Consolidated Balance Sheet |
|
|
(768 |
) |
|
(9,655 |
) |
|
747 |
|
|
9,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount |
|
$ |
486,445 |
|
$ |
494,199 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a
standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the
Company
23
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
and
the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
7. ASSET RETIREMENT OBLIGATIONS
The Company records an asset retirement obligation (ARO) when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and
abandon costs. For gas gathering systems and equipment, the Company records an ARO when the system is placed in service and it can reasonably estimate the fair value of an obligation to perform site
reclamation and other necessary work when it is required. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes a portion of the cost in "Oil and natural gas
properties" or "Other operating property and equipment" during the period in which
the obligation is incurred. The Company records the accretion of its ARO liabilities in "Depletion, depreciation and accretion" expense in the unaudited
condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.
The
Company recorded the following activity related to its ARO liability for the three months ended March 31, 2015 (in thousands, inclusive of the current portion):
|
|
|
|
|
Liability for asset retirement obligations as of December 31, 2014 |
|
$ |
38,477 |
|
Additions |
|
|
1,120 |
|
Accretion expense |
|
|
440 |
|
|
|
|
|
|
Liability for asset retirement obligations as of March 31, 2015 |
|
$ |
40,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases corporate office space in Houston, Texas; and Denver, Colorado as well as a number of other field office locations.
Rent expense was approximately $2.0 million and $1.9 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, the amount of
commitments under office and equipment lease agreements is consistent with the levels at December 31, 2014, as disclosed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2014, approximating $57.7 million in the aggregate, and containing various expiration dates through 2024.
In
addition, the Company has commitments for certain equipment under long-term operating lease agreements, namely drilling rigs as well as pipeline and well equipment, with various
expiration dates through 2018. In January 2015, the Company made the decision to early terminate a drilling rig contract in response to the recent decline in crude oil prices, and as such, the Company
will incur an early termination fee of $6.0 million, payable over the first half of 2015. If certain requirements are not met by two separate trigger dates, the first being January 1,
2017 and the second being January 12, 2020, the Company may incur up to an additional $3.0 million in connection with this drilling rig contract. In addition, the Company has a new
drilling rig commitment, scheduled to begin in the second quarter of 2015, for which the Company expects to incur a stacking fee of $17,000 per day. The current rig contract term extends through the
second quarter of 2018. Early termination of the Company's other drilling rig commitments would result in termination penalties approximating
24
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. COMMITMENTS AND CONTINGENCIES (Continued)
$44.3 million,
which would be in lieu of the remaining $67.1 million of drilling rig commitments as of March 31, 2015.
The
Company has entered into various long-term gathering, transportation and sales contracts in its Bakken / Three Forks formations in North Dakota. As of March 31, 2015, the
Company had in place ten long-term crude oil contracts and six long-term natural gas contracts in this area. Under the terms of these contracts, the Company has committed a substantial portion of its
Bakken / Three Forks production for periods ranging from one to ten years from the date of first production. The sales prices under these contracts are based on posted market rates. The Company
believes that there are sufficient available reserves and production in the Bakken / Three Forks formations to meet its commitments. Historically, the Company has been able to meet its delivery
commitments.
On
December 20, 2013, the Company entered into a carry and earning agreement, as amended (the Agreement) with an independent third party (Seller) associated with the acquisition
of certain
properties believed to be prospective for the Tuscaloosa Marine Shale (TMS), primarily in Wilkinson County, Mississippi and in West Feliciana and East Feliciana Parishes, Louisiana. The Agreement
required the Company to fund up to $189.4 million (the Carry Amount) in exchange for approximately 117,870 net acres. The Company paid $62.5 million of the Carry Amount at closing on
February 28, 2014 and the remaining $126.9 million during the three months ended June 30, 2014, reflected as "Advance on carried
interest" in the accompanying unaudited condensed consolidating statements of cash flows. The Carry Amount is to be used by the Seller to fund wells prospective for the TMS to
be drilled by the Seller (the Carry Wells) on the Seller's retained acreage. As part of the transaction, the Company will also receive a 5% working interest in the Carry Wells. Any portion of the
Carry Amount not spent by the Seller, in accordance with the Agreement, on or before August 31, 2017, will be returned to the Company.
On
June 16, 2014, the Company entered into a transaction to develop its TMS assets with funds and accounts managed by affiliates of Apollo Global Management, LLC. See
Note 9, "Mezzanine Equity," for a discussion of the drilling obligation associated with the transaction.
Contingencies
From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course
of its business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company's management and legal counsel believe that the resolution of these proceedings
through settlement or adverse judgment will not have a material effect on the Company's unaudited condensed consolidated operating results, financial position or cash flows.
9. MEZZANINE EQUITY
On June 16, 2014, funds and accounts managed by affiliates of Apollo Global Management, LLC (Apollo) contributed $150 million in cash to HK TMS, LLC, a wholly
owned Delaware limited liability company (HK TMS), that, as of June 16, 2014 held all of the Company's undeveloped acreage in Mississippi and Louisiana that management believes is prospective
for the TMS formation, in exchange for the issuance by HK TMS of 150,000 preferred shares. At the closing, the Company also contributed $50 million in cash to HK TMS. Holders of the HK TMS
preferred shares will receive quarterly cash dividends of 8% cumulative perpetual per annum, subject to HK TMS' option to pay such dividends
25
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MEZZANINE EQUITY (Continued)
"in-kind"
through the issuance of additional preferred shares. For the three months ended March 31, 2015, HK TMS issued 3,019 additional preferred shares to Apollo for dividends paid-in-kind.
These dividends are presented within "Preferred dividends and accretion on redeemable noncontrolling interest" on the unaudited condensed consolidated
statements of operations. Upon the election of in-kind dividends, HK TMS must pay a fee of $5.00 per preferred share then outstanding (PIK Exit Fee). Such fees will be due upon redemption of the
preferred shares. For the three months ended March 31, 2015, HK TMS incurred PIK Exit Fees totaling $0.8 million, which were recorded at fair value within "Other
noncurrent liabilities" on the unaudited condensed consolidated balance sheets. The preferred shares will be automatically redeemed and cancelled when the holders receive cash
dividends and distributions on the preferred shares equating to the greater of a 12% annual rate of return plus principal and 1.25 times their investment plus applicable fees (the Redemption
Price), subject to adjustment under certain circumstances. The preferred shares have a liquidation preference in the event of dissolution in an amount equal to the redemption price plus any unpaid
dividends not otherwise included in the calculation of the redemption price through the date of liquidation payment. HK TMS may also redeem the preferred shares at any time after December 31,
2016 by paying the Redemption Price, or may be required to redeem the preferred shares for the Redemption Price plus certain fees under certain circumstances.
The
preferred shares have been classified as "Redeemable noncontrolling interest" and included in "Mezzanine
equity" between total liabilities and stockholders' equity on the unaudited condensed consolidated balance sheets pursuant to ASC 480-10-S99-3A. The preferred shares, while not
currently redeemable, are considered probable of becoming redeemable and therefore will be subsequently remeasured each reporting period by accreting the initial value to the estimated required
redemption value through March 31, 2017. The accretion is presented as a deemed dividend and recorded in "Redeemable noncontrolling interest" on
the unaudited condensed consolidated balance sheet and within "Preferred dividends and accretion on redeemable noncontrolling interest" on the unaudited
condensed consolidated statements of operations. In accordance with ASC 480-10-S99-3A, an adjustment to the carrying amount presented in mezzanine equity will be recognized as charges against retained
earnings and will reduce income available to common shareholders in the calculation of earnings per share. Adjustments to the carrying amount may not be necessary if the application of ASC
No. 810, Consolidation (ASC 810) results in a noncontrolling interest balance in excess of what is required pursuant to ASC 480-10-S99-3A.
Under
certain circumstances, Apollo could have acquired up to an additional 250,000 preferred shares of HK TMS on the same terms, with HK TMS receiving up to an additional
$250 million in cash proceeds (Tranche Rights). The Tranche Rights were recognized separately as a liability instrument within "Other noncurrent
liabilities" in the unaudited condensed consolidated balance sheets, as of December 31, 2014, in accordance with ASC 480 as the shares underlying the Tranche Rights were
redeemable equity instruments. The Tranche Rights were subsequently remeasured at fair value each reporting period in accordance with ASC 480, with fair value changes recorded in "Interest expense and other,
net" on the unaudited condensed consolidated statements of operations. In March 2015, Apollo delivered a withdrawal notice
to HK TMS indicating their election not to participate in the Tranche Rights (the Withdrawal Notice). As such, the fair value of the liability associated with the Tranche Rights was expensed during
the three months ended March 31, 2015. Upon issuance of the Withdrawal Notice, HK TMS incurs a fee escalating from $2.50 per share to $20.00 per share for the next eight full fiscal quarters
for any preferred shares then outstanding, beginning in the three months
26
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MEZZANINE EQUITY (Continued)
ended
June 30, 2015 (the Withdrawal Exit Fee). The Withdrawal Exit Fee is payable upon redemption of the preferred shares. The Withdrawal Exit Fee was recorded at fair value within "Other noncurrent liabilities" on the unaudited condensed consolidated balance sheets as of March 31, 2015.
In
conjunction with the issuance of the preferred shares, HK TMS conveyed a 4.0% overriding royalty interest (ORRI), subject to reduction to 2.0% under certain circumstances, in 75 net
wells to be drilled and completed on its TMS acreage. The number of wells subject to the ORRI would have increased to the extent that Apollo subscribed for additional preferred shares, with a maximum
of 200 net operated wells subject to such ORRI if Apollo subscribed for the full additional 250,000 preferred shares. However, upon issuance of the Withdrawal Notice, Apollo forfeited the
rights to the ORRI in the additional 125 wells. The ORRI has been recognized separately as a conveyance of oil and natural gas properties in "Unevaluated
properties" on the unaudited condensed consolidated balance sheets. HK
TMS has committed to drill a minimum of 6.5 net wells in each of the six consecutive twelve month periods beginning June 16, 2014. For any commitment period in which HK TMS does not meet its
drilling obligation, HK TMS must use available cash, above the minimum cash balance discussed further below, to redeem the preferred shares at the Redemption Price.
Of
the $150 million initial investment proceeds from Apollo, the Company allocated the proceeds as follows (in thousands):
|
|
|
|
|
HK TMS, LLC preferred stock |
|
$ |
110,051 |
|
Tranche rights |
|
|
4,516 |
|
Overriding royalty interest |
|
|
34,576 |
|
Embedded derivative |
|
|
857 |
|
|
|
|
|
|
Total initial investment proceeds |
|
$ |
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
purposes of estimating the fair values of the transaction components, an income approach was used that estimated fair value based on the anticipated cash flows associated with the
Company's proved reserves, discounted using a weighted average cost of capital rate. The estimation of the fair value of these components includes the use of unobservable inputs, such as estimates of
proved reserves, the weighted average cost of capital (discount rate), estimated future revenues, and estimated future capital and operating costs. The use of these unobservable inputs results in the
fair value estimates being classified as Level 3. Although the Company believes the assumptions and estimates used in the fair value calculation of the transaction components are reasonable and
appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating the fair value of the transaction components are
inherently uncertain and require management judgment.
The
following table sets forth a reconciliation of the changes in fair value of the Tranche Rights and embedded derivative classified as Level 3 in the fair value hierarchy (in
thousands):
|
|
|
|
|
|
|
|
|
|
Tranche
rights |
|
Embedded
derivative |
|
Balances at December 31, 2014 |
|
$ |
(2,634 |
) |
$ |
5,963 |
|
Change in fair value |
|
|
2,634 |
|
|
(204 |
) |
|
|
|
|
|
|
|
|
Balances at March 31, 2015 |
|
$ |
|
|
$ |
5,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MEZZANINE EQUITY (Continued)
As
part of the transaction, there are certain restrictions on the transfer of assets, including cash, to the Company from HK TMS. HK TMS is required to maintain a minimum cash balance
equal to two quarterly dividend payments, of approximately $3.0 million each, plus $10.0 million, which is presented on the consolidated balance sheets in "Restricted cash." Additionally, the
quarterly 8% dividends paid to holders of the HK TMS preferred shares have priority over other cash distributions.
No dividends shall be paid to the Company from HK TMS prior to December 31, 2016. HK TMS is restricted from transferring more than 20% of its maximum net acres and from transferring any assets
exceeding 20% of HK TMS's proved reserves at any one time. Finally, proceeds from any such transfers of acres or other assets must be used for HK TMS's capital or operating expenditures, or to redeem
the preferred shares.
The
Company recorded the following activity related to the preferred shares recorded in "Mezzanine equity" for the three months ended
March 31, 2015 (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interest |
|
|
|
Shares |
|
Amount |
|
Balances at December 31, 2014 |
|
|
153,025 |
|
$ |
117,166 |
|
Dividends paid in-kind |
|
|
3,019 |
|
|
3,019 |
|
Accretion of redeemable noncontrolling interest |
|
|
|
|
|
5,632 |
|
|
|
|
|
|
|
|
|
Balances at March 31, 2015 |
|
|
156,044 |
|
$ |
125,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. STOCKHOLDERS' EQUITY
5.75% Series A Convertible Perpetual Preferred Stock
On June 18, 2013, the Company completed its offering of 345,000 shares of its 5.75% Series A Convertible Perpetual
Preferred Stock (the Series A Preferred Stock) at a public offering price of $1,000 per share (the Liquidation Preference). The net proceeds to the Company were approximately
$335.2 million, after deducting the underwriting discount and offering expenses. The Company used the net proceeds to repay a portion of the outstanding borrowings under its Senior Credit
Agreement.
Holders
of the Series A Preferred Stock are entitled to receive, when, as and if declared by the Company's Board of Directors, cumulative dividends at the rate of 5.75% per annum
(the dividend rate) on the Liquidation Preference per share of the Series A Preferred Stock, payable quarterly in arrears on each dividend payment date. Dividends may be paid in cash or, where
freely transferable by any non-affiliate recipient thereof, in common stock of the Company, or a combination thereof, and are payable on March 1, June 1, September 1 and
December 1 of each year. During the three months ended March 31, 2015, the Company incurred cumulative, declared dividends of $4.9 million by issuing approximately
2.5 million shares of common stock. As of March 31, 2015, cumulative, undeclared dividends on the Series A Preferred Stock amounted to approximately $1.6 million.
The
Series A Preferred Stock has no maturity date, is not redeemable by the Company at any time, and will remain outstanding unless converted by the holders or mandatorily
converted by the Company. Each share of Series A Preferred Stock is convertible, at the holder's option at any time, into approximately 162.4431 shares of common stock of the Company (which is
equivalent to a conversion price of approximately $6.16 per share), subject to specified adjustments as set forth in the
28
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS' EQUITY (Continued)
Series A
Designation. Based on the initial conversion rate and preferred shares outstanding, approximately 56.0 million shares of common stock of the Company would be issuable upon
conversion of all the shares of Series A Preferred Stock. On or after June 6, 2018, the Company may, at its option, give notice of its election to cause all outstanding shares of the
Series A Preferred Stock to be automatically converted into shares of common stock of the Company at the conversion rate (as defined in the Series A Designation), if the closing sale
price of the Company's common stock equals or exceeds 150% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days. As of March 31, 2015, 4,040 shares of
Series A Preferred Stock have been converted into 656,269 shares of common stock.
If
the Company undergoes a fundamental change (as defined in the Series A Designation) and a holder converts its shares of the Series A Preferred Stock at any time
beginning at the opening of business on the trading day immediately following the effective date of such fundamental change and ending at the close of business on the 30th trading day
immediately following such effective date, the holder will receive, for each share of the Series A Preferred Stock surrendered for conversion, a number of shares of common stock of the Company
equal to the greater of: (1) the sum of (i) the conversion rate and (ii) the make-whole premium, if any, as described in the Series A Designation; and (2) the
conversion rate which will be increased to equal (i) the sum of the $1,000 liquidation preference plus all accumulated and unpaid dividends to, but excluding, the settlement date for such
conversion, divided by (ii) the average of the closing sale prices of the Company's common stock for the five consecutive trading days ending on the third business day prior to such settlement
date; provided that the prevailing conversion rate as adjusted pursuant to this will not exceed 292.3977 shares of common stock of the Company per share of the Series A Preferred Stock (subject
to adjustment in the same manner as the conversion rate).
Except
as required by Delaware law, holders of the Series A Preferred Stock will have no voting rights unless dividends are in arrears and unpaid for six or more quarterly
periods. Until such arrearage is paid in full, the holders (voting as a single class with the holders of any other preferred shares having similar voting rights) will be entitled to elect two
additional directors and the number of directors on the Company's Board of Directors will increase by that same number.
Common Stock
On March 18, 2015, the Company entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with BMO
Capital Markets Corp., Jefferies LLC and
MLV & Co. LLC (collectively, the Managers). Pursuant to the terms of the Equity Distribution Agreement, the Company may sell, from time to time through the Managers, shares of its
common stock having an aggregate offering price of up to $150 million (the Shares). Sales of the Shares, if any, will be made by means of ordinary brokers' transactions through the facilities
of the New York Stock Exchange at market prices, or as otherwise agreed by the Company and the Managers. For the three months ended March 31, 2015, the Company sold approximately
5.0 million shares for net proceeds of approximately $8.1 million, after deducting offering expenses. Of the net proceeds of $8.1 million, approximately $2.1 million was recorded as a
receivable at March 31, 2015 and was collected in April 2015. The shares sold have been registered under the Securities Act pursuant to a Registration Statement on Form S-3
(No. 333-188640), which was filed with the SEC and became effective March 13, 2015. The Company plans to use any net proceeds from the offering to repay a portion of outstanding
borrowings under its Senior Credit Agreement and general corporate purposes.
29
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS' EQUITY (Continued)
On
May 22, 2014, with stockholder approval, the Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation with the Delaware Secretary of
State to increase its authorized common stock by approximately 670.0 million shares for a total of 1.34 billion authorized shares of common stock.
On
August 13, 2013, the Company completed the issuance and sale of 43.7 million shares of its common stock in an underwritten public offering. The shares of common stock
sold have been registered under the Securities Act pursuant to a Registration Statement on Form S-3 (No. 333-188640), which was filed with the SEC and became automatically effective on
May 16, 2013. The net proceeds to the Company from the offering of common stock were approximately $215.2 million, after deducting the underwriting discount and estimated offering
expenses. The Company used the net proceeds from the offering to repay a portion of the then outstanding borrowings under its Senior Credit Agreement.
On
January 17, 2013, with stockholder approval, the Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation with the Delaware Secretary
of State to increase its authorized common stock by approximately 333.3 million shares for a total of 670.0 million authorized shares of common stock.
Warrants
In February 2012, in conjunction with the issuance of the Convertible Notes, the Company issued warrants to purchase
36.7 million shares of the Company's common stock at
an exercise price of $4.50 per share of common stock, which the Company refers to as the February 2012 Warrants. The Company allocated $43.6 million to the February 2012 Warrants which is
reflected in additional paid-in capital in stockholders' equity, net of $0.6 million in issuance costs. The February 2012 Warrants entitle the holders to exercise the warrants in whole or in
part at any time prior to the expiration date of February 8, 2017.
On
March 9, 2015, in conjunction with an amendment to its Convertible Notes, the Company entered into an amendment to the February 2012 Warrants (the Amendments), which extends
the term of the February 2012 Warrants from February 8, 2017 to February 8, 2020 and adjusts the exercise price of the February 2012 Warrants to $2.44 per share. The Amendments are
subject to approval by the Company's stockholders, in accordance with the rules of the New York Stock Exchange. See Note 4, "Long-term debt," for
a further discussion of the Amendments.
Incentive Plan
On May 8, 2006, the Company's stockholders first approved the 2006 Long-Term Incentive Plan (the Plan). On May 23, 2013,
shareholders last approved an increase in authorized shares under the Plan from 11.5 million to 41.5 million. As of March 31, 2015 and December 31, 2014, a maximum of
2.1 million and 5.1 million shares of common stock, respectively, remained reserved for issuance under the Plan.
The
Company accounts for share-based payment accruals under authoritative guidance on stock compensation, as set forth in ASC Topic 718. The guidance requires all share-based payments to
employees and directors, including grants of performance units, stock options, and restricted stock, to be recognized in the financial statements based on their fair values.
30
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS' EQUITY (Continued)
For
the three months ended March 31, 2015 and 2014, the Company recognized $4.8 million and $4.3 million, respectively, of share-based compensation expense as a
component of "General and administrative" on the unaudited condensed consolidated statements of operations.
Performance Share Units
During the three months ended March 31, 2014, the Company granted performance share units (PSU) under the Plan covering
1.6 million shares of common stock to senior management of the Company. The PSU provides that the number of shares of common stock received upon vesting will vary if the market price of the
Company's common stock exceeds certain pre-established target thresholds as measured by the average of the adjusted closing price of a share of the Company's common stock during the sixty trading days
preceding the third anniversary of issuance, or the measurement date. The PSU utilizes $4.00 as the floor price, below which the PSU will not vest and will expire. If the average market price at the
measurement date is equal to $4.00, the PSU will vest and represent the right to receive 50% of the number of shares of common stock underlying the PSU. At $7.00, the PSU will vest and represent the
right to receive the full number of shares of common stock underlying the PSU; and at $10.00, the PSU will vest and represent the right to receive 200% of the number of shares of common stock
underlying the PSU. All stock price targets are subject to customary adjustments based upon changes in the Company's capital structure. In the event the average market price falls between targeted
price thresholds, the PSU will represent the right to receive a proportionate number of shares, e.g., 75% of the number of shares of common stock underlying the PSU if the average market price
at such time is $5.50, 150% of the number of shares of common stock underlying the PSU if the average market price at such time is $8.50, and so forth. The Company has reserved for issuance under the
Plan the maximum number of shares that participants might have the right to receive upon vesting of the PSU, or 3.2 million shares of common stock. At March 31, 2015, the Company had
$3.1 million of unrecognized compensation expense related to non-vested PSU to be recognized over a weighted-average period of 1.9 years.
Stock Options
During the three months ended March 31, 2015, the Company granted stock options under the Plan covering 3.2 million
shares of common stock to employees of the Company. These stock options have an exercise price of $1.97. These awards typically vest over a three year period at a rate of one-third on the annual
anniversary date of the grant and expire ten years from the grant date. At March 31, 2015, the Company had $11.0 million of unrecognized compensation expense related to non-vested stock
options to be recognized over a weighted-average period of 1.5 years.
During
the three months ended March 31, 2014, the Company granted stock options under the Plan covering 6.1 million shares of common stock to employees of the Company. The
stock options have exercise prices ranging from $3.67 to $4.33 with a weighted average exercise price of $3.67. These awards typically vest over a three year period at a rate of one-third on the
annual anniversary date of the grant and expire ten years from the grant date. At March 31, 2014, the Company had $20.4 million
of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.6 years.
31
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCKHOLDERS' EQUITY (Continued)
Restricted Stock
During the three months ended March 31, 2015, the Company granted 1.4 million shares of restricted stock under the Plan
to directors and employees of the Company. These restricted shares were granted at prices ranging from $1.22 to $1.97 with a weighted average price of $1.97. Employee shares vest over a three year
period at a rate of one-third on the annual anniversary date of the grant, and the non-employee directors' shares vest six-months from the date of grant. At March 31, 2015, the Company had
$15.4 million of unrecognized compensation expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.6 years.
During
the three months ended March 31, 2014, the Company granted 3.6 million shares of restricted stock under the Plan to directors and employees of the Company. These
restricted shares were granted at prices ranging from $3.67 to $4.33 with a weighted average price of $3.67. Employee shares vest over a three year period at a rate of one-third on the annual
anniversary date of the grant, and the non-employee directors' shares vest six-months from the date of grant. At March 31, 2014, the Company had $19.7 million of unrecognized
compensation expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.7 years.
11. INCOME TAXES
Under guidance contained in ASC Topic 740, deferred taxes are determined by applying the provisions of enacted tax laws and rates for the jurisdictions in which the Company operates to
the estimated future tax effects of the differences between the tax basis of assets and liabilities and their reported amounts in the Company's financial statements. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
In
assessing the need for a valuation allowance on the Company's deferred tax assets, the Company considers possible sources of taxable income that may be available to realize the
benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies. The
Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. A significant item of objective negative evidence considered was the
cumulative book loss over the three-year period ended December 31, 2014 driven primarily by the full cost ceiling impairments over that period, which limits the ability to consider other
subjective evidence such as the Company's anticipated future growth. Based upon the evaluation of the available evidence the Company continued to record a valuation allowance against its net deferred
tax assets as of March 31, 2015.
The
Company recorded an income tax benefit of $0.1 million on a pre-tax loss of $587.7 million for the three months ended March 31, 2015 primarily due to the
valuation allowance offset by an increase to the refund related to the IRS audit of the 2010-2012 GeoResources returns. For the three months ended March 31, 2014, the Company recorded no income
tax expense or benefit on a pre-tax loss of $73.0 million due to the valuation allowance. The effective tax rate was 0.0% for the three months ended March 31, 2015 and 2014.
During
the first quarter of 2014, the Internal Revenue Service commenced an audit of GeoResources' tax returns for the tax years ending December 31, 2010 through August 1,
2012. The audit closed during April 2015 resulting in a favorable adjustment to the Company.
32
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EARNINGS PER COMMON SHARE
The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
2014 |
|
Basic: |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(601,193 |
) |
$ |
(77,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding |
|
|
419,684 |
|
|
413,521 |
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common stock |
|
$ |
(1.43 |
) |
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(601,193 |
) |
$ |
(77,923 |
) |
|
|
|
|
|
|
|
|
Net income from assumed conversions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders after assumed conversions |
|
$ |
(601,193 |
) |
$ |
(77,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding |
|
|
419,684 |
|
|
413,521 |
|
Common stock equivalent shares representing shares issuable upon: |
|
|
|
|
|
|
|
Exercise of stock options |
|
|
Anti-dilutive |
|
|
Anti-dilutive |
|
Exercise of February 2012 Warrants |
|
|
Anti-dilutive |
|
|
Anti-dilutive |
|
Vesting of restricted shares |
|
|
Anti-dilutive |
|
|
Anti-dilutive |
|
Vesting of performance units |
|
|
|
|
|
|
|
Conversion of Convertible Notes |
|
|
Anti-dilutive |
|
|
Anti-dilutive |
|
Conversion of Series A preferred stock |
|
|
Anti-dilutive |
|
|
Anti-dilutive |
|
|
|
|
|
|
|
|
|
Weighted average diluted number of common shares outstanding |
|
|
419,684 |
|
|
413,521 |
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common stock |
|
$ |
(1.43 |
) |
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock equivalents, including stock options, warrants, restricted shares, convertible debt, and preferred stock, totaling 186.1 million shares for the three months ended
March 31, 2015 were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net loss. Common stock equivalents,
including stock options,
warrants, restricted shares, convertible debt, and preferred stock, totaling 173.2 million shares for the three months ended March 31, 2014 were not included in the computation of
diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net loss.
33
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
|
|
(In thousands)
|
|
Accounts receivable: |
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids revenues |
|
$ |
78,274 |
|
$ |
104,370 |
|
Joint interest accounts |
|
|
96,772 |
|
|
140,352 |
|
Accrued settlements on derivate contracts |
|
|
37,592 |
|
|
25,929 |
|
Affiliated partnership |
|
|
353 |
|
|
661 |
|
Other |
|
|
6,799 |
|
|
5,247 |
|
|
|
|
|
|
|
|
|
|
|
$ |
219,790 |
|
$ |
276,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other: |
|
|
|
|
|
|
|
Prepaids |
|
$ |
7,053 |
|
$ |
6,030 |
|
Income tax receivable |
|
|
3,132 |
|
|
2,991 |
|
Other |
|
|
50 |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
$ |
10,235 |
|
$ |
9,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities: |
|
|
|
|
|
|
|
Trade payables |
|
$ |
48,371 |
|
$ |
60,512 |
|
Accrued oil and natural gas capital costs |
|
|
153,509 |
|
|
308,604 |
|
Revenues and royalties payable |
|
|
84,958 |
|
|
100,498 |
|
Accrued interest expense |
|
|
75,335 |
|
|
82,942 |
|
Accrued employee compensation |
|
|
3,566 |
|
|
3,171 |
|
Accrued lease operating expenses |
|
|
38,693 |
|
|
29,681 |
|
Drilling advances from partners |
|
|
9,642 |
|
|
21,220 |
|
Affiliated partnership |
|
|
589 |
|
|
762 |
|
Other |
|
|
715 |
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
$ |
415,378 |
|
$ |
607,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Company's existing 100% owned subsidiaries, other
than HK TMS. See Note 4, "Long-term Debt," for information regarding the Company's senior notes. On June 16, 2014, the Company contributed
undeveloped acreage in Mississippi and Louisiana that management believes is prospective for the TMS into HK TMS. See Note 9, "Mezzanine Equity,"
for a discussion of the restrictions on the transfer of assets between the Company and HK TMS.
The
following condensed consolidating balance sheets, condensed consolidating statements of operations, and condensed consolidating statements of cash flows for the parent company,
subsidiary
guarantors on a combined basis, the non-guarantor subsidiary, the consolidating adjustments and the total consolidated amounts are presented as of March 31, 2015 and December 31, 2014
and for the three months ended March 31, 2015. Investments in the subsidiaries are accounted for under the equity method. Such condensed consolidating financial information may not necessarily
be indicative of the financial position, results of operations or cash flows had these subsidiaries operated as independent entities.
34
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
|
|
Parent
Company |
|
Guarantor
Subsidiaries |
|
Non-Guarantor
Subsidiary |
|
Eliminations |
|
Consolidated |
|
|
|
(In thousands)
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
|
|
$ |
119,205 |
|
$ |
5,208 |
|
$ |
|
|
$ |
124,413 |
|
Natural gas |
|
|
|
|
|
6,959 |
|
|
|
|
|
|
|
|
6,959 |
|
Natural gas liquids |
|
|
|
|
|
4,068 |
|
|
|
|
|
|
|
|
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil, natural gas and natural gas liquids sales |
|
|
|
|
|
130,232 |
|
|
5,208 |
|
|
|
|
|
135,440 |
|
Other |
|
|
|
|
|
754 |
|
|
|
|
|
|
|
|
754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
|
|
|
130,986 |
|
|
5,208 |
|
|
|
|
|
136,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
|
|
|
|
33,335 |
|
|
450 |
|
|
|
|
|
33,785 |
|
Workover and other |
|
|
|
|
|
3,110 |
|
|
4 |
|
|
|
|
|
3,114 |
|
Taxes other than income |
|
|
|
|
|
11,982 |
|
|
259 |
|
|
|
|
|
12,241 |
|
Gathering and other |
|
|
|
|
|
13,746 |
|
|
|
|
|
|
|
|
13,746 |
|
Restructuring |
|
|
|
|
|
1,921 |
|
|
|
|
|
|
|
|
1,921 |
|
General and administrative |
|
|
15,255 |
|
|
9,118 |
|
|
712 |
|
|
(676 |
) |
|
24,409 |
|
Depletion, depreciation and accretion |
|
|
624 |
|
|
114,626 |
|
|
5,384 |
|
|
(1,490 |
) |
|
119,144 |
|
Full cost ceiling impairment |
|
|
|
|
|
540,134 |
|
|
12,379 |
|
|
1,490 |
|
|
554,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
15,879 |
|
|
727,972 |
|
|
19,188 |
|
|
(676 |
) |
|
762,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(15,879 |
) |
|
(596,986 |
) |
|
(13,980 |
) |
|
676 |
|
|
(626,169 |
) |
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on derivative contracts |
|
|
|
|
|
99,748 |
|
|
|
|
|
|
|
|
99,748 |
|
Interest expense and other, net |
|
|
(83,718 |
) |
|
24,832 |
|
|
(2,420 |
) |
|
(1 |
) |
|
(61,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses) |
|
|
(83,718 |
) |
|
124,580 |
|
|
(2,420 |
) |
|
(1 |
) |
|
38,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(99,597 |
) |
|
(472,406 |
) |
|
(16,400 |
) |
|
675 |
|
|
(587,728 |
) |
Income tax benefit (provision) |
|
|
|
|
|
(5,836 |
) |
|
|
|
|
5,923 |
|
|
87 |
|
Equity in earnings of subsidiary, net of tax |
|
|
(496,695 |
) |
|
(18,453 |
) |
|
|
|
|
515,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(596,292 |
) |
|
(496,695 |
) |
|
(16,400 |
) |
|
521,746 |
|
|
(587,641 |
) |
Series A preferred dividends |
|
|
(4,901 |
) |
|
|
|
|
|
|
|
|
|
|
(4,901 |
) |
Preferred dividends and accretion on redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
(8,651 |
) |
|
|
|
|
(8,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
(601,193 |
) |
$ |
(496,695 |
) |
$ |
(25,051 |
) |
$ |
521,746 |
|
$ |
(601,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
|
Parent
Company |
|
Guarantor
Subsidiaries |
|
Non-Guarantor
Subsidiary |
|
Eliminations |
|
Consolidated |
|
|
|
(In thousands)
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
$ |
14 |
|
$ |
18,597 |
|
$ |
|
|
$ |
18,611 |
|
Accounts receivable |
|
|
|
|
|
209,812 |
|
|
10,083 |
|
|
(105 |
) |
|
219,790 |
|
Receivables from derivative contracts |
|
|
|
|
|
351,785 |
|
|
|
|
|
|
|
|
351,785 |
|
Restricted cash |
|
|
|
|
|
|
|
|
16,322 |
|
|
|
|
|
16,322 |
|
Inventory |
|
|
|
|
|
4,286 |
|
|
93 |
|
|
|
|
|
4,379 |
|
Prepaids and other |
|
|
1,130 |
|
|
8,385 |
|
|
720 |
|
|
|
|
|
10,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,130 |
|
|
574,282 |
|
|
45,815 |
|
|
(105 |
) |
|
621,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated |
|
|
|
|
|
6,295,115 |
|
|
235,675 |
|
|
(4,350 |
) |
|
6,526,440 |
|
Unevaluated |
|
|
|
|
|
1,575,344 |
|
|
262,749 |
|
|
|
|
|
1,838,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties |
|
|
|
|
|
7,870,459 |
|
|
498,424 |
|
|
(4,350 |
) |
|
8,364,533 |
|
Lessaccumulated depletion |
|
|
|
|
|
(3,450,475 |
) |
|
(177,527 |
) |
|
4,350 |
|
|
(3,623,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net oil and natural gas properties |
|
|
|
|
|
4,419,984 |
|
|
320,897 |
|
|
|
|
|
4,740,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas gathering and other operating assets |
|
|
14,982 |
|
|
113,959 |
|
|
175 |
|
|
|
|
|
129,116 |
|
Lessaccumulated depreciation |
|
|
(7,145 |
) |
|
(9,609 |
) |
|
(25 |
) |
|
|
|
|
(16,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other operating property and equipment |
|
|
7,837 |
|
|
104,350 |
|
|
150 |
|
|
|
|
|
112,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts |
|
|
|
|
|
135,428 |
|
|
|
|
|
|
|
|
135,428 |
|
Debt issuance costs, net |
|
|
53,659 |
|
|
|
|
|
|
|
|
|
|
|
53,659 |
|
Deferred income taxes |
|
|
(54 |
) |
|
136,681 |
|
|
|
|
|
|
|
|
136,627 |
|
Intercompany notes and accounts receivable |
|
|
4,958,956 |
|
|
245,237 |
|
|
|
|
|
(5,204,193 |
) |
|
|
|
Investment in subsidiary |
|
|
307,090 |
|
|
255,426 |
|
|
|
|
|
(562,516 |
) |
|
|
|
Equity in oil and natural gas partnership |
|
|
|
|
|
4,315 |
|
|
|
|
|
|
|
|
4,315 |
|
Funds in escrow and other |
|
|
515 |
|
|
1,579 |
|
|
|
|
|
|
|
|
2,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,329,133 |
|
$ |
5,877,282 |
|
$ |
366,862 |
|
$ |
(5,766,814 |
) |
$ |
5,806,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
436,487 |
|
$ |
19,373 |
|
$ |
(40,482 |
) |
$ |
415,378 |
|
Asset retirement obligations |
|
|
|
|
|
142 |
|
|
|
|
|
|
|
|
142 |
|
Current portion of deferred income taxes |
|
|
1,794 |
|
|
134,833 |
|
|
|
|
|
|
|
|
136,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,794 |
|
|
571,462 |
|
|
19,373 |
|
|
(40,482 |
) |
|
552,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
3,892,321 |
|
|
|
|
|
|
|
|
|
|
|
3,892,321 |
|
Other noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts |
|
|
|
|
|
747 |
|
|
|
|
|
|
|
|
747 |
|
Asset retirement obligations |
|
|
|
|
|
39,027 |
|
|
868 |
|
|
|
|
|
39,895 |
|
Intercompany notes and accounts payable |
|
|
245,237 |
|
|
4,958,956 |
|
|
|
|
|
(5,204,193 |
) |
|
|
|
Other |
|
|
|
|
|
|
|
|
5,755 |
|
|
|
|
|
5,755 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
125,817 |
|
|
|
|
|
125,817 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
42 |
|
Additional paid-in capital |
|
|
3,014,207 |
|
|
|
|
|
402,351 |
|
|
(402,351 |
) |
|
3,014,207 |
|
Retained earnings (accumulated deficit) |
|
|
(1,824,468 |
) |
|
307,090 |
|
|
(187,302 |
) |
|
(119,788 |
) |
|
(1,824,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
1,189,781 |
|
|
307,090 |
|
|
215,049 |
|
|
(522,139 |
) |
|
1,189,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
5,329,133 |
|
$ |
5,877,282 |
|
$ |
366,862 |
|
$ |
(5,766,814 |
) |
$ |
5,806,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
|
Parent
Company |
|
Guarantor
Subsidiaries |
|
Non-Guarantor
Subsidiary |
|
Eliminations |
|
Consolidated |
|
|
|
(In thousands)
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
$ |
15 |
|
$ |
43,698 |
|
$ |
|
|
$ |
43,713 |
|
Accounts receivable |
|
|
|
|
|
262,543 |
|
|
14,858 |
|
|
(842 |
) |
|
276,559 |
|
Receivables from derivative
contracts |
|
|
|
|
|
352,530 |
|
|
|
|
|
|
|
|
352,530 |
|
Restricted cash |
|
|
|
|
|
|
|
|
16,131 |
|
|
|
|
|
16,131 |
|
Inventory |
|
|
|
|
|
4,619 |
|
|
74 |
|
|
|
|
|
4,693 |
|
Prepaids and other |
|
|
372 |
|
|
8,707 |
|
|
|
|
|
|
|
|
9,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
372 |
|
|
628,414 |
|
|
74,761 |
|
|
(842 |
) |
|
702,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated |
|
|
|
|
|
6,169,553 |
|
|
225,617 |
|
|
(4,350 |
) |
|
6,390,820 |
|
Unevaluated |
|
|
|
|
|
1,558,412 |
|
|
271,374 |
|
|
|
|
|
1,829,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties |
|
|
|
|
|
7,727,965 |
|
|
496,991 |
|
|
(4,350 |
) |
|
8,220,606 |
|
Lessaccumulated depletion |
|
|
|
|
|
(2,797,606 |
) |
|
(159,782 |
) |
|
4,350 |
|
|
(2,953,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net oil and natural gas properties |
|
|
|
|
|
4,930,359 |
|
|
337,209 |
|
|
|
|
|
5,267,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas gathering and other operating assets |
|
|
14,523 |
|
|
112,103 |
|
|
178 |
|
|
|
|
|
126,804 |
|
Lessaccumulated depreciation |
|
|
(6,522 |
) |
|
(8,259 |
) |
|
(17 |
) |
|
|
|
|
(14,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other operating property and equipment |
|
|
8,001 |
|
|
103,844 |
|
|
161 |
|
|
|
|
|
112,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts |
|
|
|
|
|
151,324 |
|
|
|
|
|
|
|
|
151,324 |
|
Debt issuance costs, net |
|
|
55,904 |
|
|
|
|
|
|
|
|
|
|
|
55,904 |
|
Deferred income taxes |
|
|
(54 |
) |
|
136,880 |
|
|
|
|
|
|
|
|
136,826 |
|
Intercompany notes and accounts receivable |
|
|
4,891,427 |
|
|
239,250 |
|
|
|
|
|
(5,130,677 |
) |
|
|
|
Investment in subsidiary |
|
|
803,786 |
|
|
274,553 |
|
|
|
|
|
(1,078,339 |
) |
|
|
|
Equity in oil and natural gas partnership |
|
|
|
|
|
4,309 |
|
|
|
|
|
|
|
|
4,309 |
|
Funds in escrow and other |
|
|
515 |
|
|
684 |
|
|
2,634 |
|
|
|
|
|
3,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,759,951 |
|
$ |
6,469,617 |
|
$ |
414,765 |
|
$ |
(6,209,858 |
) |
$ |
6,434,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
592,340 |
|
$ |
50,706 |
|
$ |
(35,296 |
) |
$ |
607,750 |
|
Asset retirement obligations |
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
106 |
|
Current portion of deferred income taxes |
|
|
1,794 |
|
|
135,032 |
|
|
|
|
|
|
|
|
136,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,794 |
|
|
727,478 |
|
|
50,706 |
|
|
(35,296 |
) |
|
744,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
3,746,736 |
|
|
|
|
|
|
|
|
|
|
|
3,746,736 |
|
Other noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts |
|
|
|
|
|
9,387 |
|
|
|
|
|
|
|
|
9,387 |
|
Asset retirement obligations |
|
|
|
|
|
37,538 |
|
|
833 |
|
|
|
|
|
38,371 |
|
Intercompany notes and accounts payable |
|
|
239,250 |
|
|
4,891,427 |
|
|
|
|
|
(5,130,677 |
) |
|
|
|
Other |
|
|
2 |
|
|
1 |
|
|
5,961 |
|
|
|
|
|
5,964 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
117,166 |
|
|
|
|
|
117,166 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
42 |
|
Additional paid-in capital |
|
|
2,995,402 |
|
|
|
|
|
402,351 |
|
|
(402,351 |
) |
|
2,995,402 |
|
Retained earnings (accumulated deficit) |
|
|
(1,223,275 |
) |
|
803,786 |
|
|
(162,252 |
) |
|
(641,534 |
) |
|
(1,223,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
1,772,169 |
|
|
803,786 |
|
|
240,099 |
|
|
(1,043,885 |
) |
|
1,772,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
5,759,951 |
|
$ |
6,469,617 |
|
$ |
414,765 |
|
$ |
(6,209,858 |
) |
$ |
6,434,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
|
|
Parent
Company |
|
Guarantor
Subsidiaries |
|
Non-Guarantor
Subsidiary |
|
Eliminations |
|
Consolidated |
|
|
|
(In thousands)
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(93,977 |
) |
$ |
184,408 |
|
$ |
3,504 |
|
$ |
|
|
$ |
93,935 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas capital expenditures |
|
|
|
|
|
(236,209 |
) |
|
(28,417 |
) |
|
|
|
|
(264,626 |
) |
Proceeds received from sale of oil and natural gas assets |
|
|
|
|
|
964 |
|
|
|
|
|
|
|
|
964 |
|
Other operating property and equipment capital expenditures |
|
|
(646 |
) |
|
(3,702 |
) |
|
3 |
|
|
|
|
|
(4,345 |
) |
Advances to subsidiary |
|
|
(54,543 |
) |
|
|
|
|
|
|
|
54,543 |
|
|
|
|
Funds held in escrow and other |
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(55,189 |
) |
|
(238,952 |
) |
|
(28,414 |
) |
|
54,543 |
|
|
(268,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
361,000 |
|
|
|
|
|
|
|
|
|
|
|
361,000 |
|
Repayments of borrowings |
|
|
(217,000 |
) |
|
|
|
|
|
|
|
|
|
|
(217,000 |
) |
Common stock issued |
|
|
6,019 |
|
|
|
|
|
|
|
|
|
|
|
6,019 |
|
Restricted cash |
|
|
|
|
|
|
|
|
(191 |
) |
|
|
|
|
(191 |
) |
Proceeds from subsidiary |
|
|
|
|
|
54,543 |
|
|
|
|
|
(54,543 |
) |
|
|
|
Offering costs and other |
|
|
(853 |
) |
|
|
|
|
|
|
|
|
|
|
(853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
149,166 |
|
|
54,543 |
|
|
(191 |
) |
|
(54,543 |
) |
|
148,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
|
(1 |
) |
|
(25,101 |
) |
|
|
|
|
(25,102 |
) |
Cash at beginning of period |
|
|
|
|
|
15 |
|
|
43,698 |
|
|
|
|
|
43,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
|
|
$ |
14 |
|
$ |
18,597 |
|
$ |
|
|
$ |
18,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SUBSEQUENT EVENTS
Issuance of Senior Secured Notes due 2020
On May 1, 2015, the Company completed the issuance of $700 million aggregate principal amount of 8.625% senior secured
notes due 2020 (the Secured Notes) in a private offering. The Secured Notes were issued at par. The net proceeds from the sale of the Secured Notes were approximately $687.8 million (after
deducting offering fees and expenses). The Company used the net proceeds from the offering to repay outstanding borrowings under its Senior Credit Agreement.
Interest
on the Secured Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2015. Interest on the Secured Notes accrues from
May 1, 2015. The Secured Notes are secured by second-priority liens on substantially all of the Company's and its subsidiary guarantors' assets that secure the Company's Senior Credit
Agreement.
Tenth Amendment to the Senior Credit Agreement
On May 1, 2015, in conjunction with the issuance of the Secured Notes, the Company entered into the Tenth Amendment to its
Senior Credit Agreement (the Tenth Amendment). The Tenth Amendment, among other things, permitted the Company to incur the debt under the Secured Notes and to grant the liens in connection therewith;
replaced the prior interest coverage ratio covenant that had been modified in the Ninth Amendment with a covenant that requires the ratio of the Company's total secured debt to EBITDA be no greater
than 2.75 to 1.00; reduced the borrowing base to $900.0 million; and extended the maturity date of the Senior Credit Agreement to August 1, 2019.
Long-Term Debt Exchanged for Common Stock
Subsequent to March 31, 2015, the Company entered into several exchange agreements with existing holders of the Company's senior
unsecured notes in which the holders agreed to exchange an aggregate $252.2 million principal amount of their senior notes for approximately 141.3 million shares of the Company's common
stock.
On
April 24, 2015, the Company entered into an exchange agreement with several investment funds advised by Pioneer Investments, each of which is a holder of the Company's 2020
Notes, 2021 Notes and 2022 Notes (the Senior Notes), pursuant to which the funds agreed to exchange an aggregate $25.0 million principal amount of the Senior Notes for approximately
14.8 million shares of the Company's common stock, resulting in an effective exchange price of $1.69 per share. Of the aggregate $25.0 million principal amount of Senior Notes to be
exchanged by the holders, approximately $2.8 million is principal amount of 2020 Notes, approximately $16.8 million is principal amount of 2021 Notes and approximately
$5.4 million is principal amount of 2022 Notes. The exchanges closed on various dates from April 30, 2015 through May 4, 2015, at which time the Company also paid all accrued and
unpaid interest since the relevant prior interest payment dates for each of the Senior Notes.
On
April 22, 2015, the Company entered into an exchange agreement with J.P. Morgan Securities LLC, a holder of the Company's 2021 Notes, pursuant to which it agreed to
exchange approximately $40.0 million principal amount of such notes for approximately 22.2 million shares of the Company's common stock, resulting in an effective exchange price of $1.80
per share. The exchange closed on April 29, 2015, at which time the Company also paid all accrued and unpaid interest on the notes since the prior interest payment date in November 2014.
39
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SUBSEQUENT EVENTS (Continued)
On
April 15, 2015, the Company entered into an exchange agreement with Goldman Sachs Asset Management, L.P., on behalf of certain of its funds and accounts which hold the
Company's 2020 Notes, pursuant to which the holders agreed to exchange approximately $70.7 million principal amount of such notes for approximately 38.8 million shares of the Company's
common stock, resulting in an effective exchange price of $1.82 per share. The exchanges closed on various dates from April 22, 2015 through April 28, 2015, at which time the Company
also paid all accrued and unpaid interest on the notes since the prior interest payment date in January 2015.
On
April 7, 2015, the Company entered into an exchange agreement with two investment funds advised by Franklin Templeton Investments, each of which is an existing holder of the
Company's 2020 Notes, pursuant to which the funds agreed to exchange an aggregate $116.5 million principal amount of such notes for approximately 65.5 million shares of the Company's
common stock, resulting in an effective exchange price of $1.78 per share. The exchange closed on April 13, 2015, at which time the Company also paid all accrued and unpaid interest on the
notes since the prior interest payment date in January 2015.
40
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist in understanding our results of operations for the three months ended March 31,
2015 and 2014 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the
consolidated financial statements, notes and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2014.
Statements
in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results
to differ from those expressed. For more information, see "Special note regarding forward-looking statements."
Overview
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil
and natural gas assets in the United States. We were incorporated in Delaware on February 5, 2004 and were recapitalized on February 8, 2012. During 2012, we focused our efforts on the
acquisition of unevaluated leasehold and producing properties in selected prospect areas, providing us with an extensive drilling inventory in multiple basins that we believe allow for multiple years
of production growth and broad flexibility to direct our capital resources to projects with the greatest potential returns. In the years since, we focused on the development of acquired properties and
also divested non-core assets in order to fund activities in our core resource plays.
Our
oil and natural gas assets consist of developed and undeveloped acreage positions in unconventional liquids-rich basins/fields. We have acquired acreage and may acquire additional
acreage in the Bakken / Three Forks formations in North Dakota and the Eagle Ford formation in East Texas, as well as other areas.
Our
average daily oil and natural gas production increased 18% in the first three months of 2015 compared to the same period in the prior year. During the first three months of 2015,
production averaged 43,078 barrels of oil equivalent (Boe) per day (Boe/d) compared to average daily production of 36,622 Boe/d during the first three months of 2014. The increase in production
compared to the prior year period was driven primarily by operated drilling results and increased production volumes associated with the development of properties in the Bakken / Three Forks and the
Eagle Ford formation in East Texas (which we refer to as "El Halcón"). These areas collectively accounted for an increase of approximately 9,300 Boe/d. This increase was partially
offset by production decreases from our divestiture of non-core properties during 2014. During the first three months of 2015, we participated in the drilling of 57 gross (10.4 net) wells, all of
which were completed and capable of production.
Oil
and natural gas prices are inherently volatile and have decreased significantly over the latter half of 2014 and the beginning of 2015. Sustained lower commodity prices will continue
to have a material impact upon our full cost ceiling test calculation. The ceiling calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first
day of each month for the 12-month period ending at the balance sheet date. If commodity prices remain at decreased levels, the average prices used in the ceiling calculation will decline and will
cause additional write downs of our oil and natural gas properties. Continued write downs of oil and natural gas properties may occur until such time as commodity prices have recovered, and remained
at recovered levels, so as to meaningfully increase the 12-month average price used in the ceiling calculation. In addition to commodity prices, our production rates, levels of proved reserves, future
development costs, transfers of unevaluated properties and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.
41
Table of Contents
Recent Developments
Issuance of Senior Secured Notes due 2020
On May 1, 2015, we completed the issuance of $700 million aggregate principal amount of 8.625% senior secured notes due
2020 (the Secured Notes) in a private offering. The Secured Notes were issued at par. The net proceeds from the sale of the Secured Notes were approximately $687.8 million (after deducting
offering fees and expenses). We used the net proceeds from the offering to repay outstanding borrowings under our Senior Credit Agreement.
Interest
on the Secured Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2015. Interest on the Secured Notes accrues from
May 1, 2015. The Secured Notes are secured by second-priority liens on substantially all of our and our subsidiary guarantors' assets that secure our Senior Credit Agreement.
Amendments to the Senior Credit Agreement
On May 1, 2015, in conjunction with the issuance of the Secured Notes, we entered into the Tenth Amendment to our Senior Credit
Agreement (the Tenth Amendment) which among other things, permitted us to incur the debt under the Secured Notes and to grant the liens in connection therewith; replaced the interest coverage ratio
covenant that had been modified in the Ninth Amendment with a covenant that requires the ratio of our total secured debt to EBITDA be no greater than 2.75 to 1.00; reduced the borrowing base to
$900.0 million; and extended the maturity date of the Senior Credit Agreement to August 1, 2019. Prior to the Tenth Amendment, under the Ninth
Amendment executed on February 25, 2015, the Senior Credit Agreement had a required minimum coverage of interest expenses of not less than 2.0 to 1.0 through March 31, 2016 and not less
than 2.5 to 1.0 for subsequent periods.
Long-Term Debt Exchanged for Common Stock
Subsequent to March 31, 2015, we entered into several exchange agreements with existing holders of our senior unsecured notes in
which the holders agreed to exchange an aggregate $252.2 million principal amount of their senior notes for approximately 141.3 million shares of our common stock.
On
April 24, 2015, we entered into an exchange agreement with several investment funds advised by Pioneer Investments, each of which is a holder of our 2020 Notes, 2021 Notes and
2022 Notes (the Senior Notes), pursuant to which the funds agreed to exchange an aggregate $25.0 million principal amount of the Senior Notes for approximately 14.8 million shares of our
common stock, resulting in an effective exchange price of $1.69 per share. Of the aggregate $25.0 million principal amount of Senior Notes to be exchanged by the holders, approximately
$2.8 million is principal amount of 2020 Notes, approximately $16.8 million is principal amount of 2021 Notes and approximately $5.4 million is principal amount of 2022 Notes. The
exchanges closed on various dates from April 30, 2015 through May 4, 2015, at which time we also paid all accrued and unpaid interest since the relevant prior interest payment dates for
each of the Senior Notes.
On
April 22, 2015, we entered into an exchange agreement with J.P. Morgan Securities LLC, a holder of our 2021 Notes, pursuant to which it agreed to exchange approximately
$40.0 million principal amount of such notes for approximately 22.2 million shares of our common stock, resulting in an effective exchange price of $1.80 per share. The exchange closed
on April 29, 2015, at which time we also paid all accrued and unpaid interest on the notes since the prior interest payment date in November 2014.
On
April 15, 2015, we entered into an exchange agreement with Goldman Sachs Asset Management, L.P., on behalf of certain of its funds and accounts which hold our 2020
Notes, pursuant to which the holders agreed to exchange approximately $70.7 million principal amount of such notes for approximately 38.8 million shares of our common stock, resulting in
an effective exchange price of $1.82 per share. The exchanges closed on various dates from April 22, 2015 through April 28, 2015, at
42
Table of Contents
which
time we also paid all accrued and unpaid interest on the notes since the prior interest payment date in January 2015.
On
April 7, 2015, we entered into an exchange agreement with two investment funds advised by Franklin Templeton Investments, each of which is an existing holder of our 2020 Notes,
pursuant to which the funds agreed to exchange an aggregate $116.5 million principal amount of such notes for approximately 65.5 million shares of our common stock, resulting in an
effective exchange price of $1.78 per share. The exchange closed on April 13, 2015, at which time we also paid all accrued and unpaid interest on the notes since the prior interest payment date
in January 2015.
Equity Distribution Agreement
On March 18, 2015, we entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with BMO Capital Markets
Corp., Jefferies LLC and MLV & Co. LLC (collectively, the Managers). Pursuant to the terms of the Equity Distribution Agreement, we may sell, from time to time through the
Managers, shares of our common stock having an aggregate offering price of up to $150 million (the Shares). Sales of the Shares, if any, will be made by means of ordinary brokers' transactions
through the facilities of the New York Stock Exchange at market prices, or as otherwise agreed by us and the Managers. For the three months ended March 31, 2015, we sold approximately
5.0 million shares for net proceeds of approximately $8.1 million, after deducting offering expenses. Of the net proceeds of $8.1 million, approximately $2.1 million was
recorded as a receivable at March 31, 2015 and was collected in April 2015.
Capital Resources and Liquidity
Our near-term capital spending requirements are expected to be funded with cash flows from operations. In addition, we have the ability
to draw on our Senior Credit Agreement, which has a current borrowing base of $900.0 million, and, to a lesser extent, we anticipate successful results from our Equity Distribution Agreement.
Our borrowing base is redetermined on a semi-annual basis (with us and the lenders each having the right to one interim unscheduled redetermination between any two consecutive semi-annual
redeterminations) and adjusted based on the estimated value of our oil and natural gas reserves, the amount and cost of our other indebtedness and other relevant factors. Our ability to utilize the
full amount of our borrowing capacity is influenced by a
variety of factors, including redeterminations of our borrowing base and covenants under our Senior Credit Agreement and our senior debt indentures. Our Senior Credit Agreement contains customary
financial and other covenants, including minimum working capital levels (the ratio of current assets plus the unused commitment under the Senior Credit Agreement to current liabilities) of not less
than 1.0 to 1.0 and, until removed by the Tenth Amendment, minimum coverage of interest expenses (as defined in the Senior Credit Agreement) of not less than 2.0 to 1.0 through March 31, 2016
(pursuant to the Ninth Amendment), and not less than 2.5 to 1.0 for subsequent periods. As a result of the Tenth Amendment, the minimum coverage of interest expense covenant was removed and replaced
with a covenant that requires the ratio of the Company's total secured debt to EBITDA be no greater than 2.75 to 1.00. We are also subject to additional covenants limiting dividends and other
restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. Additionally, the indentures governing our senior debt contain
covenants limiting our ability to incur additional indebtedness, including borrowings under our Senior Credit Agreement, unless we meet one of two alternative tests. The first test, the fixed charge
coverage ratio test, applies to all indebtedness and requires that after giving effect to the incurrence of additional debt the ratio of our adjusted consolidated EBITDA (as defined in our indentures)
to our adjusted consolidated interest expense over the trailing four fiscal quarters will be at least 2.0 to 1.0. The second test allows us to incur additional indebtedness, beyond the limitations of
the fixed charge coverage ratio test, as long as this additional debt is incurred under Credit Facilities (as defined in our indentures) and, in the case of certain secured indebtedness, the amount
thereof is not more than, subject to certain exceptions, the greater of (i) $950 million, (ii) the borrowing base in effect under our Senior Credit Agreement, and (iii) 30%
of
43
Table of Contents
our
adjusted consolidated net tangible assets, or ACNTA, and, in the case of unsecured indebtedness, the amount thereof is not more than the greater of the fixed sum of $750 million or 30% of
our ACNTA. ACNTA is defined in all of our indentures and is determined primarily by the value of discounted future net revenues from proved oil and natural gas reserves plus the capitalized cost
attributable to our unevaluated properties. At March 31, 2015, under the then effective borrowing base of $1.05 billion, we had $701.0 million of indebtedness outstanding under
our Senior Credit Agreement, $1.1 million of letters of credit outstanding and approximately $347.9 million of borrowing capacity available under our Senior Credit Agreement.
Our
ability to meet our debt covenants and our capacity to incur additional indebtedness will depend on our future performance, which will be affected by financial, business, economic,
regulatory and other factors. For example, lower oil and natural gas prices could result in a redetermination of the borrowing base under our Senior Credit Agreement at a lower level and reduce our
adjusted consolidated EBITDA, as well as our ACNTA, and thus could reduce our ability to incur indebtedness. Our strategic divestitures of non-core producing properties in favor of investing in
undeveloped acreage, coupled with our current drilling plans have also impacted our near-term ability to comply with certain debt covenants by reducing our production and reserves on a current and,
for purposes of covenant calculations, a pro forma historical basis, while drilling takes time to replace these losses. Of course, over the longer term, we expect that our strategy and our investments
will result in increased production and reserves, lower lease operating costs and more abundant drilling opportunities. As a consequence, we constantly monitor our liquidity and capital resources,
endeavor to anticipate potential
covenant compliance issues and work with the lenders under our Senior Credit Agreement to address any such issues ahead of time.
We
have obtained amendments to the covenants under our Senior Credit Agreement under circumstances where we anticipated that it might be challenging for us to comply with our financial
covenants for a particular period of time. During 2013, we obtained amendments to the calculation of the interest coverage ratio covenant under our Senior Credit Agreement allowing us to annualize our
quarterly EBITDA because, among other things, we anticipated that our strategic decision to divest various non-core producing properties and invest in the acquisition and drilling of undeveloped
acreage would have caused us to fall below the interest coverage ratio. We requested a reduction in the minimum required interest coverage ratio of 2.0 to 1.0 for 2014 and 2015 and those requests were
granted on March 21, 2014 and again on February 25, 2015, respectively. With the Tenth Amendment and the issuance of the Secured Notes, the interest coverage ratio was replaced with a
total secured debt to EBITDA ratio. The basis for recent amendment and waiver requests is similar to those described above, i.e., the potential for us to fall out of compliance primarily as a
result of our strategic decision to divest producing properties, invest extensively in undeveloped acreage and the long lead times associated with replacing lost production through our drilling
program. Declining commodity prices have also adversely impacted our ability to comply with these covenants. As part of our plan to manage liquidity risks, we have scaled back our capital expenditures
budget, focused our drilling program on our highest return projects, and we continue to explore opportunities to divest non-core properties.
If,
in the future, the lenders under our Senior Credit Agreement are unwilling to provide us with the covenant flexibility we seek, and we are unable to comply with those covenants, we
may be forced to repay or refinance amounts then outstanding under the Senior Credit Agreement and seek alternative sources of capital to fund our business and anticipated capital expenditures. In the
event that we are unable to access sufficient capital to fund our business and planned capital expenditures, we may be required to curtail our drilling, development, land acquisition and other
activities, which could result in a decrease in our production of oil and natural gas, may be subject to forfeitures of leasehold interests to the extent we are unable or unwilling to renew them, and
may be forced to sell some of our assets on an untimely or unfavorable basis, each of which could adversely affect our results of operations and financial condition. Further, the failure to comply
with the restrictive covenants
44
Table of Contents
relating
to our indebtedness could result in the declaration of a default and cross default under the instruments governing our indebtedness, potentially resulting in acceleration of our obligations
and adversely impacting our financial condition.
Our
future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves.
Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which
is typical in the capital-intensive oil and natural gas industry. We therefore continuously monitor our liquidity and the capital markets and evaluate our development plans in light of a variety of
factors, including, but not limited to, our cash flows, capital resources, acquisition opportunities and drilling success.
We
strive to maintain financial flexibility while pursuing our drilling plans and evaluating potential acquisitions, and will therefore likely continue to access capital markets (if on
acceptable terms) as necessary to, among other things, maintain substantial borrowing capacity under our Senior Credit Agreement, facilitate drilling on our large undeveloped acreage position and
permit us to selectively expand our acreage position and infrastructure projects while sustaining sufficient operating cash levels. Our ability to complete future debt and equity offerings and
maintain or increase our borrowing base is subject to a number of variables, including our level of oil and natural gas production, reserves and commodity prices, as well as various economic and
market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our reserves and production, if oil and natural gas prices decline
for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.
We
are exposed to various risks, including energy commodity price risk. When oil, natural gas, and natural gas liquids prices decline significantly, as they did in the latter half of
2014 and early 2015, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk
management policy which provides for the use of derivative instruments to provide partial protection against future declines in oil and natural gas prices by reducing the risk of price volatility and
the affect it could have on our operations. The types of derivative instruments that we typically utilize include costless collars, swaps, and deferred put options. The total volumes which we hedge
through the use of our derivative instruments varies from period to period, however, generally our objective is to hedge approximately 70% to 80% of our current and anticipated production for the next
18 to 24 months. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivatives contracts for
speculative trading purposes.
Cash Flow
Our primary sources of cash for the three months ended March 31, 2015 and 2014 were from operating and financing activities. In
the first three months of 2015, cash generated by operating and financing activities was used to fund our drilling program. Cash provided by financing activities was primarily attributable to net
borrowings on our Senior Credit Agreement. See "Results of Operations" for a review of the impact of prices and volumes on sales.
45
Table of Contents
Net
increase (decrease) in cash is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2015 |
|
2014 |
|
|
|
(In thousands)
|
|
Cash flows provided by (used in) operating activities |
|
$ |
93,935 |
|
$ |
159,500 |
|
Cash flows provided by (used in) investing activities |
|
|
(268,012 |
) |
|
(509,498 |
) |
Cash flows provided by (used in) financing activities |
|
|
148,975 |
|
|
347,530 |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
$ |
(25,102 |
) |
$ |
(2,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities. Net cash provided by operating activities for the three months ended March 31, 2015 and 2014, was
$93.9 million
and $159.5 million, respectively. Key drivers of net operating cash flows are commodity prices, production volumes, operating costs and realized settlements on our derivative contracts.
The
$93.9 million of operating cash flows for the three months ended March 31, 2015 primarily reflect the impact of realized settlements on our derivative contracts, which
have largely offset the decrease in revenues due to lower commodity prices, as compared to the prior year period. Cash operating expenses decreased slightly over the prior year period.
The
$159.5 million of operating cash flows for the three months ended March 31, 2014 primarily reflected the impact of increased production from our developmental drilling
activities on acquired properties which resulted in a 44% increase in revenues, as compared to the prior year period, and outpaced related operating expenses.
Investing Activities. The primary driver of cash used in investing activities is capital spending, specifically drilling and completions
and, to a
lesser extent, the acquisition of unevaluated leasehold acreage in our target areas. Net cash used in investing activities was approximately $268.0 million and $509.5 million for the
three months ended March 31, 2015 and 2014, respectively.
During
the first three months of 2015, we spent $264.6 million on oil and natural gas capital expenditures, of which $215.8 million related to drilling and completion costs
and the remainder was primarily associated with capitalized interest, leasing and seismic data. We have significantly decreased our planned capital spending for 2015, as compared to capital
expenditure levels in prior years, in response to the significant decrease in crude oil prices over the latter half of 2014 and due to the expectation that prices may not recover in the near term.
Cash paid for drilling and completion costs during the first three months of 2015 were largely attributable to costs incurred before we slowed our drilling and completion program, but were also
partially attributable to costs related to wells spud or drilled during the period.
During
the first three months of 2014, we spent $432.8 million on oil and natural gas capital expenditures, of which $328.6 million related to drilling and completion costs
and the remainder was primarily associated with leasing, acquisitions and seismic data. We also spent $62.5 million related to a carried interest in the Tuscaloosa Marine Shale.
Financing Activities. Net cash flows provided by financing activities were $149.0 million and $347.5 million for the three
months ended
March 31, 2015 and 2014, respectively. The primary drivers of cash provided by financing activities for the three months ended March 31, 2015 and 2014 were net borrowings on our Senior
Credit Agreement.
In
the first quarter of 2015, cash flows from financing activities were modestly impacted by sales of our common stock under the Equity Distribution Agreement. For the three months ended
March 31, 2015, we sold approximately 5.0 million shares for net proceeds of approximately $8.1 million, after deducting offering expenses. Of the net proceeds of
$8.1 million, approximately $2.1 million was recorded as a receivable at March 31, 2015 and was collected in April 2015.
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Table of Contents
Contractual Obligations
We lease corporate office space in Houston, Texas; and Denver, Colorado as well as a number of other field office locations. Rent
expense was approximately $2.0 million and $1.9 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, the
amount of commitments under office and equipment lease agreements is consistent with the levels at December 31, 2014 disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014, approximating $57.7 million in the aggregate, and containing various expiration dates through 2024.
In
addition, we have commitments for certain equipment under long-term operating lease agreements, namely drilling rigs as well as pipeline and well equipment, with various expiration
dates through 2018. During the first quarter of 2015, we terminated a drilling rig contract early in response to the recent decline in crude oil prices, and as such, will incur an agreed upon early
termination fee of $6.0 million, payable over the first half of 2015. If certain requirements are not met by two separate trigger dates, the first being January 1, 2017 and the second
being January 12, 2020, we may incur up to an additional $3.0 million in connection with this drilling rig contract. In addition, we have a new drilling rig commitment, scheduled to
begin in the second quarter of 2015, for which we expect to incur a stacking fee of $17,000 per day. The current rig contract term extends through the second quarter of 2018. Early termination of our
other drilling rig commitments would result in termination penalties approximating $44.3 million, which would be in lieu of the remaining $67.1 million of drilling rig commitments as of
March 31, 2015.
We
have entered into various long-term gathering, transportation and sales contracts in the Bakken / Three Forks formations in North Dakota. As of March 31, 2015, we had in place
ten long-term crude oil contracts and six long-term natural gas contracts in this area. Under the terms of these contracts, we have committed a substantial portion of our Bakken / Three Forks
production for periods ranging from one to ten years from the date of first production. The sales prices under these contracts are based on posted market rates. We believe that there are sufficient
available reserves and production in the Bakken / Three Forks formations to meet our commitments. Historically, we have been able to meet our delivery commitments.
On
December 20, 2013, we entered into a carry and earning agreement, as amended (the Agreement) with an independent third party (Seller) associated with the acquisition of certain
properties believed to be prospective for the Tuscaloosa Marine Shale (TMS), primarily in Wilkinson County, Mississippi and in West Feliciana and East Feliciana Parishes, Louisiana. The agreement
required us to fund up to $189.4 million the Carry amount in exchange for approximately 117,870 net acres. We paid $62.5 million of the Carry Amount at closing on February 28,
2014 and the remaining $126.9 million during the three months ended June 30, 2014, reflected as "Advance on carried interest" in the
accompanying unaudited condensed consolidating statements of cash flows. The Carry Amount is to be used by the Seller to fund wells prospective for the TMS to be drilled by the Seller (the Carry
Wells) on the Seller's retained acreage. As part of the transaction, we will also receive a 5% working interest in the Carry Wells. Any portion of the Carry Amount not spent by the Seller, in
accordance with the Agreement, on or before August 31, 2017, will be returned to us.
On
June 16, 2014, we entered into a transaction to develop our TMS assets with funds and accounts managed by affiliates of Apollo Global Management, LLC. See Item 1. Condensed Consolidated Financial Statements
(Unaudited)Note 9, "Mezzanine Equity,"
for a discussion of the drilling obligation associated with the transaction.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these unaudited condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting
policies from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
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Table of Contents
Results of Operations
Three Months Ended March 31, 2015 and 2014
We reported a net loss of $587.6 million for the three months ended March 31, 2015 compared to a net loss of
$73.0 million for the three months ended March 31, 2014. The following table summarizes key items of comparison and their related change for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
In thousands (except per unit and per Boe amounts)
|
|
2015 |
|
2014 |
|
Change |
|
Net income (loss) |
|
$ |
(587,641 |
) |
$ |
(72,964 |
) |
$ |
(514,677 |
) |
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
124,413 |
|
|
256,029 |
|
|
(131,616 |
) |
Natural gas |
|
|
6,959 |
|
|
9,409 |
|
|
(2,450 |
) |
Natural gas liquids |
|
|
4,068 |
|
|
8,759 |
|
|
(4,691 |
) |
Other |
|
|
754 |
|
|
952 |
|
|
(198 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
|
33,785 |
|
|
36,638 |
|
|
(2,853 |
) |
Workover and other |
|
|
3,114 |
|
|
2,789 |
|
|
325 |
|
Taxes other than income |
|
|
12,241 |
|
|
24,160 |
|
|
(11,919 |
) |
Gathering and other |
|
|
13,746 |
|
|
5,073 |
|
|
8,673 |
|
Restructuring |
|
|
1,921 |
|
|
987 |
|
|
934 |
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
19,637 |
|
|
28,466 |
|
|
(8,829 |
) |
Share-based compensation |
|
|
4,772 |
|
|
4,332 |
|
|
440 |
|
Depletion, depreciation and accretion: |
|
|
|
|
|
|
|
|
|
|
DepletionFull cost |
|
|
116,611 |
|
|
117,246 |
|
|
(635 |
) |
DepreciationOther |
|
|
2,093 |
|
|
2,183 |
|
|
(90 |
) |
Accretion expense |
|
|
440 |
|
|
479 |
|
|
(39 |
) |
Full cost ceiling impairment |
|
|
554,003 |
|
|
61,165 |
|
|
492,838 |
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on derivative contracts |
|
|
99,748 |
|
|
(33,656 |
) |
|
133,404 |
|
Interest expense and other, net |
|
|
(61,307 |
) |
|
(30,939 |
) |
|
(30,368 |
) |
Income tax (provision) benefit |
|
|
87 |
|
|
|
|
|
87 |
|
Production: |
|
|
|
|
|
|
|
|
|
|
OilMBbls |
|
|
3,096 |
|
|
2,806 |
|
|
290 |
|
Natural GasMmcf |
|
|
2,635 |
|
|
1,792 |
|
|
843 |
|
Natural gas liquidsMBbls |
|
|
342 |
|
|
191 |
|
|
151 |
|
Total MBoe(1) |
|
|
3,877 |
|
|
3,296 |
|
|
581 |
|
Average daily productionBoe(1) |
|
|
43,078 |
|
|
36,622 |
|
|
6,456 |
|
Average price per unit(2): |
|
|
|
|
|
|
|
|
|
|
Oil priceBbl |
|
$ |
40.19 |
|
$ |
91.24 |
|
$ |
(51.05 |
) |
Natural gas priceMcf |
|
|
2.64 |
|
|
5.25 |
|
|
(2.61 |
) |
Natural gas liquids priceBbl |
|
|
11.89 |
|
|
45.86 |
|
|
(33.97 |
) |
Total per Boe(1) |
|
|
34.93 |
|
|
83.19 |
|
|
(48.26 |
) |
Average cost per Boe: |
|
|
|
|
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
$ |
8.71 |
|
$ |
11.12 |
|
$ |
(2.41 |
) |
Workover and other |
|
|
0.80 |
|
|
0.85 |
|
|
(0.05 |
) |
Taxes other than income |
|
|
3.16 |
|
|
7.33 |
|
|
(4.17 |
) |
Gathering and other |
|
|
3.55 |
|
|
1.54 |
|
|
2.01 |
|
Restructuring |
|
|
0.50 |
|
|
0.30 |
|
|
0.20 |
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
5.06 |
|
|
8.64 |
|
|
(3.58 |
) |
Share-based compensation |
|
|
1.23 |
|
|
1.31 |
|
|
(0.08 |
) |
Depletion |
|
|
30.08 |
|
|
35.57 |
|
|
(5.49 |
) |
- (1)
- Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio does not
assume price equivalency and, given price differentials, the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of
oil.
- (2)
- Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge
accounting.
48
Table of Contents
For
the three months ended March 31, 2015, oil, natural gas and natural gas liquids revenues decreased as compared to the same period in 2014 due to lower average realized prices.
Average realized prices (excluding the effects of hedging arrangements) decreased from $83.19 per Boe to $34.93 per Boe, representing a 58% decrease from the prior year. Oil and natural gas prices are
inherently volatile and decreased significantly over the latter half of 2014 and the beginning of 2015. Sustained lower commodity prices will continue to impact our oil, natural gas and natural gas
liquids revenues. The impact of decreased prices was partially offset by increased production associated with the development of our core properties in the Bakken / Three Forks and El
Halcón areas.
Lease
operating expenses decreased $2.9 million for the three months ended March 31, 2015 due to our divestiture of non-core properties in 2014 which, historically, had
higher operating costs, as well as our efforts to reduce costs and become a more efficient operator. Lease operating expenses were $8.71 per Boe for the three months ended March 31, 2015,
compared to $11.12 per Boe for the same period in 2014. The decrease in lease operating expenses per Boe primarily results from the increase in our production and our efforts to reduce costs in our
core operating areas.
Taxes
other than income decreased $11.9 million for the three months ended March 31, 2015 as compared to the same period in 2014 primarily due to lower oil, natural gas and
natural gas liquids revenues attributable to significantly lower commodity prices. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas
sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $3.16 per Boe and $7.33 per Boe for the three months ended
March 31, 2015 and 2014, respectively.
Gathering
and other expenses for the three months ended March 31, 2015 and 2014 were $13.7 million and $5.1 million, respectively. Approximately $7.5 million
of expenses incurred for the three months ended March 31, 2015 relate to gathering and other fees paid on our oil and natural gas production, which has increased 18% compared to the prior year
period. Also included is a $6.0 million termination fee to early terminate one of our drilling rig contracts. The contract was terminated in response to the recent decline in crude oil prices.
During
the three months ended March 31, 2015, we had a reduction in our workforce due to the decrease in our drilling and developmental activities planned for the upcoming year.
We incurred approximately $1.9 million in severance costs and accelerated stock-based compensation expense related to the termination of certain employees during the period. For the three months ended
March 31, 2014, in conjunction with our divestitures of certain non-core properties, we incurred approximately $1.0 million in severance costs and accelerated stock-based compensation expense
related to the termination of certain employees in these non-core areas.
General
and administrative expense for the three months ended March 31, 2015 decreased $8.8 million to $19.6 million as compared to the same period in 2014. The
decrease in general and administrative expenses results from decreases in professional fees and transaction costs amounting to $3.4 million and $3.1 million, respectively. On a per unit
basis, general and administrative expenses were $5.06 per Boe and $8.64 per Boe, for the three months ended March 31, 2015 and 2014, respectively.
Share-based
compensation expense for the three months ended March 31, 2015 was $4.8 million, an increase of $0.4 million compared to the same period in 2014. The
increase results from the annual company-wide employee awards for 2014 being granted at the end of the fourth quarter of 2014, for all employees except named executive officers. In prior years, the
annual company-wide grant occurred in the first quarter of the year following the service period.
Depletion
for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs
based on the
49
Table of Contents
ratio
of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense slightly decreased over the prior year period. On a per
unit basis, depletion expense was $30.08 per Boe for the three months ended March 31, 2015 compared to $35.57 per Boe for the three months ended March 31, 2014. The decrease in the
depletion rate per Boe is partially attributable to decreases in the amortizable base due to the full cost ceiling test impairments since the prior year period.
We
utilize the full cost method of accounting to account for our oil and natural gas exploration and development activities. Under this method of accounting, we are required on a
quarterly basis to determine whether the book value of our oil and natural gas properties (excluding unevaluated properties) is less than or equal to the "ceiling", based upon the expected after tax
present value (discounted at 10%) of the future net cash flows from our proved reserves. Any excess of the net book value of our oil and natural gas properties over the ceiling must be recognized as a
non-cash impairment expense. We recorded a full cost ceiling test impairment before income taxes of $554.0 million and $61.2 million for the three months ended March 31, 2015 and
2014, respectively. The ceiling test impairment in the first quarter of 2015 was driven by a 13% decrease in the first-day-of-the-month average prices for crude oil used in the ceiling test
calculation, which were $94.99 and $82.71 per barrel at December 31, 2014 and March 31, 2015, respectively. Changes in commodity prices, production rates, levels of reserves, future
development costs, transfers of unevaluated properties, and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.
We
enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with prior years, we
have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we record the net change in the mark-to-market value of these derivative contracts in our
unaudited condensed consolidated statements of operations. At March 31, 2015, we had a $487.2 million derivative asset, $351.8 million of which was classified as current, and we
had a $0.7 million derivative liability, all of which was classified as non-current associated with these contracts. We recorded a net derivative gain of $99.7 million
($8.0 million net unrealized loss and $107.7 million net realized gain on settled contracts) for the three months ended March 31, 2015 compared to a net derivative loss of
$33.7 million ($26.9 million net unrealized loss and $6.8 million net realized loss on settled contracts and premium costs), in the same period in 2014.
Interest
expense and other increased $30.4 million for the three months ended March 31, 2015 from the same period in 2014. Capitalized interest for the three months ended
March 31, 2015 and 2014 was $24.7 million and $46.8 million, respectively. The decrease in capitalized interest was driven by decreases in our unevaluated properties since
March 31, 2014, which is the basis of our capitalized interest calculation. Interest expense subject to capitalization increased to $83.7 million in the three months ended
March 31, 2015 from $78.7 million in the comparable prior year period. The increase in interest subject to capitalization is attributed to the interest and fees on our Senior Credit
Agreement.
We
recorded an income tax benefit of $0.1 million for the three months ended March 31, 2015 due to an offsetting valuation allowance and expected tax refunds, as discussed
further in Item 1. Condensed Consolidated Financial Statements (Unaudited)Note 11, "Income
Taxes," compared to no income tax benefit or expense recorded in the comparable prior year period. The effective tax rate was 0.0% for the three months ended March 31,
2015 and 2014.
Recently Issued Accounting Pronouncements
We discuss recently adopted and issued accounting standards in Item 1. Condensed Consolidated Financial
Statements (Unaudited)Note 1, "Financial Statement Presentation."
50
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments and Hedging Activity
We are exposed to various risks, including energy commodity price risk. When oil, natural gas, and natural gas liquids prices decline
significantly our ability to finance our capital budget and operations may be adversely impacted. Commodity prices have been and we expect them to remain volatile and unpredictable; therefore, we have
designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price
volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include costless collars, swaps, and deferred put options. The total volumes
that we hedge through the use of derivative instruments varies from period to period, however, generally our objective is to hedge approximately 70% to 80% of our current and anticipated production
for the next 18 to 24 months. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative
contracts for speculative trading purposes.
We
are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with
counterparties that are creditworthy financial institutions deemed by management as competitive market makers. As of March 31, 2015, each of the counterparties to our derivative contracts was a
lender or an affiliate of a lender under our Senior Credit Agreement. We typically do not specifically post collateral under any of these contracts as they are secured by liens under our Senior Credit
Agreement. Please refer to Item 1. Condensed Consolidated Financial Statements (Unaudited)Note 6, "Derivative and Hedging Activities" for
additional information.
We
are also exposed to interest rate risk on our variable interest rate debt. If interest rates increase, our interest expense would increase and our available cash flows would decrease.
Historically, we entered into interest rate swaps which reduce exposure to market rate fluctuations by converting variable interest rates to fixed interest rates. At March 31, 2015 and 2014, we
did not have any open positions converting our variable interest rate debt to fixed interest rates. We continue to monitor our exposure to interest rate fluctuations as we incur indebtedness with
variable interest rates and enter into swaps in accordance with our risk management policy when we believe it is warranted.
We
account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging (ASC 815). ASC 815 establishes
accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. Please refer to
Item 1. Condensed Consolidated Financial Statements (Unaudited)Note 6, "Derivative and Hedging
Activities" for additional information.
Fair Market Value of Financial Instruments
The estimated fair values for financial instruments under ASC 825, Financial
Instruments (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with
precision. The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements
(Unaudited)Note 5, "Fair Value
Measurements" for additional information.
Interest Rate Sensitivity
We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from
fluctuations in short-term rates, which are LIBOR and ABR based
51
Table of Contents
and
may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
At
March 31, 2015, total long-term debt was approximately $3.9 billion of which approximately 82% bears interest at a weighted average fixed interest rate of 9.2% per year.
The remaining 18% of our total debt balance at March 31, 2015 bears interest at floating or market interest rates that, at our option, are tied to prime rate or LIBOR. Fluctuations in market
interest rates will cause our annual interest costs to fluctuate. At March 31, 2015, the weighted average interest rate on our variable rate debt was 2.3% per year. If the balance of our
variable rate debt at March 31, 2015 were to remain constant, a 10% change in market interest rates would impact our cash flow by approximately $1.6 million per year.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of
March 31, 2015. On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are
designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
We
did not have any change in our internal controls over financial reporting during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of our
business. While the outcome and impact of currently pending legal proceedings cannot be determined, our management and legal counsel believe that the resolution of these proceedings through settlement
or adverse judgment will not have a material effect on our consolidated operating results, financial position or cash flows.
Item 1A. Risk Factors
There have been no changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014.
52
Table of Contents
Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds
The following table sets forth information regarding our acquisition of shares of common stock for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
of Shares
Purchased(1) |
|
Average Price
Paid Per Share |
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs |
|
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or
Programs |
|
January 2015 |
|
|
846 |
|
$ |
1.87 |
|
|
|
|
|
|
|
February 2015 |
|
|
391,367 |
|
|
1.93 |
|
|
|
|
|
|
|
March 2015 |
|
|
2,804 |
|
|
1.63 |
|
|
|
|
|
|
|
- (1)
- All of the shares were surrendered by employees in satisfaction of tax obligations upon the vesting of restricted
stock awards. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our common stock, nor were they considered as or accounted for as treasury
shares.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
53
Table of Contents
Item 6. Exhibits
The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference
are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.
|
|
|
|
|
2.1 |
|
Securities Purchase Agreement dated December 21, 2011 by and between RAM Energy Resources, Inc. and Halcón Resources LLC (Incorporated by reference to Exhibit 2.1 of our Current Report on
Form 8-K filed December 22, 2011). |
|
2.1.1 |
|
First Amendment to Securities Purchase Agreement dated January 4, 2012 by and between RAM Energy Resources, Inc. and Halcón Resources LLC (Incorporated by reference to Exhibit 2.1.1 of our
Current Report on Form 8-K filed January 5, 2012). |
|
2.2 |
|
Agreement and Plan of Merger, dated as of April 24, 2012 by and among Halcón Resources Corporation, Leopard Sub I, Inc., Leopard Sub II, LLC and GeoResources, Inc. (Incorporated by reference
to Exhibit 2.1 of our Current Report on Form 8-K filed April 25, 2012). |
|
2.3 |
|
Purchase and Sale Agreement dated as of the 5th day of June, 2012, among CH4 Energy II, LLC, PetroMax Leon, LLC and Petro Texas LLC and Halcón Energy Properties, Inc., and joined
by PetroMax Operating Co., Inc. (Incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed August 7, 2012). |
|
2.4 |
|
Reorganization and Interest Purchase Agreement dated October 19, 2012 by and among Halcón Energy Properties, Inc., Petro-Hunt, L.L.C. and Pillar Energy, LLC (Incorporated by reference to
Exhibit 2.1 of our Current Report on Form 8-K filed October 22, 2012). |
|
2.5 |
|
Agreement of Sale and Purchase by and among Halcón Energy Properties, Inc., Halcón Field Services, LLC, HK Energy, LLC, Halcón Operating Co, Inc., HK Energy Operating, LLC,
and Halcón Resources Operating, Inc., and New Gulf Resources, LLC, dated February 25, 2014 (Incorporated by reference to Exhibit 2.1 of our Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2014 filed May 8, 2014). |
|
2.5.1 |
|
Amendment No. 1 Agreement of Sale and Purchase by and among Halcón Energy Properties, Inc., Halcón Field Services, LLC, HK Energy, LLC, Halcón Operating Co, Inc., HK
Energy Operating, LLC, and Halcón Resources Operating, Inc., and New Gulf Resources, LLC, dated April 10, 2014 (Incorporated by reference to Exhibit 2.2 of our Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2014 filed July 31, 2014). |
|
3.1 |
|
Amended and Restated Certificate of Incorporation of RAM Energy Resources, Inc. dated February 8, 2012 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed
February 9, 2012). |
|
3.1.1 |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Halcón Resources Corporation, effective as of February 10, 2012 (Incorporated by reference to Exhibit 3.2 of our
Current Report on Form 8-K filed February 9, 2012). |
|
3.1.2 |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Halcón Resources Corporation dated January 17, 2013 (Incorporated by reference to Exhibit 3.1 of our Current Report
on Form 8-K filed January 23, 2013). |
|
3.1.3 |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Halcón Resources Corporation, effective as of May 23, 2013 (Incorporated by reference to Exhibit 3.1 of our Current
Report on Form 8-K filed May 29, 2013). |
54
Table of Contents
|
|
|
|
|
3.1.4 |
|
Certificate of Designations, Preferences, Rights and Limitations of 5.75% Series A Convertible Perpetual Preferred Stock of Halcón Resources Corporation (Incorporated by reference to Exhibit 3.1 of our
Current Report on Form 8-K filed June 18, 2013). |
|
3.1.5 |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation, effective as of May 22, 2014 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed
May 27, 2014). |
|
3.2 |
|
Fourth Amended and Restated Bylaws of Halcón Resources Corporation (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed November 6, 2012). |
|
4.1 |
|
Amended and Restated Convertible Promissory Note dated March 9, 2015, between Halcón Resources Corporation and HALRES LLC (Incorporated by reference to Exhibit 4.1 of our Current Report on
Form 8-K filed March 10, 2015). |
|
4.2 |
|
Amended and Restated Warrant Certificate dated March 9, 2015, between Halcón Resources Corporation and HALRES LLC (Incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K
filed March 10, 2015). |
|
4.3 |
|
Amended and Restated Registration Rights Agreement dated March 6, 2015, between Halcón Resources Corporation and HALRES LLC (Incorporated by reference to Exhibit 4.3 of our Current Report on
Form 8-K filed March 10, 2015). |
|
4.4 |
|
Indenture dated as of May 1, 2015, among Halcón Resources Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to Halcón Resources
Corporation's 8.625% Senior Secured Notes due 2020 (Incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed May 4, 2015). |
|
10.1 |
|
Ninth Amendment to Senior Revolving Credit Agreement, dated as of February 25, 2015, among Halcón Resources Corporation, as borrower, each of the lenders party thereto, and JPMorgan Chase Bank, N.A., as
administrative agent for the lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 25, 2015). |
|
10.2 |
|
Equity Distribution Agreement, dated March 18, 2015, by and among Halcón Resources Corporation, BMO Capital Markets Corp., Jefferies LLC and MLV & Co. LLC (Incorporated by reference
to Exhibit 1.1 of our Current Report on Form 8-K filed March 18, 2015). |
|
10.3 |
|
Purchase Agreement, dated April 21, 2015, by and among Halcón Resources Corporation, J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (Incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed April 24, 2015). |
|
10.4 |
|
Tenth Amendment to Senior Revolving Credit Agreement, dated as of May 1, 2015, among Halcón Resources Corporation, as borrower, each of the lenders party thereto, and JPMorgan Chase Bank, N.A., as
administrative agent for the lenders (Incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K filed May 4, 2015). |
|
10.5 |
|
Intercreditor Agreement, dated as of May 1, 2015, among Halcón Resources Corporation, the subsidiary guarantors named therein, U.S. Bank National Association, as trustee, and JPMorgan Chase Bank, N.A., as
administrative agent for the lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed May 4, 2015). |
55
Table of Contents
|
|
|
|
|
10.6 |
|
Collateral Trust Agreement, dated as of May 1, 2015, among Halcón Resources Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, (Incorporated by reference to
Exhibit 10.2 of our Current Report on Form 8-K filed May 4, 2015). |
|
10.7 |
|
Second Lien Security Agreement, dated as of May 1, 2015, among Halcón Resources Corporation, the subsidiary guarantors named therein, U.S. Bank National Association, as trustee, and the other parity lien
debt representatives from time to time party thereto (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed May 4, 2015). |
|
12.1 |
* |
Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends |
|
31.1 |
* |
Sarbanes-Oxley Section 302 certification of Principal Executive Officer |
|
31.2 |
* |
Sarbanes-Oxley Section 302 certification of Principal Financial Officer |
|
32 |
* |
Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer |
|
101.INS |
* |
XBRL Instance Document |
|
101.SCH |
* |
XBRL Taxonomy Extension Schema Document |
|
101.CAL |
* |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
* |
XBRL Taxonomy Extension Definition Document |
|
101.LAB |
* |
XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
* |
XBRL Taxonomy Extension Presentation Linkbase Document |
- *
- Attached hereto.
-
- Indicates management contract or compensatory plan or arrangement.
56
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
|
|
|
HALCÓN RESOURCES CORPORATION |
May 6, 2015 |
|
By: |
|
/s/ FLOYD C. WILSON
|
|
|
|
|
Name: |
|
Floyd C. Wilson |
|
|
|
|
Title: |
|
Chairman of the Board and Chief Executive Officer |
May 6, 2015 |
|
By: |
|
/s/ MARK J. MIZE
|
|
|
|
|
Name: |
|
Mark J. Mize |
|
|
|
|
Title: |
|
Executive Vice President, Chief Financial Officer and Treasurer |
May 6, 2015 |
|
By: |
|
/s/ JOSEPH S. RINANDO, III
|
|
|
|
|
Name: |
|
Joseph S. Rinando, III |
|
|
|
|
Title: |
|
Senior Vice President, Chief Accounting Officer and Controller |
57
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Exhibit 12.1
Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends
(In thousands, except ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Years Ended December 31, |
|
|
|
2015 |
|
2014 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(587,728 |
) |
$ |
(72,964 |
) |
$ |
314,880 |
|
$ |
(1,380,378 |
) |
$ |
(67,066 |
) |
$ |
5,399 |
|
$ |
3,412 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment (income) loss |
|
|
(6 |
) |
|
(831 |
) |
|
(617 |
) |
|
(97 |
) |
|
(373 |
) |
|
|
|
|
|
|
Interest capitalized |
|
|
(24,741 |
) |
|
(46,816 |
) |
|
(168,897 |
) |
|
(203,993 |
) |
|
(53,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, as adjusted |
|
$ |
(612,475 |
) |
$ |
(120,611 |
) |
$ |
145,366 |
|
$ |
(1,584,468 |
) |
$ |
(120,931 |
) |
$ |
5,399 |
|
$ |
3,412 |
|
Fixed charges |
|
|
84,405 |
|
|
79,275 |
|
|
320,403 |
|
|
262,046 |
|
|
86,589 |
|
|
17,808 |
|
|
23,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings |
|
$ |
(528,070 |
) |
$ |
(41,336 |
) |
$ |
465,769 |
|
$ |
(1,322,422 |
) |
$ |
(34,342 |
) |
$ |
23,207 |
|
$ |
26,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of finance costs |
|
$ |
83,740 |
|
$ |
78,654 |
|
$ |
317,732 |
|
$ |
259,159 |
|
$ |
85,372 |
|
$ |
17,373 |
|
$ |
22,655 |
|
Rental expense representative of interest factor |
|
|
665 |
|
|
621 |
|
|
2,671 |
|
|
2,887 |
|
|
1,217 |
|
|
435 |
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
$ |
84,405 |
|
$ |
79,275 |
|
$ |
320,403 |
|
$ |
262,046 |
|
$ |
86,589 |
|
$ |
17,808 |
|
$ |
23,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
|
(1) |
|
|
(3) |
|
1.5 |
|
|
|
(5) |
|
|
(6) |
|
1.3 |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
$ |
84,405 |
|
$ |
79,275 |
|
$ |
320,403 |
|
$ |
262,046 |
|
$ |
86,589 |
|
$ |
17,808 |
|
$ |
23,087 |
|
Pre-tax preferred dividend requirements |
|
|
13,554 |
|
|
4,959 |
|
|
32,902 |
|
|
12,132 |
|
|
110,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges plus preference dividends |
|
$ |
97,959 |
|
$ |
84,234 |
|
$ |
353,305 |
|
$ |
274,178 |
|
$ |
196,664 |
|
$ |
17,808 |
|
$ |
23,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to combined fixed charges and preference dividends |
|
|
|
(2) |
|
|
(4) |
|
1.3 |
|
|
|
(5) |
|
|
(7) |
|
1.3 |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Due to the Company's "Loss before income taxes, as adjusted" for the three months ended March 31, 2015, the ratio coverage was
less than 1:1. The Company must generate additional earnings of $612.5 million to achieve a coverage ratio of 1:1.
- (2)
- Due to the Company's "Loss before income taxes, as adjusted" for the three months ended March 31, 2015, the ratio coverage was
less than 1:1. The Company must generate additional earnings of $626.0 million to achieve a coverage ratio of 1:1.
- (3)
- Due to the Company's "Loss before income taxes, as adjusted" for the three months ended March 31, 2014, the ratio coverage was
less than 1:1. The Company must generate additional earnings of $120.6 million to achieve a coverage ratio of 1:1.
- (4)
- Due to the Company's "Loss before income taxes, as adjusted" for the three months ended March 31, 2014, the ratio coverage was
less than 1:1. The Company must generate additional earnings of $125.6 million to achieve a coverage ratio of 1:1.
- (5)
- Due to the Company's "Loss before income taxes, as adjusted" in 2013, the ratio coverage was less than 1:1. The Company must generate
additional earnings of $1.6 billion to achieve a coverage ratio of 1:1.
- (6)
- Due to the Company's "Loss before income taxes, as adjusted" in 2012, the ratio coverage was less than 1:1. The Company must generate
additional earnings of $120.9 million to achieve a coverage ratio of 1:1.
- (7)
- Due to the Company's "Loss before income taxes, as adjusted" in 2012, the ratio coverage was less than 1:1. The Company must generate
additional earnings of $231.0 million to achieve a coverage ratio of 1:1.
1
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Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends (In thousands, except ratios)
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Exhibit 31.1
CERTIFICATIONS FOR FORM 10-Q
I,
Floyd C. Wilson, certify that:
- 1.
- I
have reviewed this quarterly report on Form 10-Q of Halcón Resources Corporation;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
- (a)
- Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- (b)
- Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- (c)
- Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
- (d)
- Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
- (a)
- All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- (b)
- Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
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HALCÓN RESOURCES CORPORATION |
May 6, 2015 |
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By: |
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/s/ FLOYD C. WILSON
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Name: |
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Floyd C. Wilson |
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Title: |
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Chairman of the Board and Chief Executive Officer |
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CERTIFICATIONS FOR FORM 10-Q
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Exhibit 31.2
CERTIFICATIONS FOR FORM 10-Q
I,
Mark J. Mize, certify that:
- 1.
- I
have reviewed this quarterly report on Form 10-Q of Halcón Resources Corporation;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
- (a)
- Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- (b)
- Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- (c)
- Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
- (d)
- Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
- (a)
- All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- (b)
- Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
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HALCÓN RESOURCES CORPORATION |
May 6, 2015 |
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By: |
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/s/ MARK J. MIZE
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Name: |
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Mark J. Mize |
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Title: |
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Executive Vice President, Chief Financial Officer and Treasurer |
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CERTIFICATIONS FOR FORM 10-Q
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Exhibit 32
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code), Floyd C. Wilson, Chairman of the Board and Chief Executive Officer, and Mark J. Mize, Executive Vice President, Chief Financial Officer and
Treasurer, of Halcón Resources Corporation (the "Company"), each hereby certifies that, to the best of his knowledge:
- (1)
- The
Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2015 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- (2)
- The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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May 6, 2015 |
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/s/ FLOYD C. WILSON
Floyd C. Wilson Chairman of the Board and Chief Executive Officer |
May 6, 2015 |
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/s/ MARK J. MIZE
Mark J. Mize Executive Vice President, Chief Financial Officer and Treasurer |
This
certification accompanies this Form 10-Q and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the
liability of that Section.
A
signed original of this written statement required by Section 906 has been provided to, and will be retained by, the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
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