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Halcón Resources pays $1.45B to add shale assets

by Claire Poole In Houston  |  Published October 23, 2012 at 10:23 AM
Houston oil and gas explorer Halcón Resources Corp., led by the former Petrohawk Energy Corp. CEO Floyd Wilson, said Monday it agreed to buy producing and undeveloped oil and gas assets in North Dakota's Williston Basin from Petro-Hunt LLC, run by members of the wealthy Hunt family of Dallas, for $1.45 billion.

The price, which was privately negotiated, includes $700 million in cash and $750 million in equity. The equity initially will be issued as preferred stock that will convert into common stock at $7.45 per share after an increase in Halcón's authorized common shares and regulatory approvals.

Halcón also said it agreed to sell $300 million in stock to the Canada Pension Plan Investment Board for $7.16 per share if the purchase closes. In addition, Halcón secured financing commitments from Wells Fargo & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Barclays plc for a $500 million bridge loan commitment and a boost of its senior secured revolving credit facility to $850 million. Halcón expects completing the deal in December.

Global Hunter Securities Inc. analyst Mike Kelly wrote in a report Monday that the price is "reasonable" at $138,095 per flowing barrel of oil equivalent production per day, $34.20 per barrel of oil equivalent for proven reserves and $17,900 per acre including the production's value and $6,888 per acre backing out $85,000 per flowing barrel of oil equivalent production per day.

"We're not surprised by this; HK [Halcón] has hinted it wanted to get bigger in the Bakken and that it would likely take a deal to get it done. It adds a more mature and consistent oil basin, which compliments its portfolio of exciting yet untested early inning plays," Kelly wrote, noting the Utica, Woodbine and Tuscaloosa Marine Shale areas.

Imperial Capital LLC analyst Gabriele Sorbara wrote in a report that the move is a positive read-through to other Bakken players as he continues to see the basin as a focus for M&A activity along with the Permian Basin and Eagle Ford Shale. Of the publicly traded companies, he believes Kodiak Oil & Gas, Oasis Petroleum and Triangle Petroleum are the most attractive takeout candidates "and we would own these names for the M&A premium in the Bakken," he wrote.

The Bakken has been a hotbed of deal activity with high oil prices and new technologies that can get the commodity out. Last month, for example, Denbury Resources Inc. agreed to sell its Bakken assets in North Dakota and Montana to Exxon Mobil Corp. and its unit XTO Energy Inc. for $1.6 billion in cash plus Exxon Mobil's operating interests in Texas' Webster Field and Wyoming's Hartzog Draw Field. In September, Helis Oil & Gas Co. LLC, Black Hills Corp., Unit Corp. and Sundance Energy Australia sold mostly oil properties in the area to QEP Resources Inc. for $1.38 billion.

Deal fever in the area has also seeped into the oil services business, with Gibson Energy Inc.'s $445 million purchase of Wellspring Capital Management LLC-backed Omni Energy Services, John Wood Group plc's $135 million acquisition of Mitchell's Oil Field Services Inc., Waste Connections Inc.'s $1.3 billion purchase of R360 Environmental Solutions Inc. and Heckmann Corp.'s $531 million acquisition of Badlands Energy LLC, also known as Power Fuels, all in the last two months. The four targets have significant operations in the region.

In April of last year Petro-Hunt hired Energy Spectrum Advisors Inc. to sell 97,500 net acres of oil properties in the Bakken Shale/Three Forks play in the Rockies' Williston Basin. In October, Energy Spectrum said it completed the sale of 84,000 net acres but wouldn't comment on the remaining acreage.

Wilson formed Halcón after he sold Petrohawk last year to BHP Billiton Ltd. for $12 billion. Earlier this month, he said he was willing to acquire or trade for tracts around his 55,000 acres in the Bakken with hopes of building up to a 125,000-acre position, which some analysts thought pointed to a coming corporate transaction.

The properties being sold include 81,000 net acres, 95% of which are operated, in the Bakken and Three Forks formations primarily in Williams, Mountrail, McKenzie and Dunn counties, North Dakota. They produce 10,500 barrels of oil equivalent per day and have proved reserves of 42.4 million barrels of oil equivalent, 88% of which is oil, with an estimated resource potential of greater than 100 million barrels of oil equivalent. There are five operated drilling rigs running on the properties.

On a pro forma basis, Halcón said it has 135,000 net acres in the Williston Basin with average net production of 26,500 barrels of oil equivalent per day.

Wilson said in a statement that the acquisition is immediately accretive on all measures and consistent with its strategy of building an oil company with a multiyear drilling inventory in several liquids-rich basins.

"The assets we are acquiring are located in what is arguably the most attractive oil producing basin in the lower 48, on a risk adjusted basis," he said. "This transaction improves our leverage profile and will effectively increase our estimated proved reserves on a pro forma basis by over 58% to approximately 115 million barrels of oil equivalent, 79% of which is liquids."

Petro-Hunt president Bruce Hunt said in a statement that the company is pleased to become a significant Halcón shareholder through the transaction. "We are confident they will do a great job of developing these solid assets," he said.

Petro-Hunt will continue to operate production of 24,000 barrels of oil equivalent per day and develop its 600,000 plus acres of oil and gas leasehold in the Williston Basin "with the full attention of our existing staff," Hunt noted.

CPPIB vice president R. Scott Lawrence said in a statement that the investment aligns with its strategy to provide strategic, long-term capital to well-positioned companies like Halcón and work with management to help create value.

Mitchell Energy Advisors' Michael Mitchell assisted Halcón. Thompson Knight LLP provided Halcón with legal advice, sending a team that included William Heller, Harry Beaudry, Hunter White, Roger Aksamit, Lucas Lavoy and Kristen Ford. John Broomes at the Hinkle Law Firm also counseled Halcón. Halcón's internal legal team included David Elkouri, Jason Payne and Kason Kerr.

Petro-Hunt didn't use an outside financial adviser but tapped Fulbright & Jaworkski LLP for legal help. Glen Hettinger and Scarlet McNellie handled the deal for the firm. Fred Hosey is Petro-Hunt's general counsel.

Tudor, Pickering, Holt & Co. Securities Inc.'s John Kennedy, Ward Polzin and Tim Sulser advised the Canada Pension Plan Investment Board. Vinson & Elkins LLP counseled CPPIB, including Kathryn Wilson, Keith Fullenweider, James Brown, John Grand and Jenarae Garland.

Tags: Bakken | Barclays plc | BHP Billiton Ltd. | Bruce Hunt | Canada Pension Plan Investment Board | Energy Spectrum Advisors Inc. | Floyd Wilson | Fred Hosey | Fulbright & Jaworkski LLP | Goldman Sachs Group Inc. | Halcón Resources Corp. | Hinkle Law Firm | JPMorgan Chase & Co. | Kodiak Oil & Gas | Mitchell Energy Advisors | Oasis Petroleum | Petro-Hunt LLC | Petrohawk Energy Corp. | R. Scott Lawrence | Thompson Knight LLP | Triangle Petroleum | Tudor Pickering Holt & Co. Securities Inc. | Tuscaloosa Marine | Utica | Vinson & Elkins LLP | Wells Fargo & Co. | Williston Basin | Woodbine

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Claire Poole

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