Which CEO challenged a reporter to arm wrestle?
Floyd Wilson made a $303 million Texas land deal last week that buys time and provides cash for the chief executive of Halcón Resources to do what he does best: spruce up an oil company and sell it off to the highest bidder.
Wilson sold less-desirable land in northern Texas, but retained lucrative land in eastern Texas. The move immediately lowered average operating costs and gave a $13 million after-tax boost to the $3 million cash reserves Halcón reported at the end of the second quarter.
The deal also enables Wilson and the company's 450 employees to focus on assets in the El Halcón and Woodbine shales in Texas, as well as in the Bakken in North Dakota and the Utica field in Ohio.
"We will be successful," Wilson said in an interview on Thursday over a glass of Diet Coke. "I've been doing this a long time. Nothing keeps me up at night."
Wall Street is anxiously waiting to see if Wilson can replicate the feat he pulled off in 2011 when he sold Petrohawk Energy to BHP Billiton for $12.1 billion, a 65 percent premium over the share price before the sale was announced.
Although his new company is only two years old, Wilson is already testing the patience, and wallets, of his investors. Halcón's stock price is down more than 30 percent this year following multiple stock offerings and concerns about a $2.71 billion debt load, which exceeds the company's market value.
Also dogging the Texas oilman are uncertainties about the potential of 142,000 acres in Ohio's Utica shale, a formation of oil- and natural gas-rich rock.
Last week's sale included old wells in northern Texas that require injection of water to extract oil. Their lease costs are five times higher than Halcón's wells in North Dakota's Bakken shale.
Wilson began his career as a completion engineer in 1970, overseeing equipment that extracts oil from a well site. He made his mark founding oil companies and then selling them to the likes of Chesapeake Energy and Plains Exploration & Production Inc.
Together with several former colleagues from Petrohawk, Wilson pooled $55 million to form Halcón in 2011. EnCap Investments LP, a private equity firm, together with a subsidiary of Liberty Mutual Holding, invested $550 million.
Analysts and investors said in interviews they believe Wilson, given his success at Petrohawk and other companies, can eventually build up Halcón, which has the same stock ticker Petrohawk used: "HK."
In 2012, Wilson forecast that a sale would take place by 2015. On Thursday, he modified that time frame, saying any potential sale could come within "a few years."
Short sellers hold 10 percent of Halcón, and have been pressuring the stock with bets that it will fall. The average U.S.-based energy company has only 1.7 percent of its shares held by short sellers, according to Thomson Reuters data.
"Halcón has a lot of land that is raw, for lack of a better word," said Morningstar analyst Rob Bellinski. "The company needs to prove the land has potential."
Rising oil production should assuage Wall Street's concerns, Wilson said. On Thursday the company announced it is now producing about 40,000 barrels of oil equivalent per day (boe/d), a 43 percent increase from the second quarter.
"We think we can grow at this kind of rate through next year and into 2015, while spending less than we've been spending," said Wilson.
Even with the substantial holdings by short sellers, the company's 17.6 price-to-earnings (P/E) ratio eclipses the peer median of 13.7, suggesting Wall Street expects earnings to grow.
Halcón has no plans to issue more shares or tack on debt, Wilson said. Standard & Poor's rates the company's current bonds as junk, even though most are not due until after 2020.
"Our debt level is not too high, but it is at the upper end range of our comfort level," Wilson said.
The Utica and the Bakken
Halcón's 142,000 Utica acres in Ohio are in a remote, northwest part of the shale formation, far from where larger rivals Chesapeake and Gulfport Energy are focusing. The remote location has given pause to some on Wall Street, who are unsure of its full potential and how it to value it.
Halcón, Spanish for "hawk," produces 90 boe/d in the Utica from one test well, an insignificant amount. Yet Wilson has touted that well, the oil-rich Kibler 1-H, and plans to develop a hive of new wells around it.
Wilson has advised investors to be patient.
"In a play like the Utica, once we have the infrastructure in place, we'll be going for 50 years," said Wilson.
Wall Street has become preoccupied with Halcón's Utica holdings and nearly ignored operations in North Dakota's Bakken oil fields, which produce roughly half of its oil, analysts said.
Forty-six percent of Halcón's $1.38 billion capex budget is going to the 150,000 acres in the Bakken, compared with 10 percent for the Utica, pointing to where the company sees its workhorse assets.
Morningstar analyst Bellinski estimated that the company's Bakken portfolio is now worth $4 billion, a 60 percent increase from the $2.5 billion spent to acquire it.
Most of the company's 149 Bakken wells also have the potential to add as many as 12 additional wells at each location, which would sharply increase production.
That's not necessarily a project Wilson has to take on himself. He just has to prove the long-term potential to any buyer. Yet at 66, he still exudes the spirit of a wildcatter.
Challenging this reporter to an arm-wrestling contest, he declared: "I would beat you."
— By Reuters
This story has been updated to reflect the year of PetroHawk's sale.