Halcon Resources Corp (HK)’s Bakken Investments Pay off Big Time

Halcon Resources Corp (NYSE:HK) recently provided investors with an important operational update detailing its drilling progress. This is a big year for the company as its investing heavily to grow its production which is being fueled by $1.2 billion in planned capital spending. The biggest news from the update is what the company was saying about its investments in the Bakken. Let’s take a closer look at how the company is doing so far this year in that key play.

Bakken’s big well

The Bakken is a big part of Halcon Resources Corp (NYSE:HK)’s plans as it’s spending nearly 40% of its capital on the play this year. It has eight rigs running right now while also working hard to implement drilling and completion modifications to improve its performance in the play. Recent results have been impressive to say the least.

The company’s latest well produced an average initial production rate of 3,060 barrels of oil equivalent per day, or Boe/d. Overall, its three most recently drilled and completed wells produced an average initial production rate of 2,648 Boe/d which represented a 38% improvement over all its previous wells drilled in the first quarter using its previous completion method.

In addition to the wells targeting the Bakken formation, the company also saw solid production from its last four wells drilled that were targeting the Three Forks formation. Those wells had an average initial production rate of 2,094 Boe/d, which represented a 77% improvement over all the other Three Forks wells the company drilled last quarter. Halcon Resources Corp (NYSE:HK)’s investments in the Bakken, as well as its work on its well designs and completions, have clearly paid off for the company.

Keeping well costs down

Looking ahead, the company expects these new designs to increase production as well as increase the overall estimated economic recovery of its wells. What’s really important to see is that Halcon Resources Corp (NYSE:HK) is producing these exceptional results even as well costs are coming down as it focuses on cost. The company expects to see its well costs drop by 10% this year to about $9 million per well.

I’ve mentioned this before, but it bears mentioning again. Well costs are an important area to watch for Bakken operators. It costs Kodiak Oil & Gas Corp (USA) (NYSE:KOG) about $10 million per well while Continental Resources, Inc. (NYSE:CLR)‘  wells costs are about $8.3 million per well. That means Continental can drill 17% more wells than Kodiak Oil & Gas Corp (USA) (NYSE:KOG) for the same amount of money. Overall, the industry is really honing in on the right formula to get costs down and increase returns, though some companies are doing a much better job and therefore reaping higher returns.

Halcon Resources Corp (NYSE:HK)’s plan is to drop its Bakken well costs to the $9 million range by the end of the year. This will really help it improve its overall rate of return on the play. Further, it also means that the company can drill a couple extra wells per year with the same amount of capital, which will add up significantly over time. Halcon investors have to like what they are seeing in the company’s ability to cut its well costs while simultaneously improving its operations.