With crude oil prices falling from $54 per barrel to the $40s, we wanted to find a quality oil-related stock that is selling near its low. Halcón Resources (HK) meets those criteria, observes Bill Mathews, editor of The Cheap Investor.
The independent energy company holds interests in 116,000 net acres, as well as 300 producing wells in the Bakken/Three Forks formations in North Dakota, and 20,901 net acres in the Southern Delaware Basin in Pecos and Reeves Counties, Texas.
As of December 31, 2016, it had estimated proved reserves of approximately 148.6 million barrels of oil equivalent comprising 119.6 million barrels of crude oil, 15.6 million barrels of natural gas liquids, and 80.2 billion cubic feet of natural gas.
The company weathered a couple of tough years and filed for reorganization under Chapter 11 of the bankruptcy code in July 2016. It was a pre-packaged bankruptcy, in which the Company had creditor support to reorganize.
Halcón exited bankruptcy on September 9, 2016 and started trading on the NYSE on September 12, after a 1 for 34 reverse stock split. The stock closed at $10.85 on September 12 and has been falling ever since.
You may be shaking your head, muttering, "Why are you recommending this stock?" We are doing so because the Company has $62 million ($0.68 per share) in cash and a book value of $7.66 per share.
It has also greatly increased its revenues and earnings. There are a total of 112 million shares outstanding, and 149 institutions own about 79% of the float. For the quarter ended March 31, 2017, institutions purchased 60 million more shares than they sold, at prices significantly higher than $3.79.
Negative factors are the price has been falling, and it has a large debt of $941 million. However, large debt is common for oil drilling companies.
Overall, Halcón Resources could be an interesting speculation, as the company has completely restructured. The stock has fallen 60% from its price after the reverse stock split.
Part of the reason for the price plunge is crude oil prices have fallen the past four months, and we think the stock price will continue to follow the commodity price.
When the price of crude oil goes up, so should Halcón. If the company continues to grow its revenues and earnings, the stock has the potential to do very well over the next couple of years.
