Halcón to pull back from Tuscaloosa Marine Shale

As Halcón Resources Corp. dials back drilling plans in the wake of plunging oil prices, the Tuscaloosa Marine Shale will bear the brunt of the spending cuts, the company said Tuesday.

CEO Floyd Wilson told investors in a call Tuesday morning that while he remains confident that the play in Louisiana and Mississippi has the potential to gush lots of oil, it’s too expensive to justify drilling while crude continues to fall.

“Right now, with oil prices where they are and service costs where they are, we’ve elected to slow down there,” he said.

Before oil prices plunged below $80, the Houston-based independent oil and gas company had planned to expand its 2015 drilling program in the Tuscaloosa Marine Shale from two to four rigs.

Halcón now plans to pull its two rigs out of the shale and focus solely on its two key regions — the Williston Basin in the Bakken/Three Forks shale and the El Halcón in the East Texas Eagle Ford region.

The company will pull back on the number of rigs it plans to operate next year from 11 to six, down from the eight Halcón is currently operating. Those six rigs will be divided between its two star plays, Wilson said.

The decision to pull back from the Tuscaloosa underscores the wide disparity between the economics of different shale plays. Drilling in the core acreage of older, more established plays tends to remain profitable even at very low crude prices while newly developed regions and riskier plays require higher oil prices to remain economic.

In the core of the Eagle Ford Shale in South Texas, the domestic benchmark price would have to plunge as low as $30 to $40 a barrel before companies no longer found it economically feasible to drill there, according to a recent report by Tudor Pickering Holt.

The Tuscaloosa Marine Shale was the least economic of the basins studied by Tudor Pickering Holt, requiring a West Texas Intermediate price between $70 and $90 per barrel.

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Still, Wilson said Halcón remains confident about its acreage in the Tuscaloosa. The company plans to continue participating in wells in which it has a stake but doesn’t operate and will assess its drilling plans as oil prices dictate.

“We’re really in a great position to ease back, watch prices, watch costs, review data and set a course,” he said.

Halcón announced Monday that it planned to cut rigs and slash spending as the company struggles against the double punch of falling crude and high, and in some cases rising, service costs.

The company posted a $186.9 million profit in the third quarter, compared to a $860 million loss last during the same time last year, thanks in part to surging production and more efficient drilling and completions.

Halcón plans to slash its drilling and completion budget by $300 to $400 million next year, sending some of the strongest signals yet that slumping oil prices are taking their toll on small independent exploration and production companies.

The company had originally planned to spend $950 million in 2014, but a private equity firm that joined Halcón as a partner in the Tuscaloosa Marine Shale earlier this year chipped in an additional $150 million, boosting the budget to above $1.1 billion.

Halcón now says it will spend $750 or $800 million on drilling next year. Despite the spending cuts, Halcón expects to pump 15 to 20 percent more oil next year, thanks to dramatic reductions in well costs and improvements in overall results.