Apollo Global Management LLC will invest up to $400 million in a subsidiary of Houston-based Halcón Resources Corp. that will own all of Halcón’s 314,000 acres in the Tuscaloosa Marine Shale.
The partnership will help Halcón develop its acreage in the oil-rich formation, which stretches across the middle of Louisiana and into Mississippi.
Apollo will contribute $150 million for 150,000 preferred shares of the subsidiary, HK TMS LLC. Apollo has the option to buy 250,000 additional shares. The preferred shares pay quarterly cash dividends of 8 percent per year.
Apollo also will receive up to 4 percent overriding royalty interest from 75 wells to be drilled and completed on the Tuscaloosa acreage. An override gives Apollo a share of the proceeds from the oil and gas sold from those wells.
Kirk Barrell, president of Amelia Resources, said Apollo’s arrangement with Halcón is unusual as well as complex.
“It’s hard to calculate a dollar figure/acre value on the deal,” Barrell said.
But Apollo’s participation is an endorsement by a significant investment capital group and also indicates a long-term commitment to the Tuscaloosa on Halcón’s part, Barrell said.
Halcón has already announced that it plans to drill 10 to 12 wells in the formation in 2014 and to participate in 15 to 20 wells that other companies will drill.
Halcón also announced that its Horseshoe Hill 11-22-H-1 well in Wilkinson County, Mississippi, had an initial daily production rate of 1,208 barrels of oil and 1.1 million cubic feet of natural gas. The company’s analysis of the gas composition shows the well could produce an additional 212 barrels of natural gas liquids per day, bringing the well’s daily production to the equivalent of 1,548 barrels of oil.
Barrell said the well’s gas-to-oil ratio was higher than expected, but a higher ratio is good.
The gas helps lift the oil out of the well, which means the well flows better and ultimately produces a greater amount of oil and gas, Barrell said.
Halcón’s stock fell 18 cents Monday, closing at $6.22 per share, but has risen sharply in the last two months. Last week, Wunderlich Securities raised its rating on the stock, with analyst Jason Wangler writing that “Halcón’s initial well results, and the potential for a joint venture in the sizable asset could really begin to show the value in the play while also allowing Halcón to boost its production and liquidity positions nicely.”
The well counts in the deal show the scale of the development that could come. Fewer than 50 wells have been drilled so far in Amite and Wilkinson counties in Mississippi and West Feliciana, East Feliciana, St. Helena and Tangipahoa parishes in Louisiana. Halcón has leases on 241,000 acres in that region, as well as on almost 73,000 acres west of the Mississippi River where operators have so far drilled few wells.
Halcón also said Monday it plans to develop an oil-handling terminal at Natchez. Chandler Russ, executive director of development group Natchez Inc., said the Adams County Board of Supervisors and the Natchez-Adams Port Authority voted last week to sign options to sell 50 acres of land to Halcón. He declined to name the purchase price but said it would be “fair market value.” Russ said Halcón has committed to investing at last $6 million in tanks and pipes and hiring at least 25 workers.
Houston-based Genesis Energy LP already has an oil terminal at Natchez, which has focused on transferring crude oil shipped by rail from Canada to barges that travel to refineries.
Advocate business writer Ted Griggs and Associated Press writer Jeff Amy contributed to this report.
Follow Ted Griggs on Twitter @tedgriggsbr.