Halcon Resources (HK) Edges Up on New Analyst Coverage

Michael Teague  |

Small-cap oil & gas driller and explorer Halcon Resources Corp. (HK) was trading around 3 percent higher on heavier than average volume on Friday after the research firm MLV & Co. initiated coverage of the company’s stock with a rating of “hold.”

The coverage comes after three consecutive downgrades since late August, as the company’s quest to become one of the major players in the US “shale boom”, has struggled under a mound of debt, and shares have lost nearly half of their price in 2013.

Much of this has resulted from empty promises about operations in the Utica Shale. Prior to its recently released earnings report for the third quarter, the company had been promoting its 9 wells in the Utica play as a game changer of sorts. But the results for the period indicated that production estimates had been overstated, as skepticism about the Utica potential as the next big shale play becomes ever-more justified.

There is reason to believe that today’s bump is only a temporary reprieve, or even a prelude to more selling-off. The company is a long ways away from its 52-week high of $8.28, and despite sales of conventional assets in recent months, its debt burdens will continue to weigh heavily in 2014, just as its debt/equity ratio of 1.62 will scare off prospective investors and attract the usual short-sellers and speculators.

Furthermore, the company’s placement in a very profitable area of the Bakken Shale is far too miniscule to generate the kind of revenue needed to make a go of Utica, much less to break ground on new wells elsewhere without adding even more debt to the balance sheet.

Ahead of the closing bell, shares for Halcon were up $0.11 to $4.18.

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