SEC Company Response from BATTALION OIL CORP (BATL) (CIK 0001282648) (BATL) — Jan 21, 2014
BATTALION OIL CORP (BATL) (CIK 0001282648)
Date: Jan. 21, 2014 · CIK: 0001282648 · Accession: 0001104659-14-003188
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-35467
Referenced dates: December 30, 2013
Letter
Via EDGAR Attention: Michael Fay, Division of Corporation Finance United States Securities and Exchange Commission Filed November 4, 2013 Form 8-K Filed November 4, 2013 File No. 001-35467
Dear Mr. Skinner:
This letter responds to the staff’s comment letter dated December 30, 2013, regarding Halcón Resources Corporation’s (the “Company”) Form 10-K for the Fiscal Year ended December 31, 2012, filed February 28, 2013, Form 10-Q for the Quarterly Period ended September 30, 2013, filed November 4, 2013, and Form 8-K filed November 4, 2013 (File No. 001-35467). The Company’s responses to the staff’s comments are set forth below.
Form 10-K for the Fiscal Year ended December 31, 2012
Business, page 7
Oil and Natural Gas Operations, page 18
SEC Comment
1. You disclose that a significant percentage of your net undeveloped acreage will expire over the next three years. Please tell us the extent to which you have assigned any proved undeveloped reserves as of December 31, 2012 to locations which are currently scheduled to be drilled after lease expiration. If your undeveloped reserves include any such locations, please refer to Rule 4-10(a)(26) of Regulation S-X and tell us the steps you will take regarding an extension of your legal right to these leases; otherwise, please remove these undeveloped reserves as proved reserves in your next filing.
Response
At December 31, 2012, approximately 206,106 net acres, or 29%, of our undeveloped acreage was due to expire by December 31, 2015. Of that, approximately 45,168 net acres were associated with property divestments made in 2013. After taking into account dispositions, approximately 1,830 net acres, or 0.26% of total undeveloped acres were associated with proved undeveloped locations, representing 6.2 MMBoe of proved undeveloped reserves, or 6% of total proved reserves at December 31, 2012. We are continually engaged in a combination of drilling and development and discussions with mineral lessors for lease extensions, renewals, new drilling and development units and new leases to address the expiration of undeveloped acreage that occurs in the normal course of our business and, therefore, expect to be able to develop these reserves, or extend or renew these leases, prior to expiration.
SEC Comment
2. You state on page 20 and elsewhere on page 135 that as of December 31, 2012 “more than 97% of our PUD reserves are less than five years old.” For purposes of determining the five year period, Item 1203(d) of Regulation S-K identifies the initial disclosure and date thereof as the starting reference date.
· Please tell us and also revise your statement to clarify the extent to which any of your proved undeveloped volumes disclosed as of December 31, 2012 will take more than five years since initial disclosure to develop.
· If any of your proved undeveloped reserves will take more than five years to develop since initial disclosure, please refer to question 131.03 in the SEC Compliance and Disclosure Interpretations (C&DIs), issued October 26, 2009 and updated May 16, 2013, and advise us what specific circumstances justify a period longer than five years; otherwise, please remove these undeveloped reserves as proved reserves in your next filing. You may find the C&DIs on our website at the following address: http://www.sec.gov/divisions/corpfin/guidance/oilandgas-interp.htm.
Response
The proved undeveloped reserves disclosed as of December 31, 2012 that were scheduled to be developed more than five years beyond the date of initial disclosure were subsequently divested and therefore will not be included as proved undeveloped reserves in the Company’s 2013 reserve report.
SEC Comment
3. Please expand your disclosure on page 20 and elsewhere on page 135 to present the total dollar amounts of capital expenditures made during the year to convert proved undeveloped reserves to proved developed reserves. Please refer to Item 1203(c) of Regulation S-K.
Response
During 2012, approximately $254.5 million in capital expenditures went toward development of proved undeveloped reserves, which includes drilling, completion and other facility costs associated with developing proved undeveloped wells. These capital expenditures were included within the Cost Incurred table in the Company’s Annual Report on Form 10-K filing, but in future annual reports the Company will also include this information in the disclosure regarding the changes in proved undeveloped reserves in conjunction with the reserve figures.
SEC Comment
4. Please expand your disclosure on page 20 and elsewhere on page 135 relating to the material changes in proved undeveloped reserves that occurred during 2012 to include an explanation for the changes attributable to revisions and extensions and discoveries. Please refer to Item 1203(b) of Regulation S-K.
Response
The extensions and discoveries of 8,656 MBoe were associated with the addition of 89 proved undeveloped locations primarily in the Bakken/Three Forks and Woodbine/Eagle Ford development areas where the 2012 drilling program resulted in the expansion of the known productive limits in these fields. The upward revisions of 2,879 MBoe were entirely from the Company’s resource areas of the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas and are attributable to better well performance in the areas containing existing proved undeveloped locations. In future filings, we will include an explanation of material changes attributable to revisions, extensions and discoveries.
Consolidated Financial Statements and Supplementary Data, page 69
Supplemental Oil and Gas Information (Unaudited), page 132
Oil and Natural Gas Reserves, page 132
SEC Comment
5. With a view to expand your disclosure under FASB ASC paragraph 932-235-50-5 and Item 1203(b) of Regulation S-K, please explain to us the causes for the downward revision of the previous estimates in proved reserves as of December 31, 2012 while as of the same date you disclose a significant upward revision of the previous estimates in proved undeveloped reserves.
Response
The negative revision of previous estimates of total proved reserves of 1,470 Mboe was primarily associated with the Company’s non-core areas and due to lower gas prices, well performance changes and expiring proved undeveloped locations, which is disclosed on page 134 of the Company’s Annual Report on Form 10-K. As noted in the response to comment 4 above, the upward revision in proved undeveloped reserves of 2,879 MBoe was entirely from the Company’s core resource areas of the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas and is attributable to better well performance in the areas containing existing proved undeveloped locations.
6. You disclose significant additions in proved reserves as of December 31, 2012 relating to extensions and discoveries and have stated that “reliable technologies were used to determine areas where proved undeveloped (PUD) locations were more than one offset away from a producing well.” With a view to expand the disclosure of the material additions in your reserves as required under Item 1202(a)(6) of Regulation S-K, please quantify for us the number of proved undeveloped locations and associated proved net reserves added that are more than one offset away from an existing proved producing well. Also tell us if any of the wells drilled to date that were more than one offset away from a producing well at the time of their drilling were not determined to be economically producible.
Response
During 2012, changes in proved undeveloped reserves included the addition of 11 proved undeveloped locations, amounting to approximately 2,046 Mboe, located more than one offset away from an existing producing well. These proved undeveloped additions are predominately located in the Company’s core resource areas, namely the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas, are located within the Company’s planned development areas and satisfy all requirements for categorization as proved reserves.
Through December 2013, the Company drilled a total of 34 wells in resource areas that were located more than one offset away from a producing well, and none of the wells were determined to be not economically producible.
Form 10-Q for the Quarterly Period ended September 30, 2013
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 41
Capital Resources and Liquidity, page 43
SEC Comment
7. We note, among other items, that (i) your Senior Credit Agreement and your senior unsecured debt indentures contain a number of financial covenants, (ii) your Senior Credit Agreement was amended a number of times during 2013 and that some of these amendments appear related to the financial covenants, (iii) your risk factor on page 59 refers to possible acceleration, cross- acceleration, and cross-default provisions, (iv) debt limitation covenants contained in your indentures have reduced the effective borrowing base in the Senior Credit Agreement from $850 million to $710 million, and (v) you have recorded a $909 million full cost ceiling impairment, partially attributable to a reallocation of capital and related transfer of unevaluated property costs to the full cost pool.
Please revise your disclosure to discuss in further detail the debt limitation covenants and the consequences of the limitations to your financial condition and operating performance. Refer to FR-72, Section IV (C): Debt Instruments, Guarantees and Related Covenants, for guidance. In addition, please explain to us whether you are reasonably likely to be in breach of any material financial covenants. If breach is reasonably likely, please revise your disclosure consistent with the guidance in FR-72, Section IV (C). Lastly, please revise your MD&A to discuss any known material trends or uncertainties related to your use of cash resources. Refer to FR-72, Section IV (D): Cash Management, for guidance.
Response
As noted under the heading “Capital Resources and Liquidity” in Halcón’s Form 10-K and Form 10-Q, the Company strives to maintain financial flexibility while pursuing its aggressive drilling program and acquisitions. Maintaining financial flexibility necessarily encompasses ensuring sufficient liquidity to fund the Company’s anticipated expenditures, as well as securing additional funding in the event acquisition opportunities arise or unanticipated expenditures otherwise occur. In light of this, the Company continually monitors its compliance with the financial covenants in its debt instruments, evaluates the impact that its drilling, acquisition and divestiture activities will have on its compliance with these covenants, and assesses the adequacy of its current liquidity and access to financing. When the Company has anticipated that it might have temporary difficulty
maintaining compliance with, or might be unduly limited by one or more such covenants, the Company has sought and successfully obtained waivers or amendments to these covenants to provide it with additional flexibility. With respect to the periods covered by the referenced Form 10-K and Form 10-Q, the Company was not, and did not believe it was reasonably likely to be, in breach of any material financial covenants applicable to it. The Company acknowledges the guidance in FR-72, Section IV(C) and will include disclosure consistent with such guidance in future filings in the event that the Company believes that a breach of a material financial covenant is reasonably likely.
Please note that the borrowing base under the Company’s Senior Credit Agreement at September 30, 2013, was reduced to $710 million (from $810 million) as a consequence of the Company’s issuance of $400 million in new senior notes on August 13, 2013. The issuance of the senior notes and the reduction in the borrowing base were reported in a Form 8-K filed by the Company on August 13, 2013. The reduction in the borrowing base was automatic and results from a provision of the Senior Credit Agreement that provides for automatic reductions in the Company’s borrowing base of $0.25 for each $1.00 in principal amount of senior notes issued by the Company. This provision of the Senior Credit Agreement is disclosed (among other places) in “Note 6 — Long-Term Debt, Senior Revolving Credit Facility” to the Company’s financial statements included in the Company’s Form 10-Q for the quarter ended September 30, 2013. As noted in the Company’s Form 10-Q for the quarter ended June 30, 2013, the borrowing base had been previously reduced from $850 million to $810 million on July 19, 2013, in connection with the Company’s disposition of certain producing properties and related assets located in the Eagle Ford shale in Texas. Subsequently, on October 31, 2013, the borrowing base under the Senior Credit Agreement was increased by the Company’s lenders to the original $850 million. Also, please note that full cost ceiling test impairment charges do not directly impact compliance with the financial covenants under the Company’s debt agreements.
Nevertheless, it is true that the debt limitation covenants contained in the indentures governing the Company’s senior notes may limit the Company’s incurrence of indebtedness, including its ability to borrow up to the full amount of its borrowing base under its Senior Credit Agreement. The Company believes that the disclosures of the amendments to the covenants under its Senior Credit Agreement appearing in MD&A under the heading “Recent Developments — Amendments to the Senior Credit Agreement and Borrowing Base”, and the second paragraph under the heading “Capital Resources and Liquidity” describe in material respects the debt limitation covenants applicable to the Company, including the covenants under its indentures that may limit access to the full amount of its borrowing base under its Senior Credit Agreement. The potential consequences of these limitations are discussed in the Risk Factors sections included in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, principally within the risk factors entitled “We have substantial indebtedness and may incur substantially more debt. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business”, “We may have difficulty financing our planned capital expenditures which could adversely affect our growth”, and
“We are subject to various contractual limitations that affect the discretion of our management in operating our business”. Based upon the staff’s comment, we understand that it may be helpful to readers if we include in discussions of the Company’s Liquidity and Capital Resources additional disclosure highlighting the consequences of these limitations. Accordingly, in future filings we propose to add language drawn from the disclosures included in our Annual Report on Form 10-K referenced above, to the effect that:
“Our ability to meet our debt covenants will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. For examp
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CORRESP 1 filename1.htm January 20, 2014 Via EDGAR Attention: Michael Fay, Division of Corporation Finance Brad Skinner Senior Assistant Chief Accountant United States Securities and Exchange Commission 100 F. Street, N.E. Washington, D.C. 20549 Re: Halcon Resources Corporation Form 10-K for the Fiscal Year ended December 31, 2012 Filed February 28, 2013 Form 10-Q for the Quarterly Period ended September 30, 2013 Filed November 4, 2013 Form 8-K Filed November 4, 2013 File No. 001-35467 Dear Mr. Skinner: This letter responds to the staff’s comment letter dated December 30, 2013, regarding Halcón Resources Corporation’s (the “Company”) Form 10-K for the Fiscal Year ended December 31, 2012, filed February 28, 2013, Form 10-Q for the Quarterly Period ended September 30, 2013, filed November 4, 2013, and Form 8-K filed November 4, 2013 (File No. 001-35467). The Company’s responses to the staff’s comments are set forth below. Form 10-K for the Fiscal Year ended December 31, 2012 Business, page 7 Oil and Natural Gas Operations, page 18 SEC Comment 1. You disclose that a significant percentage of your net undeveloped acreage will expire over the next three years. Please tell us the extent to which you have assigned any proved undeveloped reserves as of December 31, 2012 to locations which are currently scheduled to be drilled after lease expiration. If your undeveloped reserves include any such locations, please refer to Rule 4-10(a)(26) of Regulation S-X and tell us the steps you will take regarding an extension of your legal right to these leases; otherwise, please remove these undeveloped reserves as proved reserves in your next filing. Response At December 31, 2012, approximately 206,106 net acres, or 29%, of our undeveloped acreage was due to expire by December 31, 2015. Of that, approximately 45,168 net acres were associated with property divestments made in 2013. After taking into account dispositions, approximately 1,830 net acres, or 0.26% of total undeveloped acres were associated with proved undeveloped locations, representing 6.2 MMBoe of proved undeveloped reserves, or 6% of total proved reserves at December 31, 2012. We are continually engaged in a combination of drilling and development and discussions with mineral lessors for lease extensions, renewals, new drilling and development units and new leases to address the expiration of undeveloped acreage that occurs in the normal course of our business and, therefore, expect to be able to develop these reserves, or extend or renew these leases, prior to expiration. SEC Comment 2. You state on page 20 and elsewhere on page 135 that as of December 31, 2012 “more than 97% of our PUD reserves are less than five years old.” For purposes of determining the five year period, Item 1203(d) of Regulation S-K identifies the initial disclosure and date thereof as the starting reference date. · Please tell us and also revise your statement to clarify the extent to which any of your proved undeveloped volumes disclosed as of December 31, 2012 will take more than five years since initial disclosure to develop. · If any of your proved undeveloped reserves will take more than five years to develop since initial disclosure, please refer to question 131.03 in the SEC Compliance and Disclosure Interpretations (C&DIs), issued October 26, 2009 and updated May 16, 2013, and advise us what specific circumstances justify a period longer than five years; otherwise, please remove these undeveloped reserves as proved reserves in your next filing. You may find the C&DIs on our website at the following address: http://www.sec.gov/divisions/corpfin/guidance/oilandgas-interp.htm. 2 Response The proved undeveloped reserves disclosed as of December 31, 2012 that were scheduled to be developed more than five years beyond the date of initial disclosure were subsequently divested and therefore will not be included as proved undeveloped reserves in the Company’s 2013 reserve report. SEC Comment 3. Please expand your disclosure on page 20 and elsewhere on page 135 to present the total dollar amounts of capital expenditures made during the year to convert proved undeveloped reserves to proved developed reserves. Please refer to Item 1203(c) of Regulation S-K. Response During 2012, approximately $254.5 million in capital expenditures went toward development of proved undeveloped reserves, which includes drilling, completion and other facility costs associated with developing proved undeveloped wells. These capital expenditures were included within the Cost Incurred table in the Company’s Annual Report on Form 10-K filing, but in future annual reports the Company will also include this information in the disclosure regarding the changes in proved undeveloped reserves in conjunction with the reserve figures. SEC Comment 4. Please expand your disclosure on page 20 and elsewhere on page 135 relating to the material changes in proved undeveloped reserves that occurred during 2012 to include an explanation for the changes attributable to revisions and extensions and discoveries. Please refer to Item 1203(b) of Regulation S-K. Response The extensions and discoveries of 8,656 MBoe were associated with the addition of 89 proved undeveloped locations primarily in the Bakken/Three Forks and Woodbine/Eagle Ford development areas where the 2012 drilling program resulted in the expansion of the known productive limits in these fields. The upward revisions of 2,879 MBoe were entirely from the Company’s resource areas of the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas and are attributable to better well performance in the areas containing existing proved undeveloped locations. In future filings, we will include an explanation of material changes attributable to revisions, extensions and discoveries. 3 Consolidated Financial Statements and Supplementary Data, page 69 Supplemental Oil and Gas Information (Unaudited), page 132 Oil and Natural Gas Reserves, page 132 SEC Comment 5. With a view to expand your disclosure under FASB ASC paragraph 932-235-50-5 and Item 1203(b) of Regulation S-K, please explain to us the causes for the downward revision of the previous estimates in proved reserves as of December 31, 2012 while as of the same date you disclose a significant upward revision of the previous estimates in proved undeveloped reserves. Response The negative revision of previous estimates of total proved reserves of 1,470 Mboe was primarily associated with the Company’s non-core areas and due to lower gas prices, well performance changes and expiring proved undeveloped locations, which is disclosed on page 134 of the Company’s Annual Report on Form 10-K. As noted in the response to comment 4 above, the upward revision in proved undeveloped reserves of 2,879 MBoe was entirely from the Company’s core resource areas of the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas and is attributable to better well performance in the areas containing existing proved undeveloped locations. 6. You disclose significant additions in proved reserves as of December 31, 2012 relating to extensions and discoveries and have stated that “reliable technologies were used to determine areas where proved undeveloped (PUD) locations were more than one offset away from a producing well.” With a view to expand the disclosure of the material additions in your reserves as required under Item 1202(a)(6) of Regulation S-K, please quantify for us the number of proved undeveloped locations and associated proved net reserves added that are more than one offset away from an existing proved producing well. Also tell us if any of the wells drilled to date that were more than one offset away from a producing well at the time of their drilling were not determined to be economically producible. Response During 2012, changes in proved undeveloped reserves included the addition of 11 proved undeveloped locations, amounting to approximately 2,046 Mboe, located more than one offset away from an existing producing well. These proved undeveloped additions are predominately located in the Company’s core resource areas, namely the Bakken/Three Forks formations in the Williston Basin and the Woodbine/Eagle Ford formations in East Texas, are located within the Company’s planned development areas and satisfy all requirements for categorization as proved reserves. 4 Through December 2013, the Company drilled a total of 34 wells in resource areas that were located more than one offset away from a producing well, and none of the wells were determined to be not economically producible. Form 10-Q for the Quarterly Period ended September 30, 2013 Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 41 Capital Resources and Liquidity, page 43 SEC Comment 7. We note, among other items, that (i) your Senior Credit Agreement and your senior unsecured debt indentures contain a number of financial covenants, (ii) your Senior Credit Agreement was amended a number of times during 2013 and that some of these amendments appear related to the financial covenants, (iii) your risk factor on page 59 refers to possible acceleration, cross- acceleration, and cross-default provisions, (iv) debt limitation covenants contained in your indentures have reduced the effective borrowing base in the Senior Credit Agreement from $850 million to $710 million, and (v) you have recorded a $909 million full cost ceiling impairment, partially attributable to a reallocation of capital and related transfer of unevaluated property costs to the full cost pool. Please revise your disclosure to discuss in further detail the debt limitation covenants and the consequences of the limitations to your financial condition and operating performance. Refer to FR-72, Section IV (C): Debt Instruments, Guarantees and Related Covenants, for guidance. In addition, please explain to us whether you are reasonably likely to be in breach of any material financial covenants. If breach is reasonably likely, please revise your disclosure consistent with the guidance in FR-72, Section IV (C). Lastly, please revise your MD&A to discuss any known material trends or uncertainties related to your use of cash resources. Refer to FR-72, Section IV (D): Cash Management, for guidance. Response As noted under the heading “Capital Resources and Liquidity” in Halcón’s Form 10-K and Form 10-Q, the Company strives to maintain financial flexibility while pursuing its aggressive drilling program and acquisitions. Maintaining financial flexibility necessarily encompasses ensuring sufficient liquidity to fund the Company’s anticipated expenditures, as well as securing additional funding in the event acquisition opportunities arise or unanticipated expenditures otherwise occur. In light of this, the Company continually monitors its compliance with the financial covenants in its debt instruments, evaluates the impact that its drilling, acquisition and divestiture activities will have on its compliance with these covenants, and assesses the adequacy of its current liquidity and access to financing. When the Company has anticipated that it might have temporary difficulty 5 maintaining compliance with, or might be unduly limited by one or more such covenants, the Company has sought and successfully obtained waivers or amendments to these covenants to provide it with additional flexibility. With respect to the periods covered by the referenced Form 10-K and Form 10-Q, the Company was not, and did not believe it was reasonably likely to be, in breach of any material financial covenants applicable to it. The Company acknowledges the guidance in FR-72, Section IV(C) and will include disclosure consistent with such guidance in future filings in the event that the Company believes that a breach of a material financial covenant is reasonably likely. Please note that the borrowing base under the Company’s Senior Credit Agreement at September 30, 2013, was reduced to $710 million (from $810 million) as a consequence of the Company’s issuance of $400 million in new senior notes on August 13, 2013. The issuance of the senior notes and the reduction in the borrowing base were reported in a Form 8-K filed by the Company on August 13, 2013. The reduction in the borrowing base was automatic and results from a provision of the Senior Credit Agreement that provides for automatic reductions in the Company’s borrowing base of $0.25 for each $1.00 in principal amount of senior notes issued by the Company. This provision of the Senior Credit Agreement is disclosed (among other places) in “Note 6 — Long-Term Debt, Senior Revolving Credit Facility” to the Company’s financial statements included in the Company’s Form 10-Q for the quarter ended September 30, 2013. As noted in the Company’s Form 10-Q for the quarter ended June 30, 2013, the borrowing base had been previously reduced from $850 million to $810 million on July 19, 2013, in connection with the Company’s disposition of certain producing properties and related assets located in the Eagle Ford shale in Texas. Subsequently, on October 31, 2013, the borrowing base under the Senior Credit Agreement was increased by the Company’s lenders to the original $850 million. Also, please note that full cost ceiling test impairment charges do not directly impact compliance with the financial covenants under the Company’s debt agreements. Nevertheless, it is true that the debt limitation covenants contained in the indentures governing the Company’s senior notes may limit the Company’s incurrence of indebtedness, including its ability to borrow up to the full amount of its borrowing base under its Senior Credit Agreement. The Company believes that the disclosures of the amendments to the covenants under its Senior Credit Agreement appearing in MD&A under the heading “Recent Developments — Amendments to the Senior Credit Agreement and Borrowing Base”, and the second paragraph under the heading “Capital Resources and Liquidity” describe in material respects the debt limitation covenants applicable to the Company, including the covenants under its indentures that may limit access to the full amount of its borrowing base under its Senior Credit Agreement. The potential consequences of these limitations are discussed in the Risk Factors sections included in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, principally within the risk factors entitled “We have substantial indebtedness and may incur substantially more debt. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business”, “We may have difficulty financing our planned capital expenditures which could adversely affect our growth”, and 6 “We are subject to various contractual limitations that affect the discretion of our management in operating our business”. Based upon the staff’s comment, we understand that it may be helpful to readers if we include in discussions of the Company’s Liquidity and Capital Resources additional disclosure highlighting the consequences of these limitations. Accordingly, in future filings we propose to add language drawn from the disclosures included in our Annual Report on Form 10-K referenced above, to the effect that: “Our ability to meet our debt covenants will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. For examp