Wednesday, February 19, 2014
Halcon Resources Corp: Management Potential Can't Overcome High Debt Load
As Halcon Resources (NYSE: HK ) gets prepared to report earnings on Feb. 26, a few key points will pique investor interest. The oil exploration and production company holds plenty of promise due to the experienced management team that sold Petrohawk Energy to BHP Billiton for $12.1 billion, yet the balance sheet, loaded with $3.3 billion of debt, has constrained its growth prospects.
While debt can be used to grow a company faster if it can produce more cash than the interest costs, in many cases a large debt load can reduce growth rates below maximum potential. With Halcon Resources, the growth rate has constantly been scaled back due to the divestiture of non-core assets. Unfortunately, the sell-off of assets often creates a downward spiral in production, even though the proceeds from the sales can be utilized to fund core asset growth.
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