Magnum Hunter Resources Corp (ticker: MHR) is an oil and natural gas exploration and production company active in five unconventional shale resource plays in North America: the Marcellus Shale, Utica Shale, Eagle Ford Shale, Pearsall Shale and Williston Basin/Bakken Shale. With approximately 631,300 net acres spread across these five plays – needless to say, Magnum Hunter Resources has established a significant growth platform.
Recent Financial Results
For the nine months ended September 30, 2012, Magnum Hunter reported a net loss of $80.2 million, or a loss of $0.53 per share. This compares to a net loss of $0.28 per share in the same period of 2011. Revenues during the first nine months of 2012 increased 160% to $187.3 million compared to the first nine months of 2011. Production during Q3’12 and for the first nine months of 2012 averaged 12,480 BOEPD and 12,653 BOEPD respectively.
MHR reiterated its anticipated exit rate of 18,500 BOEPD at the end of 2012. Read our recent write-up, Magnum Hunter Resources Corp Adding to Its Rich Asset Base; Reaffirms 2012 Production Exit Rate, for more detail on Q3’12 production.
Liquidity Position Strengthened
MHR’s $750 million senior revolving credit facility was increased by $115 million from $260 million to $375 million, representing a 44% increase. This is a direct reflection of the company’s ability to organically grow through the drill bit adding proved reserves in its core asset bases. As of November 12, 2012, Magnum Hunter had total liquidity of approximately $150 million, including cash and availability under the company’s senior revolving credit facility. The company’s mid-year reserve report showed approximately 67 MMBOE in proved reserves (approximately 64% oil and liquids). In its effort to augment its liquidity position, MHR is actively marketing a potential JV for its Utica acreage, as well as potential outright monetization of its 26,000 net acre Eagle Ford position. Neal Dingmann, Managing Director, Equity Research, at SunTrust Robinson Humphrey proffered in a note on November 14, 2012 that MHR’s EF position could likely be a $300MM+diverstiture. The potential additional capital raised could act as a catalyst in MHR’s future growth plans.
Undervalued By the Market or Overvalued by the Analysts
OAG360 believes an Eagle Ford monetization may be just thing needed for the market to realize the value of MHR’s unconventional resource plays. Of the 17 analysts that follow MHR and publish target prices to Bloomberg, the average 12-month price target for Magnum Hunter stands at approximately $7.00. At the time of posting, MHR was trading at $3.58 representing a 51% discount to analyst price targets. We are still busy updating our small-cap E&P database for Q3’12 numbers; however, we note as of November 9, 2012, MHR’s 2012 P/CFPS was 2.5 times while the average small-cap peer set is trading at 3.7 times.
Approximately 10 MMcfe/d of production continues to be curtailed in the Appalachian region due to the infrastructure constraints. The company does not expect this production to come back online until MarkWest’s Mobley processing facility is operational (pushed until the first 10 days of December). In addition to relieving production curtailments, the additional capacity will allow MHR to realize an NGL pricing uplift on its liquid-rich natural gas production. OAG360 notes that MHR’s average NGL price received per BOE during Q3’12 was $62.46.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. As of the report date, an employee of EnerCom has a long-only equity position in Magnum Hunter.