Magnum Hunter Resources (ticker: MHR) is an oil and natural gas exploration and production company active in three shale resource plays in North America: the Marcellus Shale, Utica Shale and the Williston Basin/Bakken Shale. The company’s growth platform is supported with approximately 350,000 net acres spread across its core operating regions.
Magnum Hunter reported increases in revenue, production and midstream activity in its Q1’14 earnings release on May 9, 2014. Production reached 14,796 BOEPD (46% liquids) – a quarterly increase of 31% and yearly increase of 59%. Oil and gas revenues were $70.2 million (18% higher than Q4’13 and more than double Q1’13) and midstream and marketing revenue reached a company record of $31.6 million (73% higher than Q4’13). Its midstream segment boosted throughput volumes to roughly 152 MMcf/d and expects the capacity of its Eureka Hunter Pipeline to increase to 1.2 Bcf/d by the end of 2014.
In a conference call with investors and analysts, MHR management said its production rate at the end of April was roughly 16.7 MBOEPD. Pro forma for divestures, production is expected to reach 32.5 MBOEPD by year end 2014.
“The company is continuing to make good progress on our game plan of growing production, proved reserves along with our leasehold inventory in both the Marcellus and Utica Shale plays, while at the same time increasing midstream volume throughput and continuing divesting of non-core assets,” said Gary Evans, Chairman and Chief Executive Officer of Magnum Hunter, in the call.
A net loss of $76.5 million ($0.44 per share) was reported for the quarter, with a total of $92.7 million in capital expenditures. The loss is attributed to MHR’s ongoing operations to build its midstream department and build inventory. In EnerCom’s 88-company E&P database, MHR’s three-year production replacement of 763% is well above its peer average of 443%.
The company has raised more than $100 million in proceeds from non-core divestures to date in fiscal 2014, including the sales of properties in Saskatchewan and South Texas. The company expects to receive more than $125 million from other non-core divestures throughout 2014. MHR is actively pursuing additional non-core sales.
Expenditures for 2014 are expected to be $400 million, with $260 million for the Marcellus/Utica upstream, $50 million for the Williston upstream and $90 million net for midstream development. The company holds $131.2 in liquidity, with $32.4 million in cash and $98.8 million available from its credit facility. Its borrowing base increased to $325 million following a $92.5 million credit expansion. An extra $40 million in liquidity ($70 million overall, with $30 million going to pay back interest) is anticipated once the sale of 650 BOEPD in its non-operated Williston assets is completed.
“The beauty of having sufficient liquidity, which the banks have really stepped-up and helped us with our borrowing base, is it gives us the time to be sure that we negotiate the highest value for our potential sales,” said Evans in the conference call.
Magnum Hunter drilled nine wells and operated five in Q1’14 as part of operations in the Marcellus/Utica. MHR also has an interest in 13 non-operated wells drilled in the Williston for the quarter. The company is running four rigs – two of which operate in the Northeast while the remaining two are non-operated and work in the Williston. A third rig is tentatively planned to join the Marcellus in late June and a fourth rig is expected to enter the region in 2015.
Evans said, “ We think we’re uniquely located being in the South Western part of the entire Marcellus Utica play that gets us closer to the Gulf Coast, closer to the Midwest that we have not experienced the bottlenecks in Pennsylvania or the huge basis differentials.”
The company anticipates completing 26 additional wells (20 net) for the remainder of the year. Management said it continues to seek additional leases in the region but will not publicly identify the locations due to interest from its competitors.
The first dry gas Utica well produced a peak rate of 32.5 MMcf/d on the Stalder pad before being shut in after 45 days to allow for the drilling of four new Utica wells. MHR believes there are 18 potential wells on the pad and the first Marcellus well averaged production of 2,772 Mcf/d and 266 barrels of condensate for 16 days before being shut in for the Utica wells.
Three wells (100% working interest) drilled off the Ormet pad in Ohio tested a total of 3,738 BOEPD once flowing commenced.
IP rates from three Marcellus wells on the Stewart Winland region are expected by late-summer 2014. Evans said, “Lots of people are watching the Stewart Winland well. The success of that well will prove up a significant portion of our West Virginia acreage and even some of our Southern Ohio acreage.”
Click here for a slide of recent Marcellus wells completed by MHR.
In the Williston Basin, MHR participated in the drilling of four gross (0.7 net) non-operated wells targeting the Bakken/Three Forks Sanish locations. Operations currently consist of 51 existing wells with 18 gross wells planned to be drilled in 2014. A total of 113 gross locations have been identified and current throughput volumes are estimated at roughly 340 BOEPD net to Magnum Hunter. The company expects to cut flaring natural gas entirely by the end of 2014. Management said it is exploring sale possibilities on certain areas and expects to announce an update within the next 30 to 60 days.
Midstream Activity Heats Up
Eureka Hunter Pipeline, MHR’s midstream subsidiary, set a company throughput record and reached a peak rate of 236 MMcf/d in April 2014. The company expects rates to rise and is actively tying new wells into the pipeline. The system just recently began gathering from the Utica Shale in eastern Ohio. Buildout continues to progress in the form of extensions, loading facilities and liquids stabilization equipment.
“We don’t have lot of the midstream issues that other companies have because we very much control our midstream subsidiary and we plan to continue to do that,” said Evans.
Operations in 2014 include as many as five extensions, including a company goal to install as many take-away outlets as possible from the MarkWest Mobley facility in an effort to capitalize on a market currently limited to one takeaway pipeline.
“Hopefully, by the end of the year, we’ll be moving about 400/MMcf per day,” said Christopher Akers, Chief Operating Officer of Eureka Hunter.
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