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.
MHR’s first quarter 10Q filing was much anticipated. Due to a myriad of disclosed issues, the company successfully filed its 2012 10K on June 14, 2013 and Q1’13 Form 10Q on July 9, 2013. Both were late; however, MHR openly told the market they were working through the issues, found very acceptable solutions, and with these issues now behind them is back to the business of growing production.
First Quarter 2013 Results
For the three months that ended March 31, 2013, MHR reported a net loss of $57.7 million, or a loss of $0.34 per share, compared to a Q1’12 net loss of $17.1 million or a loss of $0.13 per share. Revenues for Q1’13 increased 76% from $55.7 million in Q1’12 to $98 million for Q1’13. Production during the quarter averaged 13,769 BOEPD, a 9% over Q1’12. Adding in temporary shut-ins, MHR’s actual production was 16,889 BOEPD.
Gary C. Evans, Chairman of the Board and Chief Executive Officer of Magnum Hunter Resources, said: “As reflected in this filing, internal control issues are being addressed, and we intend to refocus our time and efforts on growing our production from our substantial asset base with our current drilling plans. Actual production for this first quarter was substantially impacted by shut-ins necessary in our Appalachian Division due to midstream gathering issues.”
Post Eagle Ford Sale CAPEX Budget
As a result of Magnum’s Eagle Ford Shale sale, MHR reallocated its 2013 upstream capital expenditure budget of $300 million. Approximately $150 million was allocated to the Appalachian Basin and the remaining $150 million was allocated to the Williston Basin.
From a liquidity standpoint, MHR has $310.8 million of liquidity of which $46 million was cash and $265 million on a completely undrawn borrowing base with their senior banks affiliates.
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Simultaneous to the quarterly news, MHR released a second quarter operational update. Highlights of MHR’s Appalachia properties include the completion of the horizontal section of its first Utica Shale well on the Farley Pad in Washington County, Ohio. The company currently plans to fracture stimulate this 100% owned well in late July followed by a 30 to 45 day resting period before anticipated production test in late September 2013.
In the Williston Basin, second quarter activities included bringing on production 19 gross (5.5 net) wells. Eight gross (1.6 net) wells fracture stimulated awaiting flowback, 11 gross (2.9 net) wells drilled awaiting completion and 4 gross (1.4 net) wells drilling. MHR tested seven 24-hour wells located in the basin and came out with an 829 BOEPD average.
Final Thoughts on Magnum Hunter
It seems like the dust has cleared after the filing concerns. Second quarter results will help reaffirm worried investors. As Gary Evans, CEO at Magnum Hunter said on the Q1’13 conference call, they are looking to be “lean and mean.”
With Appalachian shut-ins behind them and internal controls in place, MHR is in a clean position to capitalize on its growth plans for the year. On its Q1’13 conference call, MHR said they are currently running at approximately 17,000 BOEPD and reaffirmed their 2013 exit guidance of 23,000 to 25,000 BOEPD. The large ramp in production is expected to come out of the Marcellus due to wells that were drilled earlier in the year and are just awaiting pipeline connection.
A few upcoming catalysts:
- Marketing an additional $200 million worth of non-core asset sales;
- Well results in Ohio from the Stadler and Farley well pads targeting the Utica and Marcellus;
- Continued growth and improving well results from its Bakken well program;
- Anticipated de-leveraging of the company’s balance sheet.
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