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.
Despite severe weather conditions in the northeast that negatively impacted Magnum Hunter’s production in the Utica and Marcellus, the company exited the fourth quarter and year-end 2013 with strong results. Oil and gas revenues increased 64% to $59.4 million for the fourth quarter of 2013, compared with revenues of $36.1 million for the fourth quarter of 2012. Midstream and marketing revenues increased 595% to $18.2 million for the fourth quarter of 2013, compared with revenues of $2.6 million for the fourth quarter of 2012. Current throughput on the Eureka Hunter Pipeline System is 171,634 MMBtu/d and a peak throughput rate of 198,000 MMBtu/d was recently achieved.
The company announced via a Form 8-K SEC filing on March 21, 2014 it raised $30.1 million through a private stock offering of 4.3 million shares. The shares were sold to three investors and is expected to close on March 26. Cash from the offering will be used for ongoing operations in the Utica and Marcellus Shales and general corporate purposes.
For Q4’13, MHR reported that it narrowed its net loss of $61.2 million ($0.36 per share) compared with a net loss of ($87.2) million, or ($0.52) per basic and diluted common shares outstanding, for the three months ended December 31, 2012. The company was affected by shut-ins in the quarter due to inclement weather, a break in a MarkWest pipeline and curtailments in Ohio due to infrastructure buildout and permitting delays. The complications constrained production by approximately 1,970 BOEPD.
The bitter winter weather had a severe effect on Marcellus Shale operators and the Northeast gas markets, shooting spot gas prices to as high as $123.23/MMBtu. An in-depth view on the brutal winter was covered by OAG360 in a feature article.
Despite the difficulties, MHR still managed to increase production by 44% compared to Q4’12 to reach output of 11,298 BOEPD and adjusted productionof 15,386 BOEPD for the fourth quarter of 2013. The liquids makeup consisted of 56.7% of production, which is 12.7% greater than Q4’12’s makeup of 44% liquids.
2013 in Review
Fiscal 2013 echoed the trend of its final quarter, with oil and gas revenues climbing a total of 72.3% compared to 2012 ($197.6 million from $114.7 million). Production volumes also increased significantly, rising 26.9% for the year to end at an average of 9,845 BOEPD. The midstream segment jumped 365% to reach revenues of $60.6 million compared to $13 million for the previous year.
Net loss for 2013 was $278.9 million ($1.64 per share). However, MHR’s EBITDAX climbed to $112.4 million for the year – 48% higher than 2012’s total of $76.2 million.
The company divested roughly $516 million in assets in 2013, including the $401 million sale of Eagle Ford acreage to Penn Virginia Corp. (ticker: PVA) in April. Management estimates another $400 million in non-core asset sales in 2014 and is actively seeking the sale of its Canada acreage.
Operations Moving into 2014
Magnum Hunter is currently running a total of six rigs (two operated) across its properties, and three (two operated, one non-operated) are currently working on its Marcellus and Utica acreage. The company closed 2013 with a perfect success rate on 24 drilled wells (10 operated).
The three remaining non-operated rigs are in the Williston Basin. The rigs drilled a total of 15 gross (6.2 net) wells in the region with two of the gross wells existing in the company’s operating area where it holds 100% working interest. Currently an additional 12 gross (4.3 net) wells are waiting on fracture stimulation.
Seven gross wells (seven net) in the Marcellus / Utica completed drilling in Q4’13 and another eight gross wells (six net) are flowing to the Eureka Hunter Pipeline System. In an operations update on March 14, 2014, MHR said it expects eight of the wells (seven net) to begin flowing to Eureka Hunter before the end of April 2014. The new wells include:
- Three Stalder pad wells drilled to an average vertical depth of 7,500 feet with a 4,000 average horizontal lateral. Its first dry Utica well, the Stalder #3UH, previously tested at a peak rate of 32.5 MMcf/d, among the highest producing wells in the Utica. All eight of the completed wells are targeting the Marcellus and the return is expected to be rich in liquids. In a conference call following the release, management said EURs on some of the wells are near 12 Bcfe. Recent acquisitions have boosted MHR’s held-by-production acreage to account for 76% of all leases in the region, which spans 461,000 net acres.
- Three Ormet pad wells drilled to an average vertical depth of 5,900’ with a 3,900’ lateral. The three wells tested at an overall rate of 3,733 BOEPD and are expected to flow to sales by late April 2014.
- Four additional gross wells (two net) will be completed under MHR’s joint venture with Stone Energy (ticker: SGY).
Overall, MHR expects an additional 6,000 – 8,000 BOEPD from its new wells.
In addition, two wells have been drilled on the Farley Pad and production tests are anticipated to begin in the summer. The Stewart Winland Pad is following the exact same plan, with two wells awaiting production tests. Pro forma for all of the reviewed wells, MHR anticipates production rates to double once all wells are online.
The company anticipates releasing a reserves report on June 30, 2014 in conjunction with the new wells. The 2014 exit rate is expected to reach 35 MBOE.
Midstream Breaks Through
Magnum Hunter’s dedication to infrastructure is reflective of the Eureka Hunter Pipeline, whose system recently hit a peak rate of 198,000 MMBtu/d (a company record). The company has laid 103 miles of pipe to date, with 23 installed in 2013. Additional equipment for gas transportation and stabilization are expected to be operational by Q1’14 in its Marcellus/Utica acreage. Several other projects are underway in an effort to meet MHR’s goal of installing as many production take-away outlets as possible from the booming Appalachia region.
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