Liquidity is getting tight at Magnum Hunter Resources Corp. (NYSE: MHR) but the company is making moves to generate cash, including a sale of interest in the Eureka Hunter Pipeline System and setting up a joint venture (JV).
The company’s 2015 capex remains frozen, with Magnum Hunter spending money to mop up 2014 projects. Gary Evans, CEO, has said he intends to wait for service costs to drop by 40% before he restarts drilling.
During the lull, the company is looking to generate liquidity. It also provided updates on its Utica wells and an additional deal for Ohio land during its yearend earnings report.
As of year-end, Magnum Hunter had $63.9 million of liquidity, including $53.2 million cash and $10.7 million of borrowing availability under its credit facility.
If all goes as intended, the company could see $200 million in additional in liquidity in the next few months, said Gabriele Sorbara, analyst, Topeka Capital Markets.
The company is in discussions to sell up to 8% of its interest in Eureka Hunter Midstream for up to $75 million, which gives Eureka a gross value of about $937.5 million, Sorbara said. Magnum Hunter owns about 48% of Eureka Hunter Holdings.
Magnum Hunter has built Eureka since 2010 and Evans said the company “pretty much controls this area to a large degree—five or six counties in West Virginia and three counties in Ohio.”
Evans said the company is in contact with co-investor Morgan Stanley as well as other partners and anticipates a deal by March.
Magnum Hunter is also pursuing an MLP IPO for Eureka Hunter with its remaining interest and Morgan Stanley’s, Evans said.
JV Sought
The company is actively seeking a financial teammate for its Utica and Marcellus operations.
Evans said the company wants a JV with a financial institution in the Utica Shale, which would encompass about 93,000 net acres. The company has hired Citibank, which has seldom seen such M&A interest, Evans said.
“The data room opened up about a week ago and we have more than 80 institutions that have tried to come in,” he said in a conference call on March 2. “This is only geared toward financial types. We’re not allowing oil and gas companies in for competitive reasons.”
The company said it could have a deal by April, which could be in the $300-500 million range and include drilling carry and cash, Sorbara said.
Acquisitions
Despite suspending its capex, Magnum Hunter is still spending here and there. The company’s budget includes $20 million in leasehold acquisitions.
In January, the company purchased 2,665 net leasehold acres located in Washington County, Ohio, from MNW Energy LLC at an aggregate purchase price of $12 million, an average $4,500 per net leasehold acre.
As of Jan. 31, Magnnum Hunter has acquired 25,044 net leasehold acres from MNW, or 78.3% of the 32,000 total net leasehold acres originally subject to purchase under the companies’ asset purchase agreement.
However, Magnum Hunter said MNW may not be able to provide satisfactory title to the remaining net leasehold acres subject to purchase and that not all of the remaining net leasehold acres will ultimately be acquired, according to company filings with the Securities and Exchange Commission.
Evans said that Magnum Hunter’s attempts to sell its Kentucky and Bakken assets remain on hold until commodity prices recover.
Marcellus And Utica Production
In the fourth quarter of 2014, the company completed the drilling of four net wells and completed 7.5 net wells in the Marcellus and the Utica shales.
All wells currently online are flowing to sales via the Eureka Hunter Pipeline System.
The company's net production in the fourth quarter of 2014 attributable to Triad Hunter LLC's operations was about 73.84 million cubic feet equivalent per day (MMcfe/d), composed of 75% natural gas, 18% NGL and 7% condensate.
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