Magnum Hunter (MHR)

[ghrcap]

Important data was released this morning on their first liquids rich well in the W.VA Marcellus. Gary Evans is working his magic again. Good chart and good prospects for 2011.
http://finance.yahoo.com/news/Magnum-Hu ... l?x=0&.v=1

[dan_s]

I have added MHR to our Watch List. I haven't had time to build a forecast model but that is on my long To Do List.
I'm a bit concerned that a lot of the upside is already priced in since, at first glance I don't see any profits for quite awhile.

[SEIFER]

Agreed - the stock is up quite a bit. But if they make good on their drilling in the Eagleford, Marcellus and their pipe line, this one can go much higher especially if oil remains in the 90s. The managment team is very experienced and historically successful with the old MHR. Evans is charismatic and known for his ambition, deals, JVs, financing abilities and ability to attract institutional investors. What started out as a 40 cent stock when he took over last year has just hit an all time high at 6.72. An amazing run that might be just the end of the beginning. Speculative, no doubt, but not what I would call gambling by any stretch. And remember, management has a ton of shares so they have lots of skin in the game.

[SEIFER]

Evans is determined to continue growing this company.

HOUSTON, TX, Dec 27 (MARKET WIRE) -- Magnum Hunter Resources Corporation (NYSE Amex: MHR) and (NYSE Amex: MHR-PC) ("Magnum Hunter", or the "Company") announced today that it has entered into a definitive agreement to acquire Appalachian Basin focused NGAS Resources, Inc. (NASDAQ: NGAS) for approximately $98 million (USD) in common stock and assumed liabilities. Magnum Hunter has agreed to acquire NGAS for $0.55 per share with a fixed exchange ratio of 0.0846 based on an agreed Magnum Hunter stock price of $6.50 per share. (There are no collars on the fixed exchange ratio based on the trading price of either Magnum Hunter and/or NGAS).



Magnum Hunter will issue approximately 6.6 million shares, representing approximately 8% of Magnum Hunter's fully diluted shares outstanding. The assumed liabilities will be refinanced under a new senior credit facility with an initial borrowing base of $120 million, to be provided by BMO Capital Markets Corp. ("BMO"). Each company's respective Board of Directors has given their unanimous approval of the transaction. BMO acted as Financial Advisor and Capital One Southcoast, Inc. provided a Fairness Opinion to Magnum Hunter's Board of Directors. Fulbright & Jaworski L.L.P. acted as Legal Advisor to Magnum Hunter.

[dan_s]

This is a big deal for MHR. NGAS is a complex company. It has a drilling company, lots of people & equipment and several partnerships to deal with. It will make forecast MHR a lot more difficult. It makes MHR more of a "gasser".

[ghrcap]

NGAS produces 1200 BTU gas and owns an extensive gathering system that has other small producers captive to it. I like both the deals announced today. Evans wants scale.

[ghrcap]

I'm wrong on NGAS owning the pipeline. They sold it last year, but still operate it.

[ghrcap]

Evans' comments on the deal illustrate just how shrewd he is.
http://www.rigzone.com/news/article.asp?a_id=102551

[SEIFER]

Yes - it makes MHR more gassy but in the Marcellus which is low cost. Evans is a nat gas expert. When he took over the company, he said he wanted to go oily due to the gas oversupply situation so he touted the Eagleford acreage. The fact that he has agreed to take this deal on means that he believes that at this price point it is worthwhile sticking with this gas play. I bet there are more liquids here that we are not being told as alluded to in the rigzone post above. Evans sees cost saving synergies and calls this a long dated call option on gas. He knows that gas prices will stay low for a while but he believes "longer" term gas prices must rise from here so the company will be well positioned to take advantage of that. Also, MHR assumes no debt from NGAS. This might be another acquisition where Evans takes advantage of a smaller company who might otherwise suffer next year from low gas prices but combined with another company and a lower cost structure (the right price point) might do well. If you buy this company now, you are paying for the proven management team. If you wait for delivery, you will pay a lot higher. Of course, they need to deliver.

[dan_s]

I do have a Net Income and Cash Flow Forecast model for NGAS. If you want to see it just send me an e-mail.
dmsteffens@comcast.net

One positive is that merging with MHR the overhead cost of being public will be eliminated but that will take some time.

MHR already had some nice acreage in the Marcellus, so this deal makes lots of sense.

[ghrcap]

I sold my trading shares of MHR at $7.57 this morning and wrote a few $7.50 calls against shares in a hold account pending a look at the 2010 reserve report. The added dilution to finance the gassy growth deserves scrutiny as it drives up multiples for est. 2011 cashflow and EBITDA. Global Hunter, which is bearish on 2011 NG pricing, sees MHR now trading for 16.7x c.f. and 12.1x EBITDA, for example.

[SEIFER]

HOUSTON, TX, Dec 29 (MARKET WIRE) -- Magnum Hunter Resources Corporation (NYSE Amex: MHR) (NYSE Amex: MHR-PC) ("Magnum Hunter", or the "Company") announced today that shares of its Common Stock have been approved for listing on The New York Stock Exchange ("NYSE"). The Common Stock will continue to trade under the ticker symbol "MHR". The Company's shares will begin trading on the NYSE sometime during the first ten trading days of January 2011.



Mr. Gary C. Evans, Chairman and Chief Executive Officer of Magnum Hunter Resources Corporation, commented, "As part of our business plan to improve the liquidity and exposure of our shares to the investment community here in the United States and worldwide, which includes both institutional and retail investors, we are pleased to announce this new milestone achievement by our Company. As the world's largest equity market, The New York Stock Exchange listing achieves that goal."

[SEIFER]

Independent exploration and production company Magnum Hunter Resources Corporation (AMEX: MHR - News) signed a deal with PostRock Energy Corporation (NasdaqGM: PSTR - News) to acquire the latter’s Marcellus Shale assets. The purchase price of the assets is valued at $39.75 million. Magnum Hunter will execute the contract through its wholly-owned subsidiary Triad Hunter LLC, who will act as an operator of the acquired properties.

The scope of the deal covers the acquisition of approximately 8,652 net acres of land with oil and gas properties and leasehold mineral interests located in Wetzel and Lewis Counties, West Virginia. The assets are estimated to have a net natural gas production of approximately 905,000 cubic feet equivalent per day. As of November 1, 2010, the assets hold a total proved reserves of about 24.3 billion cubic feet equivalent (Bcfe), with the probable reserves reaching 165.4 Bcfe.

Triad Hunter will pay 50% of the consideration in cash (totaling $19.875 million), while the remaining amount is payable through 3.2 million newly issued restricted common shares of Magnum Hunter stock. The acquisition process will be implemented in two phases. On the initial level, the Wetzel County assets will be taken over by Triad Hunter for $28 million, followed by the purchase of the Lewis County assets for $11.75 million.

The deal, pending certain closing conditions, is expected to be sealed by mid-January 2011.

Magnum Hunter expects to incur about $18 million, or 32% of the total capital budget of 2010 for the development and expansion of the Marcellus Shale. Through October 31, 2010, the company utilized approximately $16.6 million for the region’s operating activity.

Texas based Magnum Hunter engages in the acquisition of exploratory leases and producing properties, secondary enhanced oil recovery projects, exploratory drilling, and production of oil and natural gas primarily in West Virginia, North Dakota, Texas, and Louisiana.

Magnum Hunter currently retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.

[SEIFER]

Another buyout by MHR. This one needs to be on the radar as a real Baaken play.