One of the MHR reports that basically repeats the conference call items:
Magnum Hunter Resources Corp. M LV
McNicoll I Lewis I Vlak NYSE AmEx: MHR
Recommendat ion: BUY
Kim M. Pacanovsky, Ph.D. Mark Aydin
Senior Equi ty Analys t As sociate Analys t
212-542-5875 212-542-5878
kpacanovsky@mlvco.com maydin@mlvco. com
Target Price: $10.00
SEE IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION ON PAGE 4 OF THIS REPORT.
MLV, LLC
1251 Avenue of the Ame r icas , 41 s t Floor , New York, NY 10020 www.mlvco. com Membe r: FINRA & SIPC
Company Update May 10, 2011
Expect a Big Ramp in Three Core Areas in 2011
Previous Closing Price: $7.45
Estimated NAV /shr $3.78
Estimated RNAV/shr $18.49
Float (000s) 61,080
Shares Outstanding (000s) 124,000
Market Cap $923,800
FYE Dec 2010A 2011E 2012E
Cash Flow/Share: $0.04 $0.51 $1.19
EPS: Q1 $0.05A $(0.08)A $0.07E
Q2 $(0.03)A $(0.01)E $0.07E
Q3 $(0.02)A $0.04E $0.08E
Q4 $(0.09)E $0.09E $0.10E
FY $(0.16)A $0.11E $0.32E
Sum of quarterly EPS may not equal fiscal year (FY)
total due to rounding and/or change in share count.
Website: www.magnumhunterresources.com
Key Points
? MHR provided more detail on its operations on its 1Q11
conference call yesterday, which we highlight below. We
again note that our estimated 10,942 boe/d average for
4Q11 will lead to a higher year exit rate than company
guidance of 10,600 b/d. The company acknowledged that
there is a cushion built into their guidance to
accommodate weather, supply or services delays. With
our forecast, MHR is poised to triple production in 2011
vs. 2010, through both smart acquisitions and organic
growth, and it maintains a strong balance sheet plus
availability of capital. We reiterate our BUY rating and
$10 price target on the shares.
Eagle Ford
? Management is very enthusiastic about Gonzales County
Eagle Ford results and is concentrating on extending
lateral lengths and reducing costs. Since most acreage in
the county is already locked up, it is focusing on trading
acreage and bringing partners in so it may extend laterals
in areas where lease lines are an issue. MHR’s three recent
operated wells have had IP rates in the 1,000 b/d range,
but its Hunt operated Cinco Ranch wells are exhibiting
performance that is good, but not as stellar. MHR is
evaluating whether the delta in results is due to the rock or
the completion. Magnum Hunter is seeing great operating
efficiency in the region as its last well drilled went from
TD to frac in just a few days.
Appalachia
? In Appalachia, MHR remains on tight hole status with its
Ormet well, as it continues to build an acreage position
and is concentrating on better understanding the geology
there. The well is shut in as Dominion is not taking the gas
currently, and thus MHR may need to extend
infrastructure to Ohio.
Magnum Hunter Resources Corp. May 10, 2011
MLV Page 2 of 6
• The company is seeking non-recourse financing on its pipeline and processing infrastructure.
We note that the processing facility completion is being pushed back because MHR sold its slot
to another operator.
• Importantly, we anticipate price improvement in Appalachia in general when the processing
facilities are online. Currently its gas – which averages about 1,350 mmbtu - is being sold as wet
gas. We anticipate seeing some improvement in a few months when MHR adds JT units, and
then there will be even greater improvement when a wider variety of products can be stripped
from the gas with the permanent facilities. The processing plant completion has been voluntarily
moved back to June – September 2011, as mentioned above.
• MHR is drilling its first Weir horizontals in Kentucky on the recently acquired NGAS acreage.
It is in the process of evaluating what NGAS has accomplished to determine what should be
changed, and is trying completion techniques that have not been used in the region before. We
believe results from Kentucky will be seen within a couple of months.
Williston
• In the Williston, the company has about 500 b/d of production shut-in. As we have heard
with all Bakken producers, the winter was horrible and the spring, because of melting and
new snow, is horrible too. MHR is actually pumping water off roads so trucks can move
through, and hopes to have its shut-in production back online in a week or so. While MHR
did not participate in the recent North Dakota lease sale, it has been aggressively looking for
land opportunities in Divide and Burke Counties. Management has no desire to add acreage
in Montana or Alberta, as it thinks the most promising acreage is where it already has a
significant non-op interest. Its recent non-op well had an IP rate of over 1,000 boe/d and
demonstrates the potential of the region.
• Also in the Bakken, the company is pursuing gathering of gas that is currently being flared.
While such flared amounts are minimal right now, but would likely grow as the company’s
activity expands. |
