RBC -- Magnum Hunter Resources Corp. (NYSE: MHR)
Bond Deal Helps Liquidity; Plant Start-up Sets Stage
For Big 1Q13 Production Ramp
Outperform
Above Average Risk
Price: 3.58
Shares O/S (MM): 168.9
Dividend: 0.00
Float (MM): 152.3
Debt to Cap: 47%
Institutional Ownership: 70%
Price Target: 6.00
Implied All-In Return: 68%
Market Cap (MM): 605
Yield: 0.0%
Enterprise Val. (MM): 1,728
Avg. Daily Volume (MM): 3.94
3-Yr. Est. EPS Growth: 30.00%
Priced at market close ET, December 13, 2012
Event
Issues $150 million add-on bond offering; West Virginia gas processing plant
commences operations, setting stage for big 1Q13 production ramp
Investment Opinion
Bond Deal Provides Boost To Liquidity. MHR completed an add-on offering of
$150 million for the Company's outstanding 9.75% senior unsecured 10-year
notes and repaid a portion of the Company's revolving credit facility. This
follow-on offering coupled with the Company's $25 mm preferred issuance in
early December improves current liquidity by nearly $170 million.
Deal Also Prefunds Most Of 2013 Outspend. We are currently projecting an
outspend of $245 million in 2013, which will be bridged by the bond deal and
revolver drawdowns or asset monetizations. MHR has not formally announced its
2013 CapEx budget yet, but we expect the Company should have plenty of
liquidity to fund it with only ~$120 million drawn on its $375 million revolver at
YE12. The deal also provides flexibility on the timing and structure of the
Company's Eagle Ford monetization, which is likely a 1Q13 event. However, the
new bonds do significantly increase the Company's fixed debt at a higher rate,
increasing interest expense in 2013/14.
MarkWest Mobley Processing Plant Commences Operations In
Mid-December. The 200 MMcfgpd Markwest Mobley processing plant is now
operational, meeting the revised timeline that MHR had guided to in early
November. As a result, MHR should remain on schedule to hit its YE12
production rate target of 18,500 Boepd. The plant is currently running at 60%
utilization, but should experience accelerated volume growth as new wells are
brought on production over the coming weeks. We expect MHR's backlog of 5.5
net wells to be put on production in the very near-term.
Decreasing 2013/14 CFPS By 5% And 3%. MHR is utilizing higher cost debt
to pay off its credit facility. As a result, we are decreasing our 2013 CFPS and
2014 CFPS estimates by 5% and 3%, respectively.
MHR Reflects An $79 Long-Term WTI Oil Price. Our $6 price target is based
on a 22% discount to our $7.75 NAV.
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