Some exceprts from the MHR call
In terms of liquidity issues, he indicates they can sell off chunks of Eureka Hunter for cash any time they want, and that removes any liquidity problems. Seems reasonable.
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So production for 2015 -- everybody is kind of wanting guidance. We are kind of saying, we think we will be in the 30,000 to 35,000-barrel a day range we think is an average for the year.
So, what kind of capital do you have to spend to do that? The answer is zero. We are not spending any money right now, and we haven't announced a budget. And when you are in a death spiral of prices in this business, you are crazy to be spending money. So I stopped all capital spending as of -- towards the 1st of January. When I say, all capital, I'm talking about new drilling. We're finishing up these pads that Jim was talking a about. But we're not fracking any wells. We are not drilling any new wells. We are doing nothing.
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I will be the first to tell you that we are not going to spend money until the service costs comes down, like they've got to come down as commodity prices have come down. So that, in itself, insures and protects our liquidity.
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So what have we done to protect Eureka Hunter? We brought in a new great financial partner, the Morgan Stanley infrastructure fund last year. We structured some things that were very beneficial to Magnum Hunter such as, they are funding all of our capital expenditure budgets in 2015, through the mechanism we designed in the transaction.
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So as we said today, we own 48% of Eureka Hunter Pipeline and Morgan Stanley infrastructure owns the other 48%. And there are some minority owners in the company as well.
So, what is going to happen with Eureka Hunter? The thing that people -- when they start questioning our liquidity, we've got a $500 million to $700 million, asset, sitting in our hip pocket. And if I need to raise $50 million, or if I need to raise $100 million, or if I need to raise $115 million, I can carve out a piece. I can do that in a week. I've got buyers.
Morgan Stanley wants to own more. All of the co-investors that bought into the transaction 3 months ago want to buy more. There is a line out the door of people that want to buy interest in that pipeline, because they see what we see, which is a huge growth of this midstream asset, in the best plays in the United States, and they see the value.
So when people question our liquidity, it drives me nuts. Because we've got this cash cow in our hip pocket, that we can always raise capital with in a moments notice.
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So what did we do back in October that really protected us from this downturn? We entered into a $340 million second lien credit facility with a group of institutions that does not mature until October of 2018.
Why did we do that? Our interest rate went up from 3% to 7.5%. We did it for just this very reason we are here talking to you today, to protect us.
We have no concerns of borrowing base reductions, because we replaced our borrowing base predominantly with this second lien line of credit. There is a whole slew of our competitors and the market trying to do what we did back in October, and they can't get it done, or the cost is so prohibited, they can't get it done. We've got it done. We are in place. We are done. When we announced our reserve -- on January 21, we specifically said in that that we have met all of our financial commitments, as required under our second lien credit facility.
So the squeeze that could occur with a lot of oil and gas companies, when they present the preserve report to their banks and they go through bar and banks for determinations in March, April and May, does not exist at Magnum Hunter. We did the things back in October, to protect us from that occurring.
So a lot of analysts don't seem to understand that. A lot of investors don't seem to understand that. There is no liquidity squeeze claim because banks are going to turn up the faucet and tighten down credit. That doesn't happen with us.
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So let's talk a little bit about -- back to the capital budget plan. At most, I think it is $100 million. But if it is $100 million, it is completely backend loaded. Why spend capital again today, when service costs are going to be a whole lot less in 60, 90 or 120 days from now?
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So let's talk a little bit about the leasehold -- I'm sorry, the sources of liquidity. If we want to raise capital, what can we do to raise capital? There is a number of things that we have in our quiver that we are always working on.
One is, we have had to post some pretty substantial letters of credit with some of the firm transportation companies to get firm, to move gas out of the Appalachia basin. We're talking to -- banks about moving that credit off of our balance sheet onto their balance sheet. So those discussions are going well. That is probably $30 million to $50 million of additional liquidity that we could get from that source.
Let's talk about Eureka Hunter. As a mentioned, we own 48% of it. It is worth somewhere between $500 million and $700 million to us as we sit here today. And we could sell a piece tomorrow. And I have 10 people that would love to buy it. So that is not an issue. That is something that is an unrestricted subsidiary, and we have the freedom to do.
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The reason we don't have more is because our production grew so much in the last 30 days. And our bank has restricted us from putting more hedges on us. But we are 30% hedged approximately on our gas, and we can weather this storm.
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Selling 5% or 10% of Eureka, we can do that any time that we need. We may or may not do that. I'm not going to tell you. It depends on -- I would rather do something with the LLCs. That is a easier -- I mean a cheaper deal. I am so bullish on Eureka. I hate to sell anything. But if we have to, we will do that.
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Yes. I believe the value of Eureka is going up monthly. As we can show more volume throughput the value goes up. I think Eureka today -- when we did our deal with Morgan Stanley, it was at $1 billion. We think it is worth between $1.1 billion and $1.3 billion today. That is using the $50 million to $60 million a year in EBITDA.
Obviously, those are projections. We think those projections in 2016, could be $75 million to $80 million.
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Because of our relationship and what we negotiated with Morgan Stanley, we don't have to fund the capital needs of Eureka in 2015. They fund those for us.
Also, I should mention Eureka has its own line of credit now. We've -- that line of credit was boosted right before year-end, from $117 million to $225 million. So, it is requiring less equity from both Morgan Stanley and Magnum Hunter, because it is building its own EBITDA and can fund itself.
And so we expanded the banks, from 5 to 13 banks, in that line of credit. We dropped the interest-rate 25 basis points. We dropped the leverage ratio as well. So as Eureka Hunter matures, its ability to fund itself becomes a lot more evident.
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Dan McSpirit - BMO Capital Markets - Analyst
Okay. And I will just try one more on the subject of liquidity here. What was the -- what is the total amount in cash interest and cash dividends expected to be paid in 2015?
Gary Evans - Magnum Hunter Resources Corporation - Chairman & CEO
Well, I mean it is pretty easy to calculate. We have $600 million, high yield debt. It is about $60 million a year. We've got the $340 million of the second lien. That is at 7.5%. We have a $50 million line of credit. And then we have the preferred dividends. So it is about $80 million, fixed debt charges, excluding dividends. |
