RBC update on MHR following excellent management call
<copied from another board>
Highlights Reduced Spending Plans & Addresses
Liquidity Concerns On Investor Call
Our view: Cutting D&C CapEx & leasehold spending dramatically in 2015;
announces a plan for a potential Ohio Utica/Marcellus JV; Nearly all
previously completed Marcellus/Utica wells back on production
Key points:
2015 Upstream CapEx Cut To The Bone. MHR guided to a tentative
2015 Upstream CapEx budget of $120 million (including $20 million
for leasehold), down ~40% from the Company's preliminary spending
thoughts in November. MHR curtailed all new drilling and completion
activity in early January, as the Company anticipates significant service
cost reductions to kick in later this year. Thus, MHR's 2015 D&C spending
would be severely back-half weighted. MHR believes this D&C budget can
generate FY15 production of 30,000-35,000 Boepd (RBC at 31,800 Boepd).
Finally, MHR spent $12 million in January on Utica leasehold, completing
80% of its commitment for its 2013 MNW acquisition (~25,800 net acres in
total). MHR believes the final 20% of the acreage is not likely to pass title.
Current Liquidity Situation In Decent Shape. MHR reiterated that it
received $55 million in December for the sale of a 6.5% interest in its
Eureka Hunter midstream assets. We estimate MHR ended 2014 with
liquidity of roughly $235 million ($185 million cash, $50 million of revolver
availability). With its reduced 2015 spending outlook in place, we are
currently modeling MHR outspending cash flow by ~$40 million, leaving
ample liquidity at YE15.
More Liquidity Breathing Room On The Horizon. MHR is pursuing a JV
on its Ohio Utica & Marcellus acreage, which consists of over 100,000
net acres. MHR has hired advisers to lead a process and believes it can
raise $300-$500 million in a transaction as soon as March. MHR believes
executing a JV would allow for an acceleration of gassy drilling in 2016 &
beyond, when the Company is more constructive on prices. On a separate
note, MHR has put the sales processes for its Bakken and Kentucky assets
on ice, but we believe the Company should be well funded into 2016
without these divestitures.
1Q15 Production Poised To Spike As Shut-In Production Almost Entirely
Back Online. MHR reported that nearly all of its Marcellus and Utica wells
that were previously shut-in are now flowing to sales. The Stalder pad
is the one remaining pad that is still offline, and should be returned to
production in 2 weeks. MHR disclosed that its Stewart Winland Utica well
in West Virginia had average production levels of 22-25 MMcfgpd over the
last 30 days, which is impressive. MHR also reported that its 3 Marcellus
wells on the Stewart Winland pad were producing roughly 16 MMcfgpd
(with additional 80 barrels/million of liquids), which is impressive. Overall
we expect 1Q15 production to increase 75% sequentially. |
