To: Investor Clouseau who wrote (103 ) 1/19/2013 5:17:02 PM From: Investor Clouseau Respond to To: Mario :-) who wrote (112432 ) 1/18/2013 9:46:40 AM From: Paul Smith of 112461 MHR Incremental production driven by financial transactions. Magnum will likely continue to find creative ways to fund additional upcoming Utica, Eagle Ford, and Bakken growth. We look for the company to possibly announce another joint operating agreement (JOA), somewhat like the deal early this year. As such, we increase our price target from $9.00 to $9.50, which is derived from our new 2014 CFPS estimate of $2.25 ($2.12 previously) applied to a 4.2x cash flow price target multiple based on a premium to the peer group, given the company’s historical and likely future industry leading production growth. Multiple play optionality . Magnum could announce JOA’s, monetizations, and other financial/operations deals in their Utica, Eagle Ford, and Bakken in the coming months. The new arrangements would not only likely boost overall activity, but shore up the balance sheet as well. Utica likely to soon gain attention . Magnum’s Utica play has not yet garnered the same value as peers. However, we could likely hear as early as next week (at our Utica conference) about all the activity MHR Eagle Ford upside. The pad drilling program and improved operational techniques could soon result in a production jump and better economics. Better-than-perceived liquidity. Magnum has over $350mm in available funds between cash, credit facility, and potential preferred share issuance to easily fund any 2013 cash flow shortfall. The total available is likely to increase as the new reserve is released, just as was the case several times last year. Midstream provides operational control and financial upside. Magnum’s midstream could potentially provide over $20mm in annual earnings by late this year and give the company leverage when negotiating Utica deals.
