HOUSTON, TX — (Marketwired) — 11/08/13 — Magnum Hunter Resources Corporation (NYSE: MHR) (NYSE MKT: MHR.PRC) (NYSE MKT: MHR.PRD) (NYSE MKT: MHR.PRE) (the “Company” or “Magnum Hunter”) announced today financial and operating results for the three months and nine months ended September 30, 2013. The Company plans to file its Form 10-Q for the quarter ended September 30, 2013 with the Securities and Exchange Commission later today. Highlights of the Company–s financial and operating results include the following:
(a) Does not include revenues/production from Williston Hunter Canada, Inc. (“Williston Canada”) and Magnum Hunter Production, Inc. (“MHP”), which have been classified as discontinued operations for the nine months ended September 30, 2013
(b) See Non-GAAP Financial Measures and Reconciliations below
(c) Adjusted production includes 1,875 BOEPD of actual production from the discontinued operations of Williston Canada and MHP, and, on a pro forma basis, production of 1,775 BOEPD in Appalachia which has been temporarily shut-in due to third-party processing plant issues
Magnum Hunter reported an increase in oil and gas revenues of 80.2% to $54.0 million for the three months ended September 30, 2013, compared with $30.0 million for the three months ended September 30, 2012. The increase in oil and gas revenues resulted principally from (i) increases in our oil and natural gas production as a result of prior acquisitions and expanded drilling efforts in the Company–s unconventional resources plays this year and (ii) higher average realized commodity prices. Midstream and marketing revenues also increased to $12.5 million for the three months ended September 30, 2013, or 148.0%, from $5.1 million for the three months ended September 30, 2012. The increase was due primarily to (i) increased throughput volumes on the Eureka Hunter Pipeline System, (ii) higher utilization of gas treating and processing equipment at TransTex Hunter and (iii) increased third-party gas marketing volumes.
The Company reported a net loss of ($311.3) million attributable to common shareholders, or ($1.83) per basic and diluted common shares outstanding, for the three months ended September 30, 2013, compared with a net loss of ($42.3) million, or ($0.25) per basic and diluted common shares outstanding, for the three months ended September 30, 2012. When adjusted for a combination of non-cash and non-recurring gains on asset sales and expenses, the Company–s adjusted net loss attributable to common shareholders for the three months ended September 30, 2013 was ($0.17) per basic and diluted common shares outstanding (see Non-GAAP Financial Measures and Reconciliations below).
For the three months ended September 30, 2013, Magnum Hunter–s Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization and Exploration (“Adjusted EBITDAX”) was $28.0 million, compared with $16.7 million for the three months ended September 30, 2012 (See Non-GAAP Financial Measures and Reconciliations below). The increase in Adjusted EBITDAX was due primarily to (i) an overall production increase as a result of prior acquisitions and expanded drilling operations with a greater focus on oil and liquids as a percentage of total production (54.0% oil/liquids) in the Company–s core areas of operations and (ii) higher average realized commodity prices during the period. However, natural gas production shut-ins (described below), higher lease operating expenses (“LOE”) per BOE, and higher non-recurring cash general and administrative costs (see Non-GAAP Financial Measures and Reconciliations below) per BOE partially offset these increases. The increase in LOE per BOE was primarily due to (i) higher costs in the Appalachian division due to increased liquids production which generally have higher LOE per BOE than natural gas wells and (ii) higher gas transportation reservation charges. In addition, LOE in the Williston Basin increased primarily due to increased electrification implementation and maintenance costs in the field. The completion of field electrification will ultimately reduce LOE in the future. The Company anticipates LOE in the Williston Basin to decrease over time due to increased efficiencies at the field level which continue to be implemented. General and administrative expenses increased overall during the three months ended September 30, 2013 due to additional accounting personnel and professional advisory services necessitated by the growth of the Company and its focus on remediation of previously identified internal control deficiencies.
Oil and gas production increased 38.5% for the three months ended September 30, 2013 to 925 thousand barrels of oil equivalent (“MBoe”) or 10,049 barrels of oil equivalent per day (“Boepd”) (54.0% oil/liquids), compared with production of 668 MBoe or 7,257 Boepd for the three months ended September 30, 2012. The increase in production was attributable primarily to the Company–s expanded drilling program in its core areas of operations. In addition, the Company–s oil/liquids production mix increased to 54.0% of overall production in the third quarter of 2013, compared to 42.0% in the third quarter of 2012. This change is a result of the shift in our capital expenditure program towards more of an oil and liquids rich development program. For the three months ended September 30, 2013, adjusted production, which includes actual production from continuing operations, actual production from discontinued operations of 1,875 Boepd and production shut-ins of 1,775 Boepd as described below, increased 88.8% to 13,699 Boepd(c).
In the third quarter of 2013, the Company–s production was adversely impacted by production shut-ins in the Appalachian division primarily due to a complete shut-down of gas processing facilities near Mobley, West Virginia owned by MarkWest Energy Partners, L.P. (“MarkWest”), resulting from a break in a MarkWest natural gas liquids pipeline caused by a landslide in northern Wetzel County, West Virginia. These production shut-ins were largely natural gas and NGLs, thus the impact on the Company–s cash flow was less than any reduction in the Company–s oil volumes. All processing plant issues affecting the production of the Company–s Marcellus Shale natural gas were resolved in mid-October 2013, and all such natural gas production is now flowing through the Eureka Hunter Pipeline System for processing at MarkWest–s Mobley processing facilities.
Magnum Hunter reported an increase in oil and gas revenues of 76.0% to $138.2 million for the nine months ended September 30, 2013, compared with $78.5 million for the nine months ended September 30, 2012. The increase in oil and gas revenues resulted principally from increases in our oil and natural gas production as a result of (i) acquisitions and expanded drilling operations in the Company–s unconventional resources plays throughout 2013 and (ii) higher average realized commodity prices during the period. Midstream and marketing revenues increased to $42.4 million for the nine months ended September 30, 2013, or 307.1%, from $10.4 million for the nine months ended September 30, 2012. The increase was primarily due to (i) increased throughput volumes of the Eureka Hunter Pipeline System, (ii) higher utilization of gas treating and processing equipment at TransTex Hunter and (iii) increased third-party gas marketing volumes.
The Company reported a net loss of ($217.7) million attributable to common shareholders, or ($1.28) per basic and diluted common shares outstanding, for the nine months ended September 30, 2013, compared with a net loss of ($80.2) million, or ($0.54) per basic and diluted common shares outstanding, for the nine months ended September 30, 2012. When adjusted for non-cash and non-recurring gains on asset sales and expenses, the Company–s adjusted net loss attributable to common shareholders for the nine months ended September 30, 2013 was ($0.52) per basic and diluted common shares outstanding (see Non-GAAP Financial Measures and Reconciliations below).
For the nine months ended September 30, 2013, Magnum Hunter–s Adjusted EBITDAX was $73.2 million, compared with $52.1 million for the nine months ended September 30, 2012 (See Non-GAAP Financial Measures and Reconciliations below). The increase in Adjusted EBITDAX was primarily due to (i) an overall production increase as a result of prior acquisitions and expanded drilling operations with a greater focus on oil and liquids as a percentage of total production (48.0% oil/liquids) in the Company–s core areas of operations and (ii) higher average realized commodity prices during the period. However, natural gas production shut-ins (as discussed above), higher LOE costs per BOE, and higher non-recurring cash general and administrative costs (see Non-GAAP Financial Measures and Reconciliations below) per BOE partially offset the increase. The increase in LOE per BOE was primarily due to (i) higher costs in the Appalachian division due to increased liquids production which generally have higher LOE per BOE than natural gas wells and (ii) higher gas transportation reservation charges. In addition, LOE in the Williston Basin increased primarily due to increased electrification implementation and maintenance costs in the field. The Company anticipates LOE in the Williston Basin to decrease over time due to increased efficiencies at the field level which continue to be implemented. General and administrative expenses increased overall during the nine months ended September 30, 2013 due to additional accounting personnel and professional advisory services necessitated by the growth of the Company and its focus on remediation of previously identified internal control deficiencies.
Oil and gas production increased 21.0% for the nine months ended September 30, 2013 to 2.554 million barrels of oil equivalent (“MMBoe”) or 9,355 Boepd (48.0% oil/liquids), compared with 2.110 million barrels of oil equivalent or 7,702 Boepd for the nine months ended September 30, 2012. The increase in production was attributable primarily to the Company–s expanded drilling program in its core areas of operations. In addition, the Company–s oil/liquids production mix increased to 48.0% of overall production for the nine months ended September 30, 2013, compared with 32.0% for the nine months ended September 30, 2012. For the nine months ended September 30, 2013, adjusted production, which includes actual production from continuing operations, production from discontinued operations of 3,288 Boepd and production shut-ins of 2,251 Boepd as described above, increased 93.4% to 14,894 Boepd for the nine months ended September 30, 2013.
Magnum Hunter–s total upstream and midstream capital expenditures, excluding acquisitions, were $116.3 million for the three months ended September 30, 2013. Total upstream capital expenditures for the three months ended September 30, 2013 were $98.1 million, consisting of $55.5 million for the Williston Basin, $36.2 million for the Appalachian region and $6.3 million for the South Texas region. Total midstream capital expenditures for such period were $18.2 million. For the nine months ended September 30, 2013, total upstream capital expenditures were $272.3 million, consisting of $112.1 million for the Williston Basin, $79.4 million for the Appalachian region and $33.5 million for the South Texas region. Total midstream capital expenditures for such period were $47.3 million.
Magnum Hunter believes that, as a result of the Company–s internally generated cash flows, availability under its Senior Revolving Credit Facility and additional liquidity sources, it has sufficient liquidity to fund the remainder of its fiscal 2013 upstream capital budget. As of September 30, 2013, the Company had total liquidity of approximately $204.0 million, comprised of approximately $55.3 million of cash and $148.7 million of borrowing availability under its Senior Revolving Credit Facility. In order to enhance its liquidity and further reduce leverage, the Company is actively negotiating an additional $200 million (estimated) of non-core asset sales, which the Company is endeavoring to close near the end of the year. Additionally, the Company has classified MHP as a discontinued operation for the nine months ended September 30, 2013, and intends to divest these assets sometime in the first quarter of 2014.
For the quarter ended September 30, 2013, the Company commenced the drilling of or participated in a total of 28.0 gross wells, of which 9.0 were operated by the Company. The Company had a 100% success rate on the 29.0 wells that were completed in the third quarter of 2013.
The table below summarizes the Company–s gross drilling activities by area for the third quarter of 2013:
Currently, the Company is running five drilling rigs (three operated and two non-operated drilling rigs); two rigs (two operated) are drilling wells in the Marcellus and Utica Shales; and three rigs (one operated and two non-operated) are drilling wells in the Williston Basin/Bakken Shale.
Marcellus Shale
During the third quarter of 2013, the Company drilled 14 gross (9.5 net) wells in the Marcellus Shale. In the Company operated areas, the Company drilled six gross (5.5 net) wells, and in the Company non-operated Wetzel County, West Virginia 50/50 joint venture with Stone Energy, eight gross (four net) wells were drilled. The Company anticipates that these wells will be connected to the Eureka Hunter Pipeline System over the next 30-45 days and production therefrom will begin flowing to sales shortly thereafter. The Company–s net production in the third quarter of 2013 attributable to Triad Hunter–s operations was approximately 35,800 Mcfepd, a 25% increase over the third quarter of 2012.
Utica Shale
During the third quarter of 2013, the Company commenced drilling of one gross (0.5 net) well in the Utica Shale on the Stalder pad in Monroe County, Ohio. This well is currently being drilled as part of the Company–s 50/50 joint venture with Eclipse Resources, with Magnum Hunter designated as the operator. The Company anticipates this well will reach TVD over the next several days, and then the Company intends to plug back the well and drill an approximate 5,600– lateral.
Additionally, the Company has completed the fracture stimulation of the Farley well, which is its first Utica Shale well in Washington County, Ohio. As a result of the controlled blowout that the Company experienced during the drilling process, the Company was only able to fracture stimulate 10 of 26 planned stages, primarily due to poor cement isolation behind the production casing. Following the completion of the fracture stimulation, the Company began flow testing the well the week of October 28, 2013 with approximately one-third of the horizontal section open. The well tested at 3.0 MMcfepd. The aforementioned rate assumes full ethane rejection. The Company intends to commence the drilling of a second well on the Farley pad within the next 10 days.
Williston Basin
During the third quarter of 2013, the Company drilled 13 gross (5.1 net) wells in the Three Forks Sanish/Bakken formations in North Dakota. In the Company operated areas, the Company drilled two gross (1.8 net) wells, and in the Company non-operated areas, 11 gross (3.3 net) wells were drilled. During the third quarter, (i) a total of 11 two-mile wells were completed in the Middle Bakken formation, with an IP 24-hour rate of 768 Boepd and an IP 30-day rate of 474 Boepd, and (ii) a total of 12 two-mile wells were completed in the Three Forks Sanish formation with an IP 24-hour rate of 640 Boepd and an IP 30-day rate of 435 Boepd. At the end of the third quarter of 2013, 12 gross (4.5 net) Company wells were drilling or waiting on fracture stimulation in North Dakota.
Eureka Hunter Pipeline
In the third quarter of 2013, Eureka Hunter Pipeline–s focus has been on expansion efforts in Monroe County, Ohio. Eureka Hunter Pipeline has acquired and cleared in excess of 20 miles of right-of-way in southeastern Ohio and has initiated pipeline construction in this region. Eureka Hunter Pipeline anticipates production from Monroe County wells along its 11-mile long Tippens lateral to begin flowing into this new Tippens gathering system segment before year-end 2013; and production from Monroe County wells along its eight-mile long Ormet lateral to begin flowing into this new Ormet gathering system segment toward the end of 2013 or early 2014 depending on any weather delays. Eureka Hunter Pipeline plans additional pipeline expansion in Ohio throughout 2014.
During the third quarter of 2013, Eureka Hunter Pipeline also set its third compressor at its Carbide central facilities site located in Wetzel County, West Virginia to assist with low pressure gathering and to help manage ongoing mainline pigging operations. Current daily throughput on Eureka Hunter Pipeline is averaging more than 100,000 MMBtu per day, and Eureka Hunter Pipeline anticipates the connection of significant new gas supplies from new wells during the fourth quarter of 2013 and first quarter of 2014.
Mr. Gary C. Evans, Chairman of the Board and Chief Executive Officer of Magnum Hunter Resources, commented, “By accelerating our non-core asset sales and focusing the Company on our three core unconventional shale plays, we are positioning Magnum Hunter for exception growth in the future. While this was a “noisy” quarter with a combination of asset write-downs and the acceleration of discontinued operations associated with contemplated property divestitures, we are cleaning up the Company and repositioning for a much more laser focused entity. Our industry competitors have significantly de-risked our large leasehold acreage position in the Utica Shale Play over the last 90 days. This has occurred through the drilling of exceptional new wells located to the north, northwest, and southwest of our holdings. While our first Utica well drilled on the Farley pad (10 locations) in northern Washington County, Ohio is not a true test of this area with only 30% of the horizontal section open and producing, we are encouraged enough from the production characteristics witnessed to not only accelerate our leasing activity in this area but also move another drilling rig in for spudding a second well next week. On our Stalder pad (18 locations) in Monroe County, Ohio is our second Utica test which is on schedule to be completed prior to year-end. We will then begin drilling our first Utica test in Tyler County, West Virginia in the first quarter of 2014. With 21 new Williston Basin wells coming on stream prior to year-end and 15 new Marcellus wells located in West Virginia on schedule for production sales in December, we are setup for a substantial production boost prior to January. While our board of directors has not yet approved our capital expenditure budget for fiscal 2014, management is confident in providing a target exit rate on daily production for the Company of 35,000 Boepd by the end of next year.”
This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations within this release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with GAAP that are presented in this release.
Magnum Hunter defines adjusted income (loss) as reported net income (loss) attributable to common shareholders, plus non-recurring and non-cash items which include (1) exploration, (2) impairment of proved oil and gas properties, (3) non-cash stock compensation expense, (4) non-cash 401k matching expense, (5) non-recurring transaction and other expense, (6) unrealized (gain) loss on investments, (7) interest expense — fees, (8) unrealized (gain) loss on derivatives, (9) (gain) loss on sale of assets, (10) income tax expense (benefit), (11) (gain) loss from sale of discontinued operations and (12) income from discontinued operations.
Magnum Hunter defines Adjusted EBITDAX as net income (loss) from continuing operations before (1) net interest expense, (2) (gain) loss on sale of assets, (3) depletion, depreciation, amortization and accretion, (4) impairment of proved oil and gas properties, (5) exploration, (6) non-cash stock compensation expense, (7) non-cash 401k matching expense, (8) non-recurring transaction and other expense, (9) unrealized (gain) loss on investments, (10) income tax (benefit) and (11) unrealized (gain) loss on derivatives. Adjusted EBITDAX is not a measure of net income or cash flows as determined by GAAP.
Magnum Hunter defines recurring cash G&A as total general and administrative expenses before (1) non-cash stock compensation and (2) transaction and other non-recurring expense.
Management believes these non-GAAP financial measures facilitate evaluation of the Company–s business on a “normalized” or recurring basis and without giving effect to certain non-cash expenses and other items, thereby providing management, investors and analysts with comparative information for evaluating the Company in relation to other oil and gas companies providing corresponding non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with GAAP, and that the reconciliations to the closest corresponding GAAP measure should be reviewed carefully.
Magnum Hunter Resources Corporation and subsidiaries are a Houston, Texas based independent exploration and production company engaged in the acquisition, development and production of crude oil, natural gas and natural gas liquids, primarily in the states of West Virginia, Ohio, North Dakota and Texas. The Company is presently active in three of the most prolific unconventional shale resource plays in North America, namely the Marcellus Shale, Utica Shale and Williston Basin/Bakken Shale.
Magnum Hunter is providing a reminder that it makes available on its website (at ) a variety of information for investors, analysts and the media, including the following:
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission;
the most recent version of the Company–s Investor Presentation slide deck;
announcements of conference calls, webcasts, investor conferences, speeches and other events at which Company executives may discuss the Company and its business and archives or transcripts of such events;
press releases regarding annual and quarterly earnings, operational developments, legal developments and other matters; and
corporate governance information, including the Company–s corporate governance guidelines, committee charters, code of conduct and other governance-related matters.
Magnum Hunter–s goal is to maintain its website as the authoritative portal through which visitors can easily access current information about the Company. Over time, the Company intends for its website to become a primary channel for public dissemination of important information about the Company. Investors, analysts, media and other interested persons are encouraged to visit the Company–s website frequently.
Certain information included on the Company–s website constitutes forward-looking statements and is subject to the qualifications under the heading “Forward-Looking Statements” below and in the Company–s Investor Presentation slide deck.
This press release includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. Although Magnum Hunter believes that the expectations reflected in the forward-looking statements are reasonable, Magnum Hunter can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings made by Magnum Hunter with the Securities and Exchange Commission (SEC). Among the factors that could cause results to differ materially are those risks discussed in the periodic reports filed by Magnum Hunter with the SEC, including Magnum Hunter–s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended after such fiscal year. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” Forward-looking statements speak only as of the date of the document in which they are contained, and Magnum Hunter does not undertake any duty to update any forward-looking statements except as may be required by law.
AVP, Finance and Capital Markets
(832) 203-4539