Magnum Hunter prepared to ride out pricing woes with new financing, ‘cash cow’ in hip pocket

By Lisa Kerner

Charlotte, N.C., Jan. 23 – Magnum Hunter Resources Corp. chairman and chief executive officer Gary Evans, evoking Mark Twain, said rumors of the company’s death “have been greatly exaggerated.”

Evans made his remarks during a conference call on Friday to update analysts on the company’s operations amid current macro-economic conditions.

The CEO reiterated that as it sits today, Magnum is “by no means an oil company” and that he is “very bullish” on natural gas in the long term.

Magnum sold more than $700 million of oil properties in the last year and a half and is “still stuck” with one legacy asset in North Dakota, said Evans.

According to Evans, oil prices have declined by about 50% since June and in November, OPEC decided not to reduce oil production. Natural gas, he said, will be dependent on the weather over the next two years.

The natural gas market is “way underestimated,” with industrial demand coming from chemical and fertilizer plants, among others.

“We’re prepared again for cheap natural gas prices for the next year, year and a half,” Evans said.

Pricing protection

In October, Magnum Hunter entered into a $340 million second-lien credit facility that matures in October 2018 with a group of investors, which protected the company from the pricing down turn.

The move increased the company’s interest rate to 7.5% from 3%, but eliminated borrowing base reduction worries, Evans said.

Some of Magnum Hunter’s competition has not been as fortunate when it comes to financing and “can’t get it done now.”

Raising capital

While Magnum Hunter has not announced its 2015 capital budget, Evans said it could be $100 million at the most. He is not worried about raising additional liquidity if needed.

“There’s a number of things that we have in our quiver that we’re always working on,” Evans noted. The company posted substantial letters of credit with some firm transportation companies and is in talks with banks about moving those off its balance sheet, providing $30 million to $50 million of additional liquidity.

Evans said that the company has “a cash cow in its hip pocket” with its very sellable Eureka Hunter assets, worth about $500 million to $700 million.

“We can sell a piece tomorrow and we have 10 people that want to buy it,” he said.

What Evans won’t do is sell assets, like those in Kentucky, at a “fire sale.”

Magnum Hunter is also exploring JV opportunities for its Ohio Marcellus acreage with Citibank as a lead, “probably something in the $300 million to $350 million range,” with some upfront cash and a drilling carry, according to Evans.

Ideally, the company is looking for an investor that is looking for a rate of return and then will go away, Evans stated, adding that there is “a tremendous amount of interest in this” and the phone is “ringing off the hook.”

Overall, Evans said for the first six months of 2015, Magnum Hunter will “hunker down” and “get better at what we do.”

Magnum is a Houston-based oil and gas exploration and development company.

© 2015 Prospect News.
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