The outlook for Magnum Hunter Resources Corp. appears increasingly bleak as it continues to suffer losses from continuing operations, is in default with its creditors, has a capital deficit of more than $1 billion and is now facing the termination of its natural gas gathering services.
The company has said it will not issue a third quarter earnings press release or host a conference call with investors. Instead, the company highlighted its latest troubles in a quarterly report filed with the U.S. Securities and Exchange Commission (SEC). In October, Magnum said it had hired PJT Partners LP to explore "potential strategic alternatives to enhance liquidity and address the company's current capital structure," without providing further detail (see Shale Daily, Oct. 12).
In its SEC filing this week, however, Magnum said those options could include completing previously announced asset sales; filing for Chapter 11 bankruptcy protection or even restructuring as a private company. The New York Stock Exchange on Tuesday said it would begin the process to delist Magnum’s shares, citing "abnormally low" price levels in its decision.
With just $6.5 million in cash on hand and a capital deficit of more than $1 billion, now the company is facing the prospect of having its natural gas gathering services terminated for its core assets in the Appalachian Basin. The company revealed that its producer subsidiary Triad Hunter LLC owes Eureka Hunter Holdings LLC -- in which Morgan Stanley Infrastructure Inc. (MSI) owns a 53% interest -- $10.7 million in overdue gathering fees. MSI advised the company that if it fails to provide adequate assurance of payment or fails to pay in full by Nov. 20 than it would terminate its gas gathering service agreement with Triad.
Magnum said it was seeking a forbearance with MSI.
"The company can provide no assurance regarding whether a forbearance will be obtained," Magnum said in its filing. "If such forbearance is not obtained, and Eureka Hunter Pipeline suspends performance under or terminates the gas gathering services agreement, such suspension in service or termination would force a temporary shut in of certain of our wells and could materially impact our business, financial condition and results of operation."
The company added that if its agreement is suspended or terminated it also might not be able to secure gathering capacity in the region given how limited it is.
Since the beginning of the year, Magnum has promised but failed to deliver on a Utica Shale joint venture, the sale of its stake in Eureka Hunter, and other ideas such as having a third party assume some of its transportation liabilities to help free up credit (see Shale Daily, Aug. 11; June 25). In the meantime, its executive ranks have been shuffled, its drilling program has been suspended and its liquidity has dried up.
Magnum said last week that it had obtained a new senior secured term loan for $60 million to refinance its existing loans and help fund its day-to-day operations. Unaudited results included in its SEC filing show that revenue in the third quarter declined to $33.7 million from $70.6 million in the year-ago period. Its average realized price for natural gas fell significantly to $1.62/Mcf during the quarter from $3.43/Mcf in the year-ago period, while its oil price went from $90.55/bbl to $43.13/bbl during the same time.
The company produced 136.1 MMcfe/d during the third quarter, up from 126 MMcfe/d in the second quarter and 98.1 MMcfe/d in 3Q2014.
The company also reported impairments related to both its Appalachian and Williston Basin properties of $49.8 million. The company reported a net loss of $113.2 million (minus 53 cents/share) during the quarter, compared to a net loss of $123.4 million (minus 68 cents/share) in 3Q2014.