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As Magnum’s Eureka Pipeline Grows, System Could Play Role in Bankruptcy

A day before its parent company, Magnum Hunter Resources Corp., entered Chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware, Eureka Hunter Pipeline LLC again announced record throughput on its Appalachian gathering system.

While Magnum and its Appalachian production subsidiary, Triad Hunter LLC, along with 18 other subsidiaries have declared bankruptcy and hope to restructure, Eureka, which also owns the natural gas treatment and processing services company, TransTex Hunter LLC, has not entered those proceedings. The pipeline reported throughput of 835 MMcf/d earlier this week, up from 640 MMcf/d at mid-year and up from 400 MMcf/d at the end of 2014 (see Shale DailyJan. 8).

Magnum owns a 45% interest in the system, while Morgan Stanley Infrastructure Inc. remains the majority stakeholder with 53%. In the last year or so, Magnum has said at various times that it would either sell the entire system, a 5% stake in the system or take it public (see Shale DailyJune 25Nov. 7, 2014). None of those efforts were successful, with the company ultimately trying to market the pipeline for more than $1 billion earlier this year.

Eureka could eventually have a role in the bankruptcy, however. Magnum said Tuesday that under a prearranged restructuring plan, lenders holding nearly all of the company's debt have agreed to the bankruptcy (see Shale DailyDec. 15). They would provide $200 million in the meantime so the company can meet its financial obligations.

In an SEC filing made the same day the bankruptcy was announced, Magnum said that under the restructuring plan its debtors could not market the company's equity interest in the system without the consent of parties providing the interim financing. It added that the financing "may or may not be secured by the company's equity interest in Eureka," especially without the consent of MSI.

A 175-mile system that straddles five counties in West Virginia and three counties in Ohio, the 20-inch diameter Eureka pipeline has continued to grow. About 70% of its volumes come from third parties and Magnum has projected that throughput could grow to 1 Bcf/d by the end of this month or early next year.

While Magnum lowered the asking price for Eureka earlier this year after it became evident that the commodities downturn was hampering those efforts (see Shale DailyAug. 10), the value of the system nearly has parity with that of the company itself, according to the company's SEC filing.

For the purposes of the bankruptcy and any related settlements, Magnum said that the parties involved have agreed to a total enterprise value of the company of $900 million, noting that it wasn't entirely indicative of all of its assets, but for the purpose of resolving various creditor claims.

Magnum has 178,000 acres in the Marcellus and Utica shales and far more scattered throughout the Appalachian Basin. It has drilled about 35 wells, mostly in West Virginia.

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