With a portfolio and focus on U.S. unconventional shale plays, Houston-based independent Magnum Hunter Resources Corp. strives to become a "drilling factory," said CEO Gary Evans, who spoke Wednesday to the Pritchard Capital Partners Energize 2012 Conference in San Francisco.
"Our job now that we have accumulated all of our acquisitions and leases is to become a drilling factory," said Evans, stressing that Magnum Hunter has more than 4,000 drilling locations on its investments, which are concentrated in the Eagle Ford, Bakken and Marcellus shale formations.
Last year the company exceeded its 10,000 boe/d exit goal for a production rate, hitting 12,500 boe/d. This year the exit rate is forecast to be 14,500 boe/d. Total reserves have exceeded 40 million boe and are to be officially disclosed later this month by third-party engineering firms, the CEO said.
"I think the market is finally beginning to realize that we have a lot of technology in-house, and we have done a decent job, I think, in showing how we can develop these assets." Evans said the company will be increasing its acreage positions in each of the three major shale plays where it is concentrating but it is not anticipating any significant acquisitions. "Our goal is to grow within our existing portfolio."
Current drilling efforts overall are adding about 1 million boe a month to the company's reserves, he said. Evans also talked about all of the unconventional resource plays, despite expressing concern about low gas prices.
Magnum Hunter, with a heavy presence in the Marcellus Shale, is "very concerned about natural gas prices," he said. The company's senior management is meeting this week in an attempt to determine how much and where to shift company emphasize to oil plays. "[The low gas prices] are the main reason we put a lot of hedges in place for 2012 and 2013 the last 60 days. We're looking at how we might realign our budget to more of our oil plays."
At $3/Mcf gas prices, the Marcellus wells are still bringing some "nice returns in the 40% range," but the CEO is concerned that the continued accelerated drilling in the formation is going to drive prices down to the $2 level. "The beauty of being diversified as we are, we can take capital from here and move it to other [predominantly oil-based] plays," he said.
Based on his 30 years in the industry, Evans is philosophical about low prices. "The beauty of low gas prices is that they fix low gas prices," he said, noting that in new areas in the Utica Shale and other unconventional plays Magnum Hunter is focusing more on oil, liquids and condensate.
While Evans outlined the relative sizes of Magnum Hunter's interests in the three shale plays -- Eagle Ford and Bakken being mostly oil, but smaller in size -- he emphasized the company's biggest play is in "Appalachia," or the Marcellus, where the company has acquired 375,000 acres in four transactions. The company's leasehold is predominantly (75%) natural gas with the rest in oil and liquids.
"If you're going to be in natural gas today, which is again a horrible price, this [Marcellus] is where you want to be," Evans said. "We're focused only on gas development in Marcellus and the Utica. We keep changing our chemical cocktail [used in hydraulic fracturing] and we're getting better and better results. We just put three wells on over the Christmas holidays and collectively those three wells are doing 20 MMcf/d."
On the infrastructure side in the Appalachia play, the company's Eureka Hunter pipeline in West Virginia will soon announce the addition of private equity investors buying what he called a "small portion for substantial value" of the 20-inch diameter pipe with a 200-300 MMcf/d capacity (see Shale Daily, Oct. 6, 2011). The pipeline is concentrated in a 1,000-square-mile area in which Magnum Hunter has the only high-pressure pipeline. "We plan to continue that pipeline into [the Utica Shale] Ohio in 2012," he said.