Despite reporting a $16.3 million net loss for 2010, Magnum Hunter Resources Corp. believes that recent and pending acquisitions could help the company more than triple production, allowing it to compete with bigger companies in three major shale plays.
"The beauty of the acquisitions that we have pending, as well as our existing inventory of leases, is that we've got enough drilling to carry this company for the next three to five years," CEO Gary Evans said during a Friday conference call. "So we do not have to make acquisitions to grow. We can grow by the drill bit. And that is our real game plan for the rest of 2011."
The Houston company recently approved a $150 million capital budget for 2011 that would fund $65 million for seven net wells in the Eagle Ford shale, $60 million to drill 12.5 net wells in liquids-rich portions of the Marcellus Shale in West Virginia and Ohio, and $25 million for midstream operations, primarily an expansion planned for the Eureka Hunter Pipeline System in West Virginia (see Shale Daily, Dec. 20, 2010). The company expects that capital budget to expand once several pending acquisitions are complete.
Magnum Hunter went on a buying spree in 2010.
In February, it closed an $81 million acquisition of Triad Energy. In December, it bought $40 million of Marcellus Shale leases in West Virginia from PostRock Energy Corp. (see Shale Daily, Dec. 28, 2010a). Also in December, Magnum Hunter announced plans to acquire NGAS Resources Inc. in a deal in the Marcellus Shale valued at $98 million and NuLoch Resources Inc. in a deal in the Williston Basin in the Bakken Shale valued at $327 million (see Shale Daily, Dec. 28, 2010b, Jan. 21, 2010).
The company expects those acquisitions to close in the next 60 to 90 days.
Magnum Hunter expects the two acquisitions to immediately bump up production rates and keep them rising throughout the year. The company currently produces more than 3,000 boe/d, of which 57% is oil, but expects production to double to more than 6,000 boe/d once the remaining acquisitions close and believes daily production could top 10,000 boe by the end of 2011.
The Triad acquisition already helped increase production in 2010 to 1,636 boe/d, up from 703 boe/d in 2009. The acquisition, as well as drilling in the Marcellus and Eagle Ford, helped offset 470 boe/d of production that Magnum Hunter lost in October 2010 when it sold its 10% nonoperated working interest in the Cinco Terry field in West Texas for $21.5 million.
In 2010, Magnum Hunter drilled two wells in Tyler County, WV, that are now producing between 8 MMcf/d and 9 MMcf/d and is completing a third well on a neighboring county in Ohio. "That's proven to be, almost one year later now, a phenomenal acquisition," Evans said about the PostRock deal. "We feel like it could be the springboard for us to build upon a much large operation up in Appalachia. It's surpassed our expectations."
Following the closure of the two pending acquisitions, Magnum Hunter expects its borrowing base on its senior commercial bank facility to be around $145 million. After funding the current 2011 capital program, the company's liquidity is now around $45 million.