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Magnum Hunter Leaning On North Dakota, Appalachia For Growth

Magnum Hunter Resources Corp. continued to focus on divesting non-core assets in the first quarter, as it looks to shore-up its liquidity and narrow its focus on two core areas in the Appalachian and Williston Basins that continue to slowly drive production gains.

Last year, the company reported selling $500 million in divestitures, including a major sale in the Eagle Ford of South Texas to Penn Virginia Corp. (see Shale DailyApril 4, 2013). It plans to sell another $200-$400 million of non-core assets this year as well (see Shale DailyDec. 12, 2013).

Some of those planned deals, the company's management said during a conference call with financial analysts Friday, have been in the works for more than a year now. But Magnum looks on track, reporting more than $100 million in divestitures through the first three months of the year aimed at feeding its growth and funding this year's capital expenditures.

"The company is currently pursuing non-core asset sales to improve liquidity," wrote Topeka Capital Markets analyst Garbriele Sorbara in a note to clients on Friday. "While liquidity is currently tight, we believe the company's asset base provides numerous opportunities to improve its balance sheet [and] capitalization, including non-core asset sales, [joint ventures] and potentially tapping equity markets."

Analysts seemed concerned about the company's cash position and this year's small capital expenditures budget of $400 million, wondering how it would meet the company's forecasted growth rate by year's end. The company reported a net loss of $76.5 million (44 cents/share) in the first quarter, primarily on higher costs related to development in its core areas, compared to another loss of $57.7 million (34 cents/share) during the same period last year.

Analysts, though, are still bullish about the company's prospects, especially in the Appalachian Basin, where it continues to acquire acreage and churn out most of its production. It is also currently drilling the pilot hole for its first Utica Shale well at its Stewart Winland pad in Tyler County, WV (see Shale DailyFeb. 14), which analysts have eagerly awaited as the plans of other operators have drawn attention to the Utica's potential in that state (see Shale DailyMarch 26)

"While [Magnum] is posting impressive results in the Marcellus, we continue to believe success in the dry gas window of the Utica play could present significant upside to [Magnum], with results from the four-well Stewart Winland pad in West Virginia expected to be reported late-summer 2014," Sorbara said. "We are watching peer activity, which continues to move east into West Virginia."

Magnum reported production of 14,796 boe/d in the first quarter, up 59% from 7,322 boe/d in 1Q2013 and an improvement from the 11,298 boe/d it reported in 4Q2013.

Most of that production came from the Utica and Marcellus shales, where the company produced 12,700 boe/d and drilled five wells and completed another six. The Bakken Shale contributed to the rest of first quarter production, where the company said it participated in the drilling of four gross wells during the first quarter.

Currently, the company's liquidity stands at $131.2 million, but most of that comes in the form of credit. When pressed about the company's financials, CEO Gary Evans said the outlook will improve as production increases and throughput volumes for its Eureka Hunter midstream unit continue to rise.

"We're continuing to slowly step out and prove-up our Utica acreage as we go south," Evans said. "Lots of people are watching the Stewart Winland well, which will prove-up a significant portion of our West Virginia acreage and a portion of our southern Ohio acreage.

"As we continue to have success, you'll see the budget go up, you'll see the drilling go up and you'll obviously see higher production," he added. "We really feel good about what our plan has been and where we're going and the results continue to get better. There's nothing on our radar that indicates that there are any issues coming."

Last month, the company said it sold Canadian assets in the Tableland Field of Saskatchewan and the Kiskatinaw formation of Alberta for a combined price of $94.6 million (see Shale DailyApril 22). It also sold its remaining assets in South Texas for $24.5 million.

The company is currently running four rigs. Two of those are non-operated in the Bakken and two are operated rigs in the Utica and Marcellus shales. Management said on Friday that it would move a third rig into the Appalachian Basin in the coming months. 

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