Independent producer Magnum Hunter Resources Inc. has jumped on the wagon for what it hopes will be a long ride for higher natural gas and oil prices, by increasing its capital expenditure budget for 2003 by $10 million, to $125 million from $115 million. Most of the increased capital will be spent in the first quarter.

The Irving, TX-based independent has earmarked $5 million of the increase for hurricane and tropical storm damage and repairs to offshore facilities in late September and early October. It also spent several million on properties to prepare them for a maximum sales price. Additionally, Magnum Hunter’s management wanted to take advantage of the opportunities in reduced field service costs by lower-than-expected industry activity. The company plans to fund its increased spending from discretionary cash flow and higher proceeds from non-core asset sales that closed in 2002.

For calendar year 2003, the board of directors has approved a $100 million capital expenditure budget, with more than one-third of the capital slated for the first quarter. By region, the budget provides $60 million for the Gulf of Mexico (GOM); $20 million for the Permian Basin; $15 million for the Mid-Continent; and $5 million onshore Gulf Coast.

Magnum Hunter plans to drill about 110 wells in 2003, including 17 offshore in the shallow GOM. Another 93 wells will be drilled onshore, primarily in southeastern New Mexico, West Texas and western Oklahoma. In the GOM, 26% of the anticipated capital expenditures are to be spent on drilling, 27% on completion operations, and 47% on new leases and facilities. Of the planned 17 GOM wells, 12 are considered exploratory; five are developmental. Onshore, 84 of the planned wells for 2003 are considered developmental.

The company filed its Form 8-K with the Securities and Exchange Commission, outlining its financial guidance for the first quarter and fiscal 2003. Management said that in providing the financial forecast, it used an approximate average within the “realm of assumptions,” assuming that total daily production will average about 195-205 MMcfe/d in the first quarter, and between 195-210 MMcfe/d for calendar year 2003. Oil production is expected to average about 10,600-10,900 bbl/d in the first quarter and 10500-10,900 bbl/d for the entire year.

“We estimate gas production will average about 131-140 MMcf/d in the first quarter and 132-145 MMcf /d for the year,” the company said in a statement. The assumptions were made with New York Mercantile Exchange prices for crude oil at $25/bbl for the entire fiscal 2003, and Nymex gas at $4/MMcf/d for the entire year. Using those figures, Magnum Hunter estimates earnings before interest and taxes to be about $36 million in the first quarter (50 cents/share) and $160 million ($2.20) for the year.

“Management has completed an extensive review of projects in all regions in which we operate,” said CEO Gary C. Evans. “We have high graded those properties that offer the highest rates of return on capital deployed within our existing portfolio. Management has intentionally front-end loaded the 2003 capital budget in an effort to take advantage of current commodity prices and low service costs. Over 50% of our 2003 capital budget will go to exploration projects that are both on land and offshore,” and he said the company “remains on target to exit 2002 with daily production in the 195-200 MMcfe per day range, after the impact of recent property divestitures.”

Magnum Hunter has one remaining property divestiture planned for the first quarter of 2003, which includes most of the its southern Louisiana onshore production. Evans said the board would review the company’s capital budget plan again by mid-year and may revise the budget based upon results achieved year-to-date, commodity prices at that time, proceeds received from non-core asset sales, and field service costs. He added that Magnum Hunter “continued to maintain a very high drilling success rate of 96% in 2002 with a total of 125 wells completed successfully out of 129 wells drilled through mid-December.”

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