Despite problems with their first well targeting the Utica Shale, executives with Magnum Hunter Corp. said the company plans to speed up leasing activity and deploy a second drilling rig in the play, based on encouraging results by their competitors.

The Houston-based company also plans to accelerate the sale of its non-core assets, but will hold onto its Eureka Hunter Pipeline subsidiary for the time being, anticipating “significant new gas supplies from new wells” during the next two quarters.

“We are going to be a well-oiled machine with respect to being able to put [wells] on in the Williston Basin, Bakken, Three Forks, Marcellus and Utica,” Magnum CEO Gary Evans told analysts during a conference call Friday to discuss 3Q2013 results. “That is our core. We’ve got tons of acreage — we don’t need to go anywhere else.”

During the third quarter, Magnum’s first well targeting the Utica — Farley 1305H — experienced a controlled blowout; only 10 of the 26 hydraulic fracturing (fracking) stages were completed. James Denny, executive vice president of operations, said the Farley well was to be shut in over the weekend and two additional wells will be drilled on the pad in Washington County, OH.

“We may need to produce these Utica wells [with longer laterals] than we might normally do, to pull the pressures down in order to be able to drill subsequent wells once we stimulate and begin producing the first well there,” Denny said during Friday’s Q&A session. “We’re pretty confident in the presence of the hydrocarbons, but what was missing is pressure. This gives us the confidence to go in and drill a couple of more wells.

“I think you’ll see that these early results, with the 10 [frac] stages, are nowhere near what we will be able to produce once we have a full 6,000- to 7,000-foot lateral, with 25 or more stages.”

During the third quarter, Magnum started drilling one well targeting the Utica on the Stalder pad, a joint venture (JV) with Eclipse Resources LLC for up to 10 wells targeting both the Marcellus and Utica shales in Monroe County, OH (see Shale Daily, July 3). The well is scheduled to reach total vertical depth within days, after which a 5,600-foot lateral will be drilled.

Evans told analysts that although Magnum hasn’t formally approved a capital expenditures (capex) budget for 2014, the company will spend close to $400 million, with a larger portion devoted to the Appalachian Basin. He said Magnum could deploy up to four rigs in the Marcellus and Utica.

“We actually are hiring new staff as we speak to beef up the drilling and operations division of Appalachia to be prepared for a higher budget and more activities,” Evans said.

Magnum Hunter has discontinued operations at its Williston Hunter Canada Inc. and Magnum Hunter Production Inc. subsidiaries. Evans said the company has also decided to sell its properties in Kentucky, and was putting them up for sale immediately.

“A lot is going to change with Magnum Hunter over the next 60, 90, 120 days, and we think it’s all for the good,” Evans said. “We’ve made the decision to really accelerate our non-core divestitures.

“Seven packages have closed approaching $500 million of actual cash received. We have another $200 million of transactions that are in various stages of letter of intent, definitive agreement negotiations that plan to close. We will have these done, we believe, by the end of the year. That’s another couple hundred million dollars of cash.”

In a statement Friday, Evans added that Magnum’s competitors “have significantly de-risked our large leasehold acreage position in the Utica over the last 90 days. This has occurred through the drilling of exceptional new wells located to the north, northwest, and southwest of our holdings.”

The company said current throughput on the Eureka Hunter Pipeline is 126,000 MMBtu/d.

“We are working with other pipeline companies to have interconnects that we can take the dry gas elsewhere,” Evans said “Since we’re on the western side of the Appalachian Basin, we’re closer to some of the truck lines. We are acquiring firm transportation so we can begin connecting Eureka and be going west with this gas.”

Analysts reacted positively to the developments at Magnum.

“We find Magnum’s Marcellus and Utica-Point Pleasant Plays very attractive,” Irene O. Haas, analyst for Wunderlich Securities Inc., said in a note Monday. “Magnum plans to hang on to Eureka Hunter for a little longer and will instead divest more non-core upstream assets. As such, we are not expecting meaningful debt reduction until later in 2014 as the company continues to consolidate.

“We believe the Point Pleasant Play is productive in northern Washington County. With more test results and asset sales ahead, we plan to revise our NAV [net asset value]. [After] we factor in a realistic Utica development scheme, which should [be able to] give the name more headroom.”

Motley Fool contributor Matt DiLallo concurred. “Other than keeping an eye on asset sales and liquidity, the one area to watch is the Utica Shale,” DiLallo said. “Magnum’s initial results really can’t be judged just yet…That said, Magnum sees a lot of potential in the Utica. It’s encouraged enough from it and the results of its industry peers that it has accelerated its leasing activity and is bringing in a second drilling rig.”

Magnum reported an 80.2% increase in oil and gas revenues, from $30.0 million in 3Q2012 to $54.0 million in 3Q2013. Midstream and marketing revenues increased 148.0% during the same time frame, from $5.1 million to $12.5 million. Production totaled 10,049 boe/d in 3Q2013, beating analysts’ estimates.

Although Magnum reported an adjusted loss of 17 cents/share during 3Q2013, the company generated positive cash flow. Adjusted earnings before interest, taxes, depreciation, amortization and exploration expenses was $28 million, a 67.6% increase from the $16.7 million earned during the preceding third quarter.