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Magnum Hunter Resources releases quarterly report

By Bob Downing Published: May 9, 2014

From Magnum Hunter Resources today:

 

 
 
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2014 News
Magnum Hunter Resources Reports First Quarter 2014 Financial and Operating Results

HOUSTON, TX--(Marketwired - May 9, 2014) - Magnum Hunter Resources Corporation (NYSE: MHR) (NYSE MKT: MHR.PRC) (NYSE MKT: MHR.PRD) (NYSE MKT: MHR.PRE) (the "Company" or "Magnum Hunter") announced today financial and operating results for the three months ended March 31, 2014. The Company plans to file its Form 10-Q for the quarter ended March 31, 2014 with the Securities and Exchange Commission later today. First quarter highlights of the Company's financial and operating results include the following:

  • Oil and gas revenues were $70.2 million for the quarter, a 103% increase over the prior-year quarter
  • Midstream and marketing revenues were $31.6 million for the quarter, a 99% increase over the prior-year quarter
  • Adjusted EBITDAX(a) was $38.9 million, an increase of 89% compared to the prior-year quarter
  • Adjusted net loss(a) of ($0.15) per diluted share for the quarter
  • Production from continuing operations of 14,796 BOEPD and adjusted production(b) of 17,241 BOEPD, a 59% increase over the prior-year quarter
  • First dry gas Utica Shale well, the Stalder #3UH, tested at a peak rate of 32.5 MMCF/d (97% methane). This is one of the highest rate Utica Shale wells in the dry gas part of the play drilled to date by any operator
  • Throughput volumes on Eureka Hunter Pipeline System reached a record high, averaging 152,625 MMBtu/d during the quarter with a recent peak throughput rate of 230,109 MMBtu/d
  • Expected capacity on Eureka Hunter Pipeline System grows to 1.2 Bcf/d upon completion of interconnects into Dominion Transmission, Texas Eastern Transmission Company and Rockies Express Pipeline
  • Closed or announced in excess of $100 million of non-core asset sales year-to-date with over $125 million of additional planned non-core asset sales in process
  • Recently increased borrowing base under the Company's Senior Revolving Credit Facility by $92.5 million to $325.0 million. The Company had total liquidity of $131.2 million, comprised of $98.8 million of availability under the Senior Revolving Credit Facility and $32.4 million of cash on hand as of May 6, 2014

(a) See Non-GAAP Financial Measures and Reconciliations below

(b) Adjusted production includes production from continuing operations and 2,445 BOEPD of production from discontinued operations

Financial and Operating Results for the Three Months Ended March 31, 2014

Magnum Hunter reported an increase in oil and gas revenues of 103% to $70.2 million for the three months ended March 31, 2014, compared with $34.6 million for the three months ended March 31, 2013. The increase in oil and gas revenues resulted principally from (i) increases in the Company's oil and natural gas production as a result of its expanded drilling efforts in the Company's core areas of operations in the Marcellus Shale and Utica Shale plays and (ii) higher average realized commodity prices for the period. Midstream and marketing revenues also increased to $31.6 million or 99% for the three months ended March 31, 2014, compared to $15.9 million for the three months ended March 31, 2013. The increase in midstream and marketing revenues was principally due to (i) increased throughput volumes on the Eureka Hunter Pipeline System and (ii) increased third-party gas marketing volumes.

The Company reported a net loss of ($76.5) million attributable to common shareholders, or ($0.44) per basic and diluted common shares outstanding, for the three months ended March 31, 2014, compared with a net loss of ($57.7) million, or ($0.34) per basic and diluted common shares outstanding, for the three months ended March 31, 2013. When adjusted for a combination of certain non-recurring and non-cash items, the Company's adjusted net loss attributable to common shareholders for the three months ended March 31, 2014 was ($0.15) per basic and diluted common shares outstanding (see Non-GAAP Financial Measures and Reconciliations below).

For the three months ended March 31, 2014, Magnum Hunter's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization and Exploration ("Adjusted EBITDAX") was $38.9 million, compared with $20.6 million for the three months ended March 31, 2013 (See Non-GAAP Financial Measures and Reconciliations below), an increase of 89%. The increase in Adjusted EBITDAX was due primarily to (i) an overall production increase as a result of the Company's expanded drilling operations in its core areas of operations in the Marcellus Shale and Utica Shale plays and (ii) higher average realized commodity prices during the period. However, higher lease operating expenses ("LOE") per barrel of oil equivalent ("BOE") partially offset these increases. The increase in LOE per BOE was primarily due to (i) higher costs in the Appalachian region due to increased liquids production which generally have higher LOE per BOE than natural gas production, (ii) higher gas transportation reservation charges and (iii) increased non-recurring well work-over expenses in the Williston Basin. The Company anticipates LOE in the Williston Basin to decrease over time due to increased efficiencies at the field level which continue to be implemented. Recurring general and administrative expenses per BOE for the three months ended March 31, 2014 decreased 55% to $5.35 per BOE from $11.89 per BOE during the three months ended March 31, 2013, primarily due to (i) production increases during the period and (ii) reduced reliance on third-party consultants (See Non-GAAP Financial Measures and Reconciliations below). The Company anticipates that its reliance on third-party consultants will continue to decrease, thus reducing its recurring general and administrative expenses per BOE.

Oil and gas production increased 102% for the three months ended March 31, 2014 to 1.332 million BOE ("MMBoe") or an average of 14,796 BOE per day ("Boe/d") (46% oil/liquids), compared with production of 659 thousand BOE ("MBoe") or an average of 7,322 Boe/d for the three months ended March 31, 2013. The increase in production was attributable primarily to the Company's expanded drilling program in its core areas of operations in the Marcellus and Utica Shale plays. For the three months ended March 31, 2014, adjusted production, which includes production from continuing operations and production from discontinued operations of 2,445 Boe/d, increased 59% to 17,241 Boe/d(b) compared with 10,870 Boe/d for the three months ended March 31, 2013.

2014 Significant Divestitures

This year to-date, Magnum Hunter has completed or announced several non-core asset divestitures resulting in proceeds or expected proceeds in excess of $100 million, before customary purchase price adjustments. The Company divested its remaining South Texas properties in Atascosa County to New Standard Energy for a purchase price of $24.5 million ($15.0 million in cash and $9.5 million in stock of New Standard Energy), monetized its properties in Alberta, Canada for CAD$9.5 million (approximately US$8.7 million) and announced the execution of a definitive agreement for CAD$75 million ( approximately US$67.5 million) for the sale of its properties in the Tableland Field in Saskatchewan, Canada which is anticipated to close next week. The Company continues to actively focus on divesting certain non-core assets and anticipates additional announcements to that effect in the coming months.

Capital Expenditures and Liquidity

Magnum Hunter's total upstream and midstream capital expenditures, including leasehold acquisitions, were $92.7 million for the three months ended March 31, 2014. Total upstream capital expenditures for the three months ended March 31, 2014 were $48.0 million, consisting of $11.6 million for the Williston Basin, $35.9 million for the Appalachian region and $0.5 million for the South Texas region (all such expenditures in the South Texas regions were included in purchase price adjustments in connection with the sale to New Standard Energy of the Eagle Ford assets). Leasehold acquisition expenditures for the three months ended March 31, 2014, were $10.4 million, primarily in the Utica Shale and Marcellus Shale plays. Total midstream capital expenditures for the period were $30.6 million.

Magnum Hunter believes that its internally generated cash flows, borrowing base availability (and future anticipated borrowing base increases) under its Senior Revolving Credit Facility, and additional liquidity sources, including but not limited to proceeds from non-core asset sales and potential capital market financings, will provide it with sufficient liquidity to fund its fiscal 2014 capital budget. As of May 6, 2014, the Company had total liquidity of approximately $131.2 million, comprised of approximately $32.4 million of cash and $98.8 million of borrowing availability under its Senior Revolving Credit Facility. To further enhance its liquidity, the Company is actively pursuing additional non-core asset sales, which the Company expects to close throughout the remainder of 2014.

Operations

During the quarter ended March 31, 2014, the Company commenced or participated in the drilling of a total of 9 gross wells, of which 5 were operated by the Company. The Company had a 100% success rate on the 22 wells in which it had a working interest that were completed in the first quarter of 2014.

The table below summarizes the Company's gross drilling activities by area for the first quarter of 2014:

                 
                 
    First Quarter 2014
    Total Drilled Wells   Operated Wells   Completed Wells   Awaiting Frac
                 
Marcellus Shale   3   3   8   5
Utica Shale   2   2   1   1
Williston Basin   4   0   13   4
Total   9   5   22   10
                 
                 

Currently, the Company is running 4 drilling rigs (2 operated and 2 non-operated rigs). Of these 4 rigs, 2 rigs (2 operated) are drilling wells in the Marcellus Shale and Utica Shales in West Virginia and Ohio, and 2 non-operated rigs are drilling wells in the Williston Basin/Bakken Shale in North Dakota.

Marcellus Shale and Utica Shale

During the first quarter of 2014, the Company completed the drilling of 5 gross (5 net) wells and completed 9 gross (6 net) wells in the Marcellus Shale and Utica Shale plays. Of these wells, 2 gross (1 net) on the Stalder Pad are shut-in to allow for further development, 4 gross (2 net) are drilling out plugs for flowback, and 3 gross (3 net) of the completed wells are currently flowing to sales via the Eureka Hunter Pipeline System. The Company's net production in the first quarter of 2014 attributable to Triad Hunter, LLC's operations was approximately 63.1 Mcfe/d, a 142% increase over such production during the first quarter of 2013.

The Company's first dry gas Utica Shale well, the Stalder #3UH (47% working interest) located on the Stalder Pad (18 potential wells) in Monroe County, Ohio, was placed on production in February 2014 and produced for approximately 45 days before being shut-in. The well tested at a peak rate of 32.5 MMCF of natural gas per day on an adjustable rate choke with 4,300 psi FCP. The well is currently shut-in to allow for the drilling of four new Utica wells on this pad.

Our first Marcellus Shale well drilled on the Stalder Pad, the Stalder #2MH, has been drilled and cased, and fracture stimulation was completed in late March 2014. The Stalder #2MH was drilled and cased to a true vertical depth of 6,070 feet with a 5,474 foot horizontal lateral, and was fracture stimulated with 28 stages. The Stalder #2MH well peak test rates during flow-back were 3,707 Mcf of natural gas per day and 312 Bbl of condensate per day. The well produced for approximately 16 days with average daily production of 2,772 Mcf of natural gas per day and 266 Bbls of condensate per day before being shut-in. This well has also been shut-in as the Company prepares to drill additional Utica wells on the Stalder Pad.

The Company drilled and completed three ~100% owned wells located on the Ormet Pad in Monroe County, Ohio. These wells were drilled and cased to an average vertical depth of 5,900 feet with a 3,900 foot average horizontal lateral. The Ormet wells tested at a combined rate of 11.7 MMcf of natural gas and 1,788 Bbl of condensate per day or 3,738 barrels of oil equivalent per day. These wells began flowing to sales through the Eureka Hunter Pipeline System on May 6, 2014.

The Company drilled and cased three Marcellus Shale wells, the Stewart Winland #1301, #1302, and #1303, to an average true vertical depth of 6,155 feet with a 5,750 foot average horizontal lateral. The Company is currently drilling the pilot hole for its first Utica well in the State of West Virginia, the Stewart Winland #1300, to a true vertical depth of 10,750 feet. The Company will then plug back and drill a 5,500 foot Utica horizontal lateral. The Company expects to report initial production test rates from these four 100% owned wells in late-summer 2014.

The Company drilled and cased the Farley #1306H to a true vertical depth of 7,850 feet with a 6,313 foot horizontal lateral. The Company has also drilled and cased the Farley #1304H well to a true vertical depth of 7,914 feet with a 5,400 foot horizontal lateral. The Company will begin fracture stimulation of both these two 100% owned Utica wells later this year since there is currently no pipeline connection.

On the WVDNR Pad located in Wetzel County, West Virginia, the Company has drilled and cased three 100% owned Marcellus Shale wells, the WVDRN #1207, #1208 and #1209. The wells were drilled and cased to an average vertical depth of 7,500 feet with a 3,800 foot average horizontal lateral. The Company released initial test rates for these wells on April 15, 2014. Since that date, the wells have continued to clean up and production has significantly improved. The WVDNR #1207, #1208 and #1209 recently tested at peak rates of 9,575 Mcf/d with 17 bbl/d of condensate, 9,208 Mcf/d with 18 bbl/d of condensate and 10,005 Mcf/d with 19 bbl/d of condensate, respectively.

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Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.