Magnum Hunter Resources Corp. (MHR) has a lot to grapple with lately: a securities investigation, tight liquidity and a lot of assets it would like to sell.
The company got some of its wind back in May, as it expects to reap about $40.8 million from the sale of noncore acreage in an undeveloped, unproven leasehold acreage located in Tyler County, W.Va.
Magnum Hunter's subsidiary, Triad Hunter LLC, sold ownership interests in about 5,210 net leasehold acres to an unnamed, independent E&P.
The company has developed parts of Tyler County, which is home to one of its best dry gas wells. But the divested properties were not in the company’s long-term drilling plan, said Gary C. Evans, Magnum Hunter chairman and CEO.
“Additionally, with lease expirations on the horizon on a large portion of the acreage position, it made sense to sell these properties now to an industry competitor that already owns adjacent leases,” he said.
The sale represents less than 2.5% of the company’s 210,000 net leasehold positions in the Marcellus and Utica plays, he said.
The transaction equates to about $7,800 per acre, less than recent Utica transactions such as Gulfport Energy Corp.’s (GPOR) Paloma Partners acquisition at $12,700 per acre and Antero Resource Corp.’s (AR) Monroe County, Ohio, purchase at up to $150,000 per acre in December 2014, according to Global Hunter Securities (GHS).
“MHR’s strongest Utica well to date … was previously completed in Tyler County at 46.5 million cubic feet equivalent per day,” said Mike Kelly, GHS senior analyst.
Balancing Act
The West Virginia sale should help with the company’s tight balance sheet, to a degree. Baird Energy analysts noted that the proceeds “marginally help alleviate MHR's balance sheet constraints,” though further asset sales or capital markets financing are likely needed.
At the end of March, the company had roughly $20 million in liquidity, consisting of $14.4 million in cash and $5.7 million in revolving credit, said Gabriele Sorbara, analyst, Topeka Capital Markets. The company said in May its headquarters would move to Dallas from Houston to further reduce G&A expenses.
Sorbara said the company has several options that could drive up liquidity to $200 million during the next few months.
The company could also sell its Alpha Hunter Drilling for $30 million or $40 million.
The company has deferred a sale of its noncore Williston Basin assets due to current oil price market conditions, Sorbara said.
Wells Notice
Magnum Hunter continues to suffer a share “overhang” due to a probe by the Securities and Exchange Commission (SEC).
In late March, the company received an advisory, called a Wells Notice, that said SEC staff had made a preliminary determination to recommend filing an enforcement action against the company. Evans and another executive separately received Wells Notices.
A Wells Notice is not a formal allegation or finding of wrongdoing. It allows companies and other parties to respond to accusations and explain why an enforcement action is unneeded.
The company became aware of the action in April 2013 when the SEC's Division of Enforcement informed the company it was conducting an inquiry regarding the company's internal controls, change in outside auditors and public statements to investors. The company has cooperated with the investigation.
The Tyler County sale is scheduled to close on May 28, subject to customary closing conditions.
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