Magnum Hunter Resources Corp. is the latest U.S. shale producer to seek bankruptcy protection after 2015’s collapse in commodity prices has thrown more than three dozen North American E&Ps into peril.

Magnum Hunter said Dec. 15 that it worked out a restructuring agreement with lenders that would convert debt to equity and allow the company to emerge from bankruptcy with a deleveraged balance sheet in April 2016.

So far in 2015, U.S. and Canadian companies have gone to bankruptcy court with $13 billion in cumulative secured and unsecured debt, Haynes and Boone LLP said in a Dec. 4 report.

“Industry and economic indicators suggest more producer bankruptcy filings will occur before the year is out,” the law firm said.

Most recently Escalara Resources Co., RAAM Global Energy Co., Miller Energy Resources Inc. and Parallel Energy LP entered bankruptcy.

Gary C. Evans , chairman and CEO, said the company’s restructuring will position it as a market leader in the upstream sector with an ideal capital structure.

Evans said the industry faces a challenging time when “many of our competitors have been forced to either file for bankruptcy without a plan to emerge in place or continue to attempt to restructure with creditors without an end game.”

Evans said Magnum Hunter’s restructuring would be efficient, cost effective and quick and that its plan is supported by its lenders.

“We also anticipate emerging from bankruptcy financially stronger than ever before,” he said.

Magnum Hunter said its restructuring support agreement provides for debtor-in-possession (DIP) financing through a $200 million senior secured multi-draw term loan that will be backstopped by lenders who are parties to the restructuring support agreement.

Turnabout

Nevertheless, Magnum Hunter went down (to the courthouse) swinging.

In late 2014, the company cut its capex budget for 2015 by $300 million and closed branch offices in Denver and Canada.

By third-quarter 2015, the company produced 136,087 thousand cubic feet equivalent per day (Mcfe/d) as it tried to generate revenues.

The company increased oil and natural gas production in third-quarter 2015 by 38.6% year over year. However, revenues decreased to $33.7 million at the end of the third quarter from $70.6 million in 2014.

Magnum Hunter has had to contend with the climate as well. Natural gas prices plunged to a 14-year low as the warmest start to winter on record in the U.S. cut demand for this heating fuel, Evans said in his statement.

As of Sept. 30, Magnum Hunter had about $1.5 billion in total assets and about $1.1 billion in total liabilities. The company owns assets in the Marcellus and Utica shales in West Virginia and Ohio. The company also owns oil and gas properties in Kentucky, Oklahoma, Texas and North Dakota.

Initially a crude oil production company, Magnum Hunter has transformed into a Marcellus and Utica E&P.

As of Nov. 30, the company’s Appalachian holdings are 375,811 net acres, including about:

  • 74,170 net leasehold acres in the Marcellus;
  • 124,079 net leasehold acres prospective for the Utica;
  • 208,309 net leasehold acres in the Devonian Shale Formation and the Mississippian Weir sandstone, primarily in Kentucky; and
  • 2,332 gross producing wells.

The company said that as of Dec. 10 its estimated proved reserves are roughly 555.2 Bcfe.

Evans said that by the second half of 2015, the company had set out to divest noncore assets and generated about $33.9 million in proceeds.

The company also explored ways to monetize its 44.5% equity interest in Eureka Hunter Holdings LLC, which owns the Eureka Hunter Pipeline gathering system in West Virginia and Ohio. Eureka is not a party to the Magnum Hunter bankruptcy.

However, a deal for Magnum Hunter’s Williston Basin assets fell through in late 2014, significantly impacting the company.

Deal Fall

In September 2014, Magnum Hunter was positioned to sell its remaining Williston Basin/Bakken Shale holdings in North Dakota for $360 million.

The company expected to close on the sale by December 2014 and intended to use proceeds to pay down debt.

“The intervening drop in oil prices disrupted the proposed sale and undermined any other potential sale opportunities,” Evans said in his statement. Magnum Hunter was left with “substantially larger long-term indebtedness than originally intended and significantly reduced cash flow from their remaining assets.”

Magnum Hunter currently owns 55,832 net leasehold acres in North Dakota, the company said in court filings.

The company has been primarily focused on natural gas production in the Appalachian, though it wasn’t until 2013 that the company firmly settled on its commodity of choice.

In October 2009, Magnum Hunter made its initial expansion into the Eagle Ford Shale with the acquisition of Sharon Resources Inc. The company launched in the Williston Basin’s Bakken Shale in May 2011 with the purchase of NuLoch Resources Inc.

As in the Eagle Ford, Magnum Hunter focused primarily on the exploration and production of crude oil in the Bakken, Evans said in his sworn statement.

The company’s foothold in the Marcellus Shale came through the purchase of assets from Triad Energy Corp. in February 2010. The company subsequently purchased and leased property in the Marcellus and then-emerging Utica Shale, Evans said.

The Appalachian became the company’s primary area of focus after the region produced the highest returns.

Magnum Hunter started to sell off its crude-oil assets in the Eagle Ford, Bakken and Canada.

In April 2013, Magnum Hunter sold its core assets in the Eagle Ford to an affiliate of Penn Virginia Corp. (NYSE: PVA) for $422 million and realized a $200 million profit.

Darren Barbee can be reached at dbarbee@hartenergy.com.