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Msg  315 of 2276  at  11/13/2010 2:11:04 PM  by

delt1970


Notes from analysts with coverage

These are courtesy of EnerCom:

"Johnson Rice & Co. - November 11, 2010

MHR - Eagle Ford program on track for four wells by year-end (MHR, $5.01, Equal weight)

MHR's production, CFPS and first Eagle Ford well all come in below expectations, however the company's Eagle Ford program is running smoothly and results moving forward should benefit from better and more intense completions.

The company has completed two Eagle Ford wells and expects another two to be completed before year-end. The company's 1st operated well, the Gonzo Hunter #1-H, came in slightly below expectations at 605 boe/d (700-1,000 boe/d was company expectation). However the completion was eleven stages and only nine got off correctly, the company believes that this well will have an IRR of 35.5% at $80/bbl. The Gonzo would likely be drilled for $6.0-6.5mm in development mode. The company's second operated well, the Lagunillas Camp #2-H, is still dewatering but the company is expecting a >500 boe/d rate from the well. The Gonzo is in Gonzales County and the Lagunillas is in Atascosa County.

In the Marcellus the company is planning on frac'ing its initial two wells at the end of November, both at in Tyler County. The gas is expected to be 1,300 btu and is expected to yield significant liquids. Both wells are 12 stage, 4'k laterals. The company also drilled a vertical well in Ohio, those results are similar to the vertical wells they've drilled on the West Virginian portion of their acreage. The company also indicated that it would be participating in a major Marcellus acreage deal in the near-term.

Funding through 2011 is expected to come from revolver and preferred stock. With a $100mm 2011 CAPEX budget, modeled cash flow of $18mm and $24mm remaining on the company's revolver (assuming a new $71mm base) the company would need to access ~$58mm more of external financing or asset sales in 2011.

We have adjusted our 4Q:10 and 2011 production and CFPS numbers. For 4Q:10 production and CFPS have moved from 1,991 boe/d and $0.05 to 1,983 boe/d and $0.04. For 2011 estimates have moved from 2,688 boe/d and $0.38 to 2,795 and $0.25. Estimates for 4Q:10 are down because of below expectation 3Q:10 numbers, while 2011 production estimates are up due to higher than expected 2010 exit rate guidance (2.5-3.0 mboe/d) and a smoother than expected Eagle Ford program; 2011 CFPS estimates are down on higher than expected costs.

Pritchard Capital Partners - November 11, 2010

Magnum Hunter Resources Corporation (MHR-$5.01) is providing a drilling and operational update this morning on the Company's activities in the Eagle Ford Shale resource play located across approximately 50,000 gross acres predominately in Atascosa, Gonzales, and Lavaca Counties of Central and South Texas. Magnum Hunter's first well drilled in the Eagle Ford Shale oil-window is the Gonzo Hunter #1-H located in Gonzales County, Texas. The Patterson Drilling Rig #135 spud the Gonzo Hunter #1-H well on June 10, 2010 and was drilled approximately 9,750 vertical feet plus approximately 4,365 horizontal feet. An 11 stage frac job commenced on September 14, 2010. On October 11, the Gonzo Hunter's-#1-H well initiated production at an initial production rate ("IP") of 605 barrels of oil equivalent per day ("Boepd") and 412 Bbls per day of water. Currently, the Gonzo Hunter #1-H is producing approximately 398 Boepd and 110 Bbls per day of water. Magnum Hunter currently estimates the economic ultimate recovery ("EUR") for the Gonzo Hunter #1-H to be 362,000 Boe. Magnum Hunter is the operator of the well and owns a 50% working interest. Magnum Hunter's gross acreage land position across the entire Eagle Ford Shale has increased to 48,159 gross acres (23,704 net).

Global Hunter Securities - November 11, 2010

Magnum Hunter Resources (MHR) Reports 3Q10 Results; Update Eagle Ford

Magnum Hunter (MHR; $5.01; Buy; $6 PT; Disc 1) posted adjusted EPS of ($0.02) compared to our estimate of $0.01. CFPS of $0.01 was below our estimate of $0.06. Revenue of $8.3MM tracked 16% below our estimate of $9.8MM while G&A of $4.6MM was higher than our estimate of $1.5MM. Production results were not posted by the company.

In Gonzalez County, Texas, the company's first operated Eagle Ford well, the Gonzo Hunter #1-H (50% working interest), was drilled with a 4,365' horizontal lateral and completed with a 11=stage fracture stimulation. The will had an initial production rate of 605 Boepd on October 11, and is currently producing at 398 Boepd. MHR estimates an ultimate recovery of 362,000 Boe. The company's second operated Gonzalez County well, the Southern Hunter #1H (50% WI), is currently being drilled at a location 7 miles southwest of the Gonzo. The well is scheduled to reach TD by the end of November, with completion in early December. On November 2, MHR's JV partner spud the Cinco Ranch #2 (50% WI).

In Atascosa County, the Lagunillas Camp #1-H (50% WI) is currently undergoing completion in the Eagle Ford Shale. The 15-stage frac job is currently 50% completed and we can expect first production by the end of November. MHR's second well in the county, the Lagunillas Camp #2-H (97% WI) is currently flow.

Capital One Southcoast - November 12, 2010

MHR 3Q Follow-Up: Production Ramp-Up on the Way

$4.88, ADD, $6.00 Target

No change to our $6 NAV. We are maintaining our 450 Mboe EUR estimate for the Eagle Ford, even though MHR estimates its initial well in the play to be 360 Mboe, because we expect improvement going forward as the company moves up the learning curve. Production should begin to ramp up in 1Q11 with 5 Eagle Ford wells expected online by YE10 and plans to drill 15 gross (we estimate 8 net) Eagle Ford wells in 2011. MHR remains a good way to play oil among the small-cap names, with 23% upside to our target vs 14% for our average small-cap oil-levered E&P.

Robust production growth expected next few years: We estimate 80% production growth for 2011 based on drilling 8 net Eagle Ford & 10 net Marcellus wells. 2012 should see strong growth as well; we estimate another 80% growth in production. 3Q10 production was 1,750 boe/d.

2011 funding looks ok: MHR is guiding $100MM in CAPEX for 2011. We estimate the company will fund this level of spending with the $22MM in current liquidity (plus a $6MM expected increase in borrowing base) and $35MM in operating cash flow. The company expects to make up the difference through non-core asset sales and the sale of non-convertible preferred stock.

What to watch: The company is working on a Marcellus acquisition with an announcement expected in the next few weeks. We expect to hear the results on the 3 new Eagle Ford wells and MHR's initial 2 Marcellus hzl wells by early 2011.

Johnson Rice & Co. - November 11, 2010

Key Takeaway:

MHR's production, CFPS and first Eagle Ford well all come in below expectations, however the company's Eagle Ford program is running smoothly and results moving forward should benefit from better and more intense completions.

The company has completed two Eagle Ford wells and expects another two to be completed before year-end. The company's 1st operated well, the Gonzo Hunter #1-H, came in slightly below expectations at 605 boe/d (700-1,000 boe/d was company expectation). However the completion was eleven stages and only nine got off correctly, the company believes that this well will have an IRR of 35.5% at $80/bbl. The Gonzo would likely be drilled for $6.0-6.5mm in development mode.

The company's second operated well, the Lagunillas Camp #2-H, is still dewatering but the company is expecting a >500 boe/d rate from the well. The Gonzo is in Gonzales County and the Lagunillas is in Atascosa County.

In the Marcellus the company is planning on frac'ing its initial two wells at the end of November, both at in Tyler County. The gas is expected to be 1,300 btu and is expected to yield significant liquids. Both wells are 12 stage, 4'k laterals. The company also drilled a vertical well in Ohio, those results are similar to the vertical wells they've drilled on the West Virginian portion of their acreage. The company also indicated that it would be participating in a major Marcellus acreage deal in the near-term.

Funding through 2011 is expected to come from revolver and preferred stock. With a $100mm 2011 CAPEX budget, modeled cash flow of $18mm and $24mm remaining on the company's revolver (assuming a new $71mm base) the company would need to access ~$58mm more of external financing or asset sales in 2011.

We have adjusted our 4Q:10 and 2011 production and CFPS numbers. For 4Q:10 production and CFPS have moved from 1,991 boe/d and $0.05 to 1,983 boe/d and $0.04. For 2011 estimates have moved from 2,688 boe/d and $0.38 to 2,795 and $0.25. Estimates for 4Q:10 are down because of below expectation 3Q:10 numbers, while 2011 production estimates are up due to higher than expected 2010 exit rate guidance (2.5-3.0 mboe/d) and a smoother than expected Eagle Ford program; 2011 CFPS estimates are down on higher than expected costs.

Global Hunter Securities - November 12, 2010

Summary: Magnum Hunter Resources (MHR) reported 3Q10 results below our estimates relating to lower than expected production volumes and non-cash G&A expense. The company completed its first Eagle Ford (EF) well and is expected to complete an additional four wells by year-end; high working interests should drive production and cash flow leading into 2011.

Operational emphasis continues to focus on unconventional assets as MHR divests of nonoperated working interests in Texas. The proceeds from the transaction will support the growing activity in the company's EF and Marcellus development programs. MHR's CAPEX budget will likely double going into next year as the company has set a preliminary target of $100MM with a notable portion going into the EF. We are maintaining our Buy rating with a $6.00 price target.

Highlights

3Q10 results. MHR posted adjusted earnings per share (EPS) of ($0.02) after accounting for nonrecurring and non-cash charges related to derivative contracts. This compares to our estimate of $0.01 per share and the consensus estimate of ($0.03). Oil and gas sales of $9.6MM came in 7% below our estimate of $10.3MM and 15% under consensus of $11.3MM. Cash flow per share (CFPS) came in at $0.01 versus our estimate of $0.06 and consensus of $0.04. Production in the quarter came in at 1,744 Boepd, slightly trailing our estimate of 1,812 Boepd by 4%.

Eagle Ford. In Gonzalez County, Texas, MHR completed its first operated well in the Eagle Ford Shale, the Gonzo Hunter #1-H (50% working interest). The well was drilled to approximately 9,750' vertically with a 4,365' horizontal lateral. Following clean-out, the well had an initial production (IP) rate of 605 Boepd and is currently producing at approximately 400 Boepd. Downhole completion issues prevented fracture stimulation from taking place in the 11-stages as planned; rather stimulation was only achieved in 9-stages. The performance of this well will likely be heavily scrutinized as many onlookers will compare the Gonzo to recent completions in southeast Gonzalez County. We view these results as a positive and in line with our expectations. As this is MHR's first well in the EF, the Gonzo pushes the company further along the learning curve which will only benefit them in subsequent completions. The company's second operated well, the Southern Hunter #1 (50% working interest), is currently drilling ahead and is expected to reach total depth by month end followed by completion in early-December. MHR's JV partner in Gonzalez County is currently drilling the Cinco Ranch #2 well; the company holds a 50% non-operated working interest in this location. In Atascosa County, MHR is in various phases of completion for the Lagunillas Camp #1 and Lagunillas Camp #2-H wells; the company is the operator and owns a 100% working interest. Both locations will have production results by month-end (expecting approximately 500 Boepd IP rate).

Marcellus Shale. The completion of MHR's first two horizontal wells in the Marcellus Shale, the Weese Hunter #1 and #2, are set to coincide with the in-service date of the Eureka Hunter pipeline at monthend November. The company is testing the Marcellus' productivity in the Ohio portion of the play. Having drilled the vertical portion of the well to total depth, a horizontal rig is in route to the location to drill the lateral. Although more tests are needed to determine the resource potential in this extensional area, the company believes early tests indicate a look alike to the Weese Hunter wells in Tyler County, West Virginia. The company is on the cusp of closing an acquisition for additional acreage in the Marcellus Shale. Due to an active leasing program, management remains mum on the location of this assets. We expect acquisition to be announced by year end. Cinco Terry divestiture. MHR's transition to an operator of unconventional assets continues to move forward with the divestiture of its 10% non-operated working interest in the Cinco Terry prospect in Crockett County, TX. The transaction provides the company with $21.5MM which will be put to work in the EF and Marcellus Shale drilling programs. We view this move as a positive in that the company is giving up approximately 480 Boepd of production in exchange for the capital to drill potentially four EF wells, providing up to 1,500 to 1,600 Boepd of production.

Maintain Buy rating with $6.00 price target. MHR continues to be one of the most active small cap operators in the Eagle Ford Shale. This should allow the company to rapidly climb the learning curve to continue exploiting its 24,000 net acres for years to come. This robust inventory combined with its next leg of production growth in the Marcellus Shale gives the company firm footing to grow production and assets in two of the hottest E&P plays in the United States.

Canaccord Genuity - November 12, 2010

Magnum Hunter Resources

MHR : AMEX : US$4.80 US$326.7M Buy, US$6.00

A successful start to Eagle Ford development program; reiterate BUY, raise target to $6

Investment recommendation

We are reiterating our BUY rating and raising our target price based on the company's Q3/10 results and operations update. We are increasingly constructive on Magnum Hunter's relative growth potential in the Eagle Ford and Marcellus trends. In our view, Magnum Hunter is well positioned to outperform based on its leading exposure to the Eagle Ford oil trend and material catalysts (including four additional Eagle Ford wells results, Marcellus JV, and two horizontal Marcellus wells).

Investment highlights

On November 10, 2010, Magnum Hunter reported solid Q3/10 results and provided an encouraging Eagle Ford operations update. The key updates include initial Eagle Ford test results and 2011 drilling and capex guidance. Magnum Hunter expects to have at least four Eagle Ford wells on line before year-end. The company will also drill or participate in 15 Eagle Ford wells and 12 Marcellus wells in 2011. Magnum expects to spend ~$100 million in 2011.

Valuation

Our current 12-month price target of $6.00 (up from $5.75) is based on our break-up value estimate of $6.01 per share and is equivalent to 13.5 times our 2011 EBITDAX estimate of $41.1 million. We have increased our break-up value to reflect the Cinco Terry divesture, acreage additions, and balance sheet adjustments.

Risks

The key risks include weaker than forecast crude fundamentals and operational challenges with the initial Eagle Ford and Marcellus wells."


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