Magnum Hunter Resources' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Magnum Hunter Resources Corporation (MHR)

Q2 2012 Earnings Call

August 9, 2012 11:00 AM ET

Executives

Gabe Scott – VP, Capital Markets and Corporate Development

Gary Evans – Chairman and CEO

Ron Ormand – EVP and CFO

Kip Ferguson – EVP, Exploration

Jim Denny – EVP, Operations

Analysts

Veea Chan – SunTrust

Kim Pacanovsky – MLV

Jeff Hayden – KLR Group

Irene Haas – Wunderlich Securities

Joe Stewart – Citi

Hsulin Peng – Baird

Richard Tullis – Capital One

Steven Karpel – Credit Suisse

Presentation

Operator

Good morning, and welcome to the Magnum Hunter Resources Second Quarter 2012 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Scott, you may now begin.

Gabe Scott

Good morning. This is Gabe Scott and I’d like to welcome everyone to Magnum Hunter Resources Corporation second quarter 2012 financial and operating results conference call.

The purpose of today’s call is to discuss our second quarter 2012 financial and operating results among other matters of interest regarding the company.

Before we begin our presentation, I would like to advise you that today’s call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of Securities Exchange Act of 1934.

Our presentation may include statements regarding our expectations, believes, intentions or strategies regarding the future. Such forward-looking statements may relate to, among other things, the company’s proposed exploration and drilling operations, production and revenue from its properties, and estimates regarding reserve potential. These statements are qualified by important factors that could cause the company’s actual results to differ materially from those reflected by the forward-looking statements, including those factors set forth in Risk Factors section of the company’s 2011 annual report on Form 10-K as well as the company’s first quarter and second quarter 2012 quarterly reports on Form 10-Q.

Our 2011 Annual report also includes a glossary of certain industry terms that may be used in today’s conference call. The full forward-looking statements disclaimer as well as reconciliation to certain non-GAAP financial information presented are included in the company’s second quarter 2012 financial results press release dated August 9, 2012, which is posted on the company’s website under press releases. This disclaimer is in effect for the full duration of this conference call.

I will now turn the meeting over to Mr. Gary C. Evans, our Chairman and CEO.

Gary Evans

Thank you for dialing in today and hearing about our second quarter as well as our six months ended June 30 financial results we reported this morning before the market opened. The company reported a record revenues of $60.3 million for the three months ended June 30. We also reported record EBITDA of $41.1 million pro forma for the second quarter, which included our acquisition of the Baytex properties located in Williston Basin that was completed in May.

Average production rate for the second quarter increased to 162% and our liquidity continue to increase with combination of our high-yield offering, our perpetual preferred, our new borrowing-based increase and we presently have about $255 million of liquidity including what we can sell under our perpetual preferred Series D.

So, all in all, if you look at the quarter, we continued our game plan of exploiting predominantly our existing assets located in Williston Basin with active rigs running in North Dakota, five rigs today; two rigs running in Saskatchewan. And then we also continued our development efforts in the Eagle Ford of South Texas, predominantly Gonzales and Lavaca counties where we’ve had substantial success. We have two rigs running down there today.

So we made a decision, early part of the year, to refocus a significant piece of our capital budget to oil. Magnum Hunter is in a unique position of having a number of shale plays where we can redirect capital dollars and as operator, be in control of that and therefore change our production mix pretty rapidly.

So in the second quarter we now are over 50% crude oil production, which, as you know, with current crude oil prices around $93 to $95 a barrel have significantly better margins than what we’re experiencing on natural gas at around $3 an Mcf. So that is something that not many companies can do is direct their capital so quickly and change their production mix so quickly, which has allowed us to report these substantial results. That will continue throughout 2012.

Our capital of $325 million for upstream is geared to these two oil projects being the Williston and the Eagle Ford. We did announce earlier this week that we have moved into another region of the South Texas area called the Pearsall and we’ve actually spud our first well. That will be a test well to that formation. We will end up completing that well in the Eagle Ford.

We believe that there is some unique opportunities to pick up additional acreage and to expand our footprint in the Eagle Ford and we are looking at those opportunities with great interest. We also continued to expand our leasehold position up in Canada in Saskatchewan, where in the Tableland field we continue to have significant success with the way we are completing and fracking the new wells up there and getting much higher oil production and much less water production and therefore getting much better EURs.

Now, let’s – don’t leave Appalachia out because we are very high on our Appalachian division. We’ve intentionally delayed capital spending there this year predominantly because we do not have a gas processing plant up and running yet that can strip the very rich liquids that we have in that gas stream. Our plant is supposed to go live in November. It was supposed to go live in June and it is four months behind schedule. But we believe that it will happen before the end of the year and that’s a huge uplift for this company.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Wall Street's Energy Loans Suffer Frostbite From Warm Winter

Wall Street's Energy Loans Suffer Frostbite From Warm Winter

Jim Cramer -- Fitbit Drop Signals Time to Buy; VeriFone Disappoints

Jim Cramer -- Fitbit Drop Signals Time to Buy; VeriFone Disappoints

Jim Cramer Says Drop in Fitbit Shares an Opportunity to Buy

Jim Cramer Says Drop in Fitbit Shares an Opportunity to Buy

Magnum Hunter Bondholders Hire Advisers on Eve of $29M Interest Payment

Magnum Hunter Bondholders Hire Advisers on Eve of $29M Interest Payment

Magnum Hunter Resources Corporation (MHR) Stock: Weak On High Volume Today

Magnum Hunter Resources Corporation (MHR) Stock: Weak On High Volume Today