Wednesday, April 1, 2015

Magnum Hunter Resources: Not All Debt-Laden Energy Companies Are Created Equal

This article was first published by Seeking Alpha on March 9, 2015

By Sarfaraz A. Khan

The 50% slump in oil prices since last summer has raised concerns about the future prospects of a number of oil and gas producers, especially those that have a weak balance sheet. Investors fear that with persistent weakness in oil prices, some of the highly leveraged energy companies could go under. One such name is Magnum Hunter Resources (NYSE:MHR).

Magnum Hunter is a small-cap oil and gas producer that has been growing its production at strong rates, but it also has a debt-laden balance sheet. The company's long-term debt of $938 million is 1.7 times as large as its market cap and more than twice as large as its equity. Consequently, with the plunge in oil prices, the company was punished by the markets. It also didn't help that Magnum Hunter failed to deliver better-than-expected results in the last two quarters. However, the markets have been a little too harsh on this Houston, Texas-based company.

The company's shares have fallen substantially, due in part to the plunging oil prices. Over the last six months, Magnum Hunter's stock has dropped by nearly 58%, which compares against the 46% drop in WTI oil futures in the same period. However, Magnum Hunter has limited exposure to oil as it is primarily a natural gas play which is becoming even gassier.

Magnum Hunter has been undergoing an oil-to-gas transition over the last five years. In 2010, a majority of the company's production of 1,276 boe per day was oil. But last year, around ….. read full article at Seeking Alpha.