Magnum Hunter owes 70x last year's earnings but shares gain 135% Y/Y

Magnum Hunter Resources (MHR) is spending borrowed money faster than it comes in, with questions about its future production and potential governance issues, yet lenders, investors and analysts love it: Welcome to the U.S. shale boom.

According to a Bloomberg profile, MHR owes $891M, ~70x its EBITDA in the past year vs. the industry average of 4.3x, and its net loss has soared 32-fold since 2008 while revenues have climbed 17-fold, yet investors have driven its shares up 135% in the past year.

Out of five wells MHR drilled in an undeveloped corner of the Utica shale formation in Ohio and West Virginia, three can’t produce because they don’t have pipeline hookups but one was a gusher, pumping 32.5M cf/day of natural gas - a "game-changer" if MHR can replicate it.

MHR considers the Utica potentially the best shale play in the U.S.: “We’ll either drill it ourselves or we’ll be a prime takeover target for somebody," Chairman/CEO Gary Evans tells Bloomberg.

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Comments (5)
  • King Rat
    , contributor
    Comments (1736) | Send Message
    FYI, the link suggests it is $32.5MM which would be $70million in annual revenue.
    "M" is Latin for "thousand". "MM" is used for "million".


    The story about the founder is pretty awesome. It is a great success story whatever happens to the stock.
    27 Jun 2014, 07:39 PM Reply Like
  • FrankTrades
    , contributor
    Comments (103) | Send Message
    From Yahoo Finance:


    EBITDA (ttm): 94.51M
    Total Debt (mrq): 896.91M


    High ratio, but 70 ≠ 10.


    Your math grade: F


    What is your issue with the "US shale boom"? Another Bloomberg ultra liberal attempt to denigrate the industry?
    27 Jun 2014, 09:22 PM Reply Like
  • just-an-opinion
    , contributor
    Comments (109) | Send Message
    Frank, my problem with the U.S. shale boom are the environmental problems it is causing and leaving individuals and government to deal with.
    28 Jun 2014, 05:44 PM Reply Like
  • schminaldo
    , contributor
    Comments (34) | Send Message
    just-an-opinion is aptly named; because it is: just an opinion. Do some real research and stop watching those propaganda shorts about people's tap water catching fire and fracking causing earthquakes. Hydraulic fracturing has been a tool used by the oil industry since the 1950's, and pipelines even before that. I haven't heard of any earthquakes in the Eagle Ford, Permian, Bakken, or Marcellus areas, and it aint pipelines exploding every other week in small towns like Lynchburg. Green is great, but I'll bet you don't commute on your bicycle like me, and still drive all the time and use carbon fuels to light and heat your home, DON'T YOU.
    29 Jun 2014, 08:07 AM Reply Like
  • Retired Bureaucrat
    , contributor
    Comments (36) | Send Message
    First of all Issac needs to be congratulated. He is the first analyst to demonstrate that he reads annual reports. I say this even though he did not go far enough in his probing of Green Hunter and its near bankruptcy in biofuels, and the litigation surrounding it, before Gary gave it a second wind by using them to provide water for MHR.


    However, rather than bandy about numbers, such as growth in reserves per share or losses per share--one needs to understand the context and the game Gary is playing.
    His game is to leverage as much as possible, grab acreage and drill on it, hopefully find reserves and convert the proven reserves to increases in valuation of the acreage and to sell the acreage or grow further. In a model such as that one, he is taking undue risks for the common shareholders, and siphoning a modest bit for himself. No harm in that is it?


    Some of the key facts one needs to understand are:


    A BOE is a dumb metric when the $ price of nat gas is 1/5 or 1/4 of oil on a per BTU basis, and condensate is much cheaper than crude. You need to recalculate his reserves in terms of dollar value.


    how is he measuring the value of his assets? is PV-10 appropriate if he is borrowing at 12.5% from Pennantpark and paying 10.25% on cumulative preferred shares? His acreage that he just bought at $4K or 5K per acre should not double in value until he proves it by further successful drilling--he is bright and I am cautiously optimistic.
    He has sold a lot of warrants at $8.5 strike price providing some resistance above $8.5


    His EBITDA is 1.5 times interest payments. A bit risky if gas prices drop, fracking has restrictions due to earthquake scares, or he hits bad wells.


    One metric to consider is: has the value of assets per share less debt, including preferred shares, been going up and what kind of multiple it deserves.


    Nevertheless, Issac has made a good start and is way ahead of any other in his profession.
    29 Jun 2014, 03:43 PM Reply Like
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