Dire Straits: Magnum Hunter Tells SEC Heading for Bankruptcy

mhrHere’s one time when we wish we had been wrong. In October we warned you that Magnum Hunter Resources (MHR), a smaller but important driller in the Marcellus/Utica, was either heading for a sale or bankruptcy (see Magnum Hunter: Preparing to Sell, or Filing for Bankruptcy?). Looks like it’s the later. The company filed its required quarterly form 10-Q with the Securities and Exchange Commission earlier this week (full copy of the 10-Q below). In the filing we get this statement: “As of September 30, 2015, the Company had $6.5 million in cash and a working capital deficit of $1,037.2 million, and the Company continues to incur significant losses from continuing operations.” Eeeks. They only have $6.5M in the bank to keep the lights on and make payroll, and they owe over $1 billion. Then we get this: “…these factors raise substantial doubt about the Company’s ability to continue as a going concern.” Near the end of the report, they spell it out in black and white: “We may seek the protection of the United States Bankruptcy Court (the “Bankruptcy Court”), which may harm our business and place equity holders at significant risk of losing all of their interests in the Company.” Translation: We’re going bankrupt. In addition, earlier this week the New York Stock Exchange made good on its previous threat and has begun the process of de-listing MHR’s stock–which caused a selloff of the stock. The stock price hit 15 cents per share, so the NYSE halted trading. Never rains but it pours…
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MHR’s GreenHunter Schedules 3Q15 Conference Call Next Week

Here’s something pretty innocuous, at least at first glance, but something we find interesting nonetheless. Yesterday GreenHunter Resources announced it will hold an operating results conference call next Monday, Nov. 16. There’s certainly not much that appears to be interesting about that. We see dozens (hundreds?) of such announcements each quarter. So what, about this one, caught our attention?…
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Magnum Hunter Refinances Again, Dodges a Bullet…Just Barely

Magnum Hunter Resources (MHR) issued an interesting press release yesterday to notify investors that they dodged a bullet–for the moment–by refinancing certain loans and getting a new $60 million loan which will let them make their $29 million bond payment on Nov. 15 (see Magnum Hunter’s Latest Woes: More Investor Unrest, $29M Payment Due). The statement also said in light of “ongoing discussions regarding its capital structure” they won’t issue a press release on third quarter financials, and they won’t hold a conference call with investors. Not a good sign. One analyst we read rhetorically asks, Does this mean they avoid bankruptcy? “The short answer is NO,” was his reply. He maintains “working on capital structure” means they are headed for a prepackaged bankruptcy. The only question is, when will it happen? Here’s the latest MHR statement in what (sadly) feels like a death watch…
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Magnum Hunter’s Latest Woes: More Investor Unrest, $29M Payment Due

MDN has recounted numerous Magnum Hunter Resources (MHR) woes, including a threat to de-list their stock on the New York Stock Exchange (see Magnum Hunter Stock Avg Falls Below $1, Receives NYSE Warning), the threat of a takeover by a plucky young investor who owns 5% of the company (see Activist Investor Threatens Magnum Hunter with Takeover Unless…), and rumors the company may be preparing to file for bankruptcy protection (see Magnum Hunter: Preparing to Sell, or Filing for Bankruptcy?). A few new woes to add to the list: Another investor is threatening to form a coalition to “protect our interests” (i.e. force MHR to sell), and MHR needs to make a $29 million interest payment on bonds, due Nov. 15. The bondholders have hired lawyers in anticipation they may not get paid…
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Short Selling of Magnum Hunter’s Stock Continues Big Decrease

positive signTwo weeks ago MDN told you about a positive trend for Magnum Hunter Resources’ (MHR) stock–traders were doing less “short selling” of the stock (see Positive Sign: Short Selling of Magnum Hunter’s Stock Decreases). At the time we noted 26.4% of MHR’s stock was being sold short (national average for all stocks is around 5-6% and the average for oil and gas companies lately has been around 12%). We have an update: short selling of MHR’s stock as of Sept. 30 was down again, dramatically, and stood at 19%. Which means traders believe prospects for the company’s financial health are improving. That doesn’t mean the company doesn’t face challenges. As we told you last Monday, MHR appears to be getting ready to either sell itself or file for bankruptcy (see Magnum Hunter: Preparing to Sell, or Filing for Bankruptcy?). Still, short selling is an important signal of what the financial markets think about a particular company–and having your stock go from 26% to 19% in short sales is a big deal–in the right direction…
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Family of Man Who Died in 2013 Eurkea Hunter Accident Gets $18M

lawsuitIn April 2013 MDN reported on the tragic death of 56-year-old Bruce Phipps from Marietta, OH who was working at a Eureka Hunter “pig” (Pipeline Inspection Gauge) receiving station near near Wick (Tyler County), WV (see Flash Fire at Pipeline Station in WV Kills 1, Injures 3 Others). Later, Pennsylvania resident Raymond Miller, another of the injured workers, also died (see Second Death from Flash Fire at WV Pipeline Station). Phipps’ widow sued Eureka Hunter and several other companies involved with the pipeline and last week all parties settled and the Circuit Court of Ohio gave its stamp of approval. Phipps’ widow and her family will receive $18 million, minus one-third ($6 million) that goes to the lawyers…
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Magnum Hunter: Preparing to Sell, or Filing for Bankruptcy?

out of timeSure looks to us like time has finally run out for Marcellus/Utica driller Magnum Hunter Resources (MHR). The company is now either shopping itself looking for a buyer, or preparing to file for bankruptcy. Our evidence? On Friday, MHR suspended monthly dividend payments on their stock and hired financial advisory firm PJT Partners and law firm Kirkland & Ellis to advise MHR’s board of directors “regarding potential strategic alternatives to enhance liquidity and address the Company’s current capital structure.” According to one analyst we’ve read, addressing a company’s capital structure is coded language for “we’re about to file for bankruptcy protection.” Here’s MHR’s recent history and the announcement from Friday, to provide more context…
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Positive Sign: Short Selling of Magnum Hunter’s Stock Decreases

positive signShares of Magnum Hunter Resources’ (MHR) stock have, like almost all other oil and gas company stocks, taken a beating over the past year. In September the New York Stock Exchange sent MHR a notice that their stock has been trading under $1.00 per share for more than 30 consecutive days and is in danger of being de-listed (see Magnum Hunter Stock Avg Falls Below $1, Receives NYSE Warning). At one point in the past few weeks the stock traded as low as $0.30 per share. We’ve previously covered how a company’s share price affects its ability to borrow money and remain in business. We’ve also given you a tutorial on something called “short selling”–traders buying stocks on the bet that the stock price will go down instead of up (see “Short Selling” – An Important Signal for Marcellus-Related Companies). If a significant number of traders believe your stock is moving lower, and it’s already under $1.00 per share–let’s just say that’s not a good sign for the future health of the company. Short selling of MHR stocks decreased rather significantly from the end of August to the middle of September–which is a sign that investors believe the company’s stock is heading higher…
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Activist Investor Threatens Magnum Hunter with Takeover Unless…

Dallas Salazar
Dallas Salazar

We’re still trying to process this bit of news. One of the Seeking Alpha blog writers we’ve enjoyed following over the past year or so is Dallas Salazar. Dallas is the CEO of Austin, TX-­based Atlas Consulting. He specializes in “private company lifecycle management, up to and including taking companies public, and in helping consult publicly traded companies ranging in market cap from $100 million to $500 million.” That is, Salazar helps companies raise money to go public, and helps public companies get profitable. He’s just stepped up his game. Salazar said in a letter to Gary Evans (CEO) and the board at Magnum Hunter Resources (MHR) two days ago that he, Salazar, is close to having enough shareholder support to take over the company–unless. Unless what? Unless MHR responds to his demands, which include selling Eureka Hunter posthaste, stop doing some of the things they are now doing that put the company at financial risk, and unless they start talking to him, now. Some might view it as a form of blackmail. Some might say Dallas is transforming himself into a corporate raider, like Carl Ichan. Many call it being an “activist investor.” We’re not sure what to call it or think of it, quite frankly…
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Magnum Hunter Gets New VP for Finance & Capital Markets

hiredMagnum Hunter Resources (MHR), a significant independent gas driller focused exclusively on the Marcellus/Utica region, continues to build out its executive team. In August MHR added a new Chief Operating Officer (see New COO for Magnum Hunter Raises a Few Interesting Questions). Yesterday the company announced they’ve hired a new vice president for finance and capital markets, Chris Hewitt…
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5 Weeks Later and Still No Word on Buyer for Eureka Hunter

over promise under deliverSomething we’ve noticed for some time: When Magnum Hunter Resources (MHR) and its subsidiaries (like GreenHunter and Eureka Hunter) make a pronouncement like “such and such will be online next month” or “so and so asset will be sold this quarter” the timing rarely matches the pronouncement. For Magnum Hunter “the next few weeks” turns into “the next few months” and “sometime this quarter, maybe next” turns into “next year.” Somebody else has noticed MHR’s timeline peculiarity too–and has written about it on the Seeking Alpha investors website. This particular post notes that MHR’s CEO Gary Evans announced he would name the winning bidder in the “next week to 10 days” for the Eureka Hunter midstream subsidiary, a deal that will bring in something like $600-$700 million (see 3 Potential Buyers Identified for Eureka Hunter Pipeline Deal). That announcement by Evans was on August 14, some five weeks ago, and still no word on who the buyer is, and for how much…
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Magnum Hunter Stock Avg Falls Below $1, Receives NYSE Warning

trouble ahead signMagnum Hunter Resources has become the third Marcellus/Utica drillers (out of eight) on David Fessler’s “Oil Company Death List” (see 19 Oil/Gas Companies on “Death List” – 8 are in Marcellus/Utica) to receive a notice from the New York Stock Exchange that the company’s stock is in danger of being de-listed because the average price per share has fallen below $1.00 over a consecutive 30-day period…
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3 Potential Buyers Identified for Eureka Hunter Pipeline Deal

silhouette questionFinally we know. In June Magnum Hunter Resources (MHR), majority owner of subsidiary pipeline company Eureka Hunter, said it was negotiating to sell all of its ownership of Eureka Hunter to an unnamed buyer for $600-$700 million (see Magnum Hunter Cuts Deal to Sell Eureka Hunter & 2 New JVs). Two weeks ago Magnum Hunter CEO Gary Evans continued to tease that the sale is imminent and will bring in around $550 million (see Magnum Hunter About to Close 2 Deals Worth $1 Billion Cash). Cash amounts and deadline dates seem to be “fluid,” shall we say, when it comes to MHR statements. We still haven’t heard who the potential buyer is. That is, until now. Bloomberg is reporting the potential buyer is…
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Kentucky Supreme Court Rules Against Landowners in Royalty Dispute

court gavelThe Supreme Court of Kentucky has just ruled, in a pair of cases, that producers (i.e. drillers) CAN deduct post-production costs before calculating royalties to landowners. Once case involves landowners suing Magnum Hunter, the other involves landowners suing EQT, claiming (much like what has happened in Pennsylvania) that post-production costs mean they are getting less than one-eighth or 12.5% of the fair value of the gas as a royalty payment. The Supreme Court of Kentucky ruled the language in the leases is unambiguous as is the law–and that the lease allows for post-production expenses to be deducted. Here’s a summary from the legal beagles at Vorys…
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GreenHunter Changes Strategy with USCG re Wastewater Barging

change of strategyGreenHunter Resources, the fresh water and wastewater subsidiary of driller Magnum Hunter Resources, has changed strategies and has backed off their tough talk in dealing with the U.S. Coast Guard (USCG) with respect to barging brine down the Ohio River. You may recall MDN was the first to decipher just what was going on between GreenHunter and the USCG with respect to GreenHunter’s intention on barging (see GreenHunter/Coast Guard War of Words — MDN Explains It). The USCG is being manipulated by the Obama administration into blocking a request for GreenHunter to begin barging of wastewater (brine, actually). GreenHunter informed the USCG they have the legal right to do it under an existing 1987 rule that allows for it. The USCG has said not so fast, brine from shale wells may contain more radioactivity than brine from conventionally drilled oil and gas wells. In so many words, GreenHunter told the USCG they would move forward, daring the USCG to stop them (see GreenHunter to Coast Guard, We’re Barging While You Fiddle Around). As recently as May, GreenHunter claimed barging would begin soon (see GreenHunter Says OH River Wastewater Barging to Begin September). However, in an analyst conference call on Friday reviewing second quarter 2015 results, both parent company CEO Gary Evans and GreenHunter COO Kirk Trosclair changed their tune. Now GreenHunter is talking with the USCG again and attempting to convince them to let barging operations begin. You can hear the frustration both in GreenHunter’s comments, and in the comments by investors probing them on the topic…
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GreenHunter Resources 2Q15: Revenue Down, But Bleeding Less Too

GreenHunter Resources, the fresh water and wastewater subsidiary of driller Magnum Hunter Resources (now focused totally on the Marcellus/Utica), issued its second quarter 2015 update on Friday. The company is a small company compared to others in the oil and gas space with revenues in the few million per quarter. In 2Q15 GreenHunter’s revenues were $4.6 million, down 33% from $6.9 million in 2Q14. No surprise there since drillers are scaling back their activities. GreenHunter has trimmed its operating loss number–from $3 million in 2Q14 to $1.6 million in 2Q15–so the bleeding is slowing, a good sign. The 2Q15 update below brings us up to speed on a number of interesting initiatives at GreenHunter, including their new wastewater injection wells in Meigs County, OH. However, the interesting thing MDN picked up on was in the unscripted comments during GreenHunter’s earnings call held on Friday with analysts. That’s so important we’re dedicating a separate post to it today. Here is the 2Q15 update from GreenHunter…
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