CANACCORD - MAGNUM INCREASES EXPOSURE TO BAKKEN; SEE IMPACT AS LONG-TERM POSITIVE
Transaction details
Bakken Hunter (a subsidiary of Magnum Hunter Resources) announced the acquisition from Baytex of 50,414 net acres in North Dakota of non-operated assets with proved reserves of 12.4 Mmboe and production of 950 Boepd.
The price was $311 million in cash, or $25/Boe of proved reserves and $136,000/Boepd of daily production. The transaction values the leasehold at almost $6,170/acre before production and $4,662/ acre after backing out production at $80,000/ acre. MHR will be using its new $450 million senior secured term loan facility to fund this acquisition.
To expedite the drilling on newly acquired assets, management indicated that it will increase capex by approximately $50 million in the Williston Basin region. The company also plans to increase Eagle Ford capex, also by $50 million, which will be somewhat offset by lowering spending in the Appalachia by $25 million. Post
closure of this transaction, MHR will have an estimated $225 million of liquidity, allowing it to fund its 2012
capex of $225 million without tapping into the equity markets.
Investment highlights
Magnum trades at almost $27/Boe and $98,036/Boepd (Q1 estimate), and we believe the deal is accretive on
production and reserve estimates. We also view this transaction favorably as it meaningfully increases Magnum’s position in the Williston Basin to over 125,000 net acres. We remain constructive on the resource potential of the Bakken/ Three Forks. In our view, these resource opportunities offer meaningfully higher rates of return when compared with Magnum’s Appalachia assets in an environment of low natural gas prices.
Valuation
We maintain our BUY rating and our current price target of $8.50 per share, which is based on our break-up
value of $8.65 per share and is equivalent to approximately 5.4x our ‘13 EBITDAX estimate of ~$298.8M.
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Let's all hope the Obama administration doesn't screw with fracking regulations and ruin this story.
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