Magnum Hunter Resources
Magnum Hunter Eureka Sale Not Going As Planned
Mon 09/28/2015 14:34 PM
Magnum Hunter Resources’ move to bring in a new capital markets executive has swung the spotlight back to the company’s push to sell its midstream pipeline business -- the success of which could determine whether Magnum Hunter must go through a full-blown restructuring.
The company’s announcement last Thursday that it has named former Wells Fargo director Chris Hewitt as vice president in finance and capital markets included reference that it was reviewing “potential restructuring scenarios” and “financial engineering” opportunities due to depressed exploration and production industry multiples.
Hewitt’s options on providing the company enough runway to survive a low commodity environment and overlevered balance sheet, will depend, to a large extent, on the company’s ability to sell its Marcellus shale pipeline Eureka Hunter - a process that so far has struggled, according to sources familiar who spoke with Reorg Research. The company has pushed out the timing of the sale to November, which has increased attention on Magnum’s need to restructure.
One potential hurdle in the sales process is that Eureka’s gas gathering system serves local natural gas processing plants, such as MarkWest Energy’s Sherwood plant and Dominion Hasting’s plant in West Virginia, near the Ohio border - an area already overwhelmed with a glut of natural gas that has driven down prices in that region. Magnum Hunter faces a challenge in pulling off its asset sale at a suitable valuation, since the gathering pipeline does not have a connection to processing plants in attractive end-markets like Houston or the Gulf of Mexico, sources told Reorg Research.
Adding to the difficulty is waning NGL demand due to excess supply, which has pressured processing assets. Comparables such as MarkWest, Crestwood, Summit and EQT midstream have seen their stocks decline versus the S&P 500, in part because of interest rate concerns, but also due to commodity price declines.
Furthermore, even if Magnum Hunter gets the sale done, it will still need to look to other solutions for liquidity because the company has to use proceeds to pay down existing debt, per its credit agreements. Moreover, the $430 million proposed farm out only includes $25 million to $35 million of upfront cash.
Sources also point to the upcoming redetermination process with its bank as another potential headwind, or stress point, for the company -- possibly compounding its push to find balance sheet relief.
The company’s 9.75% unsecured bonds, which were once hovering around 80 in late July, last traded at 51 on Sept. 25, according to TRACE data.
A call to Magnum Hunter seeking comment was not returned.
The company’s announcement last Thursday that it has named former Wells Fargo director Chris Hewitt as vice president in finance and capital markets included reference that it was reviewing “potential restructuring scenarios” and “financial engineering” opportunities due to depressed exploration and production industry multiples.
Hewitt’s options on providing the company enough runway to survive a low commodity environment and overlevered balance sheet, will depend, to a large extent, on the company’s ability to sell its Marcellus shale pipeline Eureka Hunter - a process that so far has struggled, according to sources familiar who spoke with Reorg Research. The company has pushed out the timing of the sale to November, which has increased attention on Magnum’s need to restructure.
One potential hurdle in the sales process is that Eureka’s gas gathering system serves local natural gas processing plants, such as MarkWest Energy’s Sherwood plant and Dominion Hasting’s plant in West Virginia, near the Ohio border - an area already overwhelmed with a glut of natural gas that has driven down prices in that region. Magnum Hunter faces a challenge in pulling off its asset sale at a suitable valuation, since the gathering pipeline does not have a connection to processing plants in attractive end-markets like Houston or the Gulf of Mexico, sources told Reorg Research.
Adding to the difficulty is waning NGL demand due to excess supply, which has pressured processing assets. Comparables such as MarkWest, Crestwood, Summit and EQT midstream have seen their stocks decline versus the S&P 500, in part because of interest rate concerns, but also due to commodity price declines.
Furthermore, even if Magnum Hunter gets the sale done, it will still need to look to other solutions for liquidity because the company has to use proceeds to pay down existing debt, per its credit agreements. Moreover, the $430 million proposed farm out only includes $25 million to $35 million of upfront cash.
Sources also point to the upcoming redetermination process with its bank as another potential headwind, or stress point, for the company -- possibly compounding its push to find balance sheet relief.
The company’s 9.75% unsecured bonds, which were once hovering around 80 in late July, last traded at 51 on Sept. 25, according to TRACE data.
A call to Magnum Hunter seeking comment was not returned.
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