Magnum Hunter Resources Corp (MHR): Annual Reports Can “Hide” Valuable Assets

A great example of the potential a hidden asset like this can have on a company is found at Oasis Petroleum Inc. (NYSE:OAS). The company has been building out its Oasis Well Services business in an effort to lower its well costs in the Bakken. Oasis Petroleum Inc. (NYSE:OAS) invested $24 million initially, which has been money well spent. The business is expected to save Oasis about half a million dollars per operated well. Not only that, but the company produces cash flow from the business to the tune of about $200,000 per gross well as its non-operated partners pay Oasis for the service. These savings have enabled Oasis Petroleum Inc. (NYSE:OAS) to completely pay back its initial equipment investment.

Final Foolish thoughts
Dabbling in vertical integration by owning hidden assets like midstream assets, or an oil-field services business, can help an oil and gas producer lower costs, as well as give its production access to the marketplace. However, the capital spent to develop these assets represent somewhat of an opportunity cost, as the capital might be better spent at some point on its core business of increasing oil and gas production. That’s why it’s important for investors to drill down deeper into a company to see if there are assets that the market might be missing, because these hidden assets could yield significant future value.

The article Annual Reports Can “Hide” Valuable Assets originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.