Magnum Hunter Resources Corp (MHR): What Its Transition Means to Investors

Unconventional exploration and production company Magnum Hunter Resources Corp (NYSE:MHR) recently provided the market with an update on its operations. Included in the update are its plans for the future now that it has announced the sale of its Eagle Ford acreage to Penn Virginia Corporation (NYSE:PVA). Let’s drill down into this announcement to see what it means for investors.

Eagle Ford
One of the draws of Magnum Hunter Resources Corp (NYSE:MHR) is that the company had operations in three of the best emerging resource plays in the country. Now that it’s dropping its Eagle Ford operations, the outlook and makeup of the company has changed. The company will be going from a production mix of 60% oil and liquids and 40% natural gas to one that will be 60% gas and 40% oil and liquids. With natural gas prices heading higher that might not be a bad thing, but it is something to watch.

The story here had been of a company transitioning from gas to liquids. While that’s still the case, the sale of the Eagle Ford acreage is a step backward, at least temporarily. To start the year the company was planning on spending a third of its $300 million drilling budget in each basin, two of which are very liquids-rich. However, it’s now going to split the funds evenly between the Williston Basin and the gassier Appalachian Basin.

Finally, the company isn’t completely out of the Eagle Ford just yet. It is currently participating with Marathon Oil Corporation (NYSE:MRO) on a well targeting the Pearsall Shale. It’s hoping to prove up some of this acreage and eventually package it for sale. Overall, the company sees about $150 million in non-core assets that it can sell. Because of its tight financial situation, these asset sales are necessary to pay down debt and fund its growth. The bottom line is that Magnum Hunter Resources Corp (NYSE:MHR) is turning into a gassier company in the near term, but also one with a bit more financial breathing room.

Appalachia
I mentioned that Magnum Hunter Resources Corp (NYSE:MHR)’s Appalachian operations will be getting a big dose of capital this year. While a portion of that capital will be spent on high-returning Marcellus natural gas wells, part of the plan includes drilling in the Utica Shale. Magnum Hunter Resources Corp (NYSE:MHR) believes that its acreage is in the sweet spot of the liquids-rich area of the Utica which should yield exceptional value for the company.

The Utica is an area that investors will need to watch closely. Some operators like Gulfport Energy Corporation (NASDAQ:GPOR) see the Utica as being one of the best plays in North America. It certainly helps that the company has seen some of the best producing wells in the play which is why its investing heavily to grow in the Utica.