History
Magnum Hunter grew fast through debt- and share-funded acquisitions from 2009 to 2012, then sold assets amid an auditor crisis and filed for Chapter 11 in December 2015.
2009-2010: Building an Appalachian base
In November 2009 Magnum Hunter raised money by selling units at $1.73 each, each unit being a common share plus a fraction of a warrant. The raising met the minimum equity commitment for its agreement to buy Triad Energy. Later that month it signed a $150 million Bank of Montreal credit facility, starting with a $25 million borrowing base, to replace its earlier CIT Capital loan.
In February 2010 it closed the Triad purchase. Triad had been in bankruptcy, and its assets were about 2,000 wells and 88,000 net acres in Kentucky, Ohio and West Virginia, plus a gas pipeline and drilling rigs. The price was roughly $81 million, paid with bank debt, $15 million of preferred stock and $8 million cash. The bank facility was raised to a $70 million borrowing base to fund it. In November 2010 the company sold a 10% interest in the Cinco Terry prospect in Texas for $21.5 million. In December its move up to the New York Stock Exchange was approved. Shares on issue ended 2010 at 74.9 million.
2010-2011: Three deals at once
At the end of 2010 Magnum Hunter agreed to buy more West Virginia properties for about $39.75 million, half cash and half in about 3.2 million new shares. It also agreed an all-stock purchase of NGAS Resources, an Appalachian gas producer, and in January 2011 an all-share purchase of NuLoch Resources, an Alberta oil producer, its first move into Canada.
The NGAS deal closed in April 2011 alongside a new Bank of Montreal-led facility of up to $145 million. The NuLoch deal followed in May, with about 38.6 million shares plus 4.3 million exchangeable shares issued, worth roughly $333 million. NuLoch holders were expected to own about 32% to 34% of the combined company. Year-end shares reached 129 million, up from 74.9 million.
The company then turned to North Dakota, agreeing in August 2011 to buy properties from Eagle Operating for $57 million. Its Eureka Hunter pipeline subsidiary set up a separate $150 million financing, and in October the parent added a $100 million second-lien term loan at a steep 6-8% margin.
2012: The biggest bets
In March 2012 an affiliate of ArcLight Capital committed up to $200 million to buy preferred units in Eureka Hunter Holdings, the pipeline parent. The Eagle Operating deal finally closed in April, about seven months late after a dispute, for roughly $53 million. Eureka Hunter also bought a gas-treating business, TransTex, for $58.5 million.
The largest deal came in April: $311 million for Baytex Energy's non-operated interests in Divide and Burke Counties, North Dakota. To pay for it the company sold $450 million of 9.75% senior notes due 2020 and 35 million shares at $4.50. The deal closed on May 23 and the 2012 capital budget rose from $150 million to $325 million. In November it bought Viking International (Virco) for about $106.7 million, partly with a new 8.0% Series E convertible preferred stock. In December it issued another $150 million of the notes, taking them to $600 million. Shares ended 2012 at 169 million.
In October the company disclosed it had understated stock-option expense by about $3.8 million in its second-quarter report, which could no longer be relied on.
2013: Auditor crisis and retreat
The accounting problems delayed the 2012 annual audit, and lenders had to extend deadlines and waive defaults in March and April. In April the company agreed to sell its Eagle Ford position in Texas to Penn Virginia for $361 million cash plus up to $40 million more, and lenders cut the borrowing base to $265 million from $350 million. Also that month it fired PricewaterhouseCoopers, which had flagged unresolved matters and material weaknesses in internal controls. The company said it believed no restatement was needed. BDO USA took over, and in May the NYSE MKT sent a non-compliance letter over the Series C, D and E preferred stock because the filings were late. The record for the rest of 2013 is thin in the major events, though shares ended the year at 171 million.
2014: Relational, Australia and selling down
In January 2014 the company settled lawsuits and an arbitration with Seminole Energy Services over a Tennessee gas plant. In May it raised $150 million from Relational Investors through a private placement of stock and warrants, to speed up Ohio and West Virginia drilling and cut its revolver. Shares ended the year at 200.5 million.
In June it bid all-stock for Australia's Ambassador Oil and Gas, raising its offer to one share for every 23.6 Ambassador shares and making it unconditional. A Takeovers Panel ruling in July went in its favour against rival bidder Drillsearch. In August, after South Australia's regulator suspended work commitments on the PEL 570 permit, the company said it had no present intention of raising or extending the offer.
In September and October Morgan Stanley Infrastructure bought out ArcLight's Eureka Hunter stake. Bakken Hunter agreed in October to sell non-operated Divide County interests to SM Energy for about $84.8 million, bringing 2014 divestitures to about $210 million. The company kept substantial North Dakota assets.
2015-2016: Distress and Chapter 11
On March 24, 2015 the SEC staff sent Wells Notices, a preliminary step toward enforcement action, to the company, CEO Gary Evans, director J. Raleigh Bailes, the former CFO and the former chief accounting officer. The company said earlier material weaknesses had been fixed by the end of 2014. In April, lenders waived covenants on condition that the company raise at least $65 million by May 29. The company reported first-quarter production up about 66% to 14.7 Bcfe.
In June it sold Tyler County, West Virginia acreage to Antero for about $33.6 million, and had raised about $55.6 million toward the target. In July lenders dropped the requirement and relaxed covenants through the end of 2015. In September the common stock fell below the NYSE's $1.00 minimum price rule. In November the bank facility became a term loan partly held by noteholders and second-lien lenders, and Eureka Hunter's owner demanded $20.8 million in security over past-due amounts, briefly shutting in about 40 Triad wells until a new agreement restored service.
On December 15, 2015 Magnum Hunter and nineteen subsidiaries filed for Chapter 11 in Delaware with a restructuring support agreement and debtor-in-possession financing. In April 2016 the company filed a Third Amended Plan, and creditors agreed to push the confirmation and consummation milestones back, with consummation moved to May 3. On May 6, 2016 the company terminated the registration of a class of its securities, ending its reporting obligation for them.
Written from the 67 story beats below (2009 to 6 May 2016), which come from the company's own announcements and filings.