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U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB/A
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Quarterly Period Ended March 31, 1997.
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act For the
transition period from .......... to ..........
Commission File Number..........1-12508
MAGNUM HUNTER RESOURCES, INC.
Exact name of small business issuer as specified in its charter
Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
Incorporation or organization
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
Address of principal executive offices
(972) 401-0752
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1997. 13,596,883
Transitional Small Business Disclosure Format Yes No X
Page 1 of 11 pages contained in the sequential numbering system.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with Magnum
Hunter's consolidated financial statements and the notes associated with them
contained in its Form 10-KSB for the year ended December 31, 1996. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum
Hunter.
In June 1996, the Company acquired the Panoma Properties, which include
interests in 520 gas wells in the Texas Panhandle and Western Oklahoma and an
adjoining 427-mile gas gathering system, from Burlington Resources Inc. for
$34.7 million. The Company assumed operations of nearly all the wells and of the
gathering system and began planning for increased density development drilling
in the Panoma area.
In January 1997, the Company purchased a 50% interest in a natural gas liquids
processing plant, the McLean Gas Plant, which is connected to the Panoma gas
gathering system, for $2.5 million. The related operating agreement allows the
Company to recoup its investment out of 100% of the net profits of the plant
before reverting to a 50% interest after payout. Management believes that the
acquisition of the McLean Gas Plant allows the Company to capture a portion of
the processing profits on the gas produced at the Panoma Properties that would
otherwise go to third party processors.
In February 1997, the Company entered into an agreement with Burlington
Resources Inc. to purchase certain oil and gas properties located in the Permian
Basin (hereinafter referred to as the "Permian Basin Properties"), consisting of
1,852 producing oil and natural gas wells and associated acreage located in 25
field areas of West Texas and in 22 field areas of Southeast New Mexico. On
April 30, 1997, the Company closed on the purchase for a net price of
approximately $133 million, including, but not limited to, certain adjustments
for a January 1, 1997 effective date.
On April 29, 1997, the Company received and accepted two new loan commitments
from Bankers Trust Company, as Agent, and Banque Paribas and First Union
National Bank of North Carolina for senior credit facilities for the Company and
several of its subsidiaries. The two new senior credit facilities were
structured as a $130 million revolving line of credit with a term of five years
and a $60 million one year senior subordinated bridge facility convertible into
a five year term loan. The new credit facilities were conditioned, among other
things, upon the closing of the Permian Basin Properties from Burlington, which
took place April 30, 1997. The revolving line of credit gives the Company the
flexibility of choosing a range of either "LIBOR" or "Prime" based interest rate
options. This new credit facility replaced the previously existing $100 million
revolving credit facility.
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Results of Operations for the Three Month Periods in 1997 and 1996
As discussed above, the Company acquired the Panoma Properties in June, 1996 and
the McLean Gas Plant in January, 1997. As such, the three month period ended
March 31, 1997 included the results of operations from these acquisitions, while
the comparable period ended March 31, 1996 did not. The increases in the 1997
interim period over the 1996 period are, unless otherwise stated, the result of
the acquisition of the Panoma properties and the McLean Gas Plant.
The Company reported net income of $250,000 for the three months ended March 31,
1997 as compared to a net loss of $93,000 in the comparable 1996 period, a
$343,000 improvement. Net income applicable to common shares was $31,000 in the
1997 period, after dividends on preferred stock of $219,000, compared to a loss
applicable to common shares of $265,000 in the 1996 period, after dividends on
preferred stock of $172,000. The dividends on preferred stock were $47,000
higher in the 1997 period due to the issuance of the $10 million 1996 Series A
convertible preferred stock in December, 1996. The Company had income per common
share of a fraction of a cent in the 1997 period compared to a $.02 per share
loss in the 1996 period, which resulted in a $.02 per share improvement.
Oil and natural gas sales were $3,263,000 in the 1997 period, an increase of
$1,883,000, or 136%, over the 1996 period. The Company sold 46,017 barrels of
oil and 972,380 Mcf of gas in the 1997 period, an increase of 1,634 barrels of
oil and 716,632 Mcf of gas over the 1996 period. The price received for oil was
$20.74 per barrel and for gas it was $2.37 per Mcf in 1997, an increase of $2.18
per barrel of oil and $.19 per Mcf of natural gas. The increase in natural gas
volumes sold was principally a result of the Panoma acquisition.
Oil and natural gas production costs increased to $1,597,000 in the 1997 period,
a $1,032,000, or 183%, increase over the 1996 period. The increase in costs were
primarily attributable to the Panoma acquisition. The operating margin from oil
and natural gas production was $1,666,000 in the 1997 period, an increase of
$851,000 over the 1996 period. The increase in operating margin is primarily
attributable to increased volumes of gas sold as a result of the Panoma
acquisition, and, to a lesser extent, higher prices received from the sale of
oil and gas.
Gas gathering, marketing and processing revenues were $3,892,000 in the 1997
period, an increase of $3,151,000, or 425%, over the 1996 period, principally as
a result of the acquisition of the Panoma gas gathering system and the McLean
Gas Plant. Costs from these activities were $2,960,000 in the 1997 period, an
increase of $2,316,000, or 360%, over the 1996 period, again a result of the
acquisitions mentioned above. The operating margin from these activities was
$932,000 in the 1997 period versus $97,000 in the 1996 period , an increase of
$835,000, or 861%. As a result of the acquisition of the Panoma System, total
gathering systems throughput increased to 21,057 Mcf per day in the 1997 period
versus 4,402 Mcf per day in the 1996 period. Due to the McLean Plant
acquisition, natural gas processing throughput was 15,303 Mcf per day in the
1997 period versus none reported in the 1996 period. The operating margin from
gathering operations was $607,000, in 1997, an increase from $117,000 in the
1996 period, partly as a result of a $408,000 gain from gas marketing on the
Panoma system in March, 1997. The operating margin from natural gas processing
was $325,0000 in the 1997 period versus none reported in the 1996 period.
Revenues from oil field services and international sales was $3,471,000 in
the 1997 period, a $3,338,000 increase over the 1996 period, principally due to
an increase in sales by Hunter Butcher International, L.L.C. Cost of oil field
services and international sales increased $3,171,000 to $3,338,000 in the 1997
period, also principally due to Hunter Butcher. The operating margin from these
activities was $133,000 in the 1997
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period versus a loss of $34,000 in the 1996 period. The margin from Hunter
Butcher operations was $60,000 in the 1997 period versus $32,000 in the 1996
period. Oil field services produced an operating margin of $73,000 in the 1997
period versus a loss of $66,000 in the 1996 period.
Depreciation and depletion expense increased to $1,081,000 in the 1997 period, a
$575,000, or 114%, increase over the 1996 period, due to the acquisitions.
General and administrative expenses was essentially unchanged from the previous
year.
Operating profit increased to $1,428,000 in the 1997 period from $147,000 in the
1996 period, a $1,281,000, or 871%, increase. Interest expense increased to
$1,068,000 in the 1997 period, a $814,000 increase, due to increased borrowing
under the Company's revolving credit line to fund acquisitions. The Company
provided for deferred income tax of $164,000 in the 1997 period versus none
reported in the 1996 period.
Liquidity and Capital Resources
At March 31, 1997, the Company had $3.1 million in cash and cash equivalents and
$1.6 million in net working capital. Total long-term debt under its revolving
credit agreement at March 31, 1997 was $52.7 million, leaving approximately $5.3
million available to draw under the line after the banks increased the borrowing
base from $55 million to $58 million. Of the $14 million drawn under the
revolving line of credit during the quarter ended March 31, 1997, (i) $2.5
million was used to acquire the McLean Gas Plant, (ii) $10 million was used as a
deposit on the acquisition of the Permian Basin Properties from Burlington
Resources Inc. and (iii) $1.5 million was used for development expenditures.
On April 30, the Company closed on the acquisition of the Permian Basin
Properties for a net purchase price of approximately $133 million. At the same
time, the Company's existing $100 million revolving credit facility was replaced
by two new credit facilities in the total amount of $190 million. The initial
advances under these new facilities totaled $179.5 million, including funds to
complete the Permian Basin Property acquisition, to pay principal and accrued
interest remaining on the $100 million revolving credit facility, and to provide
cash for working capital purposes. The Company has available $10.5 million for
future working capital requirements.
For fiscal 1997, the Company is currently projecting that it will spend
approximately $20 million on development and exploration activities, of which $3
million is budgeted on exploration projects. In addition, with respect to the
recently closed Permian Basin Properties acquisition, the Company projects to
spend approximately $40 million in a development program to enhance an existing
waterflood project in the Westbrook Field located in Mitchell County, Texas.
This capital expenditure is budgeted over a four year period beginning in 1997.
A combination of internally generated funds and debt financing under the
revolving credit facilities will be sufficient to fund these development and
exploration expenditures.
Inflation and Changing Prices
The results of operations and cash flow of Magnum Hunter has been and will
continue to be effected to a certain extent by the volatility in oil and gas
prices. Should Magnum Hunter experience a significant increase in oil and
natural gas prices over a prolonged period, it would expect that there would
also be a corresponding increase in oil and natural gas finding costs, lease
acquisition costs and operating expenses.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Form 10-QSB/A Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAGNUM HUNTER RESOURCES, INC.
By /s/ Gary C. Evans May 21, 1997
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Gary C. Evans
President, Chief Executive Officer and
Chief Financial Officer
/s/ David S. Krueger
- ---------------------------------------- May 21, 1997
David S. Krueger
Vice President and
Chief Accounting Officer
