Attention Bargain Hunters: Magnum Hunter Has Run Its Course
The company faced a bumpy road in the first half of 2013. First, it had to restructure its business in order to pay down its hefty long-term debt, which hit $1 billion back in March. In April, it sold its oil-weighted Eagle Ford acreage in South Texas to Penn Virginia Corporation for a total purchase price of $401 million. This asset was the perfect fit for Penn Virginia's existing asset base, which is located adjacent to these properties. After this transaction, Penn Virginia's Eagle Ford pro forma production rose approximately 40%, and Penn Virginia currently has 420 net drilling locations in the Eagle Ford play and an eight-year drilling inventory, based on its ongoing six-rig program.
Magnum's valuation has skyrocketed. Excluding the company's midstream asset, the Eureka Hunter pipeline, which will be monetized by 2014 and has a net value of approximately $500 million, Magnum's current enterprise value stands at approximately $1.8 billion. Let's check out its peers below:
(Est. Q4 13)
Thanks to "pad" related drilling and given the successful drilling results of other operators in the vicinity of its leasehold acreage, Magnum believes that its Utica properties will drive its production growth in the coming quarters and a substantial portion of its Utica Shale acreage will be added to proved reserves over time as more wells are drilled and delineated in this region.
Stepping away from the pack, I am making a contrarian forecast. Magnum's stock is close to a turning point, while its peers have compelling valuations and strong growth prospects. So if I owned shares of Magnum, I would switch to cheaper plays before it is too late. Some might think that this time will be different. I believe this time won't be different: Magnum's stock won't rise indefinitely.
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The article Attention Bargain Hunters: Magnum Hunter Has Run Its Course originally appeared on Fool.com.Nathan Kirykos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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