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    Magnum Hunter grows liquids rich shale with NuLoch acquisition

    By Oil & Gas Financial Journal staff

    Magnum Hunter Resources Corp. (NYSE: MHR) is growing its Bakken Shale acreage with a definitive agreement to acquire Williston Basin focused NuLoch Resources in an all stock transaction valued at US$327 million – a 19% premium to the January 18 closing price.

    Magnum Hunter will issue 42.8 million shares for 100% ownership of the Canadian junior oil and gas company, which, as of December 31, carried no debt.

    Magnum Hunter has received a commitment for a new $250 million senior credit facility with an initial borrowing base of $145 million to be provided by BMO Capital Markets, secured by the company's existing asset base, including the assets being acquired from NuLoch and NGAS.

    The deal is expected to close by April 30th.

    Analysis
    Magnum Hunter is rapidly and wisely growing its shale portfolio, particularly in the liquids-rich arena. 

    A January 20 research note from Jefferies & Co. Inc. estimates Magnum Hunter paid a fair value, roughly $2,000 per undeveloped acre after deducting value for acquired production.

    “NuLoch has 66,200 net undeveloped acres in the Canadian/US Bakken plays. We valued production at $120,000 per flowing boe, in-line with average oil sales witnessed in the past year. Deducting $190 million for the 1,550 boepd leaves $137 million for undeveloped acreage, or $2,000 per acre," calculated Jefferies, who noted another 27,400 net undeveloped acres were excluded because the company has no plans to develop.

    Overall, Jefferies compares the growth of the company to the early years of Petrohawk. The last three Magnum Hunter acquisitions were funded with equity, “preserving the balance sheet while accessing new lines of liquidity.” 

    Canaccord Genuity also views the company favorably. "We are growing increasingly more constructive on Magnum Hunter’s asset base and relative growth potential. In particular, we are very encouraged by the announced transactions and MHR’s strong start in the Eagle Ford and Marcellus projects."

    In May, Magnum Hunter signed an Eagle Ford joint operating and exploration agreement with privately-held Hunt Oil Co. Hunt ranked No. 14 in the October 2010 OGFJ100P list of top private companies by year-to-date production.

    In September, the company secured Marcellus takeaway signing a joint venture with DCP Midstream JV. Then, in late December, the company announced its intent to acquire NGAS Resources for $98 million.

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