Actionable news
All posts from Actionable news

Magnum Hunter Needs To Eliminate Over 75% Of Its Interest And Dividend Payments To Become Competitive

Magnum Hunter suspended its preferred dividends and announced that it was exploring strategic alternatives.

The outlook for natural gas looks challenging into 2016, so the company likely needs to reduce its break-even point to $70 oil and $3.50 natural gas to be somewhat competitive.

This would require eliminating 75+% of its preferred dividend and interest payments.

Bankruptcy is not a foregone conclusion, but remains a major concern given MHR's level of cash burn compared to revenues at current oil and gas prices.

The value of various parts of its capital structure will be dependent on the choices that the company makes as it explores its strategic alternatives.

Magnum Hunter Resources (NYSE:MHR) suspended its preferred dividends and announced that it hired PJT Partners (NYSE:PJT) to explore its strategic alternatives. As I've discussed before, MHR is an asset-rich company that is very far from breakeven at current oil and natural gas prices. Theoretically, it should be able to avoid bankruptcy through asset sales, but that depends on the company's willingness and ability to monetize its assets. Given the long wait for news about Eureka Hunter, I believe that bankruptcy is certainly a major concern, although not a foregone conclusion. Magnum Hunter remains extremely speculative since its value at this point will primarily be driven by items that are hard to ascertain at this point (such as what steps Magnum Hunter will take to try to reset its capital structure).

Exploring Strategic Alternatives

Usually when a highly indebted company announces that it will explore strategic alternatives, it doesn't turn out very well in the end. Samson Resources started exploring its strategic...