Business
Magnum Hunter is looking to divest its natural gas subsidiary Eureka Hunter Holdings for $600-700 million. The company, which has been struggling to cope with weak prices for natural gas, had $13.7 million in cash and cash equivalents and total debt of $951 million as of March 31, according to Thomson Reuters. By selling "what has always been framed as the prize asset, Eureka Hunter Pipeline", the company is left with an oil and gas business that does not "leave much of a value proposition", analysts at BMO capital Markets said.
Magnum Hunter has until July 10 to meet a debt payment of about $65 million, and said on Wednesday that it had raised about $55.6 million so far and was continuing to pursue "liquidity enhancing transactions". The company can pay down $278 million of debt by selling its stake in the pipeline unit, analysts at SunTrust Robinson Humphrey wrote in a note. In May, the company said it was looking to form a joint venture for some of its Utica shale assets in Ohio and sell undeveloped acreage in Ohio and West Virginia.
At the time, Magnum Hunter said it expected to raise about $50 million by selling part of its Eureka Hunter stake. Morgan Stanley Infrastructure, the U.S. bank's infrastructure investing arm, owns the majority stake in Eureka Hunter. Eureka Hunter owns Eureka Hunter Pipeline LLC, which operates natural gas pipelines in southeastern Ohio and northern West Virginia. It also owns TransTex Hunter LLC, which provides natural gas treating and processing services.
The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry, notes thestreet.com. The net income has significantly decreased by 72.0% when compared to the same quarter one year ago, falling from -$61.59 million to -$105.92 million. The debt-to-equity ratio is very high at 2.22 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.20, which clearly demonstrates the inability to cover short-term cash needs.
