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Well, it's better late than never. After lengthy delays, which included firing its auditor, Magnum Hunter Resources (NASDAQOTH: MHRCQ ) is out with its 2012 fourth-quarter and full-year financial report. Let's drill down into some of the highlights.
Total revenue for the year jumped 138%, to $271 million, while Adjusted EBITDAX came in at $168.6 million. Despite those strong numbers, the company reported a loss of $167.4 million for the year, or $1.07 per share. That's slightly worse than the loss of $90.7 million, or $0.80 per share, in 2011. What's key for investors to understand is that the company reported $150.9 million in impairment charges and non-recurring expenses last year, which, when stripped out, yielded a loss of just $16.5 million, or $0.11 per share.
Breaking it down for the fourth quarter, Adjusted EBITDAX was up 35% from the third quarter of 2012, going from $40.6 million, to $54.8 million. Overall, the company reported a net loss of $85.4 million, or $0.54 per share for the quarter. However, when you strip out non-cash charges, earnings came in at $8.9 million, or $0.05 per share. Profitability there is a good sign for the company, even if it is just on paper.
The non-cash charges of $94.3 million in the quarter included $74.7 million in impairments related to its reserves. What happened here is that one of its large acreage positions in the Williston Basin turned in poor results, which led the company to impair those acres, which it will let expire when the leases run out. This isn't what you want to see as an investor, but it does highlight one of the risks of smaller exploration companies, as sometimes, wells do come up dry or uneconomical. The hope is that the company can more than offset a few duds by hitting gushers elsewhere.
Speaking of a gusher, Magnum Hunter did deliver a solid year of production growth. For the full-year, Magnum Hunter produced an average of 13,152 barrels of oil equivalent per day, which is up 139% year over year. The production increase was driven by both its acquisitions as well as its liquids-focused drilling plan, which paid off, as production was very liquids heavy, at 49% of total production.
Last year Magnum Hunter spent a total of $428 million to grow its oil and gas production, but the company is stepping off the gas this year spending only $300 million to grow production. That is split into $150 million for the Bakken area, and $150 million in the Marcellus and Utica. Last year's plan included investments in its liquids-rich Eagle Ford assets; however, the company recently sold those to Penn Virginia (NASDAQOTH: PVAHQ )
In one sense, Magnum Hunter is taking a step back, as its focusing more on gas in the year ahead. However, part of that is to take advantage of the processing capacity available to it now that MarkWest's (UNKNOWN: MWE.DL ) Mobley Processing Plant is online. That plant will have a total of 520 Mmcf/d of processing capacity in the rich gas portion of the play once fully expanded, and Magnum Hunter is one of the main producers pumping gas into the plant. The plant will enable Magnum Hunter to get its liquids rich gas processed, which is much more lucrative than dry gas, so this is a good move for the company.
One other thing to keep an eye on this year is Magnum Hunter's liquidity. As of last month, it had about $380 million of liquidity, which bumps up pretty close to its $300-million upstream capital budget. It does have 10-million shares of Penn Virginia stock that it could divest, and it's aggressively pursuing $100 million to $200 million in non-core asset sales, which should bolster liquidity. Investors need to keep an eye on this to see when the company closes these deals, especially divesting the Penn Virginia stock, as that could put some downward pressure on the value of those shares if it cashes out quickly.
Final Foolish thoughts
Completing its annual report is just one step of the process for Magnum Hunter to win back the faith of investors. The company still has a long road ahead of it. This year will be a crucial one for the company, as it focuses on executing its growth plans to nearly double production to a range of 23,000-25,000 barrels of oil equivalent per day, even after selling 3,500 barrels of oil equivalent production per day in the Eagle Ford sale. If it can do that, and boost its liquidity, that should help ease investor concerns. Suffice it to say, it's going to be a busy year for Magnum Hunter.
Magnum Hunter might not be the company for all investors, as its liquidity is fairly tight. If you like its Bakken exposure, but want a company on more solid footing, you might want to take a look at Kodiak Oil & Gas. It, too, is a dynamic growth story -- it offers great opportunities; but with those opportunities come great risks. To learn more about Kodiak, as well as its risk and opportunities, you're invited to check out The Motley Fool's premium research report on the company, which comes with a full year of updates and analysis as key news breaks. To get started simply click here now.