Photo credit: Flickr/Daniel X. O'Neil

Magnum Hunter Resources Corp (NYSE: MHR) recently reported its fourth-quarter and full-year results. While the company continues to lose money, the underlying business is improving. Let's take a deeper look at the company's results.

Drilling down into the numbers that matter
For the fourth-quarter Magnum Hunter Resources reported an adjusted net loss of $0.14 per share, which beat estimates by $0.06. It is also more than half of the loss the company reported in last year's fourth quarter. On top of that the company's fourth-quarter adjusted EBITDAX rose 54% over the fourth-quarter of 2012 to $37 million. This is solid growth, especially in light of all of the fact that company endured weather and pipeline related production shut-ins on the quarter. 

For the full-year Magnum Hunter Resource reported solid financial results.  Adjusted EBITDAX of $112 million was up 48% from 2012. This improved profitability was due in part to the company's focus on acquiring and drilling for liquids as well as higher realized commodity prices.

A closer look at production
Magnum Hunter Resources saw its fourth-quarter production increase by 44% over its 2012 fourth-quarter rate. Overall, production average 11,298 barrels of oil per day, or BOE/d on the quarter. However, production would have increase by 96.1% to 15,386 BOE/d if it wasn't for a combination of asset sales and production shut-ins.

One of the reasons why production was shut-in on the quarter is due to a break in a MarkWest Energy Partners LP (NYSE: MWE) natural gas liquids pipeline. That issue, combined with MarkWest Energy Partners temporary shut-down of its Mobley processing facility resulted in Magnum Hunter Resources shutting-in 925 BOE/d of production on the quarter. In addition to that the company also was forced to shut-in 1,045 BOE/d of production at its Ormet Pad location in Ohio while it waited for midstream infrastructure to be built. Because of this the company's underlying production growth is much higher than the reported number.

  

Photo credit: MarkWest Energy Partners LP 

This is also seen in its full-year results as Magnum Hunter Resources' production was up 26.9%. However, if it wasn't for asset sales and production shut-ins production growth would have been 91.6% higher than 2012.

Rewind and fast forward
Last year was a pivotal one for Magnum Hunter Resources according to CEO Gary Evans. The company sold its Eagle Ford Shale assets to Penn Virginia Corporation (NYSE: PVA) for $401 million. It also pocketed another $8.3 million on the sale of the Penn Virginia stock it received as part of the deal. On top of that it sold some non-core assets in North Dakota for $77.5 million. While those deals affected production, the deals provided the company with plenty of cash to use to focus its drilling program on its core acreage.

Because of this renewed focus on its core assets, Magnum Hunter Resources' investors can expect to see the company's rates of return improve in the years to come. As the company moves past exploration to development it plans on drilling wells that will produce higher estimated ultimate recoveries as well as higher production rates. According to Evans this will improve the "internal rates of return on every single dollar employed" as the company drills in its core areas.

Investor takeaway
Magnum Hunter Resources is heading in the right direction. It's selling assets to focus on its core and by doing so it should see its returns improve. While a number of risks still remain, the story here is still pretty compelling.

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