Despite being hampered by infrastructure issues again this quarter, Magnum Hunter Resources (NYSE: MHR) delivered solid third-quarter results. Oil and gas production increased by 38.5% over last year's third quarter. Magnum Hunter is on pace to end the year strong, and it anticipates that to continue next year as well. Let's take a closer look at the quarter.

Production strong despite infrastructure issues
As mentioned, production was up 38.5% over last year to 10,049 barrels of oil equivalent per day or BOE/d. However, continued troubles getting natural gas and natural gas liquids processed caused production to be lower than it could have been.

This quarter production shut-ins at the company's Appalachian division were caused by the complete shut-down of the Mobley gas processing facility owned by MarkWest Energy Partners (NYSE: MWE). The problem was that a landslide caused a break in the natural gas liquids pipeline. Without this issue, and accounting for discontinued operations, production for the quarter would have been 13,699 BOE/d.

Because these were natural gas volumes, the impact on the company's actual cash flow was minimal on the quarter. Overall, oil and natural gas liquids production has increased from 42% of production to 54% of production, which is helping to improve margins and cash flows. Further, as of mid-October the pipeline issues have been addressed, and gas production is now once again flowing to MarkWest's Mobley plant.

Financials stable despite losses
Magnum Hunter reported an adjusted loss of $0.17 on the quarter, however, the underlying business is generating positive cash flow. For the quarter, adjusted EBITDAX was $28 million, which is up from the $16.7 million it earned in last year's third quarter.

The company continues to maintain adequate liquidity to pursue its growth spending plans. The combination of internally generated cash flows, its borrowing capacity and current liquidity sources results in the company having enough capital to finish out its 2013 capital plan. Current liquidity stands at $204 million, and the company has another $200 million in identified non-core asset sales which are planned. This is adequate for the time being, though investors do need to realize that Magnum Hunter is growing quite aggressively given its tight liquidity.

Looking ahead
Other than keeping an eye on asset sales and liquidity, the one area to watch is the Utica Shale. Magnum Hunter's initial results really can't be judged just yet because the one well it has drilled, Farley, had some issues that held back its true potential. That said, Magnum Hunter sees a lot of potential in the Utica. It's encouraged enough from it and the results of its industry peers that it has accelerated its leasing activity and is bringing in a second drilling rig.

Industry peers like Anadarko Petroleum (APC) and CONSOL Energy (CNX 0.58%) have drilled successful wells that are in close proximity to Magnum Hunter's acreage. For example, Anadarko drilled the Sharon and Olive wells with reported rates of 626 and 508 BOE/d of production, respectively. Better yet the oil cuts were 64% and 29%. Likewise, CONSOL Energy drilled solid wells with peak 24 hour rates that averaged about 800 barrels of oil and natural gas liquids as well as 9 million cubic feet of natural gas.

Given its solid production results and the potential it sees in the Utica, Magnum Hunter is projecting to end 2014 with average daily production of 35,000 BOE/d. That's quite a boost from where it ended the third quarter. But with several wells coming online next quarter and a visible path of growth, management is confident it can hit that lofty rate of production by the end of next year.

Investor takeaway
Overall, it was a pretty solid quarter for Magnum Hunter Resources. The company is aggressively taking advantage of America's energy boom. It's just starting to tap the potential of the Utica Shale and if successful it will add a lot of value to the company.