- The present value of estimated future cash flows, before income taxes, of the Company's estimated total proved reserves as of year-end 2012, discounted at 10% ("PV-10"), also increased 59% to $981.2 Million as compared to one year ago.
Magnum Hunter Resources Corporation (NYSE:MHR) (NYSE MKT: MHR.PRC) (NYSE MKT: MHR.PRD) (NYSE MKT: MHR.PRE) announced today a 63% increase in the quantity of the Company's estimated total proved oil and gas reserves at December 31, 2012 as compared to December 31, 2011. The present value of estimated future cash flows, before income taxes, of the Company's estimated total proved reserves as of year-end 2012, discounted at 10% ("PV-10"), also increased 59% to $981.2 Million as compared to one year ago.
Magnum Hunter's total proved reserves increased by 28.2 million barrels of oil equivalent (Boe) to 73.1 million Boe (62.9% crude oil and ngls; 52% proved developed producing) at December 31, 2012 as compared to 44.9 million Boe (48% crude oil and ngls; 51% proved developed producing) at December 31, 2011. The Company's reserve life (R/P ratio) based on current production is approximately 10.8 years.
The present value (PV-10) of the Company's proved reserves at December 31, 2012 increased by $364.3 million or 59% to $981.2 million from $616.9 million at December 31, 2011. Under SEC guidelines, the commodity prices used in the December 31, 2012 and December 31, 2011 PV-10 estimates were based on the 12-month un-weighted arithmetic average of the first day of the month prices for the period January 1, 2012 through December 31, 2012, and for the period January 1, 2011 through December 31, 2011, respectively, adjusted by lease for transportation fees and regional price differentials. For crude oil and ngl volumes, the average West Texas Intermediate posted price of $94.71 per barrel used to calculate PV-10 at December 31, 2012, was down 1.5% from the average price of $96.19 per barrel used to calculate PV-10 at December 31, 2011. For natural gas volumes, the average price of the Henry Hub spot price of $2.75 per million British thermal units ("MMBTU") used to calculate PV-10 at December 31, 2012 was down 33% from the average price of $4.11 per MMBTU used to calculate PV-10 at December 31, 2011. All prices were held constant throughout the estimated economic life of the properties.
Note: PV-10 is a non-GAAP financial measure and should not be considered as an alternative to the standardized measure of discounted future net cash flows as defined under GAAP; see "Non-GAAP Measures: Reconciliation to Standardized Measure" below for the Company's definition of PV-10 and a reconciliation to the standardized measure.
The Company's December 31, 2012 total proved reserves of 73.1 million Boe reflect an organic growth of 35% from the Company's total proved reserves of 44.9 million Boe as of December 31, 2011, when excluding the proved reserves related to the Company's acquisitions of properties from Eagle Operating, Inc., Baytex Energy USA Ltd., Viking International Resources Co., Inc. and Samson Operating Company, which occurred on April 2, 2012, May 22, 2012, November 2, 2012 and December 20, 2012, respectively.
The estimates of Magnum Hunter's total proved reserves as of December 31, 2012 were prepared by third-party engineering consultant, Cawley Gillespie & Associates, Inc. The estimates of Magnum Hunter's total proved reserves as of December 31, 2011 were prepared by Cawley Gillespie & Associates, Inc. and AJM Deloitte.
Magnum Hunter Management Comments
Mr. Gary C. Evans, Chairman and Chief Executive Officer of Magnum Hunter, commented, "Our Company's reserve growth is a key element of determining and evaluating our level of success in any given year. As we continue to harvest the many undeveloped opportunities in our various shale plays, we should also continue booking substantial reserve growth in each of them which further enhances our future liquidity and equity value. New reserve growth probabilities this year will exist in the new natural gas and ngl bookings anticipated in North Dakota and Saskatchewan once midstream infrastructure currently in process has been completed. Additionally, we have yet to book any proved reserves in the emerging Utica Shale Play where Magnum Hunter controls over 80,000 net acres and where a significant focus of new drilling efforts is planned for this year."
Non-GAAP Measures: Reconciliation to Standardized Measure
This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations within this release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with GAAP that are presented in this release. PV-10 is the present value of the estimated future cash flows from estimated total proved reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. The estimated future cash flows are discounted at an annual rate of 10% to determine their "present value." We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating the Company. We believe that PV-10 is a financial measure routinely used and calculated similarly by other companies in the oil and gas industry. However, PV-10 should not be considered as an alternative to the standardized measure as computed under GAAP.
The standardized measure of discounted future net cash flows relating to Magnum Hunter's total proved oil and gas reserves is as follows:
| || As of December, 31 |
| || || |
| Future cash inflows || || $4,248 || |
| Future production costs || || 1,520 || |
| Future development costs || || 604 || |
| Future income tax expense || || 288 || |
| Future net cash flows || || 1,836 || |
| 10% annual discount for estimated timing of cash flows || || 1,012 || |
| Standardized measure of discounted future net cash flows related to proved reserves || || $824 || |
| || || || |
| Reconciliation of Non-GAAP Measure || || || |
| PV-10 || || $981 || |
| Less: Income taxes || || || |
| || Undiscounted future income taxes || || (288) || |
| || 10% discount factor || || 131 || |
| || Future discounted income taxes || || (157) || |
| || || || |
| Standardized measure of discounted future net cash flows || || $824 || |
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