Magnum Hunter forms new partnership with GE Capital Corp.

Aug. 5, 2002
Magnum Hunter Resources Inc., Irving, Tex., is selling noncore oil and gas properties, including some 1,750 wells, to a new private limited partnership with General Electric Capital Corp. for $50 million, company officials said.

By OGJ editors

HOUSTON, Aug. 5 -- Magnum Hunter Resources Inc., Irving, Tex., is selling noncore oil and gas properties, including some 1,750 wells, to a new private limited partnership with General Electric Capital Corp. for $50 million, company officials said.

"Predominately all" of those properties were acquired by Magnum Hunter through its merger with Prize Energy Corp. in March, officials said. Proved reserves of those properties are 51% oil and 49% natural gas.

Magnum Hunter entered into a "mutually binding commitment" to sell those properties to the limited partnership, its second with GE Capital "over the last several years," said officials.

The transaction is expected to close by the end of this month, pending legal documentation and environmental due diligence, with an effective sales date of Aug. 1.

Final sale price may be adjusted based upon the value of commodity price hedges completed at the time of closing.

GE Capital will have 95% initial ownership in the limited partnership, with Magnum Hunter holding the remaining 5%. But upon the partnership's payout, expected within 10 years based on a certain pretax rate of return, Magnum Hunter's position as general partner will increase to 37.63%, officials said.

"Given the relative strength of the forward commodity price curves to historical prices, we believe the timing of this divestiture of noncore assets takes advantage of the favorable current market conditions," said Gary C. Evans, chairman, president and CEO of Magnum Hunter.

"There is a real disconnect in the market today with respect to the value of hard assets in the private energy sector vs. public evaluations," he said. "The net proceeds to be received at closing will go to further reduce Magnum Hunter's existing commercial bank indebtedness as we seek to achieve our goal of a 50% debt-to-equity ratio."

Gruy Petroleum Management Co., a wholly owned subsidiary of Magnum Hunter, operates two thirds of the properties, on a value basis, officials said.

Late last year Magnum Hunter and Prize Energy announced plans to merge into a $1.2 billion independent oil and gas company during the first quarter of this year (OGJ Online, Dec. 18, 2001).

Company officials said at that time the proposed merger would result in cost savings of $8-10 million/year.

Under the merger agreement that gave Magnum Hunter shareholders 51% of the combined company, Prize shareholders were to get $24/share payable in 2.5 shares of Magnum Hunter common for each share of Prize Energy, plus a cash component based on a sliding scale, with a minimum of 25¢/share.