MagnumHunter Production Inc, (‘MHP’)Overview100% owned by FPL –...

MagnumHunter Production Inc, (‘MHP’)

Overview

• 100% owned by FPL – Completion of acquisition announced 31 ^st March 2021
• 1,300 long life, low decline conventional natural gas wells in Kentucky, Virginia and Tennessee – covering 100,000 acres of leases across the Appalachian and Illinois Basins
• Assumes operatorship and revenue streams immediately
• Revenue to be recognised from 26th Feb and reflected in March Quarterly
• Currently producing ~8.0 MMcf/day gas, 16,000 Gallons of NGLs and ~100 BBL oil (~1,700 BOEPD)

Proposed Value Add

• First objective is to immediately increase gasproduction and NGLs by ~20% with all work funded – Achieved within the firstmonth:

• Supplier agreements being renegotiated tofurther enhance revenues and improve margins from gas and NGL sales
• Field activaties ongoing to deliver moreproduction gains.
• Scope to also increase oil production throughimprove storage and logistics solutions
• 80% of current production comes from only ~25%of the wells;
• Opportunity to ramp up production by workingvast inventory of shut in and underperforming wells not currently contributingto production

Trey Exploration

Overview

• 95% Working Interest, 80% Net Revenue Interest –Completion of Acquisition announced 1^st October 2020
• ~115 conventional oil wells ripe for productionenhancements across 4,600 acres in the Illinois Basin (Kentucky, Indiana &Illinois)
• At time of acquisition production was stable at~71 barrels of oil per day

Proposed Value Add

• Revenue from oil sales will be used to enhanceproduction above current levels.
• The leases in Indiana, Kentucky and Illinoiscollectively hold 115 conventional oil wells. Many of these wells are currentlyinactive and can be brought back on line, and those that are producing can beworked over cost effectively to deliver greater production flows.

As announced on 12^th Feb 2021:

• First nine low-cost chemical treatmentscompleted yielding an additional 15 BOPD production or ~20% increase Trey’stotal daily production of ~75 BOPD to ~90BOPD; further upside is expected givenfour of these wells have only been back online for less than 1 week.
• Work has commenced on the next five workovers withfurther production gains anticipated.
• Based on early success, the work over programhas been expanded to now include three additional refracture stimulation onthree newly identified targets.

Workover program accross TreyExploration Leases advancing - update later in April

Growth & Strengthening of FPL’s FinanceFunction

New GM & VP Finance brought in to strengthenits finance function to ensure that production growth from all assets ismatched by improved margins and acceptable returns.

Bradley Mervis (GM) brings to FPL almost twodecades of experience with local and globally listed companies in the oil &gas sector. He has highly relevant experience in rapidly growing explorationand production companies, including Burren Energy PLC, Elk Petroleum Limitedand Drillsearch Energy Ltd. As a practising Chartered Accountant, Mr Merviswill lead FPL’s finance function, be instrumental in ASX reporting and willplay a pivotal role in the Company’s investor relations.

Stephen Lampner (VP Finance) is an excellentaddition to the FPL team and has experience establishing and managingaccounting systems in rapidly growing oil & gas companies, most recently atDiversified Gas & Oil PLC (LSE: DGOC), an established, independent ownerand operator of producing natural gas & oil wells also focusedpredominantly in the Appalachian Basin, USA. Diversified Gas & Oil is arelevant benchmark for FPL.

Mr Lampner brings domain-specific knowledgethat will help execute the Company’s ‘acquire, enhance, produce’ strategy. Hisinsights will also assist the US-based team in enhancing margins and deliveringan improved return on investment (ROI) from the current portfolio of assets.

Thoughts

I think it’s a good businessmodel, and the information at hand says to me they are trying to follow throughaggressively with this strategy:

• Growth of its finance function with 2 senior hires - both with a good amount of experience in the gas & oil sector with expertise covering operational and financial growth

• Trey Exploration leases - Enhancement & Production (though modest & took longer than expeted) has been proven out and looks scalable

• MHP - Enhancement & Production has been proven and looks scalable - 20% increase in production within the first month

If they continue to workover their portfolio of wells and see continued increase in production then you will see value creation.

I think the questions of CR are valid with the acquisition of MHP & Trey closing out, and I do think it is a possibility BUT:

• Production & Revenue are increasing and will continue to increase
• Customer receipts are growing quarterly
• Negative cashflow has been reducing quarterly

There is money to be made here:

• The sector is hot right now on the back of 88E
• FPL is on the radar of many people at the moment, they are all over the social media groups
• Friday's volume and price action will also put FPL on many people's radar
• Medium-to-Long term I think value creation is very possible

DYOR
HC's post editing & formatting is god awful