Magnum Hunter Expects To Raise Up to $700 Million From Sale Of Eureka Hunter Stake

Shares of Magnum Hunter Resources Corp MHR are spiking after the company announced that it expects to raise up to $700 million by selling its 45.53 percent stake in natural gas subsidiary Eureka Hunter Holdings. The cash infusion couldn’t come soon enough for the company, which has been struggling with liquidity since the global collapse of oil and natural gas prices last year.

Bold move
The announcement by the company that it intends to sell its entire stake in Eureka Hunter comes after Magnum Hunter had said in May that it expected to generate $50 million from the sale of only part of its stake in Eureka.

If Magnum Hunter’s estimates for the value of the holding are accurate, $600-$700 million would go a long way in easing the fears of the company’s creditors, which have become uneasy about the company’s $951 million in debt. According to Thompson Reuters data, Magnum Hunter had just $13.7 million in cash and cash equivalents as of March 31. The company has pledged to cut all capital spending in the face of enduring commodity price weakness.

About Eureka Hunter
Morgan Stanley MS’s infrastructure investment arm currently owns the majority stake in Eureka Hunter. Eureka Hunter’s assets include Eureka Hunter Pipeline LLC, which operates natural gas pipelines in southeastern Ohio and northern West Virginia, and TransTex Hunter LLC, which provides natural gas treatment and processing services.

Share price reacts
Magnum Hunter’s share price was up more than 17 percent in early trading on Thursday following the company’s most recent disclosure. The volatile stock is up more than 56 percent in the past five trading days, but remains down more than 36 percent in 2015 and is down 75 percent over the past year.

Disclosure: the author owns shares of Magnum Hunter Resources.