2009-10-26-2009-09-10-2009-09-30

Acquired subsidiary holding 6,400 acres in TX Eagle Ford shale, Austin chalk, Northwest Speaks.

Gary Evans' Magnum Hunter Resources Corp., (Amex: MHR) fka Petro Resources Corp., has closed its acquisition of Houston-based Sharon Resources Inc., a subsidiary of Canadian E&P Sharon Energy Ltd., Calgary, (Toronto Venture: SHY) with positions in the Eagle Ford shale, Austin chalk, and Northwest Speaks formations in Texas for US$2.35 million in stock. The deal included three Sharon team members. Magnum Hunter paid 2,294,474 shares, representing approximately 5.6% of its 40.8 million shares outstanding as of Aug. 1. No debt or any other liabilities were assumed by Magnum Hunter. Sharon Resources held approximately 6,400 acres in the Eagle Ford shale resource play. Based on the analysis completed by Magnum Hunter as of June 30, Sharon Resources had estimated total proved reserves of approximately 2.9 billion cubic feet equivalent (30% proved developed producing; 85% gas) with net production of approximately 288,000 cubic feet equivalent per day (95% gas). Sharon Resources operates more than 65% of its proved reserve base. Magnum Hunter chairman Gary C. Evans says, "Kip Ferguson and his team of successful exploration and evaluation professionals brings to Magnum Hunter three seasoned industry professionals with specific expertise that previously did not exist in our organization. Sharon's existing inventory of attractive drilling opportunities, expertise in advanced drilling and completion technologies (particularly in resource plays), and expansion of our operational and technical staff will be immediately accretive to our existing organization. We have been most impressed by the high quality of Sharon's existing projects even in this low commodity-price environment. In particular, their 6,400-acre position in the Eagle Ford shale resource play is something we are very excited about and intend to pursue immediately." Sharon Resources president H.C. "Kip" Ferguson III says, "Our team of three highly seasoned exploration and evaluation oriented professionals are very excited to be joining forces with the new management team at Magnum Hunter Resources. With the contribution of our existing inventory and ready-to-drill portfolio of lower risk and repeatable projects, we believe our company is positioned with one of the better-situated acreage holdings in the emerging Eagle Ford shale resource play." In 2005, Evans sold the original Magnum Hunter Resources to Cimarex Energy Inc. and later formed renewable energy company GreenHunter Energy Inc. He is also chairman and CEO of privately held oil and gas operating company Gruy Petroleum Management LLC Inc. He joined Petro Resources in May and subsequently changed the name to Magnum Hunter. Privately held, Houston-based Merit Energy Corp. plans to acquire the Permian Basin properties of Petrohawk Energy Corp., Houston, (NYSE: HK) for $376 million in cash. As of year-end 2008, Petrohawk reported estimated proved reserves of 177 billion cubic feet equivalent for these assets. Current production is approximately 30 million cubic feet equivalent per day. Petrohawk had operations in West Texas and eastern New Mexico at year-end including Waddell Ranch, Sawyer Field, Jalmat Field and TXL Field (North) with approximately 400 net drilling locations. Waddell Ranch Field in Crane County, Texas, is comprised of 17,000 net acres and involves a 19% to 75% nonoperated working interest (13% average net revenue interest). Proved reserves were approximately 40 billion cubic feet equivalent with 2008 average daily production of 8 million cubic feet equivalent. Sawyer Canyon Field in Sutton County, Texas, involves a 92% to 100% working interest in approximately 50 sections. Proved reserves year-end 2008 were approximately 55 billion cubic feet equivalent with production of 10 million cubic feet per day. Jalmat Field in Lea County, New Mexico, involves a 96% working interest (79% net revenue interest). Proved reserves were approximately 40 billion cubic feet equivalent. Production was 5 million cubic feet equivalent per day. TXL Field in Ector County, Texas, involves a 20% nonoperated working interest (25% net revenue interest) with more than 100 additional infill drill sites identified. Proved reserves were approximately 19 billion cubic feet equivalent producing 3 million cubic feet per day. "Proceeds from this sale will add to our already-strong liquidity position, as we continue to focus our attention on our rapidly growing shale assets, particularly high-return, high-margin development in the Haynesville and Eagle Ford shales," says Petrohawk chairman and chief executive Floyd C. Wilson. Closing is expected by Oct. 30. The effective date is July 1. Bank of America Merrill Lynch is financial advisor to Petrohawk. Pritchard Capital Partners analyst Ray Deacon reports the metrics of the deal at $2.12 per Mcfe proved and approximately $12,500 per Mcfe of flowing daily production. "Liquidity enhancement from the Permian sale should in our view help dissipate concern some have over 'when is the next equity issuance coming?'" Analysts at Tudor, Pickering, Holt & Co. Securities Inc. estimate the deal is valued at $2.10 per Mcfe and $75,000 per flowing barrel, above Petrohawk's current valuation of $66,750, with assets consisting of about 70% oil. Michael Hall at Stifel, Nicolaus & Co. Inc. puts the metrics at $12,533 per flowing Mcfe and $2.12 per Mcfe proved, "in our view attractive for stable, low growth properties and relative to recent comps."