Acquisitions

9 Months Ended

Sep. 30, 2011

Acquisitions [Abstract]

ACQUISITIONS

NOTE 5 — ACQUISITIONS

Triad

On February 12, 2010, the Company completed the acquisition of the assets of privately-held Triad Energy Corporation and certain of its affiliated entities (collectively, “Triad”) from bankruptcy, resulting in approximately eight months of operating activity for these assets for the nine months ended September 30, 2010. See our 2010 annual report on Form 10-K, as amended, for details.

PostRock

On December 24, 2010, Magnum Hunter Resources Corporation and Triad Hunter, LLC entered into a Purchase and Sale Agreement with PostRock MidContinent Production, LLC (“PostRock”) and Quest Eastern Resources, LLC, pursuant to which Triad Hunter, LLC agreed to purchase certain oil and gas properties and leasehold mineral interests and related assets located in Wetzel and Lewis Counties, West Virginia. The Purchase Agreement provided for the acquisition to be completed in three phases for total consideration of $49.3 million consisting of 50% restricted common stock and 50% cash for the first two phases, and 100% cash for the third phase. Both of the two initial phases were effective as of November 1, 2010.

The first phase of the acquisition closed on December 30, 2010. See our 2010 annual report on Form 10-K, as amended, for details.

On January 14, 2011, we closed the second phase of the PostRock acquisition, which consisted of the Lewis County assets, for total consideration of approximately $13.3 million which consisted of 946,314 shares of the Company’s restricted common stock and a cash payment of approximately $5.8 million.

On June 16, 2011, we closed the third phase of the PostRock acquisition comprising of assets located in Wetzel and Lewis Counties for a total purchase price of $4.9 million in cash before considering applicable adjustments.

Wetzel County, West Virginia Asset Acquisition

On April 7, 2011, the Company purchased oil and gas properties and related assets located in Wetzel County, West Virginia. The assets purchased included approximately 4,451 gross acres (2,225 net acres) of oil and gas leases and mineral interests and existing wells with proven reserves.

We acquired the assets for a total purchase price of $20.0 million, payable in cash and subject to customary purchase price adjustments. Subject to the indemnification obligations set forth in the Purchase Agreement, we assumed certain customary liabilities in connection with the acquisition.

NGAS

On April 13, 2011, the Company completed the acquisition of all of the outstanding common shares of NGAS Resources, Inc, (“NGAS”) for total consideration of approximately $124.5 million consisting of $15.3 million in cash, $53.1 million in debt assumed, 6,986,104 shares of our common stock valued at approximately $55.8 million based on the closing stock price of $7.99 on April 13, 2011, and $1.2 million in warrant liability, of which $1.0 million was paid out in cash upon exercise of the cash option (included in $53.1 million in cash above) and 138,388 warrants are outstanding that are exercisable for common stock of the Company. The Company has liquidated NGAS into a wholly-owned subsidiary of the Company, NGAS Hunter, LLC, and changed the name of its subsidiary NGAS Production Co. to Magnum Hunter Production, Inc. and the name of another subsidiary, NGAS Securities, Inc. to Energy Hunter Securities, Inc.

The fair value of the net assets acquired, based on our preliminary assessment, approximated the $124.5 million in consideration paid or assumed.

The following table summarizes the purchase price and the preliminary estimate of the fair values of the net assets acquired from NGAS at the date of acquisition as determined as of September 30, 2011 (in thousands, except share information):

Fair value of total purchase price:
6,635,478 shares of common stock issued on April 13, 2011 at $7.99 per share	$	53,017
Senior credit facility paid off at closing		33,282
NGAS 6% convertible notes paid off in cash at closing		13,683
Contract payment in cash		12,929
Other long-term debt assumed		6,160
350,626 shares of common stock issued for change in control payments at $7.99 per share		2,802
Tax on change of control payments paid in cash		1,363
Common stock warrants settled in cash		1,044
Common stock warrants issued in conversion of NGAS warrants		190
Total	$	124,470
Amounts recognized for assets acquired and liabilities assumed:
Working capital	$	(9,502	)
Oil and gas properties		133,595
Equipment and other fixed assets		9,055
Asset retirement obligation		(8,678	)
Total	$	124,470
Working capital acquired:
Cash	$	1,908
Accounts receivable		3,662
Prepaid Expenses		416
Inventory		278
Accounts payable		(7,483	)
Revenue payable		(1,547	)
Payroll tax payable		(206	)
Advances		(3,751	)
Deferred compensation		(379	)
Accrued Liabilities		(2,400	)
Total working capital acquired	$	(9,502	)

NuLoch

On May 3, 2011, the Company completed the acquisition of all of the outstanding common shares of NuLoch Resources, Inc., (“NuLoch”) for total consideration of approximately $430.5 million consisting of 38,131,848 shares of our common stock and 4,275,998 exchangeable shares of MHR Exchangeco Corporation, an indirect wholly-owned Canadian subsidiary of the Company, which are exchangeable for shares of Company common stock, with a combined value of approximately $313.8 million based on the closing stock price of $7.40 on May 3, 2011, $18.8 million in debt assumed, and deferred tax liability of approximately $97.9 million. The Company has changed the name of NuLoch to Williston Hunter Canada, Inc. and its subsidiary NuLoch America Corporation to Williston Hunter, Inc.

The fair value of the net assets acquired, based upon our preliminary estimate, approximated the $430.5 million in consideration paid or assumed.

The following table summarizes the purchase price and the preliminary estimate of the fair values of the net assets of NuLoch as of the date acquired as determined as of September 30, 2011 (in thousands):

Fair value of total purchase price:
38,131,846 shares of common stock issued on May 3, 2011 at $7.40 per share	$	282,176
4,275,998 exchangeable shares at $7.40 per share		31,642
Debt assumed		18,770
Net deferred tax liability		97,912
Total	$	430,500
Amounts recognized for assets acquired and liabilities assumed:
Working capital	$	(20,711	)
Oil and gas properties		447,540
Equipment and other fixed assets		5,167
Asset retirement obligation		(1,496	)
Total	$	430,500
Working capital acquired:
Cash	$	640
Accounts receivable		5,951
Prepaid expenses		359
Accounts payable		(27,661	)
Total working capital acquired	$	(20,711	)

The consolidated statement of operations includes Triad’s revenue of $15.2 million for the nine months ended September 30, 2010 and Triad’s operating income of $1.9 million for the nine months ended September 30, 2010. The consolidated statement of operations includes PostRock’s revenue of $2.9 million for the nine months ended September 30, 2011 and PostRock’s operating income of $2.1 million for the nine months ended September 30, 2011. The consolidated statement of operations includes NGAS’s revenue of $10.7 million for the nine months ended September 30, 2011 and NGAS’s operating loss of $2.7 million for the nine months ended September 30, 2011. The consolidated statement of operations includes NuLoch’s revenue of $8.0 million for the nine months ended September 30, 2011 and NuLoch’s operating loss of $1.1 million for the nine months ended September 30, 2011.

The following summary, prepared on a pro forma basis, presents the results of operations for the three and nine months ended September 30, 2011 and 2010, as if the acquisitions of Triad, the PostRock assets, NGAS, and NuLoch, along with transactions necessary to finance the acquisitions, had occurred as of January 1, 2010. This unaudited pro forma information includes the effects of adjustments for interest expense, depreciation and depletion expense, and dividend expense. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of the period presented, nor are they necessarily indicative of future consolidated results.

	Three Months
	Ended
	September 30,			Nine Months Ended September 30,
	2010			2011			2010
	(in thousands, except per share data)
Total operating revenue	$	22,389		$	96,537		$	72,075
Total operating costs and expenses		28,115			139,771			100,046
Operating loss		(5,726	)		(43,234	)		(27,971	)
Interest expense and other		(473	)		(9,474	)		(1,707	)
Net loss attributable to Magnum Hunter Resources Corporation		(6,199	)		(33,760	)		(29,678	)
Dividends on preferred stock		(601	)		(10,017	)		(1,507	)
Net loss attributable to common stockholders	$	(6,800	)	$	(43,777	)	$	(31,185	)
Loss per common share, basic and diluted	$	(0.06	)	$	(0.34	)	$	(0.27	)