Shareholders' Equity

9 Months Ended

Sep. 30, 2011

Shareholders' Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 11 — SHAREHOLDERS’ EQUITY

On April 29, 2011, at the annual shareholders’ meeting, our shareholders approved an amendment to the Company’s Certificate of Incorporation that increased the Company’s authorized number of shares of Common Stock to 250,000,000 and approved an amendment to the Company’s amended and restated 2006 Stock Incentive Plan to increase the aggregate number of shares of common stock to be issued under the plan to 20,000,000.

Common Stock

During the nine months ended September 30, 2011, the Company issued 120,100 shares of the Company’s common stock in connection with share-based compensation which has fully vested to senior management and officers of the Company. This includes 12,792 shares which had previously vested as of December 31, 2010.

During the nine months ended September 30, 2011, the Company issued 1,713,598 shares of common stock in open market transactions at an average price of $8.27 per share pursuant to an “At the Market” sales agreement (ATM) we have with our sales agent for total net proceeds of approximately $13.9 million. Sales of shares of our common stock by our sales agent have been made in privately negotiated transactions or in any method permitted by law deemed to be an “At The Market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on the NYSE or sales made through a market maker other than on an exchange. Our sales agent has made all sales using commercially reasonable efforts consistent with its normal sales and trading practices on mutually agreed upon terms between our sales agent and us.

On January 14, 2011, the Company issued 946,314 shares of common stock valued at approximately $7.5 million based on a closing stock price of $7.97 as consideration on the closing of the second phase of the PostRock acquisition.

On April 13, 2011, the Company issued 6,635,478 shares of common stock valued at approximately $53 million based on a closing stock price of $7.99 as consideration on the closing of the acquisition of NGAS. In connection with the NGAS acquisition, the Company issued 350,626 shares of common stock valued at approximately $2.8 million to NGAS employees as change in control payments.

On May 3, 2011, the Company issued 38,131,846 shares of common stock valued at approximately $282.2 million based on a closing stock price of $7.40 as consideration on the closing of the acquisition of NuLoch.

During the nine months ended September 30, 2011, the Company issued 807,760 shares of the Company’s common stock upon the exercise of warrants for total proceeds of approximately $2.4 million.

During the nine months ended September 30, 2011, the Company issued 5,284,250 common shares upon the exercise of fully vested common stock options for proceeds of approximately $4.7 million.

During the nine months ended September 30, 2011, the Company issued 497,753 common shares upon the exchange of exchangeable shares of MHR Exchangeco Corporation, an indirect wholly-owned Canadian subsidiary of the Company which we originally issued as part of the NuLoch Acquisition.

During the nine months ended September 30, 2011, the Company issued 166,000 common shares as payment of a commitment and transaction fee for the initial funding of the term loan of Eureka Hunter.

Exchangeable Common Stock

On May 3, 2011, in connection with the acquisition of NuLoch, the Company issued 4,275,998 exchangeable shares of MHR Exchangeco Corporation, which are exchangeable for shares of the Company at a one for one ratio. The shares of MHR Exchangeco Corporation were valued at approximately $31.6 million. Each exchangeable share is exchangeable for one share of our common stock at any time after issuance at the option of the holder and will be redeemable at the option of the Company, through Exchangeco, after one year or upon the earlier of certain specified events. During the nine months ended September 30, 2011, 497,753 of the exchangeable shares have been exchanged for common shares of the Company. As of September 30, 2011, 3,778,245 exchangeable shares were outstanding.

Series C Cumulative Perpetual Preferred Stock

During the nine months ended September 30, 2011, the Company sold 1,190,544 shares of our 10.25% Series C Cumulative Perpetual Preferred Stock, under our ATM sales agreement for net proceeds of $29.1 million. The sales during the nine months ended September 30, 2011 have fully subscribed the authorized 4,000,000 shares of Series C Cumulative Perpetual Preferred Stock. During the nine months ended September 30, 2011, the Company paid dividends of $7.7 million to holders of our Series C Cumulative Perpetual Preferred Stock. The Series C Preferred Stock cannot be converted into common stock of the Company but may be redeemed by the Company, at the Company’s option, on or after December 14, 2011. The Series C Preferred Stock is recorded as temporary equity because a forced redemption, upon certain circumstances as a result of a change in control of the Company, is outside the Company’s control.

Series D Cumulative Preferred Stock

During the nine months ended September 30, 2011, the Company sold 1,421,237 shares of our 8.0% Series D Cumulative Preferred Stock with a liquidation preference of $50.00 per share, of which 400,000 were sold in an underwritten offering and 1,021,237 were sold under the ATM sales agreement, for net proceeds of $65.0 million. The Series D Preferred Stock cannot be converted into common stock of the Company but may be redeemed by the Company, at the Company’s option, on or after March 14, 2014 for par value or $50.00 per share or in certain circumstances prior to such date as a result of a change in control of the Company. The Company pays cumulative dividends on the Series D Preferred Stock at a fixed rate of 8.0% per annum of the $50.00 per share liquidation preference. During the nine months ended September 30, 2011, the Company paid dividends of $2.3 million to holders of our Series D Cumulative Preferred Stock.

Common Stock Warrants

During the nine months ended September 30, 2011, 771,812 of our $3.00 common stock warrants and 35,948 of our $2.50 common stock warrants were exercised for total combined proceeds of approximately $2.4 million, and 15,000 of our $3.00 common stock warrants expired.

On April 13, 2011, at the time of the NGAS acquisition, NGAS had 4,609,038 warrants outstanding which were converted, based on the exchange ratio of 0.0846, to 389,924 warrants exercisable for Magnum Hunter common stock. The warrants had a cash out option, which remained available to the holder for 30 days from the date of the acquisition, based on fair market value of the warrants at April 13, 2011. The Company paid cash of $1.0 million upon exercise of the cash out option on the warrants exercisable for 251,536 shares of the Company’s common stock. At September 30, 2011, common stock warrants exercisable for 138,388 shares of the Company’s common stock, valued at approximately $190,000 were outstanding. The warrants consisted of 97,780 warrants with an exercise price of $15.13 and 40,608 warrants with an exercise price of $19.04.

On August 13, 2011, the Company declared a dividend to be paid in the form of one common stock warrant for every ten shares held by holders of record of our common stock and exchangeable shares of MHR Exchangeco Corporation on August 31, 2011. The Company issued 12,875,093 common stock warrants to common stock holders and 378,174 warrants to holders of MHR Exchangeco Corporation exchangeable shares. Each warrant entitles the holder to purchase one share of the Company’s common stock for an initial exercise price of $10.50 and expires on October 14, 2013. The fair market value of the warrants was $6.9 million. The warrants were accounted for as a reduction of additional paid-in capital rather than reduction of retained earnings because the Company has an accumulated deficit position.