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Sean O'Reilly: Moving on to, another one bites the dust. Magnum Hunter Resources files for
Chapter 11. I think this company was a penny stock?
Tyler Crowe: It was close.
Taylor Muckerman: There's a few of those penny stocks out there in energy parts.
Crowe: They're not the only one, yeah.
Muckerman: It was a $2.5 billion company in 2014, at its peak.
O'Reilly: Yeah, so, was this just, was their cashflow that bad? A lot of people are doing
a lot of finagling right now, and these guys just couldn't? Was it that bad?
Muckerman: Well, if you look at their balance sheet over the last three of four years, you
can see that debt to equity, debt to capital creeping up and up. It was like, 40%, 60%,
100%, 170%, and now it's just too late. They can't survive. Their income was decent, they
suffered this year. But, interest and coverage ratios just weren't there. This was a darling
of the shale patch for quite a while.
O'Reilly: Where were they operating?
Crowe: Marcellus and Utica. In terms of an attractive place to be--
O'Reilly: Yeah. They weren't in western Pennsylvania or Michigan or something.
Crowe: No, they were.
Muckerman: Yeah.
O'Reilly: I should have guessed.
Crowe: They were in Ohio, right near home state. You don't have one of their rigs in
your backyard?
Muckerman: Not anymore. It's owned by some bank now.
Crowe: Also, on a small side note, I find, there are certain CEOs in the energy industry
who are very good cheerleaders for their stock, for their industry, or whatever. And the CEO
of Magnum Hunter Resources, I'm sorry, I don't have his name in front of me right now, he
is an amazing cheerleader, and can find -- he can put lipstick on the ugliest pig. One of
the statements that he made was, "This is going to be an unprecedented move that's going
to make Magnum Hunter Resources--"
O'Reilly: Gary Evans?
Crowe: Yes. "It's going to make Magnum Hunter Resources a stronger company, they're going
to re-emerge as one of the leaders in the shale patch again." And I was like, your company
just filed for Chapter 11, and you're talking about how wonderful this is going to be.
Muckerman: Above all hope.
O'Reilly: It's just a re-organization, Tyler.
Muckerman: What a great organization.
O'Reilly: Did he get a golden anything?
Crowe: No, he's still there.
O'Reilly: It's just a re-organization, like I said!
Crowe: A golden opportunity to wipe out all shareholder value and turn all the bond into
equity later on. Thinking about this a little more broadly, one of the things that I think
is holding the industry back, we talked a lot over the year, "We need to see some bankruptcy
so that production will roll off, and it'll help correct prices." But, as this says in
their Chapter 11--
O'Reilly: They're going to keep pumping, baby.
Crowe: They're still pumping. And a lot of these companies that are filing for Chapter
11 are still producing, and it's not really helping the situation, because they have to
find some way to pay off all those debts, and the only way they know how to do it is
pump oil. So, if we're not losing production from companies going bankrupt, where are we
going to lose it?
O'Reilly: Obviously, their capex will drop, because it's really hard to approve the capex
budget in bankruptcy court. So, naturally, those will decline, I would hope.
Muckerman: An immediate drop isn't going to take place, but eventually.
O'Reilly: Yeah, I would think decline rates are the only saving grace there. We'll see.