Filed by Cimarex Energy Co.

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

of the Securities Exchange Act of 1934

 

Subject Corporation: Magnum Hunter Resources, Inc.

Commission File No.: 001-12508

 

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Filed by Cimarex Energy Co.

Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934

 

Subject Corporation: Magnum Hunter Resources, Inc.

Commission File No.: 001-12508

 



[LOGO]

 

Magnum Hunter Merger
January 27 – 28, 2005

 



Forward-Looking Statements

 

This presentation contains certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding the consummation of the proposed distribution and merger, its effect on future earnings, cash flow or other operating results, any other effect or benefit of the proposed distribution and merger, market prospects, and any other statements that are not historical facts. Cimarex Energy (NYSE: XEC) and Magnum Hunter Resources (NYSE: MHR) strongly encourage readers to note that some or all of the assumptions upon which such forward-looking statements are based are beyond their ability to control or estimate precisely, and may in some cases be subject to rapid and material changes. More detailed information about the factors that could cause actual results to differ materially from those described in the forward-looking statements is set forth in XEC’s and MHR’s filings with the Securities and Exchange Commission, which are available free of charge on the SEC’s website at www.sec.gov. XEC and MHR undertake no obligation to publicly update any forward-looking statements discussed in this presentation, whether as a result of new information, future events or otherwise.

 

[LOGO]

 

2



Additional Information

 

In connection with the proposed merger, Cimarex Energy Company and Magnum Hunter Resources, Inc. will file a proxy statement/prospectus with the SEC. Investors and security holders are urged to carefully read the proxy statement/prospectus regarding the proposed transaction when it becomes available, because it will contain important information. Investors and security holders may obtain a free copy of the proxy statement/prospectus (when it is available) and other documents containing information about Cimarex Energy and Magnum Hunter Resources’, without charge, at the SEC’s web site at www.sec.gov. Copies of the proxy statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus may also be obtained for free by directing a request to either: Cimarex Energy Company, Inc., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203, Attention: Mary Kay Rohrer, Assistant Corporate Secretary; telephone 303-295-3995, fax: 303-295-3494, or Magnum Hunter Resources, Inc., 600 East Los Colinas Blvd., Suite 1100, Irving, Texas, 75039, Attention: Morgan F. Johnston, Corporate Secretary; telephone 972-401-0752, fax: 972-443-6487.

 

Participants in Solicitation

 

Cimarex, Magnum Hunter and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of Cimarex and Magnum Hunter in favor of the merger. Information about the executive officers and directors of Cimarex and their ownership of Cimarex common stock is set forth in the proxy statement for its 2004 Annual Meeting of Stockholders, which was filed with the SEC in April 2004. Information about the executive officers and directors of Magnum Hunter and their ownership of Magnum Hunter common stock is set forth in the proxy statement for their 2004 Annual Meeting of Stockholders, which was filed with the SEC in August 2004. Investors and security holders may obtain more detailed information regarding the direct and indirect interests of Cimarex, Magnum Hunter and their respective executive officers and directors in the merger by reading the joint proxy statement/prospectus when it becomes available.

 

3



Management Representatives

 

                  Cimarex Energy Company – NYSE: XEC

 

Mick Merelli, Chairman, President and CEO

 

Tom Jorden, Executive Vice President – Exploration

 

Paul Korus, Vice President, CFO

 

                  Magnum Hunter Resources, Inc. – NYSE: MHR

 

Gary Evans, President and CEO

 

Brad Davis, Senior Vice President and CFO

 

4



Principal Terms

 

                  Stock for stock

 

                  0.415 XEC for each MHR share

 

                  53.6% / 46.4% ownership split

 

                  Assumption of $645MM of MHR debt

 

                  Debt : capitalization ~25%

 

                  MHR dividend of its ownership interest in Tel Offshore Trust (TELOZ) ~$0.17 per share

 

                  MHR to designate one Board member

 

5



Why We Like Magnum Hunter

 

                  Substantial footprint in the Permian Basin

 

                  Stable production with extensive low-risk drilling inventory

 

                  Bolt-on Mid-Continent and Gulf Coast projects

 

                  Measured entrée into high rate-of-return GOM projects

 

                  Opportunity to accelerate drilling

 

6



What We Like About The Combination

 

                  Diversified asset base

 

                  40% Mid-Continent

 

                  44% Permian Basin

 

                  13% Gulf Coast / Gulf of Mexico

 

                  Significant drilling inventory

 

                  Lower risk: Mid-Continent and Permian Basin

 

                  Higher potential: Gulf Coast and Gulf of Mexico

 

                  Low debt

 

                  It’s all about getting better, not just bigger

 

7



Cimarex Strategy

 

                  Continue to build a company for the long term

 

                  Growth through the drill bit

 

                  Consistent profitable growth

 

8



Our History

 

[CHART]

 

9



Cimarex Strategy

 

                  Build a company for the long run

 

                  Growth through the drill bit

 

                  Consistent profitable growth

 

10



Drilling Capital Invested

 

[CHART]

 

11



Cimarex Strategy

 

                  Build a company for the long run

 

                  Growth through the drill bit

 

                  Consistent profitable growth

 

                  “No debt, no PUDs, short R/P, no hedges?”

 

12



Cimarex With Debt?

 

$

MM

 

XEC (1)

 

MHR (1)

 

Combined

 

Cash (09/30/04)

 

$

92

 

$

26

 

$

115

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Notes Due 2012

 

 

195

 

195

 

 

 

 

 

 

 

 

 

Convertible Note Due 2023

 

 

125

 

125

 

 

 

 

 

 

 

 

 

Bank Debt and Other

 

 

324

 

324

 

 

 

 

 

 

 

 

 

Debt : Capitalization

 

NA

 

51

%

25

%

 


(1)               Before transaction expenses and adjustments

 

13



Cimarex With PUDs?

 

Bcfe

 

XEC

 

MHR (1)

 

Combined

 

 

 

 

 

 

 

 

 

Proved Developed

 

444

 

675

 

1,119

 

 

 

 

 

 

 

 

 

Proved Undeveloped

 

5

 

225

 

230

 

 

 

 

 

 

 

 

 

Total

 

449

 

900

 

1,349

 

 

 

 

 

 

 

 

 

% PUD

 

1

%

25

%

17

%

 

 

 

 

 

 

 

 

R/P Ratio

 

5.5

 

10.0

 

7.7

 

 


(1)               Based on preliminary XEC evaluation

 

14



Cimarex With Hedges?

 

 

 

XEC

 

MHR

 

Combined

 

 

 

 

 

 

 

 

 

2005 Volumes Hedged

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas, MMcf/d

 

 

80

 

80

 

 

 

 

 

 

 

 

 

Oil, Bopd

 

 

2,000

 

2,000

 

 

 

 

 

 

 

 

 

Equivalent, MMcfe/d

 

 

92

 

92

 

 

 

 

 

 

 

 

 

2005E Production, MMcfe/d

 

240

 

260

 

500

 

 

 

 

 

 

 

 

 

% Hedged

 

 

35

%

18

%

 

15



What’s Next

 

                  Seek favorable shareholder votes

 

                  Targeting 2Q 2005 for close of combination

 

                  Rationalize 2005 capital program

 

                  Accelerate drilling

 

16



[GRAPHIC]

 

Gary Evans
President, Chief Executive Officer
and Founder of Magnum Hunter

 

17



[GRAPHIC]

Magnum Hunter’s Shareholder Return

 

$100,000 invested in Magnum Hunter at December 31, 1990, when the Company went public on the Boston Stock Exchange, would be worth approximately $5.6 million today. This calculates to an annual compounded return of 33% over the past 15 years (see Note).

 

In late 2003, the Oil and Gas Journal ranked Magnum Hunter as the number one fastest-growing company based on growth in stockholders’ equity. Magnum Hunter’s stockholder equity increased from $118 million at year-end 2001 to $612 million as of September 30, 2004.

 

Note:                   Includes the effect of $6.50 warrants issued in 2000. Shareholders received one warrant for every three shares of Magnum Hunter common stock. Assumes warrants were sold at the average closing price for the first ten trading days ($0.89 per warrant).

 

Also includes the effect of $15.00 warrants issued in 2002. Shareholders received one warrant for every five shares of Magnum Hunter common stock. Assumes warrants were sold at the average closing price for the first ten trading days ($1.12 per warrant).

 

Utilizing the closing price of Cimarex Energy Co. (“XEC”) common stock on January 25, 2005, and assuming the .415 exchange ratio along with the TEL Offshore Trust (“TELOZ”) dividend distribution equating to $0.17 per share, an original $100,000 investment would be worth approximately $7.1 million today, and the annual compounded return would increase to over 35.4% over the past 15 years.

 

18



[GRAPHIC]

Indexed Stock Price Performance

 

[CHART]

 

Note:   Peer Group includes Comstock Resources, Forest Oil, Houston Exploration, Newfield Exploration and Swift Energy.

Gas and oil weighted at 61% gas, 39% oil, matching Magnum Hunter’s current reserve breakdown.

 


* Based on purchase price of $16.67 as of January 25, 2005.

 

19



[LOGO]

 

Tom Jorden
Executive Vice President – Exploration

 



Exploration Principles

 

                  Blended / moderate-risk exploration program

 

                  Internally generated drilling ideas

 

                  Multi-basin, lower-48 focus

 

                  Regional effort built upon local expertise

 

                  Integration between geology, land & engineering

 

                  Monitor results and provide continuous feedback

 

21



Growing the Exploration Team

 

[CHART]

 

22



Combined Company Core Operating Areas

 

[CHART]

 

Permian Basin

 

 

 

 

Proved reserves (Bcfe)

 

596

 

% Natural gas

 

54

%

4Q 2004 Production (MMcfe/d)

 

126

 

2005 Estimated CapEx ($MM)

 

90

 

 

Gulf Coast

 

 

 

 

Proved reserves (Bcfe)

 

116

 

% Natural gas

 

80

%

4Q 2004 Production (MMcfe/d)

 

90

 

2005 Estimated CapEx ($MM)

 

160

 

 

Mid-Continent

 

 

 

 

Proved reserves (Bcfe)

 

551

 

% Natural gas

 

82

%

4Q 2004 Production (MMcfe/d)

 

172

 

2005 Estimated CapEx ($MM)

 

190

 

 

Gulf of Mexico

 

 

 

 

Proved reserves (Bcfe)

 

53

 

% Natural gas

 

81

%

4Q 2004 Production (MMcfe/d)

 

74

 

2005 Estimated CapEx ($MM)

 

140

 

 

23



2005 Estimated Capital Expenditures

 

[CHART]

 

24



[LOGO]

 

Mid-Continent

 



Bolt-on Mid-Continent Projects

 

Capital ($MM):

 

 

 

2003A

88

 

 

2004E

145

 

 

2005E

174

 

 

2005PF

190

 

 

 Gross wells:

 

 

 

2003A

137

 

 

2004E

195

 

 

2005E

215

 

 

2005PF

235

 

 

[CHART]

 

26



Anadarko Basin Targets

 

[CHART]

 

# of Wells

 

2003

 

2004

 

 

 

 

 

78

 

>120

 

 

 

 

 

4

 

17

 

 

27



Clinton Lake / Atoka 3-D

 

Carpenter East, Custer County

 

[CHART]

 

                  Advanced seismic techniques integrated with extensive subsurface interpretation

 

Clinton Lake /Atoka

 

Wells

 

Producers

 

Success Rate

 

EUR

 

Pre 3-D

 

37

 

12

 

32

%

1.5

 Bcf

 

 

 

 

 

 

 

 

 

 

Post 3-D

 

13

 

10

 

77

%

2-5

 Bcf

 

28



Mountain Front

 

                  Kiowa County, OK

 

                  Overthrust, overturned Springer

 

                  2004 Activity

 

                  15 of 19 wells successful

 

                  2005 Plans

 

                  20 locations

 

                  Extending the play

 

                  $22-$25 million

 

[CHART]

 

29



[LOGO]

 

Permian Basin

 



Why We Like the Permian Basin

 

                  Moderate-risk, multi-pay opportunities

 

                  Project potential helps achieve exploration and production drilling efficiencies

 

                  Opportunity to grow through drilling; we were already there

 

                  An arena where advanced technology mitigates risk

 

                  Offers projects with attractive rates of return

 

31



What MHR Brings Us

 

                  Significant acreage position offers multi-well, multi-year drilling program

 

                  Already has an active, ongoing drilling program

 

                  Have achieved high success rates in multi-pay fields

 

                  MHR is one of the largest leaseholders in SE New Mexico’s Morrow trend

 

                  Combined company has the necessary expertise to exploit the acreage and grow

 

[CHART]

 

32



SE New Mexico Projects

 

[CHART]

 

33



MHR West Texas Projects

 

                  Kermit Field

 

                  War-Wink West

 

                  Mash / Arbol De Nada

 

                  Spraberry

 

[CHART]

 

34



 

[LOGO]

 

Gulf Coast

 



Gulf Coast Projects

 

[CHART]

 

36



Liberty County Update

 

                  600 sq mi of 3D seismic data

 

                  Reprocessed 3D into one dataset, leading to expanded 2005 inventory

 

                  2004:

 

                  14 gross wells / 6.4 net

 

                  10 of 14 successful

 

                  $25MM of capital

 

                  Aggressive 2005 program

 

                  18 locations; $36MM

 

                  Mix of exploration and development

 

[GRAPHIC]

 

37



West Gueydan Update

 

[GRAPHIC]

 

                  Mauboules #1 discovery (2003)

 

                  Miogyp formation at 17,500’

 

                  First production: March 2004

 

                  Producing 24 MMcf/d and 370 BCPD

 

                  64.5% WI / 46% NRI

 

                  Mauboules #2

 

                  First production: September 2004

 

                  Producing 17 MMcf/d and 285 BCPD

 

                  Henry Heirs #1 (47.5% WI/35% NRI):

 

                  Shallow discovery at 13,000’

 

                  First production: September 2004

 

                  Producing 12 MMcf/d and 140 BCPD

 

38



[LOGO]

 

Gulf of Mexico

 



Why We Like the Gulf of Mexico

 

                  We wanted to be there (in a measured way)

 

                  Characterized by high rate of return projects

 

                  Proper application of technology mitigates risk and can work to your favor

 

                  MHR brings large inventory of acreage blocks, much of it near existing infrastructure

 

                  Cimarex is well capitalized to accelerate drilling and accommodate risk

 

40



Gulf of Mexico

 

[GRAPHIC]

 

41



MHR Gulf of Mexico Production

 

[CHART]

 

42



[LOGO]

 

Paul Korus

Vice President and CFO

 



Transaction Detail

 

                  Fixed exchange ratio of 0.415

 

                  Tax-free reorganization

 

                  MHR special dividend of its interest in TEL Offshore

 

                  Current FMV ~$15MM

 

                  Requires shareholder and customary regulatory approvals

 

                  Closing expected May/June 2005

 

                  Mick Merelli: Chairman, President and CEO

 

                  MHR to designate one Board member

 

                  Headquarters in Denver, with operating offices in Tulsa, Dallas, Houston and New Orleans

 

44



Financial & Operational Impact

 

                  Accretive to per share reserves, production & cash flow

 

                  Over $700MM(1) of 2005E EBITDA

 

                  Triples proved reserves to 1.3 Tcfe, 83% PD

 

                  Doubles 2005E production to 500 MMcfe/d

 

                  Extends R/P ratio to 7.7 from 5.5

 

                  Prudent use of leverage, manageable debt

 


(1)               Based on First Call estimates

 

45



MHR Debt Structure

 

 

 

$MM

 

Comments

 

Bank Debt

 

$

320

 

Fold into XEC

 

 

 

 

 

 

 

9.6% Senior Notes

 

195

 

Due 2012, Callable 2007

 

 

 

 

 

 

 

Floating Rate Converts

 

125

 

Due 2023, Putable on C-O-C

 

 

 

 

 

 

 

Other

 

5

 

 

 

 

 

 

 

 

 

Total

 

$

645

 

 

 

 

Estimated Annual Interest Expense: $40MM

 

Pro Forma Credit Statistics:

EBITDA / Interest Expense: ~18X(1)

Debt : Cap Ratio: ~25%

 


(1)               Based on First Call estimates

 

46



Pro Forma Equity Capitalization

 

                  Basic shares outstanding:

 

Cimarex:

 

41.7MM

 

 

 

 

 

Merger consideration:

 

36.1MM

 

 

 

 

 

Total:

 

77.8MM

 

 

                  Other:

 

                  MHR warrants to purchase 7.2MM MHR shares at $15 per share (x 0.415 = 3.0MM XEC shares), expire 03/21/2005

 

                  6.0MM MHR options (x 0.415 = 2.5 XEC shares) subject to a cash-out provision. Avg. exercise price ~$8 per MHR share

 

                  Cimarex options and RSUs: ~3.4MM; diluted shares outstanding (Treasury method) 43.0MM

 

47



Production Estimates

 

 

 

XEC

 

MHR

 

Fourth Quarter 2004:

 

 

 

 

 

 

 

 

 

 

 

Oil, Bbls per day

 

7,428

 

~ 12,000

 

 

 

 

 

 

 

Gas, MMcf per day

 

186.7

 

~ 175.0

 

 

 

 

 

 

 

Equivalent, MMcfe/d

 

231.2

 

~ 246.0

 

 

 

 

 

 

 

Annual Averages, MMcfe/d

 

 

 

 

 

 

 

 

 

 

 

2004

 

217.1

 

~ 220.0

 

 

 

 

 

 

 

2003

 

179.7

 

200.1

 

 

 

 

 

 

 

Guidance for 2005

 

235–245

 

254–277

 

 

48



MHR Commodity Hedges – Gas

 

 

 

2005

 

2006

 

Swaps

 

 

 

 

 

 

 

 

 

 

 

Volume, MMBtu/d

 

20,000

 

NA

 

 

 

 

 

 

 

Price per MMBtu

 

$

6.25

 

NA

 

 

 

 

 

 

 

Collars

 

 

 

 

 

 

 

 

 

 

 

Volume, MMBtu/d

 

60,000

 

20,000

 

 

 

 

 

 

 

Avg. Floor, MMBtu

 

$

4.21

 

$

5.25

 

 

 

 

 

 

 

Avg. Ceiling, MMBtu

 

$

6.85

 

$

6.30

 

 

49



MHR Commodity Hedges – Oil

 

 

 

2005

 

2006

 

Swaps

 

 

 

 

 

 

 

 

 

 

 

Volume, Bbls/d

 

1,000

 

NA

 

 

 

 

 

 

 

Price per Barrel

 

$

34.90

 

NA

 

 

 

 

 

 

 

Collars

 

 

 

 

 

 

 

 

 

 

 

Volume, Bbls/d

 

1,000

 

1,000

 

 

 

 

 

 

 

Avg. Floor, Barrel

 

$

35.00

 

$

30.00

 

 

 

 

 

 

 

Avg. Ceiling, Barrel

 

$

55.00

 

$

35.85

 

 

50



3Q 2004 Operating Statistics

 

 

 

XEC

 

MHR

 

Realized Prices, Before Hedging

 

 

 

 

 

 

 

 

 

 

 

Gas, $/Mcf

 

$

5.63

 

$

5.37

 

 

 

 

 

 

 

Oil, $/Bbl

 

$

41.81

 

$

41.30

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

 

 

Gas, MMcf/d

 

176.2

 

165.1

 

 

 

 

 

 

 

Oil, MBopd

 

7.4

 

11.6

 

 

 

 

 

 

 

LOE, $/Mcfe

 

$

0.43

 

$

0.73

 

 

 

 

 

 

 

Transportation, $/Mcfe

 

$

0.13

 

NA

 

 

 

 

 

 

 

Production Tax, $/Mcfe

 

$

0.48

 

$

0.55

 

 

 

 

 

 

 

G&A, $/Mcfe

 

$

0.27

 

$

0.23

 

 

 

 

 

 

 

Effective Tax Rate

 

37

%

39

%

 

 

 

 

 

 

% Deferred

 

67

%

94

%

 

51



Staying the Course

 

                  Continues legacy of growing XEC on a per-share basis

 

                  Strengthens the company

 

                  We continue to add “blue chip” assets and talent

 

                  Prudent use of leverage

 

                  Greater diversification

 

                  Moving forward

 

                  More projects with long-term potential

 

                  Expanding into new areas: Permian Basin and GOM

 

                  Rising production profile, strong cash flow and a healthy balance sheet

 

52



Contact Information

 

Paul Korus

Vice President and CFO

Cimarex Energy Co.

1700 Lincoln Street, Suite 1800

Denver, CO 80203

 

Phone (303) 295-3995

Fax (303) 285-9299

 

www.cimarex.com

 

Brad Davis

SVP & CFO

or

Howard Tate

VP of Capital Markets

Magnum Hunter Resources, Inc.

600 Las Colinas Blvd., Suite 1100

Irving, TX 75039

 

Phone (972) 401-0752

Fax (972) 443-6487

 

www.magnumhunter.com

 

53



[LOGO]

 

Magnum Hunter Merger

 

January 27 – 28, 2005