Tickers in this Article: MHR, HK, RRC, BHP
Magnum Hunter Resources (NYSE:MHR) is focused on the low risk development of various onshore resource basins in North America, as the company believes that these areas provide the most compelling economics of any currently available.

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Overview
Magnum Hunter Resources has several hundred thousand acres of leasehold in the Williston Basin, South Texas and the Appalachian Basin, and plans the aggressive development of this acreage over the next few years. The company will focus its capital mainly on the Eagle Ford Shale, Bakken and Marcellus Shale. Magnum Hunter Resources also plans to make selective acquisitions to supplement these positions as opportunities become available. It has established a $255 million capital budget in 2011, with approximately 84% dedicated to the development of its resource plays. These funds will be split approximately equally between the Williston Basin, South Texas and the Appalachian Basin.

Magnum Hunter Resources reported average production of 2,269 barrels of oil equivalent (BOE) per day in the first quarter of 2011. The company estimates that production will exit 2011 at a rate of 10,000 BOE per day. This rapid production growth is only partially organic as the company closed on two acquisitions during the first part of 2011.

Williston Basin
The company has approximately 80,000 net acres under lease in the Williston Basin. Although the majority of the leasehold is in North Dakota, it is also active in the Tableland area in Saskatchewan, Canada. Magnum Hunter Resources will focus mostly on the development of the Bakken, along with secondary development of the Three Forks and Sanish formations.

With nearly 500 drilling locations to exploit in the Williston Basin, it will drill 33 of these locations in 2011. The company expects to earn a 38% internal rate of return on wells here using an oil price of $85 per barrel.

South Texas
Magnum Hunter Resources has approximately 25,000 net acres under lease in South Texas that are prospective for the Eagle Ford Shale. The company has 89 net drilling locations in the oil window of the play, and plans to drill eight more horizontal wells into the Eagle Ford Shale before the end of 2011. This level of activity will increase production from the current level of 1,000 BOE per day to 2,000 BOE per day by the end of the year.

The Eagle Ford Shale is one of the hottest areas in the United States for oil and gas development, and the rapid development of assets here by Magnum Hunter Resources may eventually attract buyout offers from larger companies. This value was demonstrated by the recent $12.1 billion purchase of Petrohawk Energy (NYSE:HK) by BHP Billiton (NYSE:BHP). Petrohawk Energy was active in three project areas in the Eagle Ford Shale along with several other onshore resource plays.

The company also has 273,000 net acres under lease in the Appalachian Basin, with approximately 21% prospective for the Marcellus Shale. It built up most of this Appalachian leasehold through several acquisitions over the last few years. It's estimated that the company's Marcellus Shale acreage holds 290 net locations, with an expected 31% internal rate of return with a natural gas price as low as $3 per MMbtu. Range Resources (NYSE:RRC) is one of the largest operators active in the Marcellus Shale, and placed 103 horizontal wells onto production in 2009 and 2010.

The Bottom Line
Magnum Hunter Resources strategy is achievable and represents a low risk way for investors to play the development of onshore resources in the United States. The only problem that might interfere with the company's plans would be a higher than expected inflation of oil service costs or a delay in obtaining fracturing services to complete wells. (For related reading, also see A Guide To Investing In Oil Markets.)

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