Magnum Hunter Resources Corp (OTCMKTS:MHRC) Still Desperate to Recover
As you probably know, over the last twelve months, the price of oil has been on the decline. A year ago, a barrel of Brent crude oil was worth around $80, whereas right now, it’s traded at just over $45. Not surprisingly, this has put a lot of pressure on the big players in the industry and it threatens to completely crush some of the smaller ones. Case in point: Magnum Hunter Resources Corp (OTCMKTS:MHRC).
The Q3 revenue drop of more than 50% on a year-over-year basis alone should be telling enough of how big the impact of the oil slump has been. It should be noted, however, that the price of black gold is far from the only thing dragging MHRC down.
In fact, a very quick look at the older SEC filings will show you that although the company has been operating for quite a while, it has been struggling to break even. This has in turn led to numerous other problems.
The balance sheet, as we explained in some of our previous articles, is pretty horrendous as well and the fact that the company recently received some default notices under certain credit facilities made things a lot worse. Thanks to those notices, the current liabilities shot up from around $143 million at the end of Q2 all the way to more than $1 billion on September 30.
And it’s not like salvation is just around the corner, either. During the first nine months of 2015, MHRC managed to raise around $58.2 million through an “At the Market” sale of 56.2 million shares, and the initial plan was to continue selling stock under the same agreement in order to sustain the operations. Sadly, on October 9, MHRC suspended the cash dividends on its preferred shares which forbade them from issuing any new common stock under the “At the Market” agreement. Because of all the financial issues, the management team admitted in the 10-Q that they might be forced to effect a Chapter 11 reorganization. In fact, according to some contributors on popular financial websites, MHRC‘s bankruptcy “is all but a formality”.
In light of all this, the de-listing from NYSE and the sharp decline in MHRC‘s price aren’t really shocking. It doesn’t mean, however, that profiting from the stock is impossible.
A few minutes after Friday’s closing bell, for example, the company announced that some of its wells which had previously been temporarily closed are now operational again. As a result, MHRC added nearly 34% to its value during yesterday’s session and it finished the day at $0.0415 per share.
The run gave the people who timed their trades well a sizable profit opportunity, though it must be said that with penny stocks, the risks are always pretty substantial. They might be bigger still if you decide to look at MHRC as a long-term investment.