The estimates of Magnum Hunter's total proved reserves as of December 31, 2012 were prepared by third-party engineering consultant, Cawley Gillespie & Associates, Inc. The estimates of Magnum Hunter's total proved reserves as of December 31, 2011 were prepared by Cawley Gillespie & Associates, Inc. and AJM Deloitte.
Magnum Hunter Management Comments
Mr. Gary C. Evans, Chairman and Chief Executive Officer of Magnum Hunter, commented, "Our Company's reserve growth is a key element of determining and evaluating our level of success in any given year. As we continue to harvest the many undeveloped opportunities in our various shale plays, we should also continue booking substantial reserve growth in each of them which further enhances our future liquidity and equity value. New reserve growth probabilities this year will exist in the new natural gas and ngl bookings anticipated in North Dakota and Saskatchewan once midstream infrastructure currently in process has been completed. Additionally, we have yet to book any proved reserves in the emerging Utica Shale Play where Magnum Hunter controls over 80,000 net acres and where a significant focus of new drilling efforts is planned for this year."
Non-GAAP Measures: Reconciliation to Standardized Measure
This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations within this release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with GAAP that are presented in this release. PV-10 is the present value of the estimated future cash flows from estimated total proved reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. The estimated future cash flows are discounted at an annual rate of 10% to determine their "present value." We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating the Company. We believe that PV-10 is a financial measure routinely used and calculated similarly by other companies in the oil and gas industry. However, PV-10 should not be considered as an alternative to the standardized measure as computed under GAAP.
The standardized measure of discounted future net cash flows relating to Magnum Hunter's total proved oil and gas reserves is as follows:
As of December, 31 2012 (in millions) ----------------Future cash inflows $ 4,248Future production costs 1,520Future development costs 604Future income tax expense 288 ----------------Future net cash flows 1,83610% annual discount for estimated timing of cash flows 1,012 ----------------Standardized measure of discounted future net cash flows related to proved reserves $ 824 ================Reconciliation of Non-GAAP MeasurePV-10 $ 981Less: Income taxes Undiscounted future income taxes (288) 10% discount factor 131 ---------------- Future discounted income taxes (157)Standardized measure of discounted future net cash flows $ 824 ================