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MHR > SEC Filings for MHR > Form 8-K/A on 22-Apr-2013All Recent SEC Filings

Show all filings for MAGNUM HUNTER RESOURCES CORP | Request a Trial to NEW EDGAR Online Pro

Form 8-K/A for MAGNUM HUNTER RESOURCES CORP


22-Apr-2013

Changes in Registrant's Certifying Accountant, Regulation FD Discl


Item 4.01 Changes in Registrant's Certifying Accountant.

Dismissal of Previously Engaged Independent Registered Public Accounting Firm

On April 10, 2013, the Company, at the direction of the Audit Committee (the "Audit Committee") of the Company's Board of Directors (the "Board"), dismissed PricewaterhouseCoopers LLP ("PwC") as the Company's independent registered public accounting firm for the fiscal year ended December 31, 2012, effective immediately. PwC was engaged as the Company's independent registered public accounting firm on July 17, 2012. PwC has not completed an audit or issued an audit report on the Company's consolidated financial statements for the fiscal year ended December 31, 2012. The decision to dismiss PwC was unanimously approved by the Audit Committee on April 10, 2013, and such decision was unanimously ratified by the Board on April 13, 2013.

PwC was not engaged (and did not serve) as the Company's independent registered public accounting firm at any time prior to its engagement as the Company's independent registered public accounting firm on July 17, 2012. During the period beginning on July 17, 2012 and ending on the date of PwC's dismissal (the "Applicable Time Period"), there were no disagreements between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused PwC to make reference to the subject matter of the disagreements in connection with its reports on the Company's consolidated financial statements for the fiscal year ended December 31, 2012.

During the Applicable Time Period, there were no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of 1933, as amended (the "Securities Act"), relating to PwC's engagement as the Company's independent registered public accounting firm, except that PwC advised the Company (A) (i) that information had come to PwC's attention that if further investigated may have a material impact on the fairness or reliability of Company's consolidated financial statements, and this information was not further investigated and resolved to PwC's satisfaction prior to its dismissal, and (ii) of the need to significantly expand the scope of PwC's audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2012, and due to PwC's dismissal, PwC did not complete its expanded procedures (collectively, the matters in (i) and (ii) above, the "PwC Identified Matters"), and (B) of certain deficiencies in the Company's internal controls over financial reporting that constitute material weaknesses during the Applicable Time Period (whether identified by the Company or PwC), which led PwC to believe that internal controls necessary for the Company to develop reliable financial statements did not exist, and therefore, PwC significantly expanded the scope of its audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2012 for purposes of completing such audit. However, the Company believes that it has implemented the internal controls and processes necessary to develop reliable financial statements and allow its successor independent accounting firm to complete the audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2012. The Company will be working with its successor independent accounting firm to complete the audit of such consolidated financial statements.

PwC Identified Matters. The PwC Identified Matters consisted of the following and were under review and analysis by both PwC and the Company at the time of PwC's dismissal. As of the date of the filing of this Current Report on Form 8-K, the Company does not believe that there are any misstatements, errors or omissions that would require any restatement of any of the Company's prior period financial statements. The Company believes that the PwC Identified Matters arose primarily due to a period of rapid growth of the Company. The Company believes that such growth will significantly enhance future shareholder value, but in the near term this growth strained the accounting resources of the Company. The Company has been addressing and will continue to address these issues by expanding and upgrading the personnel in its accounting department and is also utilizing the advisory services of a "Big Four" accounting firm to assist the Company in completing its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and in upgrading its accounting department and systems.

Property Accounting and Transfers of Unproved Properties. PwC requested additional information to support the estimation of the valuation of the Company's oil and gas properties (including information regarding the timing of non-cash impairments and lease expirations and extensions). In addition, PwC requested support of the timing of transferring the classification of certain of such properties from unproved to proved and the effect of such transfers on non-cash impairments and depletion. The Company has substantially completed such analysis, which it will provide to its successor independent accounting firm. Such analysis indicated no material adjustments were necessary other than with respect to transfers and


impairments that were recorded in the third quarter ended September 30, 2012 and prior periods. As previously disclosed, the Company anticipates unproved property impairments in the amount of $71 million which will be recorded in the quarter ended December 31, 2012. Further additional adjustments, if any, that would be material would all be non-cash charges.

Oil and Gas Reserves. PwC has requested additional information and support for some of the underlying assumptions from which the reserve report issued by the Company's independent petroleum engineering firm on the Company's oil and gas reserves as of December 31, 2012 was derived. Such additional analysis included the proposed capital budget for 2013 supporting such assumptions and analysis of lease operating expenses in the Company's Magnum Hunter Production subsidiary ("MHP"). The Company has completed such analysis and believes no adjustments are necessary to such reserve report as its capital budget supports such assumptions and the MHP lease operating expenses analyzed are consistent with the assumptions made with respect thereto in the reserve report. PwC also requested additional support for the underlying division of interest of properties (which, in addition to oil and gas reserves, could affect other matters including revenues, lease operating expenses and oil and gas properties), although management does not expect the division of interest analysis to result in any material adjustments to these items. In addition, PwC requested that the Company perform additional analysis on its properties in the Tableland Field in Saskatchewan, Canada to determine if any non-cash impairment charges would be required. PwC advised the Company that a material non-cash impairment charge should be recognized for such properties and the Company continues to review this matter based on updated engineering information from its independent petroleum engineering firm. As previously disclosed, the Company anticipates proved property impairments in the amount of approximately $16 million which will be recorded in the quarter ended December 31, 2012. Any such impairment would be a non-cash charge to earnings for 2012. PwC also noted that a 2011 reserve report for certain significant subsidiaries of the Company indicated that it was prepared in accordance with the Canadian Oil and Gas Evaluation Handbook, and at the time of PwC's dismissal, PwC had not received adequate support as to whether such reserve report was prepared in accordance, or was materially consistent, with applicable U.S. and SEC standards. The Company has confirmed that such reserve report was prepared in accordance, and was materially consistent, with applicable U.S. and SEC standards, and it has received a revised cover letter from its independent petroleum engineering firm to such effect (although the Company had not provided such letter to PwC by the time of its dismissal).

Income Taxes. The Company and PwC discussed various issues relating to the Company's treatment of and positions with respect to certain income tax matters. The Company believes that its tax entries for the fourth quarter of 2012 are correct and that there should be no material adjustment to prior period entries.

Accounting regarding MHP. PwC requested that the Company review certain assumptions relating to the Company's initial accounting in connection with its acquisition in 2011 of NGAS Resources, Inc., whose operations are now conducted in or under MHP. PwC also requested further analysis regarding the appropriateness of certain credits recorded in lease operating expenses, whether such credits are appropriate deductions in the reserve report, and, if the credits were not deemed to be appropriate deductions, whether changes in reserves would have a material impact on MHP's proved property impairments. The Company has determined, in conjunction with advice from its "Big Four" . . .



Item 7.01 Regulation FD Disclosure.

The Company previously disclosed that its ability to pay dividends on its Series C, D and E preferred stock for periods after March 2013 would depend on the timing of the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and obtaining any required consents under its debt agreements. The Company intends to pay all accrued and unpaid dividends on its Series C, D and E preferred stock promptly after the Company has filed such Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and obtained any required consents relating to the payment of such dividends arising under the indenture relating to the Company's outstanding senior notes, which the Company expects to obtain.



Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.                                Description
   16.1       Letter from PricewaterhouseCoopers LLP to the Securities and Exchange
              Commission, dated April 18, 2013

Forward-Looking Statements

The statements and information contained in this report that are not statements of historical fact, including any estimates and assumptions contained herein, are "forward-looking statements" as defined in Section 27A of the Securities Act, and Section 21E of the Exchange Act. These forward-looking statements include, among others, statements, estimates and assumptions relating to the Company's business and growth strategies, oil and gas reserve estimates, ability to successfully and economically explore for and develop oil and gas resources, exploration and development prospects, future inventories, projects and programs, expectations relating to availability and costs of drilling rigs and field services, anticipated trends in its business or industry, future results of operations, liquidity and ability to finance its exploration and development activities and midstream activities, market conditions in the oil and gas industry and the impact of environmental and other governmental regulation. In addition, with respect to any pending transactions described herein, forward-looking statements include, but are not limited to, statements regarding the expected timing of the completion of proposed transactions, the ability to complete proposed transactions considering various closing conditions, the benefits of any such transactions and their impact on the Company's business, and any statements of assumptions underlying any of the foregoing. In addition, if and when any proposed transaction is consummated, there will be risks and uncertainties related to the Company's ability to successfully integrate the operations and employees of the Company and the acquired business. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "could," "should," "expect," "intend," "estimate," "anticipate," "believe," "project," "pursue," "plan" or "continue" or the negative thereof or variations thereon or similar terminology.

These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Factors that may cause the Company's actual results, performance, or achievements to be materially different from those anticipated in forward-looking statements include, among others, the following: adverse economic conditions in the United States, Canada and globally, difficult and adverse conditions in the domestic and global capital and credit markets, changes in domestic and global demand for oil and natural gas, volatility in the prices the Company receives for its oil, natural gas and natural gas liquids, the effects of government regulation, permitting and other legal requirements, future developments with respect to the quality of the Company's properties, including, among other things, the existence of reserves in economic quantities, uncertainties about the estimates of the Company's oil and natural gas reserves, the Company's ability to increase its production and therefore its oil and natural gas income through exploration and development, the Company's ability to successfully apply horizontal drilling techniques, the effects of increased federal and state regulation, including regulation of the environmental aspects, of hydraulic fracturing, the number of well locations to be drilled, the cost to drill and the time frame within which they will be drilled, drilling and operating risks, the availability of equipment, such as drilling rigs and transportation pipelines, changes in the Company's drilling plans and related budgets, regulatory, environmental and land management issues, and demand for gas gathering services, relating to the Company's midstream operations, the adequacy of the Company's capital resources and liquidity including, but not limited to, access to additional borrowing capacity, changes in results that may occur in connection with the completion of the audit of the Company's 2012 consolidated financial statements, and the consequences the Company will suffer as a result of failing to timely file the Company's 2012 Annual Report Form 10-K, including, among other things, hindering the Company's ability to efficiently access the capital markets, restrictions under the Company's credit facilities and notes indenture (to the extent the requisite consents thereunder are not obtained), and general harm in the marketplace.

These factors are in addition to the risks described in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's 2011 annual report on


Form 10-K, as amended, filed with the SEC. Most of these factors are difficult to anticipate and beyond the Company's control. Since forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. You are cautioned not to place undue reliance on forward-looking statements contained herein, which speak only as of the date of this report. Other unknown or unpredictable factors may cause actual results to differ materially from those projected by the forward-looking statements. Unless otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The Company urges readers to review and consider disclosures the Company makes in its reports that discuss factors germane to the Company's business. See in particular the Company's reports on Forms 10-K, 10-Q and 8-K subsequently filed from time to time with the SEC. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.


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