10th Feb 2012 07:00
Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas
10 February 2012
Magnolia Petroleum Plc (`Magnolia' or `the Company')
Acquisition of Acreage in the proven Mississippi Formation, Oklahoma
Magnolia Petroleum Plc, the AIM quoted US focussed oil and gas exploration and production company, is pleased to announce that it has acquired a 100% interest in 800 acres in the oil producing Mississippi Lime formation, Oklahoma and minority interests in leases over a further 284 net acres.
The transaction is in line with the Company's growth strategy to operate wells in the Mississippi Formation and follows the successful participation in the Sundance well with Chesapeake.
Highlights
* The Mississippi Formation is a proven commercial oil and gas system that has been producing from several thousand vertical wells for more than 50 years - new technology and horizontal drilling has reopened the oil play * Acquisition of 100% working interests in 800 net acres, including the right to drill * Plans to drill at a minimum 3 vertical wells to test the Mississippi on this acreage in the near future * Ongoing leasing activity has acquired a further 284 net acres with an average working interest of 3.4% with further acreage expected to be acquired in due course * Total aggregate costs of $230,000 for acquiring the 1,084 acres, in line with the Company's expectations in the AIM admission document
Magnolia COO, Rita Whittington said, "Today's news represents a key milestone for Magnolia. The new acreage lies on the Mississippi formation in Oklahoma, recognised as having the potential to be the next big play in onshore US and where many of the leading players operating in the Bakken have recently been busy acquiring large tracts of land. Last year we participated in a well with Chesapeake that was completed in the Mississippi formation in which we recovered all of our costs in just three months. In addition, the cost of drilling in the Mississippi is considerably less than that of the Bakken, and so offers higher margins and a much reduced payback time. During our due diligence process, we identified a number of prospects on the acreage and following further analysis we aim to spud a first well by the end of this year."
Detailed Information
Prior to the AIM admission, Magnolia entered into an agreement to participate in the leasing on a series of prospects consisting of approximately 80 square miles over five separate areas. The 284 net acres (8,400 gross acres), covering 33 individual sections and part of which is within the "Prospect A" area identified in the Competent Persons Report within the AIM Admission document, is the product of this agreement and it is anticipated that further acreage will be acquired under this agreement in due course. The average working interest acquired to date is 3.4%, but this is expected to change as further acres are acquired with Magnolia targeting an average percentage of around 25%.
The acquisition of the 800 gross acres with a 100% working interest is outside of the aforementioned agreement and follows the Company's intention to acquire material working interests as an operator and so control the timing of the drilling, proposing and producing of its oil and gas wells. The deal also includes the right to drill in the Mississippi formation and purchase of existing infrastructure currently on the site including, tanks, separators, an injection well, and six "active" wells, producing from a shallower formation, that could have recompletion and stimulation potential. Magnolia has future plans to drill at a minimum three vertical wells to test the Mississippi on this acreage in the near future.
Background Information on the Mississippi Formation, Oklahoma
The Mississippian oil trend is an expansive carbonate stratigraphic trap producing at shallow depths ranging from 4,500 to 7,000 feet below the surface. The reservoirs lie at the regional Pennsylvanian/Mississippian unconformity, as a result of uplift, alteration and erosion of shallow marine Mississippian carbonates.
The uppermost Mississippian member is a widespread debris-flow deposit formed through a combination of uplift and erosion of the Mississippi Limestone, consisting of varying amounts of weathered chert, limestone and dolomite called the "Mississippi Chat". The "Mississippi Lime" underlies the chat and also exhibits good reservoir characteristics. The formation was subject to weathering and digenesis and erosion at the regional unconformity. This results in greatly varying reservoir properties both horizontally and vertically. Where the digenesis and weathering have enhanced the reservoir properties, the porosity is generally 15-20% and can be more than 100 feet thick. Where it has not been enhanced, the porosity is only 4-6% and has low permeability. This results in lateral discontinuous reservoirs that are ideally developed with horizontal drilling technology.
The horizontal wells drilled in the play have lateral lengths of between 2,500 feet and 5,000 feet and are fracture stimulated in 6-12 stages. The fracture stimulation treatments are not as large as those in the Bakken play or the other unconventional resource plays such as the Eagle Ford. Because of the shallow depths and smaller fracture stimulation treatments, the typical completed well cost ranges from $2.4-$2.9 million. Current drilling times are approximately 17-28 days from spud to total depth.
The active operators in the play have published significant information on their results and expectation on the performance of wells in the play. SandRidge currently has over 650,000 acres under lease and the company has completed over 60 wells in the play. They estimate they have over 3,000 potential drilling locations. SandRidge's published type curve for well performance is 409 Mboe with expected well recoveries ranging from 300,000 to 500,000 boe at an average drill and complete cost of $2.7 million including allocated salt water disposal well costs.
The Competent Persons Report analysed the performance of 56 Mississippi Lime horizontal wells that were completed between 2007 and early 2011. The wells had 30 day average initial rates ranging from 60 bopd to 750 bopd. The average estimated oil recovery was 366 Mbo from this sampling of wells.
** ENDS **
Glossary
`bopd' means barrels of oil per day
`boe' means barrels of oil equivalent
`boepd' means barrels of oil equivalent per day
`Mbbl' means thousand barrels
For further information on Magnolia Petroleum Plc visit www.magnoliapetroleum.com or contact the following:
Steven Snead Magnolia Petroleum Plc +01 918 449 8750 Rita Whittington Magnolia Petroleum Plc +01 918 449 8750 Antony Legge / James Thomas Daniel Stewart & Company Plc +44 (0) 20 7776 6550
John Howes / John-Henry Northland Capital Partners +44 (0) 20 7796 8800Wicks Limited Lottie Brocklehurst St Brides Media and Finance +44 (0) 20 7236 1177 Ltd Frank Buhagiar St Brides Media and Finance +44 (0) 20 7236 1177 Ltd Notes
Magnolia Petroleum Plc is an AIM quoted, US focussed, oil and gas exploration and production company. Its portfolio includes interests in 64 producing and non-producing assets, primarily located in the highly productive Bakken/Three Forks Sanish hydrocarbon formations in North Dakota as well as the substantial and proven Woodford and Hunton formations and the oil rich Mississippi formation, in Oklahoma.
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