25th Nov 2011 07:00
Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / ISIN: GB00B1G3RY22 / Sector:
Oil & Gas
25 November 2011
Magnolia Petroleum Plc ('Magnolia' or 'the Company') First Day of Dealings on AIM
Magnolia Petroleum Plc, a US focussed oil and gas exploration and production company, is listing on AIM today. The Company has raised £1.2 million before expenses by way of a placing and subscription of 218,181,820 new Ordinary Shares at 0.55 pence per share ('the Placing'), giving it a market capitalisation of approximately £3.1 million on Admission. The funds raised will be used to advance and expand the Company's portfolio of oil and gas interests, primarily located in the potentially game-changing and highly productive Bakken/Three Forks Sanish hydrocarbon formations in North Dakota as well as on the substantial and proven Woodford/Hunton reservoirs in Oklahoma. Daniel Stewart & Company Plc is Nominated Adviser and Joint Broker to the Company and Northland Capital Partners Limited is its Joint Broker.
Overview
Listing on AIM having raised £1.2 million before expenses to facilitate existing project developments, acquisitions, working capital and provide access to equity capital markets
Targeting prime areas of US oil and gas development in North Dakota and Oklahoma
Diverse portfolio of revenue-generating assets includes leases on 91,520 gross acres in the Bakken/Three Forks Sanish and Woodford/Hunton oil formations containing:
64 oil and/or gas producing properties with a net present value at a 10% discount rate of nearly £1 million
Non-producing properties with a current net present value at a 10% discount rate of over £10 million
Participated in the drilling of 23 new wells of which 22 produced a positive return on capital
Participating in the drilling of 14 wells on Bakken/Three Forks Sanish acreage (four wells currently being drilled) and at least 5-10 wells on Woodford/Hunton Oil acreage in Oklahoma during the next two years
Strong pipeline of future opportunities including 21,000 gross mineral acres in the Mississippi formation located in Oklahoma, a substantial proven reservoir
Recently gained licence to operate wells in Oklahoma
Plans to drill and operate two wells with an average working interest of 25% on Mississippi formation prospects in 2012, subject to available finance
Management skilled in the acquisition, development, production and operation of oil and gas properties - proven track record of drilling wells with an average payout of 24 months or less
Strong market fundamentals supporting sector growth in the long-term
Magnolia Petroleum Plc CEO Steven Snead said, "Magnolia offers a fantastic opportunity to invest in US oil and gas prospects located in highly productive formations which have the potential to transform the US into an energy independent nation. A recent article by Next Energy News stated that 'thanks to new technology the Bakken Formation in North Dakota could boost America's oil reserves by an incredible 10 times'. The new technology referred to is horizontal drilling and fracture stimulation technology.
"Since inception, our strategy to participate with successful operators in developmental wells has been very successful and we now have interests in 64 oil and gas producing properties across North Dakota, Oklahoma, Texas, Alabama and Florida. We have participated in the drilling of 23 of these, of which 22 have shown a positive return on capital. Our principal focus is now on increasing revenues and to this end we anticipate participating in the drilling of 14 wells on the Bakken/Three Forks Sanish acreage and at least 5-10 wells on the Woodford/Hunton Oil acreage in Oklahoma during the next two years.
"As the Company has grown, so too has our strategy and having been granted an operating licence in Oklahoma, we are now in a position to take larger interests in identified prospects. We intend to acquire additional leases to drill and operate horizontal wells ourselves, in particular, targeting the Mississippi formation, a known play with proven and substantial reservoirs, where we have obtained exclusive rights to acquire leases on 21,000 gross acres covering five prospects. Subject to available finance, we hope to drill at least two wells during 2012 with an average working interest of 25 per cent. Our successful participation with oil and gas major, Chesapeake, in the Sundance well, where we recovered all of our costs in just three months, strengthens our belief that the Mississippi formation has the potential to develop into another transformational oil play.
"Naturally, the Board plays a key role in the development of any company. I am confident that our Board is one of the best in the sector, with its proven track record in the oil and gas arena of developing projects with early payback. Coupled with a sound business model, existing revenue-generating projects in tremendously exciting oil producing basins, and near-term additional revenue potential, I believe we have the foundations in place to fulfil our strategy and deliver substantial value to shareholders."
For further information and the full Admission document visit www.magnoliapetroleum.com or contact the following:
Steven Snead Magnolia Petroleum Plc +01 918 449 0175 Rita Whittington Magnolia Petroleum Plc +01 918 449 0175 Oliver Rigby Daniel Stewart & Company Plc +44(0) 20 7776 6550 Charles Vaughan Northland Capital Partners Limited +44 (0) 20 7796 8800 Hugo de Salis St Brides Media and Finance Ltd +44 (0) 20 7236 1177
Lottie Brocklehurst St Brides Media and Finance Ltd +44 (0) 20 7236 1177
Frank Buhagiar St Brides Media and Finance Ltd +44 (0) 20 7236 1177 Full Details Introduction & Background
Magnolia Petroleum Plc is the holding company of Magnolia Petroleum, Inc ("Magnolia").
Magnolia is an oil and gas exploration and production company that was founded on 2 July 2008 to engage in the acquisition, exploitation and development of oil and gas properties primarily located onshore in the United States.
Magnolia was formed to acquire leases and participate in the drilling of wells in the Bakken Shale in North Dakota. The Bakken Shale produced oil from the 1950s to the 1980s. However, the introduction of horizontal drilling and fracture stimulation technology within the last decade has reopened these fields to become economically viable again.
As well as the Bakken, Magnolia has interests in the Woodford and Hunton formations in Oklahoma, and is seeking to acquire interests in the Mississippi formation. These are all well known oil plays that are now being reopened as a result of the introduction of horizontal drilling and new technologies.
Magnolia's management team is experienced and skilled in the acquisition, development, production and operation of oil and gas properties, with long-standing industry contacts to take advantage of the changes in technology and introduction of horizontal drilling.
Magnolia currently holds oil and gas interests that, in summary, comprise:
Producing Working Interests
* interests in 64 oil and/or gas producing properties located onshore United States; * 23 of these wells have been drilled since Magnolia was founded; and * these interests have a current net present value at a 10 per cent. discount rate of approximately $1,531,000 (1)
Non Producing Working Interests
* leases in respect of approximately 33,920 gross mineral acres (557 net mineral acres) in the Bakken/Three Forks Sanish formations, giving rights to participate in the drilling in up to eight wells per section in 28 sections located in North Dakota ("Bakken/Three Forks Sanish Interests"); * leases in respect of approximately 57,600 gross mineral acres (702 net mineral acres) located in the Woodford and Hunton formations, giving rights to participate in the drilling in up to two wells per section in 87 sections in Oklahoma ("Woodford Interests"); and * these interests have a current net present value at a 10 per cent. discount rate of approximately $16,482,000 (2).
Future Opportunities - Mississippi Formation
* Magnolia has executed an agreement with a geologist to use his data and analysis to evaluate and then acquire acreage on 21,000 gross mineral acres in the Mississippi formation located in Oklahoma. This acreage covers five prospects. This oil-rich region, considered tapped out by vertical drilling decades ago, has been yielding reservoirs to horizontal operators during the past two years.
Magnolia is not currently an operator on any of the acreage where it has either production interests or rights to participate in the drilling of wells; however, Magnolia is now licensed to operate wells in Oklahoma and plans to acquire acreage in Oklahoma on the Mississippi prospects using the proceeds of the Placing and the Subscription. The Company will look to drill and operate wells in this acreage in due course, and subject to further funding.
Working Interests
A working interest is an interest in oil and gas production that bears its share of the costs of exploration, development and operation of the property and of a proportionate share of royalties and any similar burdens, in return receiving its proportionate share of the revenue once production has been established. Magnolia is currently a non-operator on its portfolio of working interests.
As a non-operator, Magnolia is able to minimise its capital requirements and maximise the number of opportunities it can review and evaluate, thereby enabling it to acquire and develop a diversified portfolio of acreage and reduce the risk profile of its assets. Magnolia will be offered the opportunity to participate when an operator proposes to undertake a well-drilling programme in a section where it has a lease interest. Should Magnolia decide to participate, it will be required to commit to its share of the drilling and completion costs incurred by the operator (proportionate to its working interest percentage) and to become a signatory to the operator's Joint Operating Agreement that governs the legal, commercial and financial relationship between the operator and the other working interest owners in the section to be drilled. In the event that production is successfully established at the well, the operator will credit Magnolia with its share of oil and/or gas revenues less any royalties payable to the lessor or assignor of the mineral rights. Magnolia's lease interest will terminate on the stated date unless there is current production in paying quantities, drilling operations or in certain other circumstances.
The production and undeveloped leases have readily available access to both the oil and gas markets. Production from the existing leases is gathered from the well head to a central processing facility on the lease where the gas is sold into a transportation network and the oil is either sold into a pipeline and transported to a refinery or is trucked from the lease to a pipeline terminal from where it is then transported to a refinery. The benchmark for pricing products in the United States is West Texas Intermediate Crude and Henry Hub Natural Gas.
2.1 Producing Working Interests
Magnolia owns interests in 64 oil and/or gas producing properties located in North Dakota, Oklahoma, Texas, Alabama and Florida. The working interests vary from 1.57 per cent. to 1.46 per cent. and the net revenue interests vary from 1.18 per cent. to 1.10 per cent.
Historically, the aggregate revenue from these interests has been approximately $60,000 per quarter. The Directors expect that, on the basis of prevailing oil prices, revenues from the current production interests will continue to show steady growth as the operators apply workover and other techniques. In addition, revenue from production interests will be supplemented by revenue from producing wells that have not yet recovered their costs and from proposed new wells.
Since it was formed, Magnolia has participated in the successful drilling of 23 new wells of which 22 show a positive return on capital.
Further details of the Bakken/Three Forks Sanish Interests, Mississippi and the Woodford Interests are set out in the Competent Person's report in Part III of the Admission Document.
2.2 Non-Producing Working Interests
2.2.1 Bakken/Three Forks Sanish Interests
Magnolia's Bakken/Three Forks Sanish Interests target the Bakken and Three Forks Sanish formations and comprise leases in respect of approximately 33,920 gross mineral acres (557 net mineral acres) distributed across a total of 28 sections all of which are located in Dunn, Williams and McKenzie Counties, North Dakota. The Bakken is being infill drilled to four wells per 1,280 acres spacing unit by other operators. The leases grant Magnolia the right to participate in 92 identified well locations (78 increased density locations) targeting the Bakken as well as 107 identified well locations (82 increased density locations) targeting the Three Forks Sanish.
The Bakken formation, which comprises three separate reservoirs, sits above the Three Forks Sanish Formation. This provides Magnolia with the opportunity to produce oil on the same lease from both separate formations. The operator is entitled to drill 4 wells on each of the Bakken and Three Forks Sanish formations in each section. At the time of acquisition of the Company's interests in the Bakken it was unknown that the Three Forks Sanish formation was a separate and distinct reservoir. It is now thought that the Three Forks Sanish formation could be equally or more productive than the Bakken formation.
Of Magnolia's 64 producing interests, 13 are located in the Bakken and Three Forks Sanish formations. Magnolia expects to see four new wells drilled on its acreage in 2012 and 10 in 2013. As at the date of this Document, the drilling of 4 new wells is currently underway.
Based on the current pace of development, the Directors expect it to take several years to develop fully Magnolia's Bakken/Three Forks Sanish Interest; operators in this area expect to drill 4 wells per unit in each of the Middle Bakken and Three Forks Sanish formations. Magnolia has experienced average stabilised production rates of 400 barrels of oil per day on its multi-stage frac wells. Therefore, based on four wells where drilling is underway and 4 currently planned wells, the Directors expect that the annualised run rate from Magnolia's planned 8 wells at the end of 2012 will be approximately 34 bopd, based on Magnolia's net revenue interest.
The leases in the Bakken/Three Forks Sanish Interests have expiry dates between Febuary 2012 and July 2013 (or, where the acreage has a producing well at the end of the primary term, the cessation of commercial production). Should it be in Magnolia's interest, Magnolia expects to be able to negotiate extensions. It should be noted that these extensions will be at an additional cost to the Group.
2.2.2 Woodford Interests
Woodford is an established reservoir thought to be mostly depleted until the introduction of horizontal drilling and stimulation technology. These formations have not been exploited to the same extent as the Bakken to date, but several qualified independent exploration companies have now begun aggressive drilling programmes.
Magnolia holds leases in respect of approximately 57,600 gross mineral acres (702 net mineral acres), giving rights to participate in the drilling of wells in 87 sections located in 26 counties in central Oklahoma. Magnolia has an average working interest of approximately 1.57 per cent. and an average net revenue interest of approximately 1.18 per cent. in the 87 sections. Magnolia has received proposals from operators proposing to drill 87 of these sections, and will evaluate its possible opportunities to participate. These proposed wells are likely to be drilled over the next two to three years, and Magnolia will focus its participation in the wells that are targeting the oil play.
In addition to the 3 wells currently being drilled, Magnolia expects to participate in an additional 5 wells in 2012, with an average working interest of 1.57%. The Directors believe that larger interests in these wells could be available if additional funds become available to the Group.
Magnolia leased, or was assigned, the Woodford Interests from Enerlex. Magnolia receives 75 per cent. Net revenue interests on these assets. The majority of these leases will expire on 1 August 2013 or, if the acreage has a producing well at that date, the cessation of production. If production has not been established by the expiration date, Enerlex has agreed to grant Magnolia an additional three year lease on its mineral interest.
3. Future Opportunities - Mississippi Formation
Magnolia is currently targeting opportunities in the Mississippi formation, Oklahoma. The company has already participated with Chesapeake in the Sundance Well in this formation, and Magnolia recovered all of its costs in three months. Magnolia has executed an agreement with a geologist to use his data and analysis covering 21,000 gross acres to evaluate other potential sections.
The Mississippi formation is a proven reservoir that was historically considered tapped out by vertical drilling decades ago. It is only in the last two years that horizontal drilling has established the opportunity for further exploitation of the reservoir.
Magnolia has recently been granted a permit to become an operator, and it is the intention of the management to acquire more material working interests (of up to 50 per cent.) in sections in this formation and other potentially productive formations.
As an Oklahoma operator, Magnolia will be able to control the timing of the drilling, proposing and producing of its oil and gas wells in the State of Oklahoma. Magnolia will offer the opportunity to participate to the non-operator working interest owners. Should they decide to participate, the non-operators will be required to commit to their respective shares of the drilling and completion costs incurred by Magnolia (proportionate to their working interest percentages) and to become signatories to Magnolia's Joint Operating Agreement, which governs the legal, commercial and financial relationship between Magnolia and the non-working interest owners in the section to be drilled. In the event that production is successfully established at the well, Magnolia will credit the non-operator working interest owners with their share of oil and/or gas revenues less any royalties payable to the lessor or assignor of the mineral rights.
Magnolia has identified 5 prospects across 80 sections (square miles). During 2012, Magnolia expects to acquire acreage on one or more of these prospects and then, subject to available finance, drill and operate 2 wells on this acreage, with an average working interest of 25 per cent. It is anticipated that these 2 wells will set up an additional 22 drilling locations. There are two objectives in the prospect areas: the Mississippi Chat and the Mississippi Carbonates. Both sections have been productive in and around the prospect areas via vertical well completions, but the vertical well completions were marginally economic. Horizontal wells and modern fracture stimulation treatments will be key to the economic viability of the identified prospect areas.
4. Geology
4.1 Bakken formations (including Three Forks Sanish)
The Bakken formation is a rock formation of the Late Devonian to Early Mississippian age occupying about 200,000 square miles of the subsurface of the Williston Basin, covering parts of Montana, North Dakota and Saskatchewan. The rock formation consists of three members: lower shale, middle dolomite and upper shale. Both the lower and upper shale are organic rich, brittle due to silica content, of marine origin, and are considered an important source rock in the area. Between the lower and upper shale is the Bakken reservoir target and beneath the lower shale is the Three Forks Sanish reservoir target.
Oil was first discovered there in 1951, but efforts to extract it met with difficulties until the late 1980s when horizontal drilling technology was used to drill lateral wells in the upper and lower shales. Production levels, however, were unpredictable because the oil derived mainly from fractures in the shale. The most important breakthrough occurred in 2000 in Richland County, Montana when the first horizontal well was drilled in the oil-charged middle dolomite of the Bakken Formation at what became known as the Elm Coulee Field. By 2007, this field had been officially ranked as one of the 20 largest producing oil fields in the United States.
The advent of horizontal drilling in the 1980s, together with improved hydraulic fracturing techniques, led to the shale becoming a significant target for oil and gas, and post 2000 activity has significantly increased. Daily production is estimated to exceed 700,000 bopd by 2013 and to exceed 1.2 MMbopd by 2019. The 2008 US Geological Survey ("USGS") estimates that mean undiscovered recoverable volumes of 3.65 Bbbls and 1.85 Tcf are contained in the Bakken Shale of Montana and North Dakota.
The main centre of Bakken Shale activity is in North Dakota, where there are 4,000 active wells. The counties that have seen the highest level of exploration are McKenzie Co, ND and the eastern part of Richland County Montana where the shale is considered to be the most favourable for oil generation. The largest Bakken Shale field is at Parshall, operated by EOG Resources Inc., which produces around 30,000 bopd from 60 wells. In July 2011 there were 31 rigs operating in Dunn County and 36 operating in Mountrail County.
A state study evaluating oil reserves in the Three Forks formation in western North Dakota concluded that there could be as much as 2 billion barrels of recoverable oil in the Three Forks, enhancing the sustainability of the play over time. The new projection is based on more than 200 well measurement logs and 85 sets of testimony from technical experts.
Major oil exploration companies active in the area include Marathon Oil Corporation ("Marathon"), Whiting Petroleum Corporation, EOG Resources Inc., Continental Resources, Inc., Hess Corporation and Peak North
Dakota, LLC. 4.2 Woodford/Hunton formation
The primary geological zone for drilling in the Woodford Interests is the Woodford Shale. The shale is mostly Late Devonian in age, although some is reported as being Earliest Carboniferous. The formation was deposited as part of a global Late Devonian marine transgression. It is an important source rock in the area for both oil and gas in the south-central basins of the USA, and the shale is considered an important oil and particularly gas reservoir.
Production from shale is reported as far back as 1934. The advent of improved horizontal drilling and hydraulic frac techniques has increased the prospectivity of the shale to become a significant unconventional target for oil and gas. Publications have suggested that total gas-in-place for the Woodford Shale play is 830 Tcf, and oil-inplace in the order of 250 Bbbls. However, these numbers are based on a number of assumptions covering a very large area. In May 2011 there were 173 drilling rigs active in the Anadarko and Arkoma Basins, all drilling horizontal wells.
In only four years of active drilling, the Woodford formation now contains 1,281 producing wells. Most of the wells are where the Woodford Shale is in the dry gas window, greater than 50 ft thick and at a relatively shallow depth (
Because the Woodford oil play is relatively new, there is little long term production data to establish statistical ultimate recovery projections for the trend. However, Newfield has reported that they have completed six wells and five of those wells had initial production of over 1,400 boepd. The 30 day production average on those wells was 950 boepd and the 90 day average was 760 boepd. While these are based on a limited sample of completions in the Woodford and may not reflect the averages, they indicate the attractiveness of the play. The early production figures provided by Newfield are comparable to the initial rates in the Bakken play and the well costs are on average less.
4.3 Mississippi Geology
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 horizontal and vertically. Where the digenesis and weathering have enhanced the reservoir properties, the porosity is generally 15-20 per cent. and can be more than 100 feet thick. Where it has not been enhanced, the porosity is only 4-6 per cent. 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.
Moyes has 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.
5. Reserves Summary of Magnolia Reserves As of October 1, 2011 Net Reserves Net Cash Flow Oil & Natural Future Future Future Future NPV Condensate Gas Net Net Net Net Cash Disc @ Revenue OPEX Capital Flow 10% Reserve Class/ (Mbbl) (MMcf) ($000) ($000) ($000) ($000) ($000)Category Proved 24.2 146.5 2,963 959 - 2,004 919Developed Producing Proved 14.4 31.0 1,446 427 103 917 408Developed Non-Producing Proved 8.0 20.7 818 200 187 431 205Undeveloped Total Proved 46.6 198.2 5,226 1,585 289 3,352 1,531 Probable 22.1 51.6 2,229 465 441 1,323 651Reserves Total 2P 68.7 249.8 7,455 2,050 731 4,674 2,182 Possible 15.9 34.2 1,592 356 314 922 431Reserves Bakken 404 404 41,300 7,900 4,900 28,500 7,500Increased Density Sanish Three 487 487 51,200 10,000 6,900 34,300 7,900Forks Total 3P 975.6 1,175.0 101,547 20,305 12,845 68,396 18,013
Summary of Magnolia Contingent Resources
Operator: Magnolia Risk Factor: 50%
As of October 1, 2011 Gross Resources Net Resources Net Cash Flow Oil & Natural Natural Future Future Future Future NPV Condensate Gas Oil & Gas Condensate Net Net Net Net Disc Revenue OPEX Capital Cash @ 10% Flow MississippiLime (Mbbl) (MMcf) (Mbbl) (MMcf) ($000) ($000) ($000) ($000) ($000) Low Estimate 5,280 10,560 993 1,987 99,600 20,300 16,500 62,800 34,300 Best Estimate 8,534 17,068 1,605 3,211 167,300 31,500 16,500 119,300 55,700 High Estimate 10,968 21,936 2,063 4,127 213,200 34,700 16,500 162,000 79,900 Other Undeveloped Leasehold 256
The summary of the contingent resources is dependent on the Company raising sufficient funds to acquire and develop acreage in the Mississippi formation. The proceeds of the Placing and the Subscription are currently only sufficient to acquire the acreage, and as a result the Company is likely to require additional capital to develop the leases.
6. Strategy
Magnolia's growth strategy is two-fold:
1. Magnolia plans to continue to increase its production by participating with
successful operators in developmental wells on its current acreage in the
Bakken and Three Forks Sanish area in North Dakota and its Woodford/Hunton
Oil acreage in Oklahoma.
2. Magnolia has now become licensed as an operator, and plans to acquire
leases to drill and operate horizontal wells on its prospects in Oklahoma targeting the Mississippi formation.
The Directors expect that over the next two years Magnolia will participate in the drilling of a total of 14 wells on its Bakken/Three Forks Sanish acreage and at least 5-10 wells on its Woodford/Hunton Oil acreage in Oklahoma.
The Directors believe that management's experience in the acquisition of leases, development of projects and operations will allow it to take advantage of multiple opportunities existing in areas that are on the leading edge of developing successful drilling plays.
At this time, Magnolia has not arranged bank facilities or other lines of credit to finance future acquisitions of interests or to finance drilling expenditures. In the absence of such facilities, acquisitions and expenditures will be financed out of any future retained earnings and the net proceeds of the Placing and the Subscription. The Directors will regularly review the requirement for, and availability of, debt financing. Any such facilities, if they can be arranged on terms acceptable to the Directors, would provide Magnolia with additional flexibility to take
advantage of opportunities to increase its portfolio of exploration and production properties.
7. Key Strengths/Market Opportunities
The Directors believe that the Group has the following key strengths:
* a management team with significant experience in working interest acquisition who have longstanding industry contacts in the onshore US oil and gas industry; * a proven track record of successfully drilling wells with an average payout of 24 months or less; * a diverse portfolio of revenue-generating assets; * low risk prospects and undeveloped leases with the potential for good returns; * a licence to operate, which allows Magnolia the ability to control the timing of drilling future prospects; and * ability to access new opportunities, which includes acquiring existing production and undeveloped leases with value enhancing potential. 8. Competition
Magnolia will be competing for leases with various other companies active in the Bakken, Three Forks Sanish, Mississippi and Woodford areas, in particular from Marathon, Hess Corporation, Newfield Exploration Company, Cimarex Energy, Co., Chesapeake Energy Corporation, SandRidge Energy and Devon Energy Corporation.
The Directors believe that Magnolia's management is well-placed to meet competition for leases because of the following factors:
* the short lines of communication inherent in a small company, resulting in quick response times when pursuing prospective acquisitions; and * considerable experience in reviewing title, acquiring leases and negotiating agreements with local companies who desire partners in those acquisitions. 9. Directors
Brief details of the Directors are set out below:
Directors
John Malcolm Cubitt, aged 62, Non-Executive Chairman
Dr Cubitt has more than 31 years of commercial experience in the oil exploration and production industry, following a period in academic research and graduate/post-graduate education in the UK and USA. He is a registered Chartered Geologist (CGeol) and his experience includes asset evaluation and project management, as well as board-level strategic and operational direction. He is Managing Director of Woburn Energy Plc (formerly Black Rock Oil & Gas Plc), an AIM-listed oil and gas exploration company, and also a director of various private oil industry consultancy and software companies.
Steven Otis Snead, aged 56, Chief Executive Officer
Mr Snead is a Certified Professional Landman with 35 years' experience in the US onshore oil and gas industry. During this period he has owned and operated successful oil and gas operating and services companies. He founded and still owns Enerlex Inc. for the purpose of acquiring and managing royalty interests. He has extensive experience in oil and gas lease acquisition, drilling, development and operations.
Rita Fern Whittington, aged 50, Chief Operations Officer
Mrs Whittington is a petroleum landman with more than 32 years' experience in acquisitions, operations and management of oil and gas properties. She joined Primary Natural Resources I and II as a senior member of the asset management team, where she was jointly responsible for company growth. Both companies were sold in an aggregate eight-year period generating a 3:1 return on equity.
Gavin John Burnell, aged 34, Non-Executive Director
Mr Burnell has 11 years' experience of corporate finance, specialising in small-cap companies, and is a director of corporate finance at Northland Capital Partners Limited. He is also the founder and/or director of several companies in varying sectors including Globo Plc (AIM:GBO), Hot Rocks Investments Plc (PLUS:HRIP), Hellenic Capital Plc (PLUS:HECP) and Woodland Capital Limited.
Ronald Sanford Harwood, aged 76, Non-Executive Director
Mr Harwood has had active involvement in originating and developing projects in oil and gas exploration and production since 1981. He founded Bellwood Petroleum Corporation in 1985, Bellwood Petroleum, LLC in 2007 and Colony Petroleum, LLC in 1990. Colony secured US and international investors to participate in oil and gas exploration and production ventures originated and operated by American and Canadian independent oil and gas companies.
10. Financial Information
Detailed financial information on the Company can be found in Part IV of the Admission Document.
11. The Placing, the Subscription and Use of Proceeds
The Company has received Placing Letters from placees to subscribe for 210,909,100 Placing Shares at the Placing Price.
The Directors have agreed to subscribe for shares in the Subscription asfollows: Director Number of Shares subscribed forSteven Snead 3,636,360Ron Harwood 1,818,180Gavin Burnell 1,818,180
Steven Snead and Ronald Harwood, being US nationals, have subscribed under the exemption provided by Regulation D of the Securities Act of 1933, each of them being an accredited investor.
The Placing Shares and Subscription Shares when allotted and issued will represent approximately 39 per cent. of the Enlarged Share Capital of the Company on Admission. At the Placing Price, the Company will have a market capitalisation of £3.1 million on Admission.
The proceeds of the Placing and Subscription will be used as follows:
Uses £
Acquisition of working interest in the Mississippi formation 125,000
Participation in existing working interest drilling costs 600,000
Costs of Admission and the Placing and the Subscription 475,000
Total 1,200,000
The Placing and Subscription are conditional, inter alia, on Admission occurring by 25 November 2011 (or such later date as Daniel Stewart, Northland Capital, the Directors and the Company agree, but in any event no later than 23 December 2011).
The Placing Shares and Subscription Shares allotted pursuant to the Placing and Subscription respectively will, when issued and duly paid, rank pari passu in all respects with the Existing Ordinary Shares and in full for all dividends declared, paid or made on or after the date of Admission.
(1) Moyes & Co. CPR p.29(2) Moyes & Co. CPR p.29
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Magnolia Petroleum