Magnolia Petroleum Regulatory News (MAGP)

Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas 14 May 2014 Magnolia Petroleum Plc (`Magnolia' or `the Company') Final Results for the year to 31 December 2013 Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration andproduction company, announces its final results for the year ended 31 December2013. The Company will be holding a conference call for analysts and investors latertoday at 15:00 BST. To participate, please dial 0808 109 5644, or +44 (0) 208322 2500 if calling from outside of the UK, using access code 6618011#. Toview a copy of the presentation online, please go to www.meetingzone.com/presenter using 6618011# as the participant pin. Questions can be submittedduring the call via the computer screen. The online presenter programme is notcompatible with iPads and iPhones, those using these devices can submitquestions by email to info@sbmf.co.uk referencing `Magnolia call'. Please note,the call and webpage will be made live at 14:50 BST. The results below are extracted from the Company's audited accounts which areavailable in full at the Company's website (www.magnoliapetroleum.com). Copiesof the Company's Annual Report and Notice of AGM will be sent to shareholderslater this week. Highlights * 48% increase in number of wells on Magnolia's leases in proven US onshore formations to 149 as at 31 December 2013 (2012: 101) - 140 producing and 9 drilling/completing * 244% increase in full year revenues to US$2,443,244 * Full year EBITDA of U$975,622 compared to loss of US$359,944 in 2012 * US$5 million three year revolving line of credit secured to help fund multiple proposals to drill new wells on Magnolia's 13,500 net mineral acres * £1.5 million capital raised to acquire acreage in proven onshore US formations such as the Bakken, North Dakota and participate in wells with leading operators such as Marathon Oil and Statoil Magnolia CEO, Steven Snead said, "As evidenced by the 48% year on year increasein the number of wells to 149, 2013 saw a step up in drilling activity on ourleases in proven US onshore formations such as the Bakken and Three ForksSanish, North Dakota, and the Mississippi Lime and Woodford, Oklahoma. Not allof these wells were producing by the end of the period, but we still saw a 244%jump in full year revenues to US$2.443 million. We are delivering on ourstrategy to rapidly grow production and generate higher revenues that arerecycled into new wells, and in the process systematically prove up thereserves on our leases. 2014 has got off to a good start and we expect furtherstrong growth in well count, production and revenues. Already our well countincluding those that are producing and under development now stands at 171, a15% increase since the year end." Chief Executive's Statement By focusing on proven US onshore formations and participating alongsideestablished operators in multiple wells, Magnolia provides shareholders withexposure to the high growth associated with the junior oil and gas sector,while minimising exploration risk. The financial year ended 31 December 2013,our second full year on AIM, clearly shows our business model is deliveringwith excellent growth recorded in terms of revenues and production. In the yearto 31 December 2013, our revenues grew 244% to US$2,443,244 which, when addedto 2012's excellent performance, means that since the end of December 2011, ourrevenues have risen ten-fold while our well count (including those waiting tospud) as at year end has trebled to 184. What makes this excellent growth all the more notable is that it is not theresult of wildcat exploration in frontier jurisdictions with poorinfrastructure and high costs. Instead we deployed our combined experience andexpertise to acquire leases in proven US onshore formations such as the Bakkenin North Dakota and the Woodford / Mississippi Lime in Oklahoma. Here the bigunknown with regards to drilling is not if hydrocarbons are found but how much.Once leases have been secured we participate in drilling on our acreagealongside established operators, such as Statoil, Continental, Marathon andDevon Energy. The strong growth we have seen to date is set to continue in the year ahead andbeyond. Even though we have increased our well count since year end to over 200wells (including those wells waiting to spud), our 13,500 plus net mineralacres still hold over 600 potential drilling locations, providing a longpipeline of future drilling activity. Furthermore, the appetite among operators to drill in our areas of interestcontinues to rise from already elevated levels. In North Dakota it has becomestandard practice for operators to drill up to eight wells on individualspacing units targeting the Bakken and Three Forks Sanish formations. Magnoliahas already participated in multiple drilling on single units in North Dakotawith Statoil for the prolific Jake wells and with Kodiak for the Skunk Creekwells. We have long held the view that with the Woodford lying below theMississippi Lime formation, it was a matter of time before operators looked todo the same in Oklahoma and post period end we were informed by an operator(Devon Energy) that eight wells will be drilled on a single unit in Oklahoma.If, as we expect, the trend to drill eight wells concurrently gathers pace inOklahoma, our drilling activity is set to increase markedly, and post periodend we have already seen our well count (including those waiting to spud) growfrom 184 to 219, thanks in part to this acceleration in infill drillingactivity. As more and more horizontal wells are drilled in Oklahoma, our own and otheroperators' understanding of the geology of both the Mississippi Lime andWoodford has improved markedly. A more refined view of the Mississippi Lime isthat it is comprised of multiple wedges, which if encountered can be highlyproductive, while the Woodford, which is a source rock, is increasingly seen asbeing the more prospective of the two formations. Hitting or missing one ofthese wedges explains the variance we are seeing in production rates for wellsdrilled to the Mississippi Lime. As announced by Magnolia on 6 May 2014 as aresult of the increased understanding of the geology in the Mississippi Limeand Woodford, engineers are taking a more cautious view of the valuation of the2P and 3P reserves and we therefore believe we should anticipate a significantdowngrade in our reserves. However, certain operators are having more successthan others in using the available technology to firstly identify theseproductive wedges and secondly to drill and complete the wells. Thanks tohaving drilled alongside most operators in Oklahoma, we know which ones arehaving the most success and we will continue to participate alongside theseconsistently strong performers. We have identified a number of these Mississippi Lime wedges on leases where weare the operator and where we hold interests of up to 100%. As a result in theyear ahead, Magnolia plans to drill vertical wells on these leases targetingMississippi Lime wedges. Vertical wells are considerably cheaper to drill thanhorizontals and therefore offer low cost opportunities for strong productionand reserves growth in the near term. Both the increase in drilling and multiple new well proposals we are seeing arevery welcome as they promise to accelerate the process by which we will proveup the reserves on our US onshore leases. To take advantage of this step-up inactivity we need to be in a position to fund our share of drilling costs. Inline with our strategy, higher revenues generated from our growing productionare increasingly funding our participation in new wells. To augment ourrevenues and provide us with the flexibility to participate in drilling as andwhen suitable opportunities arise, during the year we secured a US$5 millionrevolving credit facility with an initial drawdown of US$1.6m which wassubsequently increased to US$2.1m after the period end. This in itself is amajor milestone for Magnolia as it represents third party recognition of theprogress we have made. Financial Review (extracted from the Strategic Report) During the year, net production generated revenues of US$2,443,244, a 244%increase on last year's US$709,395. EBITDA (after removal of non cash items)totalled US$975,622 against a loss of US$359,944 in 2012. These funds werereinvested into drilling new wells. The loss for the year was US$281,817 (2012:US$1,075,178). Tangible assets as at end December 2013 stood at US$8,352,385, a 143% increaseover the year (2012: US$3,437,869) while intangible assets (new leases andwells that are drilling but not yet completed) increased to US$6,400,258 fromUS$6,200,828 in 2012. In line with our policy to invest as much of our revenuesinto drilling new wells and acquiring additional leases, administrative costscontinue to be tightly managed. During the year, US$2.3 million (equivalent to £1.5 million) was raised via aplacing to fund new wells, notably six Statoil operated wells in North Dakota.As a result, 60,000,000 new ordinary shares in the Company were issued. Inaddition the Company secured a three year US$5m revolving credit facility. Aninitial borrowing base of US$1.6m was agreed which was subsequently increasedto US$2.1m after the year end. No funds were raised in 2013 using the EFF withDarwin and post period end it was mutually agreed to cancel the facility. Outlook The current year has started strongly with Magnolia participating in 35 newwells, a 19% increase on our total well count as at year end. With a longpipeline of new wells, funding in place to cover our share of costs, anexcellent drilling success rate and growing appetite among leading operators tomaximise the recovery of reserves on individual spacing units in Oklahomathrough infill drilling, we are well placed to deliver on our objective andprove up the reserves on our leases. Already, the value of Magnolia's provendeveloped producing reserves stands at US$8.416 million. In 12 months' time, weexpect to report additional growth in production, revenue and producingreserves. Finally, I would like to thank the Board, management team and all our advisersfor their hard work during the year and also to our shareholders for theircontinued support over the last twelve months. Chief Operations Officer's Report The Bakken / Three Forks Sanish Formations, North Dakota In 2013, a total of 12 wells targeting the Bakken and Three Forks Sanishformations in North Dakota commenced production, bringing the total number ofproducing wells in these formations in which Magnolia has an interest to 34. Ofthe wells reported during the year, eight are producing from the Bakken, areservoir which currently produces over 850,000 bopd and is estimated to holdan estimated mean of 3.65 billion barrels of undiscovered, technicallyrecoverable oil (2013 US Geological Survey). Initial production rates for theseeight wells were: * BB Rice 2-29: 2,060 boepd * Gustafson 31-30H: 1,216 boepd * Helgeson 41-30H: 1,401 boepd * Curtis Kerr 24-8H: 1,496 boepd * Nicky Kerr 14-8: 1,501 boepd * Jake 2-11-4H: 2,543 boepd * Jake 2-11-6H: 3,315 boepd * Jake 2-11#1H: 3,928 boepd Initial production rates for the four wells that commenced production from theThree Forks Sanish formation, a separate reservoir lying directly below theBakken which is estimated to hold as much as 3.73 billion barrels ofrecoverable oil (2013 US Geological Survey), were as follows: * BB Rice 3-29: 2,207 boepd * Jake 2-11-3TFH: 2,300 boepd * Jake 2-11-5TFH: 2,430 bopd * Jake 2-11-2TFH: 2,244 boepd Boepd : Barrels of oil equivalent per dayBopd: Barrels of oil per day Magnolia holds leases in respect of 11,520 gross acres across 28 sections,equating to 421 net mineral acres within the boundaries of the Bakken / TFSformations. As the Three Forks Sanish lies beneath the Bakken, the number ofwells which can be drilled per section doubles to eight (four per formation),providing Magnolia with a total of 120 proven development locations on itsacreage, 60 on the Bakken and 60 on the Three Forks Sanish, as set out in theUpdated Reserves Report by Moyes & Co. dated 8 April 2013. Mississippi Lime Formation, Oklahoma Since its admission to AIM in November 2011, Magnolia has acquiredapproximately 5,500 net mineral acres in the Mississippi Lime. The acquiredacreage includes leases with working interests of up to 100%. Initial production rates for 16 producing wells targeting the Mississippi Limewere reported during 2013: * Nighswonger Farms 2815 1-13H: 107 boepd * Sullins 1-6H : 296 boepd * Montecristo 6-1H: 50 boepd * Cordray-Ritter 4-28-14 1H: 762 boepd * Mack 10-27-17: 252 boepd * Campbell 1-17H: 390 boepd * Wolf 1H-25: 195 boepd * McClure 36-2H: 90 boepd * Peck 1-5H: 631 boepd * Voise 1-10H: 105 boepd * Roger Swartz (vertical): 17 bopd * Flinders 1-25H: 143 boepd * Great White: 455 boepd * Joan 1-21 (vertical): 12 bopd * JKL 1-08H: 549 bopd * JKL 1-04 H: 40 bopd During the year, Magnolia elected to participate in a further 15 wellstargeting the Mississippi Lime for which initial production rates have eitherbeen reported post period end or are at various stages of development. The Mississippi Lime is an historic oil and gas system that has been producingat depths ranging from 4,500 to 7,000 feet from several thousand vertical wellsfor over 50 years. As with the Bakken, new technology and horizontal drillinghas reopened the oil play. Due to the relatively shallow depths and less tightrock formation, drilling costs at between US$2.4 million and US$3.5 million perwell in the Mississippi Lime and are considerably lower than those in theBakken, which should lead to shorter pay-out periods than with the Bakkenwells. Woodford / Hunton Formations, Oklahoma In 2013, Magnolia reported initial production rates for 9 wells during theperiod under review: * JoAnn1H-18 targeting the Woodford: 1,170 boepd * Beebe 24-W1H targeting the Woodford: 73 boepd * Kelly 1-2H targeting the Woodford: 1,291 boepd * Campbell 1-H targeting the Woodford: 615 boepd * Forrest 1-8H targeting the Woodford: 1,272 boepd * Omega 1-33H targeting the Hunton: 692 mcf * Condit 1-5H targeting the Woodford: 1,546 boepd * Robison 4-1MWH targeting the Woodford: 777 boepd * Sympson 1-6H targeting the Woodford: 758 boepd During the year, Magnolia elected to participate in a further 15 wellstargeting the Woodford/Hunton formations for which initial production rateshave either been reported post period end or are at various stages ofdevelopment. Like the Bakken, the Woodford / Hunton formations in Oklahoma are establishedreservoirs that have been reopened following the introduction of horizontaldrilling and stimulation technology. As a result the Woodford oil play inparticular is increasingly being drilled by leading operators. Summary During the year initial production rates were reported for 43 new wells inproven US onshore formations such as the Bakken and Three Forks Sanish, NorthDakota and Mississippi Lime and Woodford, Oklahoma. A number of these new wellsachieved the best initial production rates for wells in which Magnolia has aninterest, notably the Statoil operated Jake wells in the Bakken and Three ForksSanish formations in North Dakota. This highlights how operators' increasedknowledge of the geology of US plays and further advances in equipment andtechnology are allowing more of the reserves to be recovered, which hascontributed to the USGS doubling its estimate of mean undiscovered andtechnically recoverable oil from the Bakken and TFS to 7.38 billion barrels. Asthe growth reported in 2013 and the progress made in 2014 to date shows, thisis an exciting time for oil and gas companies operating in US onshore plays,and as a result further strong growth in Magnolia's production and reserves isexpected in the year ahead. MAGNOLIA PETROLEUM PLC consolidated Statement of Comprehensive Income Year ended 31 December 2013 Note Year ended Year ended 31 December 31 December 2013 2012 (restated) $ $ Continuing Operations Revenue 2,443,244 709,395 Operating expenses (640,823) (200,255) Depreciation (605,686) (219,183) Gross Profit 1,196,735 289,957 Impairment of property, plant and - (9,333)equipment Impairment of mineral leases (67,070) (218,525) Profit on disposal of mineral leases 244,373 - Differences due to foreign exchange (417,520) (263,774) Administrative expenses 4 (1,218,019) (871,934) Operating Loss (261,501) (1,073,609) Finance income 283 - Finance costs (20,599) (1,569) Loss before Tax (281,817) (1,075,178) Taxation - - Loss for the year attributable to the (281,817) (1,075,178)owners of the parent Other Comprehensive Income: Items that may be reclassifiedsubsequently to profit or loss Currency translation differences 468,089 173,924 Other Comprehensive Income for the Year, 468,089 173,924Net of Tax Total Comprehensive Income for the Year 186,272 (901,254)attributable to the owners of the parent Earnings per share for loss attributableto the owners of the parent during theyear Basic and diluted (cents per share) 5 (0.03) (0.16) The loss for the Parent Company for the year was $482,319 (2012: $334,035). MAGNOLIA PETROLEUM PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2013 Note As at As at 31 December 31 December 2013 2012 $ $ ASSETS Non-Current Assets Property, plant and equipment 6 8,352,385 3,437,869 Intangible assets 7 6,400,258 6,200,828 Total Non-Current Assets 14,752,643 9,638,697 Current Assets Trade and other receivables 1,268,823 208,936 Cash and cash equivalents 128,002 2,293,151 Total Current Assets 1,369,825 2,502,087 TOTAL ASSETS 16,149,468 12,140,784 EQUITY AND LIABILITIES Equity attributable to Owners of Parent Share capital 1,481,396 1,390,244 Share premium 13,954,026 11,888,717 Merger reserve 1,975,950 1,975,950 Share option and warrants reserve 209,042 66,603 Reverse acquisition reserve (2,250,672) (2,250,672) Translation reserve 515,389 47,300 Retained losses (1,859,713) (1,577,896) Total Equity 14,025,418 11,540,246 Non-Current Liabilities Borrowings 900,000 - Total Non-Current Liabilities 900,000 - Current Liabilities Trade and other payables 1,224,050 600,538 Total Current Liabilities 1,224,050 600,538 TOTAL EQUITY AND LIABILITIES 16,149,468 12,140,784 MAGNOLIA PETROLEUM PLC CONSOLIDATED Statement of Changes in Equity Year ended 31 December 2013 Attributable to the owners of the parent Group ($) Share Share Merger Share Reverse Translation Retained Total capital Premium reserve option acquisition reserve losses equity and reserve warrants reserve Balance at 926,128 2,218,877 1,975,950 66,603 (2,250,672) (126,624) (502,718) 2,307,5441 January 2012 Loss for the - - - - - - (1,075,178) (1,075,178)year OtherComprehensiveIncome Currency - - - - - 173,924 - 173,924translationdifferences Total - - - - - 173,924 (1,075,178) (901,254)ComprehensiveIncome for theYear Proceeds from 464,116 10,664,377 - - - - - 11,128,493share issues Share issue - (994,537) - - - - - (994,537)costs Transactions 464,116 9,669,840 - - - - - 10,133,956with owners,recogniseddirectly inequity Balance at 1,390,244 11,888,717 1,975,950 66,603 (2,250,672) 47,300 (1,577,896) 11,540,24631 December 2012 Balance at 1,390,244 11,888,717 1,975,950 66,603 (2,250,672) 47,300 (1,577,896) 11,540,246 1 January 2013 Loss for the - - - - - - (281,817) (281,817)year OtherComprehensiveIncome Currency - - - - - 468,089 - 468,089translationdifferences Total C - - - - - 468,089 (281,817) 186,272omprehensive Income for the Year Proceeds from 91,152 2,187,648 - - - - - 2,278,800share issue Share issue - (122,339) - - - - - (122,339)costs Issue of share - - - 142,439 - - - 142,439options andwarrants Transaction with 91,152 2,065,309 - 142,439 - - - 2,298,900owners,recogniseddirectly inequity Balance at 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) 515,389 (1,859,713) 14,025,41831 December 2013 MAGNOLIA PETROLEUM PLC CONSOLIDATED Statement of Cash Flows Year ended 31 December 2013 Year ended Year ended 31 December 31 December 2013 2012 $ $ Cash Flows from Operating Activities Loss before tax (281,817) (1,075,178) Impairment of mineral leases 67,070 227,858 Depreciation 610,134 222,033 Foreign exchange 456,897 158,351 Issue of share options and warrants 142,439 - Finance income (283) - Finance costs 20,559 1,569 1,014,999 (465,367) Changes to working capital Increase in trade and other receivables (1,059,430) (136,925) Increase/(decrease) in trade and other 101,267 (19,388)payables Cash generated from/(used in) operations 56,836 (621,680) Interest paid (20,559) (1,569) Net Cash generated from/(used in) 36,277 (623,249)Operating Activities Cash Flows from Investing Activities Purchases of intangible assets (1,605,763) (5,691,408) Purchases of property, plant and (4,165,785) (2,407,158)equipment Disposal of intangible assets 405,100 - Disposal of property, plant and 105,578 -equipment Interest received 283 - Net Cash used in Investing Activities (5,260,587) (8,098,566) Cash Flows from Financing Activities Proceeds from issue of ordinary shares 2,278,800 11,128,493 Issue costs (122,339) (994,537) Proceeds from borrowings 900,000 - Net Cash generated from Financing 3,056,461 10,133,956Activities Net (Decrease)/Increase in Cash and Cash (2,167,849) 1,412,141Equivalents Movement in Cash and Cash Equivalents Cash and cash equivalents at the 2,293,151 874,037beginning of the year Exchange gain on cash and cash 2,700 6,973equivalents Net (decrease)/increase in cash and cash (2,167,849) 1,412,141equivalents Cash and Cash Equivalents at the End of 128,002 2,293,151the Year MAGNOLIA PETROLEUM PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2013 * GENERAL INFORMATION The Consolidated Financial Statements of Magnolia Petroleum plc ("the Company")consists of the following companies; Magnolia Petroleum plc and MagnoliaPetroleum Inc. (together "the Group"). The Company is a public limited company which is listed on the AIM market ofthe London Stock Exchange and incorporated and domiciled in England and Wales.Its registered office address is Suite 321, 19-21 Crawford Street, London, W1H1PJ. * Summary of significant accounting policieS The principal accounting policies applied in the preparation of theseconsolidated Financial Statements are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated. 1. Basis of preparation of Financial Statements The consolidated Financial Statements have been prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union(IFRSs as adopted by the EU) to companies reporting under IFRS, and IFRICinterpretations and the parts of the Companies Act 2006 applicable to companiesreporting under IFRS. The Financial Statements have been prepared under the historical costconvention. The preparation of Financial Statements in conformity with IFRS requires theuse of certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgement or complexity, orareas where assumptions and estimates are significant to the consolidatedFinancial Statements, are disclosed in Note 4 of the 2013 Financial Statements. The 2013 Financial Statements have been restated to better reflect theoperations of the Group. The change has resulted in depreciation on ProducingProperties being removed from operating expenses within cost of sales anddepreciation on drilling costs and equipment being removed from administrativeexpenses. These depreciation charges have been aggregated into a new line onthe Income Statement within cost of sales. 2. Basis of consolidation The consolidated Financial Statements consolidate the Financial Statements ofMagnolia Petroleum plc and the audited Financial Statements of its subsidiaryundertaking made up to 31 December 2013. Subsidiaries are entities over which the Group has control. Control is thepower to govern the financial and operating policies of an entity so as toobtain benefits from its activities. The Group obtains and exercises controlthrough voting rights. The existence and effect of potential voting rights thatare currently exercisable or convertible are considered when assessing whetherthe Group controls another entity. Subsidiaries are fully consolidated from thedate on which control is transferred to the Group. They are de-consolidatedfrom the date that control ceases. The Company acquired Magnolia Petroleum Inc. on 23 October 2009 through a shareexchange. As the shareholders of Magnolia Petroleum Inc. have control of thelegal parent, Magnolia Petroleum plc, the transaction was accounted for as areverse acquisition in accordance with IFRS 3 "Business Combinations". Thefollowing accounting treatment has been applied in respect of the reverseacquisition: * the assets and liabilities of the legal subsidiary Magnolia Petroleum Inc. are recognised and measured in the Consolidated Financial Statements at their pre-combination carrying amounts, without restatement to fair value; and * the equity structure appearing in the Consolidated Financial Statements reflects the equity structure of the legal parent, Magnolia Petroleum plc, including the equity instruments issued to effect the business combination. The cost of acquisition was measured as the fair value of the assets acquired,equity instruments issued and liabilities incurred or assumed at the date ofexchange, plus certain costs directly attributable to the acquisition. In accounting for the acquisition of Magnolia Petroleum Inc., the Company hastaken advantage of Section 612 of the Companies Act 2006 and accounted for thetransaction using merger relief. Investments in subsidiaries are accounted for at cost less impairment. Wherenecessary, adjustments are made to the financial statements of subsidiaries tobring the accounting policies used into line with those used by other membersof the Group. All inter-company transactions and balances between Groupentities are eliminated on consolidation. 1. Going concern The Group's business activities, together with the factors likely to affect itsfuture development and performance are set out in the Chief Executive Officer'sStatement. In addition, notes 3 and 19 to the 2013 Financial Statementsdisclose the Group's and Company's objectives, policies and processes formanaging financial risks and capital. The Company raised $2.28 million before expenses via a placing during the year.In addition, the Group secured a three year $5 million revolving creditfacility during the year, with a current borrowing base limit of $2,100,000.All loan covenants were met during the year and subsequent to the year end. TheGroup's cash flow forecasts and projections prepared up to 31 December 2016show that the Group has sufficient funds and facilities to fund its ongoingoperating costs. The Directors have a reasonable expectation that the Companyand Group has adequate resources to continue in operational existence for theforeseeable future. For this reason, the Directors continue to adopt the goingconcern basis of accounting in preparing the Financial Statements. * segmental information The Group operates in two geographical areas, the United Kingdom and the UnitedStates of America. Activities in the UK are mainly administrative in naturewhilst the activities in the USA relate to exploration and production from oiland gas wells. The reports reviewed by the Board of Directors that are used tomake strategic decisions are based on these geographical segments. Year ended 31 December 2013 USA UK Intra-segment Total balances $ $ $ $ Revenue from external 2,443,244 - - 2,443,244customers Gross profit 1,196,735 - - 1,196,735 Operating profit/(loss) 220,818 (482,319) - (261,501) Impairment - property, plant - - - -and equipment Impairment - expired leases 67,070 - - 67,070 Depreciation 610,134 - - 610,134 Capital expenditure 6,292,723 - - 6,292,723 Total assets 15,590,776 17,057,866 (16,880,907) 15,767,735 Total liabilities 15,091,394 38,631 (13,005,975) 2,124,050 Year ended 31 December 2012 (restated) USA UK Intra-segment Total balances $ $ $ $ Revenue from external 709,375 - - 709,395customers Gross profit 289,957 - - 289,957 Operating loss (739,574) (334,035) - (1,073,609) Impairment - property, plant 9,333 - - 9,333and equipment Impairment - expired leases 218,525 - - 218,525 Depreciation 222,033 - - 222,033 Capital expenditure 8,098,566 - - 8,098,566 Total assets 11,646,146 14,696,234 (14,574,225) 11,768,155 Total liabilities 11,347,265 44,975 (10,791,700) 600,538 A reconciliation of the operating loss to loss before taxation is provided asfollows: Year ended Year ended 31 December 31 December 2013 2012 $ $ Operating loss for reportable segments (261,501) (1,073,609) Finance income 283 - Finance costs (20,599) (1,569) Loss before tax (281,817) (1,075,178) The amounts provided to the Board of Directors with respect to total assets aremeasured in a manner consistent with that of the Financial Statements. Theseassets are allocated based on the operations of the segment and physicallocation of the asset. Goodwill recognised by the Group is managed centrallyand is not considered to be a segmental asset. Reportable segments' assets are reconciled to total assets as follows: Year ended Year ended 31 December 31 December 2013 2012 $ $ Segmental assets for reportable segments 15,767,735 11,768,155 Unallocated: goodwill 381,733 372,629 Total assets per Statement of Financial Position 16,149,468 12,140,784 * EXPENSES BY NATURE Group 2013 2012 (restated) $ $ Directors' fees 322,422 331,492 Consulting fees 295,171 292,418 Legal, professional and compliance costs 118,225 127,431 Depreciation 4,448 2,850 Issue of share options and warrants 142,439 - Other costs 335,314 117,743 _______ _______ Total administrative expenses 1,218,019 871,934 _______ _______ * EARNINGS per Share The calculation of the basic loss per share of 0.03 cents per share (31December 2012 loss per share: 0.16 cents) is calculated by dividing the lossattributable to ordinary shareholders of $281,817 (31 December 2012 loss:$1,075,178) by the weighted average number of ordinary shares of 888,152,303(31 December 2012: 691,240,908) in issue during the period. In accordance with IAS 33, there is no difference between the basic and dilutedloss per share as the effect on the exercise of options and warrants would beto decrease the earnings per share. * Property, plant and equipment Group Producing Drilling Motor Total properties costs and vehicles (Mineral equipment and office Leases) equipment $ $ $ $ Cost At 1 January 2012 457,648 612,199 - 1,069,847 Additions 405,015 1,968,889 15,254 2,407,158 Transferred from intangible 35,104 364,998 - 400,102assets Impairment (14,000) - - (14,000) At 31 December 2012 883,767 2,964,086 15,254 3,863,107 Additions 147,049 4,535,200 3,805 4,686,054 Disposals (7,781) (97,797) - (105,578) Transferred from intangible 232,708 711,466 - 944,174assets At 31 December 2013 1,255,743 8,112,955 19,059 9,387,757 Accumulated Depreciation andImpairment At 1 January 2012 97,958 109,914 - 207,872 Charge for the period 39,917 179,266 2,850 222,033 Impairment (4,667) - - (4,667) At 31 December 2012 133,208 289,180 2,850 425,238 Charge for the period 57,633 548,053 4,448 610,134 At 31 December 2013 190,841 837,233 7,298 1,035,372 Net Book Amount At 31 December 2012 750,559 2,674,906 12,404 3,437,869 At 31 December 2013 1,064,902 7,275,722 11,761 8,352,385 Transfers from intangible assets represent licence areas where production hascommenced together with drilling costs associated with these licences. Producing properties and drilling costs depreciation expense of $605,686 (2012:$219,183) has been charged in cost of sales. Motor vehicles and office equipment depreciation expense of $4,448 (2012:$2,850) has been charged in administrative expenses. * intangible assets Group Cost Goodwill Drilling Mineral Total costs leases $ $ $ $ At 1 January 2012 356,216 364,998 390,420 1,111,634 Additions - 710,727 4,980,681 5,691,408 Transferred to property, plant and - (364,998) (35,104) (400,102)equipment Exchange movements 16,413 - - 16,413 Impairment - - (218,525) (218,525) At 31 December 2012 372,629 710,727 5,117,472 6,200,828 Additions - 4,733 1,601,937 1,606,670 Transferred to property, plant and - (711,465) (232,709) (944,174)equipment Disposals - - (405,100) (405,100) Exchange movements 9,104 - - 9,104 Impairment - - (67,070) (67,070) As at 31 December 2013 381,733 3,995 6,014,530 6,400,258 Amortisation At 1 January 2012, 31 December 2012 - - - - and 31 December 2013 Net Book Amount At 31 December 2012 372,629 710,727 5,117,472 6,200,828 At 31 December 2013 381,733 3,995 6,014,530 6,400,258 Impairment review Drilling costs and mineral leases represent acquired intangible assets with anindefinite useful life and are tested annually for impairment. As disclosedwithin Accounting Policies, expenditure incurred on the acquisition of mineralleases is capitalised within intangible assets until such time as theexploration phase is complete or commercial reserves have been discovered.Exploration expenditure including drilling costs are capitalised on a well bywell basis if the results indicate the existence of a commercially viable levelof reserves. The Directors have undertaken a review to assess whether circumstances existwhich could indicate the existence of impairment as follows: * The Group no longer has title to the mineral lease. * A decision has been taken by the Board to discontinue exploration due to the absence of a commercial level of reserves. * Sufficient data exists to indicate that the costs incurred will not be fully recovered from future development and participation. * The lease has expired. Following their assessment the Directors recognised an impairment charge to thecost of mineral leases of $67,070 (2012 - $218,525) in respect of expiredmineral leases. The Directors believe that no impairment is necessary on the carrying value ofgoodwill. Goodwill arose on the reverse acquisition of Magnolia Petroleum Plc.The goodwill represents the value of the parent company being an AIM listedentity to Magnolia Petroleum Inc. Annual Report & Accounts and Notice of AGM The 2013 Annual Report & Accounts together with the Notice of AGM will beposted to Shareholders later this week and are available on the Company'swebsite (www.magnoliapetroleum.com). The Company also announces that the Annual General Meeting of Magnolia will beheld at 18452 E 111th, Broken Arrow, Oklahoma, OK74011, USA on Tuesday 10 June2014 at 10.00am Central Daylight Time. CHANGE OF UK REGISTERED OFFICE The Company also announces that it has changed its Registered Office to Suite321, 19-21 Crawford Street, London, W1H 1PJ. * * ENDS * * For further information on Magnolia Petroleum Plc visitwww.magnoliapetroleum.com or contact the following: Steven Snead Magnolia Petroleum Plc +01 918 449 8750 Rita Whittington Magnolia Petroleum Plc +01 918 449 8750 Jo Turner / James Caithie Cairn Financial Advisers LLP +44 20 7148 7900 John Howes / Alice Lane / Northland Capital Partners Limited +44 20 7796 8800Luke Cairns Lottie Brocklehurst St Brides Media and Finance Ltd +44 20 7236 1177 Frank Buhagiar St Brides Media and Finance Ltd +44 20 7236 1177 Notes Magnolia Petroleum Plc is an AIM quoted, US focused, oil and gas explorationand production company. Its portfolio includes interests in 151 producing andnon-producing assets, primarily located in the highly productive Bakken/ThreeForks Sanish hydrocarbon formations in North Dakota as well as the oil richMississippi Lime and the substantial and proven Woodford and Hunton formationsin Oklahoma. Summary of Wells Category Number of wells Producing 154 Being Drilled / Completed 17 Elected to participate / waiting to 48spud TOTAL 219