Magnolia Petroleum Regulatory News (MAGP)

Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas 6 May 2014 Magnolia Petroleum Plc (`Magnolia' or `the Company') Reserves & Production Update Magnolia Petroleum Plc, the AIM quoted onshore US focused oil andgas exploration and production Company, reports an update on its reserves andproduction. Overview - Assessment of net attributable proved and developed producingreserves (`PDP') estimated at 167 Mbbl of oil and condensate and 450 MMcf gaswith an NPV10 of US$8.416 million - Moyes estimates net production was 150 boepd as at 1 April 2014 - A detailed Reserves Report including 2P and 3P reserves has beencommissioned and, given a reassessment of the Mississippi Lime geology in theUS, is expected to show a significant downgrade in 2P and 3P reserves - Improved understanding of the following: - Landing of the laterals within the Mississippi `wedges' - The Woodford formation, being the 'source' rock for theMississippi Lime Proved Developed Producing Reserves The Company's net attributable proved and developed producingreserves (`PDP') have been estimated at 167 Mbbl of oil and condensate and 450MMcf of natural gas as at 1 April 2014 with an NPV10 of US$8.416 million. Thiscompares to the 158 Mbbl and 814 MMcf as at 1 August 2013 and NPV10 ofUS$7.243 million. The valuation was prepared by Moyes & Co. (`Moyes') andsatisfies a condition of the Credit Facility as announced on 22 October 2013for a six month reassessment of Magnolia's PDP reserves, upon which theborrowing base limit of the facility, currently US$2.1 million, is adjusted. Reserves Report A more detailed Reserves Report including the Company's 2P and 3Preserves has been commissioned. The Directors expect the Report will show areduction on the figures announced on 9 September 2013 due to a downgradethroughout the industry in net reserves assigned to the Mississippi Limeformation, Oklahoma. This is attributable to an improved understanding of thegeology of the play among operators, including Magnolia. As more horizontalwells are drilled on the formation and more production rates are reported, theMississippi Lime is increasingly being regarded as comprised of multiplewedges rather than a uniform resource. Production rates therefore varymarkedly depending on whether or not a well encounters a very productivewedge. This industry wide re-evaluation of the Mississippi Lime will have arebasing effect on the level of Magnolia's 2P and 3P reserves. Operators' understanding of the geology of the Woodford formationin Oklahoma is also improving as the play matures and more horizontal wellsare drilled. The Woodford, which lies below and is the source rock to theMississippi Lime, is increasingly viewed by operators as the more prospectiveof the two formations in certain areas. This matches the Company's ownexperience of receiving more proposals to drill Woodford wells on its leasesin recent months. As the Woodford is at an earlier stage of developmentcompared to the Mississippi Lime, the Reserves Report will not fully reflectthe potential of the formation. This is expected to change as more wells aredrilled to the Woodford. Strategy The Directors are confident that a number of Mississippi Limewedges, which can produce at prolific rates, are present on leases in whichMagnolia has interests of up to 100%. The Company is therefore assessing thepotential for it to drill, as operator, a series of vertical wells targetingidentified locations through 2014 - 2015. At an estimated cost of US$750,000per well, vertical wells are considerably cheaper than horizontals and havethe potential to recover costs quickly. Through its participation in multiple wells, Magnolia hasidentified those operators who have had the greatest success in maximisingproduction from both the Mississippi Lime and Woodford formations. A number ofthese are now looking to drill horizontal wells with up to five lateral legseach to ensure the correct wedge of the Mississippi Lime is encountered. Goingforward, the Directors will participate in wells drilled by those operatorswhose techniques and geological knowledge have consistently achieved the bestresults. Production Moyes estimates the Company's net production at 1 April 2014 was150 boepd. This compares to average actual daily production in H1 2013 of 93boe and H2 2013 of 116 boe. In addition the mix of oil and gas has moved from47% oil and 53% gas in H1 2013 to 67% oil and 33% gas in H2 2013 and remainsas such in the latest estimate from Moyes. Moyes had previously estimated that Magnolia's net production as at1 August 2013 was 214 boepd. This was based on initial production rates of newwells that had just come online and subsequently have declined to a steadierrate of production. Whilst the estimated boepd number from Moyes has fallen,actual monthly production and therefore revenue has increased since August2013. Magnolia COO, Rita Whittington said, "We are highly confident thatonce Magnolia's 2P and 3P reserves are rebased, they will soon resume theirupwards trajectory as a result of further Woodford and Mississippi Lime wellsbeing drilled on our acreage. We plan to continue to participate alongsideoperators who consistently achieve strong production rates. Armed with abetter understanding of the geology, we are excited by our upcoming verticalwell programme, targeting the Mississippi Lime. Vertical wells are low cost,hold leases by production and, thanks to our higher interests and subject tothe results, can lead to a material increase in net production and PDPreserves." As previously guided, the Company will report revenues in line withmarket expectations and EBITDA ahead of prior guidance in its upcoming 2013results which are expected to be released in the next two weeks. Summary of Magnolia PDP Reserves As of 1 April 2014, Magnolia's net Proved Developed Producingreserves, future net cash flow and net present worth discounted at 10% perannum (NPV) have been estimated to be as follows: Grand Total as of April 1, 2014 Gross Reserves Net Reserves Net Cash Flow ReserveClass/Category Oil & Natural Oil & Natural Future Future Future Future NPV Condensate Gas Condensate Gas Net Net Net Net Disc @ (Mbbl) (MMcf) (Mbbl) (MMcf) Revenue OPEX Capital Cash 10% ($000) & ($000) Flow ($000) Taxes ($000) ($000)Proved 59,124 256,516 167 450 19,057 5,196 - 13,861 8,416DevelopedProducing The future net revenue is based on the 1 April 2014 NYMEX futuresstrip prices for WTI Oil and Henry Hub Gas. The future net cash flow is thefuture net revenue, less estimated future net OPEX (well operating cost andproduction taxes) and future net capital. The total reserves are those definedas natural gas and liquid hydrocarbon reserves to Magnolia's interest afterdeducting all royalties, overriding royalties, and reversionary interestsowned by outside parties that become effective upon pay-out of specifiedmonetary balances. All reserves estimates have been prepared using standardengineering practices generally accepted by the petroleum industry and conformto the guidelines adopted by the 2007 SPE/SPEE/WPC PRMS Guidelines. The information contained in this announcement has been reviewedand approved by P. Dee Patterson on behalf of Moyes & Co. Mr. Patterson has 32years of relevant experience in the oil industry and is currently ManagingDirector, with Moyes & Co. in Dallas, Texas. Glossary `1P' means Proved Reserves `2P' means Proved plus Probable Reserves `3P' means Proved plus Probable plus Possible Reserves `BOE' means barrels of oil equivalent, gas is converted at itsenergy equivalent of 6000 cubic feet per barrel of oil `BOEPD' means barrels of oil equivalent per day, `BOPD' means barrels of oil per day, Abbreviation for barrels ofoil per day, a common unit of measurement for volume of crude oil. The volumeof a barrel is equivalent to 42 US gallons `Contingent resources' means quantities of petroleum estimated asof a given date, to be potentially recoverable from known accumulations byapplication of development projects, but which are not currently consideredcommercially recoverable due to one or more contingencies `M' means Thousand `MBO' means Thousand Barrels of Oil `Mcfd' means Thousand Cubic Feet per Day `MM' means million (thousand thousand not million million), as usedin oilfield and heat content units such as MMSTB and MMBtu `MMBbl' means Million barrels `MMcfd' means Million Cubic Feet per Day `Proved Reserves' means those quantities of petroleum which, byanalysis of geological and engineering data, can be estimated with reasonablecertainty to be commercially recoverable, from a given date forward, fromknown reservoirs and under current economic conditions, operating methods, andgovernment regulation - Proved reserves can be categorized as developed orundeveloped `Probable reserves' are those unproved reserves which analysis ofgeological and engineering data suggests are more likely than not to berecoverable. In this context, when probabilistic methods are used, thereshould be at least a 50% probability that the quantities actually recoveredwill equal or exceed the sum of estimated proved plus probable reserves `Possible Reserves' are those unproved reserves which analysis ofgeological and engineering data suggests are less likely to be recoverablethan probable reserves. In this context, when probabilistic methods are used,there should be at least a 10% probability that the quantities actuallyrecovered will equal or exceed the sum of estimated proved plus probable pluspossible reserves Reserve Status Categories `Unproved Reserves' are based on geologic and/or engineering datasimilar to that used in estimates of proved reserves; but technical,contractual, economic, or regulatory uncertainties preclude such reservesbeing classified as proved. Unproved reserves may be further classified asprobable reserves and possible reserves Reserve status categories define the development and producingstatus of wells and reservoirs `Developed reserves' are expected to be recovered from existingwells including reserves behind pipe. Improved recovery reserves areconsidered developed only after the necessary equipment has been installed, orwhen the costs to do so are relatively minor. Developed reserves may besubcategorised as producing or non-producing. `Producing reserves' are expected to be recovered from completionintervals which are open and producing at the time of the estimate. Improvedrecovery reserves are considered producing only after the improved recoveryproject is in operation. `Non-producing reserves' include shut-in and behind-pipe reserves.Shut-in reserves are expected to be recovered from (1) completion intervalswhich are open at the time of the estimate but which have not startedproducing, (2) wells which were shut-in for market conditions or pipelineconnections, or (3) wells not capable of production for mechanical reasons.Behind-pipe reserves are expected to be recovered from zones in existingwells, which will require additional completion work or future recompletionprior to the start of production. `Undeveloped reserves' are expected to be recovered: (1) from newwells on undrilled acreage, (2) from deepening existing wells to a differentreservoir, or (3) where a relatively large expenditure is required to (a)recomplete an existing well or (b) install production or transportationfacilities for primary or improved recovery projects. * * ENDS * * For further information on Magnolia Petroleum Plc visitwww.magnoliapetroleum.com or contact the following: Steven Snead Magnolia Petroleum Plc +01 918 449 8750Rita Whittington Magnolia Petroleum Plc +01 918 449 8750Jo Turner / James Cairn Financial Advisers +44 20 7148 7900Caithie LLPJohn Howes / Alice Northland Capital Partners +44 20 7382 1100Lane LimitedLottie Brocklehurst St Brides Media and Finance +44 20 7236 1177 LtdFrank Buhagiar St Brides Media and Finance +44 20 7236 1177 LtdNotes Magnolia Petroleum Plc is an AIM quoted, US focused, oil and gasexploration and production company. Its portfolio includes interests in 154producing and non-producing assets, primarily located in the highly productiveBakken/Three Forks Sanish hydrocarbon formations in North Dakota as well asthe oil rich Mississippi Lime and the substantial and proven Woodford andHunton formations in Oklahoma. Summary of Wells Category Number of wellsProducing 154Being Drilled / Completed 17Elected to participate / waiting to 48spudTOTAL 219