By Stewart Dalby
Magnolia Petroleum like Northcote Energy and North American Petroleum is a London listed (AIM) micro- cap which has taken, until very recently, usually small stakes in onshore US old fields like the Woodford and Mississippi Lime in Oklahoma and the Bakken in North Dakota.
These fields were thought to have been either clapped out or never properly exploited by the mid-tier or major companies who discovered them. Yet by using modern technologies like fracking and horizontal drilling and targeting unconventional horizons as well as conventional ones the fields can be made highly productive. These operators are not producing at levels that a BP or ExxonMobil would be interested in, but because wells are cheap to drill – and lots of wells can be drilled within a small space – reserves and production can quickly ratchet up.
By constant drilling – Magnolia has participated in over 80 wells in the past couple of years –reserves can rapidly move up the value chain from 3P or possible to 1P net proven categories. In fact, Magnolia has recently announced that it has received an independent reserves report as at January 1 2015, which includes a significant increase in net proven reserves on its leases in the US onshore formations.
Total net proved reserves (1P) were 985,000 (mbbl) barrels of oil and condensate and there were 2.9 million cubic feet (2,905 mmcf) of gas as at January 1 2015 up 37 per cent and 39 per cent respectively, compared to July 2014.
Last November we reported that Magnolia had had a sharp rise in output due to a cluster of six new wells coming good. In July 2014 production rose to 257 boepd compared to 150 boepd in April 2014. The company has not quite managed that kind of increase recently. Magnolia said net daily production stood at 281 boepd as at January 1 , 2015 compared to 257 boepd as at July 1 2014.
However, Rita Whittington, COO of Magnolia said : “We have permits in place to drill , as operator, two low cost (US$700,000 each ) vertical wells in which we have a 76.375 per cent net revenue interest in each. Subject to the results, these two wells, along with our continued participation in new drilling alongside established operators, provide scope for a significant increase in net reserves and production in the year ahead.”
And is the reserves growth that Rita wants to focus on. She also said: “With our proven reserves up by approximately one third across all three categories, the last six months have seen further excellent progress made towards delivering on our objective to prove up the reserves on Magnolia’s leases, which cover over 13,500 net mineral acres in producing US onshore formations. Even after taking into account lower oil prices, at US$26.653 million the value of our proven reserves far outstrips Magnolia’s market valuation, and as a result provides considerable asset backing”.
Despite this positive news, as with so many other small cap companies in London Magnolia’s share price has been heavily weighed down by concerns over oil prices. They now stand at 0.59p barely above their 52 week low of 0.57 and well down on the high of 2.30p. The group’s market cap is currently standing at just £5.74 million.