MAGNOLIA PETROLEUM PLC: Acquisition of 6,700 Net Acres in Bakken Formation
MAGNOLIA PETROLEUM PLC: Acquisition of 6,700 Net Acres in Bakken Formation Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas
2 November 2012
Magnolia Petroleum Plc (`Magnolia' or `the Company')
Acquisition of 6,700 Net Acres in Bakken Formation, Montana Magnolia Petroleum Plc, the AIM quoted US onshore focused oil and gas exploration and production company, is pleased to announce that it has agreed to acquire 6,700 net mineral acres in Montana for a cash consideration of US$4 million. Highlights * 6,700 net mineral acres acquired in the Montana section of the Bakken/Three Forks Sanish formation * Total cost of the acquisition is US$4 million - US$2 million to be funded from existing cash balances with the balance to be drawn from the Equity Finance Facility (`EFF') with Darwin Strategic Limited (`Darwin') * Majority of acreage located in Daniels County amongst and surrounded by the leases totalling 320,000 net acres acquired earlier this year by Apache Corporation (`Apache'), a leading international oil and gas exploration and production company * Apache has already drilled two horizontal wells that are awaiting fracture stimulation, is planning to drill two more and has attained permission to drill a further four
Magnolia COO, Rita Whittington said, "We believe that this acreage in Daniels County, Montana, has the potential to become a significant extension for production from the Bakken/Three Forks Sanish formations. Today's acquisition matches our investment criteria, namely early, affordable access to liquids rich onshore US formations, where the application of modern techniques such as horizontal drilling may dramatically improve recovery rates and, in the process, substantially increase net production and reserves. The Directors believe that with lower drilling costs and multiple payzones, the economics of drilling to the Bakken/ Three Forks Sanish formations in Montana are very attractive.
"The level of investment being made by Apache in the area reflects their recognition of the scale of the opportunity to generate substantial value for shareholders. Apache believe their 320,000 net acres holds over 1,900 potential drilling locations and that, on each of these, up to 16 horizontal wells may be required to recover reserves, estimated by Apache at 1 billion barrels of oil."
The 6,700 acres acquired by Magnolia represent an opportunity for the Company to build a position in an area where the Directors believe there is strong prospectivity and increasing interest. The acreage lies amongst and is surrounded by Apache's leases. They are located in Daniels County and three surrounding counties in Montana.
The cost of acquiring the acreage is US$4 million, of which US$2 million is to be funded from existing cash balances within the next seven days, and the remainder to be drawn down from the EFF signed with Darwin and settled by 16 November 2012. A further announcement regarding this draw down will be made in due course.
In recent years, activity in the Montana section of the Bakken has been increasing. According to oil services company Baker Hughes, as of April 2012, there were 18 rigs active in eastern Montana, compared to 10 the previous year and zero in July 2009. The number of rigs has since risen to 20 following Apache's two horizontal wells. While there is much further to go to catch North Dakota where there were 196 rigs targeting the Bakken/Three Forks in April 2012, Apache's acquisition of 320,000 net acres is representative of the growing interest in the Bakken in Montana. In addition, the Montana Board of Oil and Gas issued 228 oil permits in June 2012, more than the total number issued in 2011.
Apache believe there are over 1,900 potential drilling locations on its 320,000 net mineral acres and that sixteen horizontal wells, eight for the Bakken and a further eight for the Three Forks Sanish, will be required to optimise the recovery of reserves. According to Apache, the Estimated Ultimate Recovery (`EUR') of reserves stands at 670MBo for the Bakken and 377MBo for the Three Forks Sanish on each drilling location.
Oil production in Montana peaked in 2006 at approximately 100,000 bopd, a similar level to North Dakota during that year. The figure in Montana has since dropped and there is currently no horizontal Bakken production in Daniels County, Montana, though conventional oil has historically been recovered by vertical wells from the Ratcliff, Madison, Mission Canyon and McGowan formations. In addition to the Bakken/Three Forks Sanish, there is the potential for unconventional oil to be recovered from the Mississippian aged Lodge Pole and Madison formations as well as the deeper Devonian aged Nisku members. Apache has drilled two horizontal wells in Daniels County that are currently waiting to be fracture stimulated. These are the first horizontal wells in the County and initial production rates are expected by the end of the year.
At 7,000-7,400ft, the Bakken in Daniels County lies at a shallower depth than in North Dakota. As a result costs to drill horizontal wells to the Bakken in Montana are estimated at US$7.5 million compared with US$10 million in North Dakota.
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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 Wicks Northland Capital Partners +44 (0) 20 7796 8800
Lottie Brocklehurst St Brides Media and Finance +44 (0) 20 7236 1177
Frank Buhagiar St Brides Media and Finance +44 (0) 20 7236 1177
Magnolia Petroleum Plc is an AIM quoted, US focussed, oil and gas exploration and production company. Its portfolio includes interests in 84 producing and non-producing assets, primarily located in the highly productive Bakken/Three Forks Sanish hydrocarbon formations in North Dakota as well as the oil rich Mississippi Lime and the substantial and proven Woodford and Hunton formations in Oklahoma.
Summary of Wells
Category Number of wells
Being Drilled / Completed 13
Elected to participate / waiting to spud 15
This summary excludes four out of six wells acquired as part of the acquisition of 800 gross acres with a 100% working interest in Osage County, Oklahoma, as announced on 10 February 2012. These four wells are currently `shut in' and will require a workover programme at some point in the future to bring back into production.
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