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MAGNOLIA PETROLEUM PLC: Final Results


Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas

Magnolia Petroleum Plc (`Magnolia' or `the Company')


                  FinalResultsforthe year to 31 December 2012                  

Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration and
production company, announces its final results for the year ended 31 December
2012.

Highlights

  * $11.1 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
      * Interests in 101 wells as at 31 December 2012 - 86 producing and 15
    drilling/completing - 46% increase year on year
      * 
      + Production as at 31 December 2012 stood at 122.5 boepd

* 194% increase in full year revenues to US$709,395 (2011: US$241,038)


      * 
      + monthly run rate increasing - December 2012 revenues three times higher
        than January 2012

* Significant increase in 2P reserves to 1.367 million barrels of oil and


    condensate and 4,513 MMcf of natural gas (1 January 2013) compared to
    68,700 barrels of oil and condensate and 249.8 MMcf (1 October 2011)
      * 3P reserves valued at US$94million underpinning market valuation - 422%
    increase since Admission to AIM in November 2011
      * 
      + Reserves estimate only includes approximately 5,500 net acres out of a
        total of 12,700 in proven formations - substantial upside potential

* Over 13,000 net mineral acres with more than 600 potential drilling


    locations in producing onshore US plays acquired during the year providing
    strong future pipeline of growth
      * First well drilled as operator in Oklahoma - awaiting fracture stimulation

Magnolia CEO, Steven Snead said, "The increase in proved and probable (`2P') net reserves to 1.367 million barrels of oil and condensate and 4,513 MMcf of natural gas reflects the excellent progress made by the Company in 2012 in terms of drilling wells and acquiring leases in proven US onshore formations. This reserve upgrade, which only includes 5,500 of the 13,500 plus acres we hold, highlights both the asset-backing behind our current market valuation, as well as the tremendous scope within our portfolio of over 600 potential drilling locations to create further substantial value for shareholders. During the year, we also significantly increased the number of producing wells in which we have an interest, resulting in a three fold increase in full year revenues to over US$700,000. In line with our strategy, revenues will be reinvested into more drilling to grow net reserves further, as we look to monetise the sizeable asset base we have acquired to date."

Chief Executive's Statement

We aim to create substantial value for shareholders through the acquisition and subsequent development of leases in producing US onshore formations, such as the Bakken in North Dakota and the Mississippi Lime, Hunton and Woodford in Oklahoma. By systematically drilling acquired leases both as a partner and operator, we are focused on proving up and growing the Company's net reserves. Set against this context, I am pleased to report that the year under review has been a transformative period for Magnolia Petroleum, one that has seen a step up in the scale of our operations culminating in a four fold increase in the value of our proved, probable and possible reserves (`3P') to US$94 million, a considerable increase in the Company's asset backing.

In 2011, with limited capital we successfully proved the potential of our low risk/high return business model to generate multiples of the capital employed. In the two years prior to our Admission to AIM, we participated in the drilling of 23 wells, 22 of which generated commercial returns, illustrating the relatively low exploration risk associated with drilling historic US onshore plays. In aggregate we turned an initial £300,000 capital into a NPV of US$1.5 million as valued by Moyes & Co in the Company's AIM Admission document.

Having successfully moved to AIM at the end of 2011, we immediately set about putting in place the key building blocks, specifically leases and capital that would enable us to replicate our previous success on a larger scale. The numbers speak for themselves. At the beginning of the year, Magnolia held 1,259 net mineral acres in proven US onshore hydrocarbon formations such as the Bakken/Three Forks Sanish in North Dakota and the Hunton/Woodford in Oklahoma. By 31 December 2012 this figure had risen to 13,513 net mineral acres. Similarly, over the course of 2012, we raised $11.1 million in five tranches, each at a higher price than previously. Importantly we secured a £10 million Equity Financing Facility (`EFF') and a £500,000 investment from Henderson Global Investors. £4.665 million of the EFF remains available for utilisation.

Armed with leases and access to capital, we stepped up our involvement in drilling activity during the period under review with the aim of growing reserves. In January 2012 we had interests in 66 producing properties with a further three at various stages of drilling/completion. By the end of the year, the number of producing/drilling wells Magnolia had an interest in had risen to 101. Drilling serves four main purposes: to grow net production and revenues; to prove up reserves; to increase the number of proven undeveloped reserves; and to hold leases by production.

In line with our strategy, revenues generated from production are reinvested into new wells. With this in mind, payback (recovery of costs) is a key metric that we focus on when evaluating initial production rates, as this tells us how quickly we can recycle funds invested into more drilling to prove up our reserves further.

The results of the activity we undertook in 2012 were highlighted in the updated Reserves Report by our Competent Person, Moyes & Co. (`Moyes'). This shows that in the period between our Admission to AIM in November 2011 and 31 December 2012, Magnolia's 2P reserves grew from 68,700 barrels of oil and condensate and 249.8 million cubic feet (`MMcf') of natural gas to 1.367 million barrels and 4,513 MMcf. Meanwhile our 3P reserves grew to 2.818 million barrels of oil and 9,231 MMcf of gas from 975.6 thousand barrels of oil and 1,175 MMcf of gas previously. Moyes has assigned a Net Present Value after applying a 10% discount rate of approximately US$94 million to our 3P reserves, a figure that stands at a significant premium to our current market capitalisation and highlights the considerable value we have created in our first full year on AIM.

As expected, the early stage nature of our recently acquired Montana acreage and limited drilling activity in the area to date meant that it did not contribute to the reserves upgrade this time round; however, Moyes has classified our leases in Montana as prospective resources with a value of over US$12 million. Our acreage is surrounded by the 320,000 net acres acquired by Apache last year. In addition to producing formations such as the Ratcliffe, Apache, like us, view their acreage in Daniels County as having the potential to be an extension of the Bakken/Three Forks Sanish formations that are so prolific in North Dakota. As Apache press on with their drilling programme in Montana, the prospectivity of our acreage in the area will become more apparent. We remain highly confident that our entry into Montana will lead to another substantial increase in Magnolia's net 3P reserves in the future.

Financial Review

During the twelve month period, our net production generated revenues of US$709,395 compared to US$241,038 the previous year. Importantly, the monthly run rate consistently improved over the course of the year so that December's revenues were almost three times as much as those of January. We expect this trend to continue. The growth in revenues has been mirrored by a near quadrupling in tangible assets to US$3,437,869 at end December 2012 compared to US$861,975 the previous year. Growth in intangible assets (new leases and wells that are drilling but not yet completed) was even stronger having increased to US$6,200,828 from US$1,111,634 in 2011. At the end of the year we retained $2,293,151 in cash for continued development of our acreage. Administrative costs continue to be tightly managed, allowing the vast majority of additional revenues generated to be recycled into further wells or acquiring additional leases. In 2012, $8,098,566 was invested in increasing the asset base with only $623,249 used in operating activities.

Outlook

Reflecting the results of activity covering just a little over twelve months, the recently reported 422% growth in 3P reserves is just the beginning. Having amassed a portfolio of 13,513 net mineral acres with over 600 potential drilling locations, considerable scope remains for further substantial reserves growth for many years to come just by drilling our existing portfolio alone. We continue to receive multiple proposals to drill new wells, and at the same time we are constantly working towards increasing our acreage, providing further opportunities to create value above and beyond our existing leases. With this in mind and a considerable pipeline of drilling locations in place, we are highly excited by the scale of the opportunity in front of us, as we look to build a significant US onshore focused oil and gas company.

Finally, I would like to thank the Board, management team and all our advisers for their hard work during the year and also to our shareholders for their support over the last twelve months.

Steven Snead

Chief Executive Officer

Chief Operations Officer's Report

The Bakken / Three Forks Sanish Formations, North Dakota

At the time of our Admission to AIM in November 2011, the Company anticipated participating in four new wells on its Bakken/Three Forks Sanish (`TFS') acreage in North Dakota in 2012. In the event, Magnolia elected to participate in ten new wells targeting the Bakken and TFS formations, bringing the total number of wells in which the Company has an interest in these two formations to 24, of which 22 are currently producing.

Four of the wells brought on stream during the year are producing from the Bakken, a reservoir which currently produces over 700,000 bopd and is estimated to hold mean undiscovered recoverable volumes of 3.65 Bbbls and 1.85 Tcf (2008 US Geological Survey). Initial production rates for these four wells were:

* Eckelberg 14-23 H well: 1,263 bopd and 625 MCF;


      * Quill 2-12-3H well: 877 bopd;
      * Skunk Creek 14H well: 212 bopd;
      * Stocke 1-4-9H 295 bopd.

Post period end, the Company reported initial production rates for two wells operated by Marathon Oil: Nicky Kerr 14-8 well (1,501 boepd); and Curtis Kerr 24-8H (1,496 boepd).

Two further wells, Skunk Creek 15H and Eckelberg 14-23 TF, are producing from the Three Forks Sanish formation, a separate reservoir lying directly below the Bakken. At 2,303bopd and 1,234bopd and 602MCF respectively, the initial production rates for both wells exceeded the directors' expectations and in the case of Skunk Creek 15H are Magnolia's best rates recorded to date. A state study evaluating oil reserves in the Three Forks Sanish formation in western North Dakota concluded that there could be as much as 2 billion barrels of recoverable oil in this formation.

The remaining two wells in which Magnolia has an interest where drilling/ stimulating operations are on-going are the Jake 2-11 1H and Jake 2-11 TFH, both operated by Statoil.

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 / TFS formations. As the Three Forks Sanish lies beneath the Bakken, the number of wells which can be drilled per section doubles to eight (four per formation), providing Magnolia with a total of 120 proven development locations on its acreage, 60 on the Bakken and 60 on the Three Forks Sanish, as set out in the Updated Reserves Report by Moyes & Co. dated 8 April 2013. In their report, Moyes & Co. estimated Magnolia's Bakken 2P reserves at 153,000 barrels of oil and condensate and 83 MMcf of natural gas to which Moyes has assigned a value of US$1.35 million.

As expected, the initial production rates from the Skunk Creek 15H and Eckelberg 14-23 TF wells have led to an upgrade in Magnolia's Three Forks Sanish reserves. In the updated Competent Person's Report, Magnolia's 2P reserves in this formation are estimated at 27,000 barrels of oil and condensate and 15 MMcf of natural gas which Moyes has assigned a value of US$0.673 million.

Mississippi Lime Formation, Oklahoma

At the time of Magnolia's Admission to AIM, the directors identified the Mississippi Lime as the next big play in onshore US. In 2012, Magnolia entered this historic formation and over the course of the year, acquired 4,319.55 net mineral acres. The acquired acreage includes leases with working interests of up to 100%, 74 proven undeveloped locations and an additional 222 increased density locations in which Magnolia could propose and/or operate. In total, there are 296 potential drilling locations on the Company's acreage.

Over the course of the year, Magnolia participated in 13 wells targeting the Mississippi Lime. Initial production rates for seven of these wells were reported during 2012, all of which were ahead of expectations:

* Brady 17-27-12 1H (702.5 boepd);


      * Lois Rust 7-27-12 1H (353.75 boepd);
      * LaDonna 19-28-16 1H (297 boepd);
      * Thomason 10-27-12 1H (441 boepd);
      * Westline 30-28-16 1H (403 boepd);
      * Brandt 31-28-12 1H (499.33);
      * Otis 2-27-12 1H (341 boepd).

Due to higher than expected recovery rates, production was temporarily shut down at the Thomason and Lois Rust wells to enable the installation of additional sales capacity.

The remaining six wells were at various stages of drilling/completion or fracture stimulation as at end of December 2012. Post period end, the Company has since reported Initial Production Rates for the Montecristo 6-1H well (50 boepd).

In the updated Reserves Report, Moyes & Co. estimated the Company's Mississippi Lime 2P reserves at 1.164 million barrels of oil and condensate and 3,857 MMcf with a value of US$40.592 million.

The Mississippi Lime is an historic oil and gas system that has been producing at depths ranging from 4,500 to 7,000 feet from several thousand vertical wells for over 50 years. As with the Bakken, new technology and horizontal drilling has reopened the oil play. Due to the relatively shallow depths and less tight rock formation, drilling costs at between US$2.4 million and US$3.5 million per well in the Mississippi Lime are considerably lower than those in the Bakken, which should lead to shorter pay-out periods than with the Bakken wells.

Woodford / Hunton Formations, Oklahoma

At the time of the AIM Admission, the Company anticipated participating in five new wells on its Woodford/Hunton acreage in 2012. In the event, Magnolia participated in the drilling of ten new wells in the formation, bringing the overall total to 18. Initial production rates for three wells were made available during the period under review:

* Bollinger 1-27XL targeting the Woodford (686.388 boepd);


      * SPS 6-26 vertical well targeting the Hunton (108 boepd);
      * Zenyatta 2-6 vertical well targeting the Hunton (17 bopd).

Post period end, initial production for the Beebe 24-W1H in the Woodford formation was reported at 73 boepd.

In the updated Reserves Report, Moyes & Co. estimated the Company's Woodford / Hunton 2P reserves at 6 million barrels of oil and condensate and 397 MMcf natural gas with a value of US$387,000.

Like the Bakken, the Woodford / Hunton formations in Oklahoma are established reservoirs that have been reopened following the introduction of horizontal drilling and stimulation technology. As a result the Woodford oil play in particular is increasingly being drilled by leading operators. Magnolia holds leases in respect of approximately 67,200 gross mineral acres (800 net mineral acres), giving rights to participate in the drilling of wells in 87 sections located in 26 counties in central Oklahoma.

Montana

In November 2012, Magnolia acquired 6,700 acres in the Montana section of the Bakken/Three Forks Sanish formation located in Daniels County and three surrounding counties in Montana. The acreage lies amongst, and is surrounded by, leases owned by Apache Corporation (`Apache'), a leading international oil and gas exploration and production company. Post period end, Magnolia acquired a further 985 net mineral acres in the Montana section of the Bakken/Three Forks Sanish formation, bringing the total acreage acquired in the district to 7,866.

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. In addition, the Montana Board of Oil and Gas issued 228 oil permits in June 2012, more than the total number issued in 2011.

In 2012, Apache acquired 320,000 net acres, an indication of the growing interest in the Bakken in Montana. 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.

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.

In the updated Reserves Report, Moyes & Co. classified the Company's Montana leases as prospective resources and estimated these at 5.77 million barrels of oil and condensate and 2,885 MMcf of natural gas with a value of US$12.267million, reflecting the early stage nature of the play.

Summary

In 2012, Magnolia achieved a number of key milestones: the acquisition of over 12,000 net mineral acres in Oklahoma and Montana; the participation in wells with significantly higher working interests; the drilling of a first well as operator with a 100% working interest; and the securing of a £10 million EFF together with the financial backing of Henderson Global Investors. Post period end, the updated reserves report provides a summary of the progress made during the period between the Company's Admission to AIM in November 2011 and 31 December 2012: a 422% increase in 3P reserves to 2.8 million barrels of oil and 9,231 MMcf of gas with an estimated value of US$94 million. As a result of these achievements, Magnolia is well placed for further significant growth in both net production and reserves in the year ahead.

Rita Whittington

Chief Operations Officer

consolidated Statement of Comprehensive Income

Year ended 31 December 2012


                                       Note                                
                                                Year ended       Year ended
                                                                31 December
                                               31 December                 
                                                                       2011
                                                      2012                 
                                                                           
                                                         $                $
                                                                           
                                                                           

Continuing Operations

Revenue 709,395 241,038

Operating expenses (240,173) (145,365)

Gross Profit 469,222 95,673


                                                                           
                                                                           

Impairment of mineral leases 11 (227,858) (224,892)

Administrative expenses 8 (1,314,973) (213,228)


                                                                           
                                                                           

Operating Loss (1,073,609) (342,447)

Finance income - -

Finance costs (1,569) -


                                                                           
                                                                           

Loss before Tax (1,075,178) (342,447)

Taxation - -

Loss for the year (1,075,178) (342,447)

Other Comprehensive Income:


                                                                           
                                                                           

Exchange differences on translating 173,924 (10,931) foreign

Operations

Other Comprehensive Income for the 173,924 (10,931) Year, Net of Tax

Total Comprehensive Income for the (901,254) (353,378) Year

Loss per share for loss attributable to the equity holders of the Company during the year

Basic and diluted (cents per share) 9 (0.16) (0.09)

The loss for the Parent Company for the year was $334,035 (2011: $80,574).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012


                                          Note            As at        As at
                                                    31 December  31 December
                                                           2012         2011
                                                                            
                                                              $            $

ASSETS

Non-Current Assets

Property, plant and equipment 10 3,437,869 861,975

Intangible assets 11 6,200,828 1,111,634

Total Non-Current Assets 9,638,697 1,973,609

Current Assets

Trade and other receivables 208,936 70,308

Cash and cash equivalents 2,293,151 874,037

Total Current Assets 2,502,087 944,345


                                                                            
                                                                            

TOTAL ASSETS 12,140,784 2,917,954


                                                                            
                                                                            

EQUITY AND LIABILITIES

Equity attributable to Owners of Parent

Share capital 1,390,244 926,128

Share premium 11,888,717 2,218,877

Merger reserve 1,975,950 1,975,950

Share option reserve 66,603 66,603

Reverse acquisition reserve (2,250,672) (2,250,672)

Translation reserve 47,300 (126,624)

Retained losses (1,577,896) (502,718)

Total Equity - Capital and Reserves 11,540,246 2,307,544


                                                                            
                                                                            

Non-Current Liabilities

Trade and other payables - 278,431

Total Non-Current Liabilities - 278,431

Current Liabilities

Trade and other payables 600,538 331,979

Total Current Liabilities 600,538 331,979


                                                                            
                                                                            

TOTAL EQUITY AND LIABILITIES 12,140,784 2,917,954

CONSOLIDATED Statement of Changes in Equity

Year ended 31 December 2012

Group ($) Share Share Merger Share Reverse Translation

Retained Total


                   capital    Premium   reserve  option acquisition     reserve 
     losses      equity
                                                reserve     reserve             
                       
                                                                                

Balance at 587,336 1,347,983 1,867,790 66,603 (2,250,672) (115,693) (160,271) 1,343,076 1 January 2011


                       
                                                                                

Comprehensive

Income


                       
                                                                                

Loss for the - - - - - - (342,447) (342,447) period


                       
                                                                                

Other

Comprehensive

Income


                       
                                                                                

Exchange - - - - - (10,931)

- (10,931) differences on

translating

foreign

operations


                       
                                                                                

Total - - - - - (10,931) (342,447) (353,378) Comprehensive

Income for the

Year


                       
                                                                                

Transactions

with Owners


                       
                                                                                

Proceeds from 338,792 1,524,567 - - - -

- 1,863,359 share issues


                       
                                                                                

Share issue - (653,673) - - - -

- (653,673) costs


                       
                                                                                

Movements in the - - 108,160 - - -

- 108,160 year


                       
                                                                                

Total 338,792 870,894 108,160 - - -

- 1,317,846 Transactions

with Owners


                       
                                                                                

Balance at 926,128 2,218,877 1,975,950 66,603 (2,250,672) (126,624) (502,718) 2,307,544 31 December 2011


                       
                                                                                

Balance at 926,128 2,218,877 1,975,950 66,603 (2,250,672) (126,624) (502,718) 2,307,544

1 January 2012


                       
                                                                                

Comprehensive

Income


                       
                                                                                

Loss for the - - - - - - (1,075,178) (1,075,178) period


                       
                                                                                

Other

Comprehensive

Income


                       
                                                                                

Exchange - - - - - 173,924

- 173,924 differences on

translating

foreign

operations


                       
                                                                                

Total - - - - - 173,924 (1,075,178) (901,254) Comprehensive

Income for the

Year


                       
                                                                                

Transaction with

Owners


                       
                                                                                

Proceeds from 464,116 10,664,377 - - - -

- 11,128,493 share


                       
                                                                                

issue


                       
                                                                                

Share issue - (994,537) - - - -

- (994,537) costs


                       
                                                                                

Movements in the - - - - - -

- - year


                       
                                                                                

Total 464,116 9,669,840 - - - -

- 10,133,956 Transactions

with Owners


                       
                                                                                

Balance at 1,390,244 11,888,717 1,975,950 66,603 (2,250,672) 47,300 (1,577,896) 11,540,246 31 December 2012


                       

CONSOLIDATED Statement of Cash Flows

Year ended 31 December 2012
                                                   Year ended      Year ended
                                                  31 December     31 December
                                                                             
                                        Note             2012            2011
                                                                             
                                                            $               $

Cash Flows from Operating Activities

Loss before tax (1,075,178) (342,447)

Impairment of mineral leases 227,858 224,892

Depreciation 222,033 101,284

Foreign exchange 158,351 (781)

(Increase)/Decrease in trade and other (136,925) 19,619 receivables

(Decrease)/Increase in trade and other (19,388) 147,892 payables

Net Cash generated (used in)/from (623,249) 150,459 Operating Activities

Cash Flows from Investing Activities

Purchases of intangible assets 11 (5,691,408) (364,998)

Purchases of property, plant and 10 (2,407,158) (213,593) equipment

Net Cash generated used in Investing (8,098,566) (578,591) Activities

Cash Flows from Financing Activities

Proceeds from issue of ordinary shares 11,128,493 1,863,359

Issue costs (994,537) (653,673)

Net Cash generated from Financing 10,133,956 1,209,686 Activities

Net Increase in Cash and Cash 1,412,141 781,554 Equivalents

Movement in Cash and Cash Equivalents

Cash and cash equivalents at the 874,037 97,523 beginning of the period

Exchange gain/(loss) on cash and cash 6,973 (5,040) equivalents

Net increase in cash and cash 1,412,141 781,554 equivalents

Cash and Cash Equivalents at the End of 2,293,151 874,037 the Period

* GENERAL INFORMATION

The condensed Financial Information of Magnolia Petroleum plc ("the Company") consists of the following companies; Magnolia Petroleum plc and Magnolia Petroleum Inc. (together "the Group").

The Company is a public limited company which is listed on the London Stock Exchange AIM market and incorporated and domiciled in England and Wales. Its registered office address is The Fitzpatrick Building, 188-194 York Way, London, N7 9AS.

* BASIS OF PREPARATION

The condensed Financial Information should be read and have been prepared using accounting policies consistent with the annual Financial Statements for the year ended 31 December 2011, which have been prepared in accordance International Financial Reporting Standards (IFRSs) as adopted by the EU and IFRIC interpretations and the parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Directors anticipate that the auditor's report, to be issued with the Group's statutory accounts for the year ended 31 December 2012 will be unqualified.

The comparatives for the year ended 31 December 2011 are derived from the statutory accounts for the year ended 31 December 2011. These statutory accounts, which contained an unqualified audit report under Section 495 of the Companies Act 2006 and which did not make any statement under Section 498 of the Companies Act 2006, have been delivered to the register of companies in accordance with Section 441 of the Companies Act 2006.

The Company will announce its full audited Financial Statements and accompanying notes later in May 2013.

* Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed Financial Information for the year ended 31 December 2012.

* Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group have not substantially changed from those set out in the Group's 2011 Annual Report and Financial Statements, a copy of which is available on the Group's website: www.magnoliapetroleum.com.

* Critical accounting estimates and judgements

The preparation of the condensed Financial Information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 4 of the Group's Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the period.

* Significant accounting policies

The condensed Financial Information has been prepared under the historical cost convention.

The same accounting policies, presentation and methods of computation have been followed in these condensed Financial Information as were applied in the preparation of the Group's Financial Information for the year ended 31 December 2011.

* segmental information

The Group operates in two geographical areas, the United Kingdom and the United States of America. Activities in the UK are mainly administrative in nature whilst the activities in the USA relate to exploration and production from oil and gas wells. The reports reviewed by the Board of Directors that are used to make strategic decisions are based on these geographical segments.


                                       Year ended 31 December 2012           
                                                                             
                                    USA          UK Intra-segment       Total
                                                         balances            
                                                                             
                                      $           $             $           $

Revenue from external 709,375 - - 709,395 customers

Gross profit 469,222 - - 469,222

Operating loss (739,574) (334,035) - (1,073,609)

Impairment - expired leases 227,858 - - 227,858

Depreciation 222,033 - - 222,033

Capital expenditure 8,098,564 - - 8,098,564

Total assets 11,646,146 14,696,234 (14,574,225) 11,768,155

Total liabilities 11,347,265 44,975 (10,791,702) 600,538


                                      Year ended 31 December 2011           
                                                                            
                                   USA         UK  Intra-segment       Total
                                                        balances            
                                                                            
                                     $          $              $           $

Revenue from external 241,038 - - 241,038 customers

Gross profit 95,673 - - 95,673

Operating loss (261,873) (80,574) - (342,447)

Impairment - expired leases 224,892 - - 224,892

Depreciation 101,284 - - 101,284

Capital expenditure 578,593 - - 578,593

Total assets 2,314,906 4,867,652 (4,620,820) 2,561,738

Total liabilities 1,275,042 340,280 (1,004,912) 610,410

A reconciliation of the operating loss to loss before taxation is provided as follows:


                                                      Year ended   Year ended
                                                                             
                                                     31 December  31 December
                                                                             
                                                            2012         2011
                                                                             
                                                               $            $

Operating loss for reportable segments (1,073,609) (342,447)

Finance income - -

Finance costs (1,569) -

Loss before tax (1,075,178) (342,447)

The amounts provided to the Board of Directors with respect to total assets are measured in a manner consistent with that of the Financial Statements. These assets are allocated based on the operations of the segment and physical location of the asset. Goodwill recognised by the Group is managed centrally and 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    
                                                                             
                                                2012          2011           
                                                                             
                                                $             $              

Segmental assets for reportable segments 11,768,155 2,561,738

Unallocated: goodwill 372,629 356,216

Total assets per balance sheet 12,140,784 2,917,954

* EXPENSES BY NATURE


      * 
                                  Year ended    Year ended              
                                                                    
                             31 December   31 December              
                                                                    
                                    2012          2011              

Group $ $

Directors' fees 340,423 8,186

Consulting fees 292,418 24,350

Legal, professional and compliance costs 127,431 90,762

Difference due to foreign exchange 263,774 (10,988)

Depreciation 145,943 51,113

Other costs 144,984 49,805

Total administrative expenses 1,314,973 213,228

* Loss per Share

The calculation of the basic loss per share of 0.16 cents per share (31 December 2011 loss per share: 0.09 cents) is based on the loss attributable to ordinary shareholders of $1,075,178 (31 December 2011 loss: $342,447) and on the weighted average number of ordinary shares of 691,240,908 (31 December 2011: 363,155,502) in issue during the period.

In accordance with IAS 33, no diluted earnings per share are presented as the effect on the exercise of share options would be to decrease the loss per share.

Details of share options and warrants that could potentially dilute earnings per share in future periods are set out in Note16.

* Property, plant and equipment


    Group
                               Producing     Drilling       Motor         Total
                              properties    costs and    vehicles              
                                            equipment  and office             $
                                       $                equipment              
                                                    $                          
                                                                $              

Cost

At 1 January 2011 323,890 398,606 - 722,496

Additions - 213,593 - 213,593

Transferred from intangible 133,758 - - 133,758 assets

At 31 December 2011 457,648 612,199 - 1,069,847

Additions 405,015 1,986,889 15,254 2,407,158

Transferred from intangible 35,104 364,998 - 400,102 assets

(14,000) - - (14,000) Impairment

At 31 December 2012 883,767 2,964,086 15,254 3,863,107

Depreciation

At 1 January 2011 47,787 58,801 - 106,588

Charge for the period 50,171 51,113 - 101,284

At 31 December 2011 97,958 109,914 - 207,872

Charge for the period 39,918 179,266 2,850 222,033

Impairment (4,667) - - (4,667)

At 31 December 2012 133,208 289,180 2,850 425,238

Net Book Amount

At 1 January 2011 276,103 339,805 615,908

At 31 December 2011 359,690 502,285 - 861,975

At 31 December 2012 750,559 2,674,906 12,404 3,437,869

Transfers from intangible assets represent licence areas where production has commenced together with drilling costs associated with these licences.

Depreciation expense of $39,918 (2011: $50,171) has been charged in cost of sales and $182,115 (2011: $51,113) in administrative expenses.

* intangible assets


    Group

Cost                               Goodwill    Drilling     Mineral       Total
                                                                               
                                          $       costs      leases           $
                                                                               
                                                      $           $            

At 1 January 2011 360,918 - 749,070 1,109,988

Additions - 364,998 - 364,998

Transferred to property, plant - - (133,758) (133,758) and equipment

Exchange movements (4,702) - - (4,702)

Impairment - - (224,892) (224,892)

At 31 December 2011 356,216 364,998 390,420 1,111,634

Additions - 710,727 4,980,681 5,691,408

Transferred to property, plant - (364,998) (35,104) (400,102) and equipment

Exchange movements 16,413 - - 16,413

Impairment - - (218,525) (218,525)

As at 31 December 2012 372,629 710,727 5,117,472 6,200,828

Amortisation

At 1 January 2011, 31 December - - - - 2011

And 31 December 2012

Net Book Amount

At 1 January 2011 360,918 - 749,070 1,109,988

At 31 December 2011 356,216 364,998 390,420 1,111,634

At 31 December 2012 372,629 710,727 5,117,472 6,200,828

Impairment review

Drilling costs and mineral leases represent acquired intangible assets with an indefinite useful life and are tested annually for impairment. As disclosed within Accounting Policies, expenditure incurred on the acquisition of mineral leases is capitalised within intangible assets until such time as the exploration phase is complete or commercial reserves have been discovered. Exploration expenditure including drilling costs are capitalised on a well by well basis if the results indicate the existence of a commercially viable level of reserves.

The Directors have undertaken a review to assess whether circumstances exist which 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.

Following their assessment the Directors recognised an impairment charge to the cost of mineral leases and producing properties of $218,525 (2011 - $224,892) in respect of expired mineral leases.

The Directors believe that no impairment is necessary on the carrying value of goodwill. Goodwill arose on the reverse acquisition of Magnolia Petroleum Plc. The goodwill represents the value of the parent company being an AIM quoted entity to Magnolia Petroleum Inc.

* * ENDS * *

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

Jo Turner / James Caithie Cairn Financial Advisers LLP +44 20 7148 7900

John Howes / Alice Lane / Northland Capital Partners +44 20 7796 8800 Luke Cairns Limited

Lottie Brocklehurst St Brides Media and Finance +44 20 7236 1177

Ltd

Frank Buhagiar St Brides Media and Finance +44 20 7236 1177

Ltd

Notes

Magnolia Petroleum Plc is an AIM quoted, US focused, oil and gas exploration and production company. Its portfolio includes interests in 104 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

Producing 104

Being Drilled / Completed 12

Elected to participate / waiting to 18 spud

TOTAL 134

This table 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.

END

-0- Apr/23/2013 06:00 GMT

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