Magnolia Petroleum makes good progress on WED agreement

US-focussed oil and gas exploration and production company Magnolia Petroleum updated the market on Tuesday, on the ongoing investment of the first $0.5m tranche of capital it has received as part of its exclusive $18.5m capital management agreement with Western Energy Development.

The AIM-traded firm said that under the terms of the agreement with WED, it was investing each $0.5m tranche of capital into oil and gas properties in Oklahoma that qualify under the US Immigrant Investor Programme, in return for fees and equity in new wells and leases.

It said the first tranche of capital under the WED agreement was received in December, and to date had been invested by Magnolia in the Bartenbach unit, the Pickard unit, and the Old Crab unit.

At the Bartenbach unit, it had acquired a 0.21% working interest with a 0.053% working interest assigned to Magnolia, as operator Tapstone Energy reported that the first well had been approved and was waiting to spud.

Magnolia was assigned a 0.0325% working interest of the 0.13% acquired at the Pickard unit, where operator Newfield Exploration said the first well was also approved, and waiting to spud.

At the Old Crab unit, Magnolia was assigned a 0.0781% working interest of the 0.312% acquired, with operator Oklahoma Energy Acquisitions reporting that well 1506 1-24MH was already producing, with six increased density wells approved and waiting to spud.

Under the WED agreement, Magnolia receives a cash fee of $5,000 per $0.5m tranche of capital invested; $500 per each acre secured; a carried 25% working interest of WED’s interest in the first well drilled in each unit; and a sliding scale for overheads incurred.

As a result, Magnolia would not be required to fund its share of costs of drilling the first wells on each of the three units.

Magnolia would be required to fund its share of costs for any subsequent wells drilled on the units, however.

“Today’s new units are the tip of the iceberg in terms of the number of new leases and wells that we expect to acquire via the investment of the first $0.5m tranche of WED funds,” said Magnolia CEO Rita Whittington.

“In all our $0.5m pilot programme resulted in a total of 27 new drilling opportunities, most of which were in the prolific and highly active SCOOP and STACK plays in Oklahoma.

“In addition, the pilot programme demonstrated the potential to earn impressive returns at the portfolio level, despite holding relatively small interests in individual wells.”

Based on the fees and equity in new wells and leases, the successful test generated $0.2m in value for Magnolia, Whittington claimed.

“Extrapolate the results of the pilot programme and the potential for our groundbreaking $18.5m agreement with WED to move the needle and generate significant value for our shareholders is clear.

“As new leases in qualifying counties are acquired, new wells drilled, and additional funds transferred under the WED Agreement, the next few months are expected to see a step-up in activity, as we focus on scaling up Magnolia’s net reserves across our portfolio of interests in proven US onshore formations,” Whittington explained.

“With this in mind, I look forward to providing further updates on our progress.”