Magnolia Petroleum (LON:MAGP) is an AIM listed independent oil and gas exploration and production company, targeting prime areas of US oil and gas development in North Dakota and Oklahoma. Having been invested in Magnolia Petroleum since the company moved onto the AIM during late 2011, and having previously conducted a satellite Q&A interview with Rita Fern Whittington, the Magnolia Petroleum, Chief Operations Officer, I was delighted to have the opportunity to meet up with her in person at the St Brides Media and Finance office at Bow Lane yesterday.
I was actually visiting London this week primarily to attend the Annual Retail Lecture, delivered by the John Lewis Chairman, Charlie Mayfield at the very impressive Willis building. The lecture was very insightful and useful to me as a Business Studies Lecturer (as opposed to the usual staff development such as using SMART boards or differentiation or health and safety!) and threw many thought provoking ideas with regards to the sector going forward. So while in town, I decided to make the most of my time and met up with Rita Whittington and also separately, Gerald Cheyne of Kalimantan Gold (LON:KLG) for a pleasant Starbucks coffee and catch up following the recent Q&A.
A big part of my investing strategy is the quality of management and how approachable they are especially to the private investors and I must say that the experience of meeting Rita Whittington was for me personally a total pleasure and I found her a very warm, realistic and sincere person. Rita, a Petroleum Landman with 32 years experience in the oil and gas industry was clearly very knowledgeable about the operational aspects, the O&G sector and the opportunities that Magnolia were hoping to capitalise on. Previously, I have met up with many O&G bosses, and it’s on occasions a big spin from beginning to end with a big promise of jam tomorrow, Rita stuck to the facts, highlighting what they have achieved to date, where they are going and the plan to get to there. After meeting up with Rita, it has reaffirmed my personal investment strategy for Magnolia Petroleum.
To start off, I asked Rita, what do you hope to achieve during your visit to the capital and can you give us a flavour of the meetings and appointments you will be attending during your visit?
Magnolia is an oil and gas exploration and production company that acquires and develops oil and gas properties in known and proven oil plays located onshore in the United States. Our overriding aim is to grow production, revenues and reserves considerably and so build Magnolia into a significant oil and gas company. We only listed on AIM towards the end of 2011 but since then much progress has been made: we have increased the number of producing properties in which we have an interest in to 74 from 64; our quarterly revenues have almost doubled to US$105,000 from US$60,000; we have acquired 3,540 net mineral acres in the reopening Mississippi Lime Formation, Oklahoma with larger average working interests than has historically been the case; and we are on track to drill and operate our first well in Oklahoma later this year.
With all that’s been going on and with much to look forward to, we felt it was an opportune time to come over to London to meet with analysts, journalists as well as investors and be available to talk through what we have achieved and what we hope to achieve in a little more detail. Indeed, last night I presented at an investor evening in London. It was a great opportunity to meet some of our shareholders who have been and continue to be extremely supportive.
Magnolia Petroleum near term has an additional three wells due to come online, with obviously the Thomason producing well in which Magnolia has a 9.375% net revenue interest alongside Chesapeake the most eagerly anticipated initial production rate for the company and its investors. Rita explained that interest in the Mississippi is cranking up with a recent article in the specialist Prospect Centre journal suggesting that up to 1,000 wells are expected to spud within the play during 2013, with Chesapeake suggesting it has enough data to project an estimate ultimate recovery at a mean (P50) of 415,000boe per horizontal well, which is in line with SandRidge’s 409,000-456,000boe estimate based on their 145 horizontal wells to date.
One of the key aspects that attracted me as an investor in Magnolia Petroleum was the fact that the company focuses on proven oil fields which lowers the exploration risk and also the fact that the company drills wells alongside leading industry players such as, Hunt Oil, ExxonMobil and Marathon Oil, however Chesapeake, one of our main JV partners seems to be going through a challenging time as a result of, amongst other factors low gas prices, and are currently raising funds through asset sales, now, should MAGP shareholders be worried with regards to our involvement with Chesapeake or could this situation actually provide us with additional opportunities?
Firstly, Magnolia has always focused on oil rather than gas which allows us to secure higher prices and in turn revenues. My understanding of Chesapeake’s situation is that having acquired huge tracts of land in a short period of time, they are now focusing on monetising their assets through drilling. To do this they need to raise funds. I do not have an inside knowledge of Chesapeake, especially their finances, but they continue to be a major player and employer in a reopening oil play that is generating a considerable amount of interest. If Chesapeake does not drill its acreage for whatever reason, there are plenty of other companies that would be more than happy to do so, including Magnolia.
Magnolia Petroleum who raised £1.2m as a part of its November 2011 UK listing move from the Plus market to the AIM, added an additional 1.3m to the coffers in March through a “heavily oversubscribed” placing, positioning Magnolia to progress the portfolio further, and are now sitting with cash in the bank and revenue being generated from oil and gas sales. Rita highlighted that Magnolia now have banks approaching the company offering lines of credit if needed, and was also very keen to point out that, “one point to bear in mind is that management are significant stakeholders in the business and as a result our interests are very much aligned with those of other shareholders."
Magnolia Petroleum is focused on transforming into a significant US onshore oil and gas company, this is an ambitious aim and to this extent I asked Rita, what is the company strategy towards hopefully achieving this aim?
To become a significant oil and gas company, Magnolia needs to increase its production and revenues. To achieve this, we have a two pronged strategy in place: to participate in further wells in proven US onshore locations such as the Bakken / Three Forks Sanish and Mississippi and Woodford / Hunton Formations in Oklahoma (where possible with larger working interests than has historically been the case); and secondly to acquire leases to drill, operate and participate in horizontal wells in the reopening Mississippi Lime Formation in Oklahoma.
As recent newsflow has shown, we are already making considerable progress in this regard having reported an increase in the number of producing properties to 74, a jump in our latest quarterly revenues to US$105,000, the acquisition of 3,540 net mineral acres in the Mississippi Lime Formation OK with working interests of up to 100%. We are continually receiving proposals to participate in wells and in the meantime we are making preparations to drill our first well as operator in Oklahoma later this year. As a result, we expect to continue to report further significant growth in our revenues this year and beyond.
You have mentioned that Magnolia Petroleum are making preparations to drill its first well as operator in Oklahoma later this year, how are these preparations going for the first Magnolia operated well?
We remain on course to drill our first well as operator in Oklahoma later this year. We have identified a number of suitable targets and secured a drilling engineer. We are tremendously excited about operating our first well and look forward to reporting our progress in due course.
We discussed a number of other aspects of the Magnolia investment such as the Hawkins Field Unit which contains the largest Proved 2P oil and gas reserves among Magnolia's interests and the installation by ExxonMobil of a nitrogen rejection unit plant, Shell’s increased interest in the Mississippian play and the possibility of itemising on the website the list of Magnolia’s well interests. The meeting which lasted for about an hour was thoroughly interesting and followed a hectic week in London for Rita attending about 6 or 7 meetings per day, so I think Rita deserves a couple of days of R&R before returning to the US to steer phase 2 of the plan!
Thanks for taking the time to discuss the various business aspects and for sharing your thoughts.
Disclosure: The Author of this article holds shares in Magnolia Petroleum.
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