Magnolia posts significant uplift in reserves

US onshore-focussed oil and gas exploration and production company Magnolia Petroleum announced the results of an independent reserves report on Wednesday.

The AIM-traded firm said the report, which formed part of the six-month bank debt redetermination process, showed an increase in the company’s net proved developed producing reserves across its leases in US onshore formations such as the Woodford and Mississippi Lime, Oklahoma, and the Bakken and Three Forks Sanish, North Dakota.

It reported a 112% increase in total net proved developed producing oil and condensate reserves to 282.686 Mbbl as at 1 January, and a 303% increase in total net proved developed producing gas reserves to 2,343.116 MMCF.

The board said the significant increase in total net proved developed producing reserves was due to a number of new wells commencing production over the period.

It said the value of the total net proved developed producing reserves as at 1 January increased to $4.03m from $3.45m on 1 July 2016, providing “strong asset backing” to current market capitalisation according to the board.

Further headroom was created as the borrowing base limit of a $6m credit facility was adjusted up to $2.21m from $1.89m to reflect the increase in total net proved developed producing reserves, and the positive effect of higher oil prices on their value.

The board cautioned that the report only covered proved developed producing and proved developed non-producing reserve classes and did not include proved shut-in, proved undeveloped, probable and possible reserve classes as well as Magnolia’s interests in undeveloped acreage

“At $4m, the value assigned to our proved developed producing reserves alone is almost double our current market capitalisation,” said Magnolia chief operating officer Rita Whittington.

“We are confident the true underlying value of the company is greater still, as this latest report on our leases in Oklahoma and North Dakota did not cover other classes of reserves, most notably in both the proved and probable categories.”

Whittington said with oil prices seemingly stabilising at the $50-per-barrel level, and costs across the sector significantly lower than those that were prevalent before the downturn, activity among US onshore operators was continuing to pick up from 2016’s lows.

“We are seeing this for ourselves in the increase in the number of well proposals we are receiving to drill wells on our leases.

“As the improved sentiment translates into more drilling, we are confident that the substantial discount the market is ascribing to our proved developed producing reserves will narrow.

“In the meantime, the resumption in proved developed producing reserves growth is most welcome and I look forward to providing further updates as we take advantage of the recovery to drill alongside established operators on our leases to prove up our reserves, and in the process generate value for our shareholders.”