Magnolia Petroleum has acquired a 100% interest in 800 acres in the oil producing Mississippi Lime formation, Oklahoma and minority interests in leases over a further 284 net acres.

The transaction is in line with the Company's growth strategy to operate wells in the Mississippi Formation and follows the successful participation in the Sundance well with Chesapeake.

Highlights

• The Mississippi Formation is a proven commercial oil and gas system that has been producing from several thousand vertical wells for more than 50 years - new technology and horizontal drilling has reopened the oil play • Acquisition of 100% working interests in 800 net acres, including the right to drill • Plans to drill at a minimum 3 vertical wells to test the Mississippi on this acreage in the near future • Ongoing leasing activity has acquired a further 284 net acres with an average working interest of 3.4% with further acreage expected to be acquired in due course • Total aggregate costs of $230,000 for acquiring the 1,084 acres, in line with the Company's expectations in the AIM admission document

Magnolia COO, Rita Whittington said, "Today's news represents a key milestone for Magnolia. The new acreage lies on the Mississippi formation in Oklahoma, recognised as having the potential to be the next big play in onshore US and where many of the leading players operating in the Bakken have recently been busy acquiring large tracts of land. Last year we participated in a well with Chesapeake that was completed in the Mississippi formation in which we recovered all of our costs in just three months. In addition, the cost of drilling in the Mississippi is considerably less than that of the Bakken, and so offers higher margins and a much reduced payback time. During our due diligence process, we identified a number of prospects on the acreage and following further analysis we aim to spud a first well by the end of this year."

Detailed Information

Prior to the AIM admission, Magnolia entered into an agreement to participate in the leasing on a series of prospects consisting of approximately 80 square miles over five separate areas. The 284 net acres (8,400 gross acres), covering 33 individual sections and part of which is within the "Prospect A" area identified in the Competent Persons Report within the AIM Admission document, is the product of this agreement and it is anticipated that further acreage will be acquired under this agreement in due course. The average working interest acquired to date is 3.4%, but this is expected to change as further acres are acquired with Magnolia targeting an average percentage of around 25%.

The acquisition of the 800 gross acres with a 100% working interest is outside of the aforementioned agreement and follows the Company's intention to acquire material working interests as an operator and so control the timing of the drilling, proposing and producing of its oil and gas wells. The deal also includes the right to drill in the Mississippi formation and purchase of existing infrastructure currently on the site including, tanks, separators, an injection well, and six "active" wells, producing from a shallower formation, that could have recompletion and stimulation potential. Magnolia has future plans to drill at a minimum three vertical wells to test the Mississippi on this acreage in the near future.

Tags: Magnolia Petroleum