Magellan Petroleum Corporation (ticker: MPET) is an independent oil and gas exploration and production company with assets in the United States, Australia, and the United Kingdom. The development of a CO2-enhanced oil recovery program at its Poplar Dome assets in eastern Montana is its primary focus. Magellan’s U.K. properties are onshore and include the Weald and Wessex Basins prospective for unconventional shale oil and gas production.
On February 18, 2014, Magellan announced the sale of its Palm Valley and Dingo gas fields in Australia for $35 million in Australian dollars (approximately US$31.6 million). The buyer, Central Petroleum Limited (ticker: CTP), holds properties in the Amadeus Basin that immediately surround the Palm Valley and Dingo fields. MPET will receive certain bonuses if future gas sales surpass expectations. The company will receive $20 million in cash as part of the agreement, with the additional $15 million in CTP stock upon the completion of the transaction, which is intended to close by March 31, 2014. The stock transaction will include approximately 39.5 million Central shares, equaling roughly 11% ownership in CTP to date.
Magellan Petroleum is scheduled to present at EnerCom’s The Oil & Services Conference™12 on Wednesday, February 19, 2014.
MPET continues to hold its exploration permit NT/P82 asset (100% WI) located in the Timor Sea offshore Northern Australia. The block is estimated to hold between one and three trillion cubic feet (Tcf) of recoverable resources, and results from a 3-D seismic survey are expected by winter 2014. Future production is expected to be met by means of a farmout partner.
The Australian assets sold to CTP were fully contracted and held an estimated $10.3 million in PV-10 with 1.84 MMBOE in reserves. A total of 53 billion cubic feet (Bcf) of gas are proved and probable. The gas market in the territory had only recently made the region available for production, and the field has not been exploited since its discovery in 1981.
Australia became the world’s third largest LNG exporter in 2012. Regional production is on the rise, and the Australian government expects natural gas to account for 35% of the company’s energy consumption by 2035.
In addition to MPET’s Timor exploration block, other assets consist of gas fields in the United Kingdom and 22,000 net acres covering the Poplar Dome in the Williston Basin in the United States. MPET management said the $20 million in cash proceeds from the onshore Australia sale will fund its first exploratory well in the U.K. The divestment also negates MPET’s Australia development costs, which were expected to be roughly AUD $20 million. In addition, MPET will close its office in Brisbane, saving between AUD $2 million and AUD $3 million in yearly general and administrative expenses.
MPET holds interests in 11 blocks in the United Kingdom spanning approximately 200,000 net acres. The company is currently in the process of receiving drilling approval for its exploratory well, which can be a lengthy process due to the country’s high environmental standards. However, the United Kingdom Onshore Operators Group (UKOOG) estimates the nation currently holds 1,300 trillion cubic feet (Tcf) onshore, according to a June 2013 estimate conducted by the British Geological Survey and the Department of Energy and Climate Change. The country consumes 3 Tcf of gas annually, 43% of which is imported, making the spot prices roughly 233% higher than U.S. prices in November 2013.
Its assets in the East Poplar Unit in Montana are held by a 100% working interest and are the subject of CO2-enhanced oil recovery (CO2-EOR) program. Five pilot wells were drilled in 2013 and full results are expected by year-end 2014. Full field development is expected in 2015. The Poplar Unit represents a multi-pay zone structure (shown on the right) with an estimated 50 MMBO and PV-10 reserves of $97 million. Similar CO2 injection projects in the analogous Midale and Weyburn fields were highly successful. In fact, the Weyburn, operated by EnCana Corp (ticker: ECA) is a 55-year oil field in the midst of a resurrection. ECA estimates an incremental 130 MMBO can be recovered through the method, boosting revenues by $30 million per year and extending the field life by as many as 25 years.
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