Magellan Petroleum Corporation (ticker: MPET) is an independent oil and gas exploration and production company with assets in the US, Australia, and the UK. The Company is primarily focused on the development of a CO2-enhanced oil recovery (CO2-EOR) program at Poplar Dome in eastern Montana. The Poplar, acquired by Magellan in 2009, is the largest geologic structure in the western Williston Basin and holds multiple formations with hydrocarbon resource potential.
Magellan Petroleum announced its CO2 injection pilot program on the Poplar Dome officially commenced on March 26, 2014. The program consists of five wells, with four producing wells in addition to the CO2 injection well.
Magellan’s main goal of the project is to prove the effectiveness of the recovery technique and reduce future risks based on its results. The company expects a small increase in production from the operation regardless, but the main selling point is the overall recovery increase. MPET expects to provide a preliminary assessment of the pilot program’s results in Q4’14.
The full injection process is expected to take two years and MPET should determine if full-field development is practical by Q1’15. Reserves have not been officially booked by using the method, but the company estimates the resource potential is 50 MMBOE. The Poplar has an estimated PV-10 value of $97 million and Magellan holds a 100% working interest in the unit. Infrastructure is also in place, with two oil pipelines and one gas pipeline nearby. MPET began the process in 2013 after obtaining a CO2 supply contract and permits for drilling pilot wells.
CO2 injection is used by flooding mature oil fields to boost production. Carbon dioxide is already a natural byproduct to industrial processes, and estimates suggest 95% of the injected gas remains in the well. A study by the United States Department of Energy estimates the technique can produce an additional 137 billion barrels of oil from existing American oil fields.
Kinder Morgan (ticker: KMP), the leading transporter and marketer of carbon dioxide in North America, recently invested $1 billion to expand its CO2 transportation network which already consists of 1,300 miles of pipelines capable of transporting 1.3 Bcfe/d. The new investment will add 213 additional miles and is intended to boost CO2 demand in the Permian Basin.
CO2 injection projects similar to MPET’s in the analogous Midale and Weyburn fields have been 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 field life by as much as 25 years.
Magellan’s Williston position consists of 18,000 net acres in the East Poplar Unit and working interest in an additional 4,000 net acres adjacent to EPU. Substantially all of the acreage is held by production and requires no mandatory government expenditures. The company has a 100% operated working interest in the interval from the surface to the top of the Bakken/Three Forks formation and a 50% working interest in the deeper intervals.
Four different formations also hold development potential. The Amsden was discovered in January 2012 and the Greenhorn’s geologic qualities are similar to the Eagle Ford Shale. The Tyler formation has four current wells with additional potential and the Nisku produced 200 MBO from one well between 1970 and 1990. The Charles is the source for Magellan’s pilot -EOR project and produces approximately 275 BOPD.
Magellan’s Remaining Operations
The company sold $31.6 million U.S. worth of assets offshore Australia in February 2014 but still has an exploration license in the Timor Sea. Results from a 3-D survey in the area are expected by the end of fiscal 2014. The company also has interest in 11 exploration blocks in the United Kingdom. Tight environmental regulations in the U.K. can be an obstacle to operators, but MPET has received approval for three wells to be drilled beginning in Q3’14. Approximately $20 million from the Australia divesture will be used to fund the exploratory wells.
According to its most recent presentation in March 2014, Magellan has no debt outstanding.
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