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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Magnolia Pet | LSE:MAGP | London | Ordinary Share | GB00B63QSF76 | ORD SHS 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.30 | 0.20 | 0.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMMAGP
Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas
22 September 2017
Magnolia Petroleum Plc ('Magnolia' or 'the Company')
Half-Year Report
Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration and
production company, announces its half-year report covering the six months
ended 30 June 2017.
Overview
* Interests in 159 producing wells in proven US onshore formations (H1 2016:
151) - 10 new wells commenced production during H1 2017
* Increase in activity seen - approximately 75 proposals received for new
wells in highly active plays such as the SCOOP and the STACK in Oklahoma
* Elected to participate in 28 new wells - majority are low risk, increased
density wells on leases where production has already been established
* Successful pilot programme with Western Energy Development LLC ('WED') led
to post period end agreement to invest up to US$18.5 million on behalf of
WED into the Oklahoma oil and gas market in return for Magnolia earning
fees and equity in new leases and wells
+ US$500,000 pilot programme generated 100% rate of return and 3.26 times
return on investment
+ Over US$200,000 in value generated for Magnolia: US$75,500 via lease
bonus and carried interest for 25% in first well within each spacing
unit; US$127,982 uplift in PV9 value of reserves
+ WED is an affiliate of Western Energy Regional Center LLC, a United
States Citizenship and Immigration Services ('USCIS') designated
Regional Center
+ WED expects the first investments to be received shortly following
finalisation of relevant documentation between underlying clients and
WED
Financial Review
* H1 2017 revenues of US$510,290 (H1 2016: US$633,585)
* Half year EBITDA of US($77,558) compared to US$135,556 after removing
foreign exchange and impairments during six months to 30 June 2016
* Tangible assets (comprising producing properties) of US$3,856,948 (H1 2016:
US$7,217,415)
* Issue of 763,730,000 new ordinary shares in the Company, representing 29%
of the enlarged issued share capital to WED as part of above exclusive
capital management agreement
* US$208,950 repayment of credit facility - balance of credit facility as of
30 June 2017 US$2,561,766, current balance of credit facility is
US$2,315,789
Magnolia CEO, Rita Whittington said, "Our portfolio of 159 producing wells, low
cost / low risk strategy to acquire and develop leases alongside established
operators, and management team with a track record of value generation in the
US onshore sector provide us with a strong platform to capitalise on the
pick-up in sentiment and activity we are seeing. WED recognises this and,
along with the successful pilot programme, lay behind their decision to select
Magnolia as their exclusive partner to manage US$18.5million on their behalf
under the US Immigrant Investor programme. We look forward to receiving the
initial funds under this agreement."
Chief Executive's Statement
The half year period under review has seen a marked shift in activity levels
within the US onshore oil and gas industry, specifically in the low cost and
prolific plays, such as the SCOOP and the STACK in Oklahoma, where Magnolia is
focused. In H1 2017 we elected to participate in 28 new wells alongside leading
operators such as Continental Resources and Marathon. This compares to H1 2016
when we participated in just three wells. Furthermore the 28 new wells were
among 75 proposals we received during the period to participate in new drilling
activity.
Magnolia's business model is centred on utilising the team's expertise in
acquiring leases in proven US onshore plays at attractive prices and then
proving up the reserves by drilling alongside established operators. As at the
half year end we had interests in 159 producing wells. These serve as our main
revenue generator as well as provide the Company with asset backing in the form
of proven reserves.
The Magnolia team has previously had notable success with this "acquire,
develop and prove" model. Thanks partly to this track record as well as a
highly successful pilot programme, we were able to secure for Magnolia an
US$18.5 million capital management agreement with WED post period end.
By way of background, in 1993 the US Congress set up the Immigrant Investor
programme which allows foreign nationals to obtain visas in return for
investing US$500,000 into job-creating schemes. WED has been authorised by the
US Citizenship and Immigration Services to manage up to US$19 million of
capital owned by foreign nationals as part of the programme. Having signed an
exclusive agreement with WED, Magnolia will invest and manage up to US$18.5
million of assets belonging to WED's clients into oil and gas interests in
Oklahoma. In return, we will receive an acquisition fee of US$500 per acre
secured; a 25% carried working interest in the first well on a spacing unit (we
will pay all our costs for any subsequent wells drilled on the same spacing
units); a maintenance fee of US$5,000 per US$500,000 capital deployed; and a
sliding scale of a portion of the net revenue (revenue minus production tax and
transportation) up to a ceiling of US$200,000 pa.
The Agreement with WED will therefore provide us with an additional revenue
stream. Furthermore, thanks to benefiting from a 25% carried interest we get to
see how productive a spacing unit can be before we commit Magnolia's funds to
drilling any de-risked increased density wells. We understand WED is in the
process of finalising the relevant documentation with regards to its first
clients under the Immigrant Investor programme, and with this in mind we look
forward to receiving the initial tranche of funds under the Agreement and
investing these in oil and gas properties in Oklahoma.
We know this arrangement has the potential to create value for Magnolia because
using US$500,000 of WED's funds we conducted a pilot investment programme which
generated a rate of return of 100%; a return on investment of 3.26 times;
US$75,500 in value to date for Magnolia (lease bonus plus a carried interest
for 25% in the first well, within each spacing unit); and US$127,982 uplift in
the PV9 value of Magnolia's reserves. Extrapolate the above based on the
minimum US$10 million WED has committed under the agreement and the value on
offer is there for all to see.
With numbers like that, it goes without saying we faced stiff competition to
secure the WED contract. Just to have been awarded the deal on its own is
testament to our proven expertise in the specialist field of US onshore oil and
gas lease acquisition, development and management. However, WED's decision to
accept shares in lieu of a cash fee serves as a major vote of confidence not
only in the Magnolia team, but also in our business model.
Corporate
During the period, a number of changes were made to the composition of the
Board and management team. In April 2017, I took up the position of CEO of the
Company following the resignation of Steven Snead. At the same time, we were
pleased to announce the appointment of Lanny Woods as a technical consultant.
Lanny has many years of experience as an exploration and production geologist,
particularly exploring and developing onshore US fields in Oklahoma, Texas and
Wyoming. Previously Lanny and I worked together as part of the management team
at Primary Natural Resources I and II.
Post period end, Ron Harwood, interim non-executive Chairman, retired from the
Board. Ron is a founding member of Magnolia who has made an invaluable
contribution to the Company's development over the years. Myself and the Board
wish him all the very best with his retirement. Leonard Wallace, an existing
non-executive Director of Magnolia, has assumed the position of Chairman of the
Company on an interim basis until a permanent replacement is appointed.
Leonard joined the Board as a Non-executive Director in May 2016. He is an
experienced management professional specialising in drilling engineering, well
construction, production management and rig operation with many years'
experience within the oil and gas exploration and production industry,
particularly the US onshore sector.
Also post period end we announced the appointment of Derec Norman to the Board
of Magnolia as Chief Financial Officer, and Lanny Woods as Non-executive
Director. Derec was appointed the Company's Vice President of Accounting on 22
August 2014 after spending eight years with leading operator Chesapeake Energy
Corporation (NYSE: CHK), where he specialised in oil and gas accounting,
acquisitions, divestitures, and mergers managing deals totalling over US$10
billion. Since moving to Magnolia he has been responsible for all aspects of
the Company's accounting operations, and the management of all transactions
relating to general ledger, receivables, payables, financials and payroll
reporting. In this role, he has identified and secured significant cost savings
for the Company both internally and when dealing with operators.
Following the above changes, I believe Magnolia's Board and management has the
right mix of industry expertise covering all key areas of the business,
including lease acquisition, geology, engineering, and finance with which to
take the Company forward.
On 26 May 2017, Nostra Terra Oil & Gas ('NTOG') announced that it had agreed to
acquire the shares of former CEO Steven Snead and members of his family ('the
Snead Group') and on 29 May 2017, the Company received a requisition notice
served by the Snead Group calling for a General Meeting of Shareholders to vote
on three resolutions: to remove myself from the Board; and to appoint two of
its nominees as Non-executive directors of the Company. All three resolutions
were strongly opposed by all members of the Board and management team.
To say the Requisitioned GM was an unwelcome distraction would be a
considerable understatement. Not only did it cost us a considerable sum in
legal and advisory fees which would have been better spent being invested into
new wells. It also took up a tremendous amount of management time and energy.
NTOG have only recently announced the completion of the purchase of these
shares and have stated that they will be selling their holding. The Board and
management believes that this is likely to have negatively impacted the
Company's share price and may continue to do so until NTOG have disposed of
their entire shareholding. We were pleased to note that NTOG have now sold down
a significant portion of their holding already and we welcome the transfer of
these shares to new shareholders.
Financial Review
During the six months to 30 June 2017, net production generated revenues of
US$510,290 (H1 2016: US$633,585). The impact of subdued oil prices on activity
in the US onshore sector is largely responsible for the reduction in revenues.
EBITDA totalled US$(77,558) compared to US$135,556 after removing foreign
exchange and impairments during six months to 30 June 2016. Tangible assets
(comprising producing properties) as at end June 2017 stood at US$3,856,948 (H1
2016: US$7,217,415).
Magnolia continues to be a low cost business. Administrative expenses for the
period totalled US$410,061, which would have been considerably lower than H1
2016's total of US$374,371 had it not been for legal and advisory fees and
other costs associated with dealing with the requisitioned GM.
During the period under review, 763,730,000 new ordinary shares in the Company,
representing 29% of the enlarged issued share capital, were issued to WED as
part of the exclusive capital management agreement.
The Company made a US$208,950 repayment of its existing credit facility during
the half year period. As at 30 June 2017, the balance of the credit facility
stood at US$2,561,766. The current balance is US$2,315,789
Outlook
Magnolia has had great success in the past acquiring and developing onshore US
leases alongside leading operators particularly when oil prices were trading at
US$90 per barrel. Since the downturn, we have worked hard to bring costs down
and to focus more on areas which require low oil prices to breakeven. Our low
cost, low risk model has generated revenue returns in the past and thanks to
the agreement we have signed with WED, we will start to make progress towards
generating value once more for shareholders.
In July, we announced that we had sold some non-core wells post period end and
it is our intention to continue to review the portfolio and to rationalise and
realign it in light of the core counties in which WED can invest. We have used
some of the proceeds to reduce our bank debt and continue to manage working
capital carefully. Future well investment is likely to be funded from new
funds received as part of the WED contract, by further portfolio
rationalisation and by raising funds in the future.
Finally, I would like to thank the Board, management team and all our advisers
for their hard work during the last six-month period. I would especially like
to take this opportunity to thank our shareholders for their support over the
years, particularly over the recent summer months and for their support in
rejecting the hostile resolutions proposed by NTOG. With this in mind, I look
forward to providing updates on our progress in the months ahead.
Rita Whittington
Chief Executive Officer
21 September 2017
Condensed Consolidated Statement of Comprehensive Income
6 months ended 30 June 2017
6 months to 6 months to
30 June 2017 30 June 2016
Unaudited Unaudited
Note US $ US $
Continuing Operations
Revenue 510,290 633,585
Operating expenses (968,197) (613,915)
______ ______
Gross (Loss)/Profit (457,907) 19,670
Administrative expenses (410,061) (374,371)
Impairment of property, plant and (490,349)
equipment
Impairment of intangible assets (1,389,596) (8,334)
Other income 254,907 -
(Loss)/Gain on foreign exchange (68,598) 1,974,513
______ ______
Operating (Loss)/Profit (2,561,604) 1,611,478
Finance income - -
Finance costs (68,675) (67,806)
______ ______
(Loss)/Profit from ordinary (2,630,279) 1,543,672
activities before tax
Taxation - -
______ ______
(Loss)/Profit for the period
attributable to the equity holders (2,630,279) 1,543,672
of the Company ______ ______
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss
Currency translation differences 97,872 (1,355,904)
______ ______
Total comprehensive income for the
period attributable to the equity
holders of the Company (2,532,407) 187,768
______ ______
Earnings per share attributable to
the equity holders of the Company
(expressed in cents per share) 4
- basic (.141) 0.121
- diluted (.141) 0.121
Condensed Consolidated Balance Sheet
As at 30 June 2017
Notes 30 June 31 December
2017 2016
Unaudited Audited
ASSETS US $ US $
Non-Current Assets
Property, plant and equipment 5 3,856,948 4,518,177
Intangible assets 6 310,231 1,684,559
________ ________
Total Non Current Assets 4,167,179 6,202,736
Current Assets
Trade and other receivables 468,604 610,941
Cash and cash equivalents 300,659 241,347
________ ________
Total Current Assets 769,263 852,288
________ ________
Total Assets 4,936,442 7,055,024
________ ________
EQUITY & LIABILITIES
Equity
Share capital 2,771,916 2,619,986
Share premium 15,297,441 15,254,643
Share option and warrants reserve 65,163 65,163
Merger reserve 1,975,950 1,975,950
Reverse acquisition reserve (2,250,672) (2,250,672)
Translation reserve (3,073,785) (3,171,657)
Retained losses (13,997,650) (11,367,372)
________ ________
Total Equity - Capital and Reserves 788,363 3,126,041
________ ________
Non-current Liabilities
Borrowings - -
________ ________
Total Non-current Liabilities - -
________ ________
Current Liabilities
Borrowings 2,561,766 2,638,447
Trade and other payables 1,586,313 1,290,536
_________ _________
Total Current Liabilities 4,148,079 3,928,983
_________ _________
Total Equity and Liabilities 4,936,442 7,055,024
_________ _________
Condensed Consolidated Statement of Changes in Equity
Attributable to the owners of the parent
Warrants
Reverse
Share Share Merger and Acquisition Translation Retained
Options
Capital Premium Reserve Reserve Reserve Reserve Earnings Total
US $ US $ US $ US $ US $ US $ US $ US $
As at 1 January 1,704,820 15,200,219 1,975,950 209,042 (2,250,672) (962,887) (9,959,977) 5,916,495
2016
Comprehensive
income
Profit for the - - - - - - 1,543,672 1,543,672
period
Other
comprehensive
income
Currency - - - - - (1,355,904) - (1,355,904)
translation
differences
________ ________ ________ ________ ________ ________ ________ ________
Total - - - - - (1,355,904) 1,543,672 187,768
comprehensive
income for the
period
________ ________ ________ ________ ________ ________ ________ ________
Proceeds from 314,879 136,807 - - - - - 451,686
share issue
Share issue (21,877) - - - - - (21,877)
costs
________ ________ ________ ________ ________ ________ ________ ________
Transactions 314,879 114,930 - - - - - 429,809
with owners of
the parent,
recognised
directly in
equity
________ ________ ________ ________ ________ ________ ________ ________
As at 30 June 2,019,699 15,315,149 1,975,950 209,042 (2,250,672) (2,318,791) (8,416,305) 6,534,072
2016
________ ________ ________ ________ ________ ________ ________ ________
As at 1 January 2,619,986 15,254,643 1,975,950 65,163 (2,250,672) (3,171,657) (11,367,372) 3,126,041
2017
Comprehensive
income
Loss for the - - - - - - (2,630,278) (2,630,278)
period
Other
comprehensive
income
Currency - - - - - 97,872 - 97,872
translation
differences
________ ________ ________ ________ ________ ________ ________ ________
Total - - - - - 97,872 (2,630,278) (2,532,406)
comprehensive
income for the
period
________ ________ ________ ________ ________ ________ ________ ________
Proceeds from 151,930 42,798 - - - - - 194,728
share issue
Share issue - - - - - - -
costs
________ ________ ________ ________ ________ ________ ________ ________
Transactions 151,930 42,798 - - - - - 194,728
with owners of
the parent,
recognised
directly in
equity
________ ________ ________ ________ ________ ________ ________ ________
As at 30 June 2,771,916 15,297,441 1,975,950 65,163 (2,250,672) (3,073,785) (13,997,650) 788,363
2017
________ ________ ________ ________ ________ ________ ________ ________
Condensed Consolidated Cash Flow Statement
6 months ended 30 June 2017
6 months to 6 months to
30 June 2017 30 June 2016
Unaudited Unaudited
US $ US $
Cash flow from operating activities
(Loss)/Profit before tax (2,630,279) 1,543,672
Finance income - -
Loss/(profit) on disposal of mineral leases - -
Depreciation and amortisation 535,503 490,257
Exchange differences 82,174 (1,291,349)
Impairment of property, plant and equipment 490,349
Impairment of intangible assets 1,389,596 8,334
Decrease in trade and other receivables 142,336 40,457
Increase/(Decrease) in trade and other payables 295,777 (946,020)
_______ _______
Net cash (outflow)/inflow from operating 305,456 (154,649)
activities
_______ _______
Cash flows from investing activities
Purchases of intangible assets - 100
Purchases of property, plant and equipment (364,623) (301,665)
Proceeds from disposal of property, plant and - -
equipment
Interest received - -
_______ _______
(364,623) (301,565)
Net cash used in investing activities
_______ _______
Cash flows from financing activities
Proceeds from issue of ordinary shares 194,728 451,686
Issue costs - (21,877)
Repayment of borrowings (76,681) -
_______ _______
Net cash from financing activities 118,047 429,809
_______ _______
Net (decrease)/increase in cash and cash 58,880 (26,405)
equivalents
Cash and cash equivalents at the beginning of the 241,347 645,759
period
Exchange (loss)/gain on cash and cash equivalents 432 (29,751)
_______ _______
Cash and cash equivalents at the end of the 300,659 589,603
period
_______ _______
Comprising:
Cash at bank 300,659 589,603
_______ _______
Notes to the unaudited financial statements
1.General information
The principal activity of the Group is the acquisition, exploration and
development of oil and gas properties primarily located onshore in the United
States.
The address of its registered office is Suite 321, 19-21 Crawford Street,
London, W1H 1PJ.
2. Basis of preparation
These condensed consolidated interim financial statements have been prepared in
accordance with the requirements of the AIM Rules for Issuers. As permitted,
the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in
preparing this interim financial information. The condensed interim financial
statements should be read in conjunction with the annual financial statements
for the year ended 31 December 2016, which have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Union.
The interim financial information set out above does not constitute statutory
accounts within the meaning of the Companies Act 2006. It has been prepared on
a going concern basis in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRS) as adopted by
the European Union. Statutory financial statements for the year ended 31
December 2016 were approved by the Board of Directors on 16 June 2017 and
delivered to the Registrar of Companies. The auditors have drawn attention to
going concern in our audit report by way of an emphasis of matter.
The preparation of consolidated interim financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the end of the reporting period. Significant items subject to such estimates
are set out in the Group's 2016 Annual Report and Financial Statements. The
nature and amounts of such estimates have not changed significantly during the
interim period.
3.Accounting policies
The same accounting policies, presentation and methods of computation are
followed in this condensed consolidated financial information as were applied
in the preparation of the Company's annual audited financial statements for the
year ended 31 December 2016.
The presentational currency of the Group is US dollars.
4.Earnings per share - basic and diluted
The calculation of earnings per share is based on a loss of $2,630,279 for the
6 months ended 30 June 2017 (6 months ended 30 June 2016: profit $1,543,672)
and the weighted average number of shares in issue in the period to 30 June
2017 of 1,869,826,370 (30 June 2016: 1,276,458,563).
The basic and diluted loss per share in the period ended 30 June 2017 is the
same, as the effect of the exercise of share options and warrants would be to
decrease the loss per share.
The basic and diluted loss per share in the period ended 30 June 2016 is the
same, as the effect of the exercise of share options and warrants would be to
decrease the loss per share.
5.Property, plant and equipment
Drilling
Producing costs and
properties equipment Other Assets Total
$ $ $ $
Cost
At 1 January 2017 1,368,348 13,801,572 24,729 15,194,649
Additions - 364,623 - 364,623
Transferred from intangible assets - - - -
At 30 June 2017 1,368,348 14,166,195 24,729 15,559,272
Depreciation
At 1 January 2017 1,201,344 9,453,534 21,594 10,676,472
Charge for the period 36,651 497,825 1,027 535,503
Impairment - 490,349 - 490,349
At 30 June 2017 1,237,995 10,441,708 22,621 11,702,324
Net Book Amount at 31 December 2016 167,004 4,348,038 3,135 4,518,177
Net Book Amount at 30 June 2017 130,353 3,724,487 2,108 3,856,948
6.intangible assets
Cost Drilling Mineral Total
Goodwill costs leases $
$ $ $
At 1 January 2017 284,219 10,744 1,389,596 1,684,559
Additions - - - -
Transferred to property, plant and - - - -
equipment
Exchange movements 15,268 - - 15,269
Impairment - - (1,389,596) (1,389,596)
Disposals - - - -
As at 30 June 2017 299,487 10,744 - 310,231
Amortisation
At 1 January 2017and - - - -
At 30 June 2017
Net Book Amount at 31 December 2016 284,219 10,744 1,389,596 1,684,559
Net Book Amount at 30 June 2017 299,487 10,744 - 310,231
Impairment review
Drilling costs and mineral leases represent acquired intangible assets with an
indefinite useful life and are tested annually for impairment. Expenditure
incurred on the acquisition of mineral leases is capitalised within intangible
assets until such time as the exploration phase is complete or commercial
reserves have been discovered. Exploration expenditure including drilling costs
are capitalised on a well-by-well basis if the results indicate the existence
of a commercially viable level of reserves.
The directors have undertaken a review to assess whether circumstances exist
that could indicate the existence of impairment as follows:
* The Group no longer has title to the mineral lease.
* A decision has been taken by the Board to discontinue exploration due to
the absence of a commercial level of reserves.
* Sufficient data exists to indicate that the costs incurred will not be
fully recovered from future development and participation.
Following their assessment the directors recognised an impairment charge to the
cost of mineral leases of $1,389,596 (2016 - $8,334) in respect of expired
mineral leases.
The Directors believe that no impairment is necessary on the carrying value of
goodwill.
For further information on Magnolia Petroleum Plc visit http://
www.magnoliapetroleum.com/ or contact the following:
Rita Whittington Magnolia Petroleum Plc +01918449 8750
Jo Turner / James Caithie Cairn Financial Advisers +44 20 7213 0880
LLP
Nick Beeler Cornhill Capital Limited +44 20 7710 9610
Lottie Brocklehurst St Brides Partners Ltd +44 20 7236 1177
Frank Buhagiar St Brides Partners +44 207 236 1177
Ltd
END
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