Magnolia Petroleum
18452 E 111th St, Broken Arrow, Oklahoma, United States

Magnolia Petroleum plc is an AIM listed oil and gas production company focused on the acquisition, exploitation and development of oil and gas properties located onshore in the United States.  Led by a highly skilled management team with over 100 years’ combined experience in the onshore oil and gas industry, Magnolia has interests in over 154 producing properties and significant acreage in two major project areas, the highly productive Bakken shale in North Dakota and the proven Woodford/Mississippi and Hunton formations in Oklahoma. 

STRATEGY 

Magnolia’s vision is to build a significant US onshore focused oil and gas production company. Run by highly experienced industry professionals with proven track records in building value, the Board believes that its collective experience in the acquisition of leases, development of projects and operations will allow it to take advantage of multiple opportunities in leading resource plays.Magnolia’s strategy is focused on increasing production by participating with successful operators in developmental wells on its acreage in the Bakken and Three Forks Sanish area in North Dakota and the Mississippi Lime, Woodford/Hunton Oil acreage in Oklahoma. The portfolio has been developed in tandem with leading US oil companies including Devon Energy, Marathon Oil & Gas and Continental Resources.

Bakken/Three Forks Sanish 

Magnolia’s Bakken/Three Forks Sanish interests target the Bakken formation, which comprises three separate reservoirs, and the Three Forks Sanish Formation which lies below.  The interests, comprising of leases covering approximately 19,200 gross mineral acres (330 net mineral acres), are distributed across a number of sections all of which are located in Dunn, Williams and McKenzie Counties, North Dakota. Magnolia has the opportunity to produce oil on the same lease from both separate formations. The operator is entitled to drill four wells on each of the Bakken and four wells on each of the Three Forks Sanish formations in each section.  When Magnolia acquired its interests in the Bakken, it was unknown that the Three Forks Sanish formation was a separate and distinct reservoir. It is now thought that the Three Forks Sanish formation could be equally or more productive than the Bakken formation.  Based on the current pace of development, the Directors expect it to take several years to fully develop Magnolia’s Bakken/Three Forks Sanish Interest; operators in this area expect to drill four wells per unit in each of the Middle Bakken and Three Forks Sanish formations. Magnolia has experienced average stabilised production rates of 400 barrels of oil per day on its multi-stage frac wells.

Geology

  The Bakken formation is a rock formation of the Late Devonian to Early Mississippian age occupying about 200,000 square miles of the subsurface of the Williston Basin, covering parts of Montana, North Dakota and Saskatchewan. The rock formation consists of three members: lower shale, middle dolomite and upper shale. Both the lower and upper shale are organic rich, brittle due to silica content, of marine origin, and are considered an important source rock in the area. Between the lower and upper shale is the Bakken reservoir target and beneath the lower shale is the Three Forks Sanish reservoir target.  Oil was first discovered there in 1951, but efforts to extract it met with difficulties until the late 1980s when horizontal drilling technology was used to drill lateral wells in the upper and lower shales. Production levels, however, were unpredictable because the oil derived mainly from fractures in the shale. The most important breakthrough occurred in 2000 in Richland County, Montana when the first horizontal well was drilled in the oil-charged middle dolomite of the Bakken Formation at what became known as the Elm Coulee Field. Since that time and as a result of improved hydraulic fracturing techniques, shale has become a significant target for oil and gas companies.

Mississippi Lime Play  The Mississippi formation was historically considered tapped out by vertical drilling decades ago. It is only in recent years that horizontal drilling has established the opportunity for further exploitation of the reservoir. The horizontal wells drilled in the play have lateral lengths of between 2,500 feet and 5,000 feet and are fracture stimulated in 6-12 stages. The fracture stimulation treatments are not as large as those in the Bakken play or the other unconventional resource plays such as the Eagle Ford.

Geology 

The Mississippian oil trend is an expansive carbonate stratigraphic trap producing at shallow depths ranging from 4,500 to 7,000 feet below the surface. The reservoirs lie at the regional Pennsylvanian/Mississippian unconformity, as a result of uplift, alteration and erosion of shallow marine Mississippian carbonates.  The uppermost Mississippian member is a widespread debris-flow deposit formed through a combination of uplift and erosion of the Mississippi Limestone, consisting of varying amounts of weathered chart, limestone and dolomite called the “Mississippi Chat”. The “Mississippi Lime” underlies the chat and also exhibits good reservoir characteristics. The formation was subject to weathering and digenesis and erosion at the regional unconformity. This results in greatly varying reservoir properties both horizontal and vertically. Where the digenesis and weathering have enhanced the reservoir properties, the porosity is generally 15-20 per cent. and can be more than 100 feet thick. Where it has not been enhanced, the porosity is only 4-6 per cent. and has low permeability. This results in lateral discontinuous reservoirs that are ideally developed with horizontal drilling technology.

Woodford/Hunton Formation 

Woodford is an established and proven reservoir located in south east Oklahoma. The reservoir was thought to be mostly depleted until the introduction of horizontal drilling and stimulation technology, which has opened up exciting ventures for Magnolia and other participating companies. These formations have not been exploited to the same extent as the Bakken to date, but several qualified independent exploration companies have now begun aggressive drilling programmes.  Magnolia holds undeveloped leases in respect of approximately 62,080 gross mineral acres (730 net mineral acres), giving rights to participate in the drilling of wells in 97 sections located in 26 counties in central Oklahoma. It has an average working interest of approximately 2.65% and an average net revenue interest of approximately 2.36% in the 105 sections.  Production from shale is reported as far back as 1934. The advent of improved horizontal drilling and hydraulic fracture techniques has increased the prospectivity of the shale to become a significant unconventional target for oil and gas. Publications have suggested that total gas-in-place for the Woodford Shale play is 830 Tcf, and oil-in place in the order of 250 Bbbls. However, these numbers are based on a number of assumptions covering a very large area.