DENVER, May 28, 2013 /PRNewswire/ -- Magellan Petroleum
Corporation (NASDAQ: MPET)
Dear Shareholders,
In recent months, Magellan has made significant progress towards
adjusting our corporate platform and realigning our capital
structure and shareholder base. While I am proud of our
achievements, I believe that Magellan will only deliver true value
creation for its shareholders from developing our oil and gas
assets. Towards that end, we have been working very
diligently, and I would like to take this opportunity to update you
on our operational progress as well as to explain why our recent
capital raise places us on sound footing to successfully pursue our
goals.
Operational Update
As we expressed at our January shareholder meeting and in
various investor conferences since then, Magellan remains focused
on four objectives: 1) developing a CO2 enhanced oil
recovery (CO2-EOR) program and improving primary field
production at our field at Poplar, 2) fully contracting our onshore
Australian assets, 3) farming-out our offshore Australian
exploration permit, and 4) realizing value from our acreage
position in the United Kingdom. In spite of the relatively
light news flow in recent months with respect to these efforts, we
continue to make significant progress on all these fronts and
expect to release the achievement of certain key operational
milestones relatively soon.
Pursuing a CO2-EOR development at Poplar is the
Company's top priority. Among our various assets, we believe
Poplar presents the greatest chance for upside potential with the
lowest geologic and technical risks. We believe that bringing
this field to full-scale EOR development could result in the
addition of 50 million barrels of reserves to our books and could
have a significant multiplier effect on our valuation. The
first step in this process is a CO2-EOR pilot program,
which we plan to commence this summer with five new wells.
One of these wells will be used for the injection of
CO2, and we will monitor production from the other four
wells to evaluate the effectiveness of CO2-EOR at
Poplar. Our evaluation period will take 12 to 24 months to
complete, after which we hope to move to a full-field
development. Currently, we are in the final stages of
permitting the pilot program, and we are close to securing a
CO2 supply source for the pilot.
With respect to our onshore Australian operations, our Palm
Valley gas field and Dingo gas field are well positioned to provide
the Company with significant stable and long-term cash flows in the
relatively near term. Palm Valley is fully contracted and
only awaiting a ramp-up in customer off-take volumes to achieve its
maximum potential, which is expected to occur within eight to 12
months. After this ramp-up, the field will be selling gas at
its full annual capacity of 1.4 Bcf. At Dingo, a field which
has been idle since the 1980s, we are focused on contracting out
the field's gas reserves, and we expect to sign a gas supply
agreement relatively soon. Once we have a firm customer, we
can complete the engineering and construction of the Dingo pipeline
and related facilities and be in a position to sell gas at or near
full capacity in approximately 18 months. Together, if fully
contracted, the Palm Valley and Dingo fields can provide the
Company with up to $10 million of
annual cash flow and in excess of $200
million in cumulative net cash flow (undiscounted) over the
life of the assets.
With respect to NT/P82, our offshore Australian exploration
block in the Bonaparte Basin, we are in the final stages of
processing the seismic data acquired over the permit area. We
initially believed that we would receive the results of the
processing in May 2013; however, due
to certain characteristics of the subsurface geology, we need to
reprocess a portion of the data and thereby delay receipt of the
final reprocessed results until July 2013. At that point we
will promptly begin our interpretation effort. Pending
completion of interpretation, we will initiate a farm-out
process. Based upon recent similar deals in the Bonaparte
Basin, our expectation with respect to a farm-out is to give up
operatorship and a significant working interest in this permit area
in exchange for carry on exploration wells over the prospective
areas.
In the UK, we maintain a large acreage position in the Weald
Basin, which we believe is a very promising unconventional
play. In recent months, it appears that the regulatory and
political climate has warmed considerably to unconventional
production onshore UK. The Department of Energy and Climate
Change recently lifted its moratorium on hydraulic fracturing, and
the government is exploring new tax incentive proposals to
encourage unconventional drilling onshore. We believe that
these developments should have a favorable impact on the perceived
value of our acreage. In order to substantiate this value,
we, together with our partner Celtique Energie, plan to drill one
or two evaluation wells at the end of 2013, through which we will
gain a better understanding of the shale potential of our
acreage. In the meantime, Magellan remains one of only three
publicly traded companies to offer significant exposure to this
emerging UK shale play.
Bridging the Funding Gap
Success in any one of our four operational areas of focus can
materially impact the Company's valuation. Achieving success,
however, will require approximately $50
million of capital investment over the next two years: up to
$20 million for the
CO2-EOR pilot at Poplar; $20
million for the tie-in and development of Dingo; and
$10 million for our participation in
two UK evaluation wells. With this aggressive capital program
in mind, we recently consummated a convertible preferred offering
with One Stone Energy Partners for proceeds of $23.5 million. The significant size of this
investment (approximately 50% of our market capitalization) and the
deal's attractive terms are together a strong vote of confidence in
our assets' potential. We look forward to working with One
Stone both on our board and as part of our shareholder base.
Bridging the remaining funding gap is something we hope to
accomplish without the issuance of further equity and the attendant
ownership dilution for our existing shareholders. Our onshore
Australian assets should soon be in a position to provide the basis
for moderate borrowings as gas sales ramp up – this will answer a
portion of our capital needs. More significantly, any of our
international assets could be monetized, with proceeds reinvested
in our core projects. This approach makes a lot of sense for
our company and our shareholders, and the One Stone proceeds afford
us the time we need to develop our non-core assets to a point at
which we can achieve attractive valuations and maximize shareholder
value.
Moving Ahead
I took over as CEO of Magellan about 18 months ago. At
that time, we faced significant problems with our corporate
platform and a slate of legacy corporate issues. We emerge
from that period of turnaround today with a healthy balance sheet
and four opportunities to create significant operational growth and
drive material share price appreciation – a very attractive
prospect for investors.
In my view, the link between that prospective value today and
true value tomorrow is management execution. We have put
together a first rate management and operational team, and I have
full confidence in our collective ability to develop our assets
successfully. Keeping this team together, focused, and
aligned with shareholders throughout the coming growth phase will
prove critical in accomplishing this development and thereby
delivering shareholder returns. For this reason, we are
developing a new management and employee incentive plan under which
the vesting of equity awards will be tied heavily to the Company's
performance against our stated strategy. Under this plan, we
will receive compensation only by delivering value to you, our
shareholders.
With our corporate repositioning behind us, four assets primed
for growth, and a solid management team in place, I am excited to
execute our plan in the coming twelve to twenty four months.
I look forward to announcing the achievement of the operational
milestones I outlined above, and I thank you for your continued
support.
Sincerely,
J. Thomas Wilson
President & CEO
CAUTIONARY INFORMATION ABOUT FORWARD LOOKING
STATEMENTS
Statements in this press release including
forecasts or projections that are not historical in nature are
intended to be, and are hereby identified as, forward-looking
statements for purposes of the Private Securities Litigation Reform
Act of 1995. The words "anticipate", "assume",
"believe", "budget", "estimate", "expect", "forecast", "initial",
"plan", "project", and similar expressions are intended to identify
forward looking statements. These statements about Magellan
Petroleum Corporation and Magellan Petroleum Australia
(collectively "the Company") may relate to their businesses and
prospects, planned capital expenditures, increases or decreases in
oil and gas production, revenues, expenses, operating cash flows,
and borrowings, and other matters that involve a number of
uncertainties that may cause actual results to differ materially
from expectations. Among these risks and uncertainties are the
following: the timeliness of our acquisition of drilling permits
related to our Poplar CO2-EOR project; our ability to
enter into short and long term CO2 supply for our Poplar
CO2-EOR project; our ability to enter into satisfactory
agreements for the sale of natural gas from our Dingo field in
Australia; the likelihood of
success of a water shut-off program at Poplar Field; government
regulation and oversight of drilling and completion activity in the
United Kingdom; the uncertain
nature of oil and gas prices in the
United States, Australia,
and the United Kingdom;
uncertainties inherent in projecting future rates of production
from drilling activities; the uncertainty of drilling and
completion conditions and results; the availability of drilling,
completion, and operating equipment and services; the results of 2D
and 3D seismic related to the NT-P82 interest offshore Australia; whether and to what extent the
Series A Preferred Stock will have a dilutive effect on the current
holders of common stock; whether the Company will receive the
expected benefits from the funds received in the Series A Preferred
Stock offering; the likelihood that production at Mereenie reaches
levels that would result in bonus payments to the Company; and
other matters discussed in the "Risk Factors" section of The
Company's most recent Annual Report on Form 10K and most recent
Quarterly Report on Form 10Q. Any forward-looking information
provided in this report should be considered with these factors in
mind. The Company assumes no obligation to update any
forward-looking statements contained in this report, whether as a
result of new information, future events, or otherwise.
ABOUT MAGELLAN
Magellan is an independent energy
company engaged in the exploration, development, production, and
sale of crude oil and natural gas from currently held assets in
the United States, Australia, and the United Kingdom.
Traded on NASDAQ since 1972, the Company conducts its operations
through two wholly owned subsidiaries, Nautilus Poplar LLC, which
owns interests at Poplar, a highly attractive oil field in the
Williston Basin, and Magellan Petroleum Australia Pty Ltd, a
successful independent oil and gas company in Australia and the UK in existence since
1964. The Company's mission is to enhance shareholder value
by maximizing the full potential of existing assets. Magellan
routinely posts important information about the Company on its
website at www.magellanpetroleum.com.
For further information, please contact:
Matthew Ciardiello, Manager,
Investor Relations at 720.484.2404
SOURCE Magellan Petroleum Corporation