PORTLAND, Maine, Dec. 13, 2011 /PRNewswire/ --
Dear Shareholders:
As many of you know, I wrote a letter to the shareholders dated
October 21, 2011, introducing myself
as the new President and CEO of Magellan Petroleum Corporation (the
"Company") (NASDAQ: MPET) (ASX: MGN) and offering a variety of my
observations and comments regarding the Company.
In light of last week's Board of Directors' meeting and our
Annual Meeting of Shareholders, I'd like to revisit some of the
matters presented in my last letter, update you as to our progress,
and inform you of new developments. Our move to Denver continues and should be essentially
completed by the middle of the second calendar quarter of
2012. We believe we are making good progress on honing our
focus on our existing asset base in the wake of concluding our
Evans Shoal efforts.
As you know, I have expressed my displeasure regarding our
current share price and other shareholders have also expressed
their concern. With this in mind, please let me provide what
updates I can based on activities that have occurred in the past
two months:
Australia
Our asset rationalization arrangement with Santos is expected to
close within the next few weeks. We are awaiting sign-off
from the taxing authority in Australia that is currently reviewing the
equipment valuations in the affected properties. We also
believe that a gas sales agreement affecting a portion of the
Company's gas reserves in Palm Valley is progressing towards a
successful completion. You will recall that this transaction
process is being managed by Santos.
Rocky Mountain Region
We have now drilled two wells in the shallow intervals within
our Poplar Field (owned 100% by Magellan and one of its
subsidiaries). These two wells are currently being completed
and evaluated. The results are not yet in, but we have every
reason to believe that they will successfully produce oil and
associated natural gas. We should have information that we
can disclose on these two wells within the next few weeks.
In the deeper interval within the Poplar Field, our industry
partner, VAALCO Energy (USA) Inc,
has plans to commence drilling its first earning well in the near
future, weather dependant. We expect results from this
exploration well to be available by the end of the first calendar
quarter or early in the second calendar quarter of 2012.
On a different but related topic, we are extremely pleased to
announce that we have hired an experienced and talented Williston
Basin engineer to be our Operations Manager. More details on
this hiring will follow later this week.
UK
Our Markwells Wood well is production testing and these results
should be known within the next few weeks. While too early
for any definitive announcement regarding commerciality, oil has
been sold from this property. We continue to work with our
co-owner, Celtique, on drilling plans on our prospective shale
acreage holdings in the UK, and hope to be able to announce more on
this by mid-year 2012.
As you can determine from this interim report, progress is being
made regarding our existing assets. Let me also update you on
two other matters of importance. We were very disappointed
with the material weaknesses in the Company's internal controls
that were disclosed in our recent 10-K for the fiscal year ending
June 30, 2011. I take this
matter very seriously and commit to you that this will be
successfully resolved as soon as possible. After advising our
independent auditor, EKS&H, of our remediation steps, we
believe that we will accomplish this goal. You will also see
changes in the presentation of our second quarter financial
statements. As a result of these changes, Magellan's
financial statements will much more closely follow the presentation
of financial information used by our peers in the oil and gas
industry.
The final, but also significant matter to present to you today
is to announce that the Board has formed a Strategic Alternatives
Committee (the "Committee") composed of me, Nikolay V. Bogachev,
and William H. Hastings. The
idea of this Committee has been raised by shareholders and Board
members alike, and the Board has embraced this idea. I will
say it again, I believe the Company is undervalued, and from what I
have seen and heard, so does the Board and so do you. We
believe this Committee can be a useful tool in correcting the
market's perception of the Company.
While there are no current proposals before this Committee or
the Board, the Company is determined to review and consider any
viable alternative strategy in its efforts to enhance shareholder
value. These alternatives could include, but are not limited
to, finding additional strategic partners to accelerate or improve
the testing of the Company's existing assets, additional financing
alternatives, a merger or other combination with one or more public
or private entity, the acquisition of either producing or
non-producing oil and gas assets, the sale of all or a portion of
the Company or any discrete asset of the Company, or any other
business endeavor that we believe will unlock and improve
shareholder value.
Of course, we may take no action and stay the current course of
developing our existing assets if we determine that is our best
existing alternative, but we are open to alternatives that are
likely to improve our long term underlying value and consequently
our stock performance.
The Company has not retained an investment banking firm or other
external advisor at this time as such action appears premature at
this stage of our process. This engagement decision will be
reviewed regularly and is subject to prompt change should the
circumstances so warrant.
I will coordinate the Committee's activities. Given that
the members of the Committee are significant shareholders, the
Board unanimously believes that the goal of enhancing shareholder
value will receive its needed focus. As you know, the
creation and function of this Committee does not insure that any
specific transaction will occur. While the Committee's
consideration of strategic alternatives is ongoing, the Company
does not intend to comment further regarding this process and the
items under consideration by the Committee unless and until a
specific transaction is approved by the Board, the review process
is concluded, or it is otherwise determined that further disclosure
is appropriate or required by law.
I can assure you the Board and management of Magellan are
committed to increasing shareholder value as quickly and prudently
as possible. We are listening to your ideas and suggestions,
even if they are critical. Our plan is to grow revenues, cut
costs, and unlock the value we believe is embedded in our resource
plays. If other strategies can accomplish these goals or
otherwise enhance shareholder value in an acceptable fashion, we
will move on them rapidly.
Very truly yours,
J. Thomas Wilson
President and CEO
FORWARD LOOKING STATEMENTS
Statements in this letter to shareholders which 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. These statements about
the Company and its subsidiaries may relate to their businesses and
prospects, revenues, expenses, operating cash flows, 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: (i) whether the Company's
relocation to Denver, CO will be
timely completed and efficiently conducted; (ii) whether the
Company can successfully develop its assets directly or through
partnerships with third parties; (iii) the ability of the Company
and Santos to complete and implement the terms of the asset swap in
the Amadeus Basin and the related gas sales contract; (iv) whether
management's remediation plan will timely and successfully address
the material weaknesses in internal controls identified by the
Company; (v) whether the formation of the Strategic Alternatives
Committee will be successful in identifying strategic alternatives
to enhance shareholder value; and (vi) the pricing and production
levels from the properties in which Magellan and its subsidiaries
have interests and the recoverable reserves at those
properties.
SOURCE Magellan Petroleum Corporation