Oil rush in the Home Counties: CITY AM

Oil rush in the Home Counties FROM CITY AM

BILLIONS of barrels of shale oil have been discovered under a swathe of southern England, a government report will announce this morning.

While only a fraction of the discovery is expected to be recoverable by domestic shale companies, the find will kick-start a drive to start the process of fracking for oil in the region.

The Department of Energy and Climate Change is due to announce the discovery, made by the British Geological Survey, at 10am, covering findings in an area known as the Weald Basin that includes Surrey, Sussex, Kent and Hampshire.

It follows a similar British Geological Survey study last year, which identified that there could be as much as 1,300 trillion cubic feet of gas in shale rocks in northern England.

Today’s discovery could have implications for the UK’s long-term energy security and prompt more hydraulic fracturing in Britain.

The government is also expected to announce additional compensation for communities affected by fracking today, on top of the existing payments of £100,000 per fracking site and one per cent share of profits from the locations.

Research by the Inst-itute of Dir-ectors in January showed that the proceeds of the UK’s shale gas investment could soon reach £3.7bn annually and support up to 74,000 jobs.

In the US, almost one quarter of the country’s natural gas extraction is shale and the energy sector has seen a string of deals for shale gas operations across the globe.

Fracking in the US has become so widespread and profitable that it has led to speculation that the country could overtake Saudi Arabia as the world’s largest oil producer by 2020 or sooner.

Companies such as Cuadrilla and IGas have already begun exploratory drilling at UK sites.

But environmental campaigners are opposed to shale gas due to the fracturing technique used, which they claim can cause earth tremors.

Fracking involves pumping water, sand and chemicals into rock at high pressure in order to extract oil buried in the rocks deep underground.

Last month, shares in IGas jumped 11 per cent after the government indicated that energy companies would be able to explore for shale gas without permission from private landowners.

The planned move is expected to be revealed shortly as part of a new infrastructure bill that is aimed at encouraging investment into the UK’s burgeoning shale gas industry.

The Department of Energy and Climate Change in March closed its 14th round of licensing for companies to bid on exclusive rights that cover exploration for shale gas as well as conventional gas and oil in the UK.

This licensing round covered the Weald Basin. However, results of the bidding have yet to be disclosed.

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Magnolia Petroleum: Reserves Revised Downward Whilst Revenues Increase

By
May 06 2014, 8:31am

OIL & GAS: MAGNOLIA PETROLEUM (LON:MAGP)

RESERVES REPORT: EXPECTED SIGNIFICANT DOWNGRADE GIVEN MIXED INDUSTRY READ ACROSS FROM THE MISSISSIPPI LIME FORMATION

RESERVES REPORT

  • Assessment of net proved and developed producing (PDP) reserves have been estimated at 167mbbl of oil and condensate and 450mmcf with an NPV10 of $8.4m. This compares with 158mbbl and 814mmcf, respectively, as at 1st August and NPV10 of $7.2m.
  • A detailed Reserves Report has been commissioned that is expected to show a significant downgrade in P2 and P3 reserves from September’s given a reassessment of the Mississippi Lime geology as comprising multiple wedges rather than a uniform resource that will require a modified approach and likely lead to more drilling.
  • Increased understanding of the geology of the Woodford formation in Oklahoma suggests that it may prove to be more prospective than the Mississippi Lime. 
  • This could benefit future reserves and value assessments given very little Woodford drilling has been completed on the acreage.

 

PRODUCTION

  • Moyes estimates the Company’s net production was 150 boepd as at 1st April 2014, 29% up on H213 average.
  • The new rate shows the decline rate of some significant wells and compares with initial rates of 214 boepd announced in September. However, actual net production in H113 was 93 boepd and, in H213, rose to 116 (+24%) boepd.
  • Hydrocarbon mix has also shifted in favour of oil which benefits revenues, from a 47/53 gas/oil split in H113 to a 67%/33% oil/gas split in H213 and continues along similar lines.

 

STRATEGY

  • Management is confident that it has a number of Mississippi Lime wedges in areas where it has up to 100% interests and is assessing potential to drill, as operator, a number of vertical wells targeting this potential at a cost of around $750k per well.
  • We place our forecasts and PT under review but would expect to reduce our forecasts and price target.

 

      

NORTHLAND UK VIEW: It is disappointing that reserves will be downgraded. This owes to industry-wide findings on the Mississippi Lime formation interpreted by the competent person. The Mississippi ‘wedges’ will require a new drilling approach that, if successful, may lead to better future results. The news is partially offset by the increased potential of the Woodford formation though this will take time to come through in the numbers. This is an area to which Magnolia has significant exposure but to which little value is ascribed. The statement provides greater clarity on production numbers and shows robust underlying average increases period on period. As expected, production has been volatile and will continue to be variable over the year with several peaks and troughs. This is evident in the 150 boepd reported for the April snapshot that is lower than the 214 reported in August given some high IP rates around that time. On the positive side, Magnolia previously guided it would meet this year’s forecast in terms of revenues and exceed our previous EBITDA forecast whilst production profile and predictability should also improve. The group is operating cashflow positive with rising production and has outlined plans to look at the potential of advancing its own-operated sites.Image

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