US oil junior Magnolia Petroleum (LON:MAGP) is aiming to have 175 wells on its books by the end of the year.
The company is confident about hitting this year’s target, having met 2012’s goal of 100 wells, giving daily production of 100 barrels of oil equivalent (boepd).
And the number is rising fast. It has now racked up interests in 105 producing wells after it revealed that another well in the emerging Mississippi Lime formation in Oklahoma (Peck 1-5H) started production. It also announced it is participating in a further five wells in the state.
On the face of it, the 175 number may seem quite conservative given last year’s impressive performance, but the company also plans to increase its working interests in its producing wells to get its hands on a larger share of the revenues; larger revenues will give it more money to reinvest in new wells.
Chief operating officer Rita Whittington says keeping the number of wells ticking over keeps the company low-risk.
“It’s all about spreading the risk. I hate to use the phrase ‘all your eggs in one basket’ but that really works,” she said.
“No one well will make or break you – and we’re going to keep it that way.
She added: “We’re always looking at the next deal. We’re not opposed to looking at production deals because it might have some upside.”
Magnolia, whose acreage is in the established Bakken shale formation of North Dakota as well as the emerging Mississippi Lime play, also wants to double production from the current rate of 122.5 boepd by 2014.
It is worth noting that Moyes & Co, the company in charge of the recent competent person’s report (CPR), reckons Magnolia has the potential to be producing over 1,000 barrels a day by 2017.
Whittington says the most important number in the recent final results was the five-fold increase in the value of its 3P reserves (proven, probable and possible) from US$18mln in November 2011 when it joined AIM to US$94mln.
Notably, the CPR does not include the 7,866 net acres Magnolia has snapped up in Montana, which it believes could be an extension of the prolific Bakken formation over the border in North Dakota.
The 194% increase in revenues to US$709,395 accounts for less than half of the wells it participated in last year due to the time it takes to get the first cheque from a new well – typically six months.
That means that the company will benefit this year from the work put in towards the back end of 2012 as these backdated revenues kick in.
Magnolia reckons it generated around US$170,000 in revenues in December alone, which equates to 40-50 boepd. This not only shows the run rate is increasing significantly, but that there is also a discrepancy between revenues and production.
Magnolia’s working interests in the new wells added on Thursday range from 0.25% to 1.631%. Its share of the well costs amounts to £155,000.
The Peck 1-5H well in the Mississippi Lime has begun producing at a daily rate of 631 barrels of oil, with 9.2 barrels net to Magnolia given its 1.46% interest.
Northland Capital’s Andrew McGeary says it is a mark of Magnolia’s progress over the past year that the Peck 1-5H well result is “of modest overall materiality to the group”.
He is particularly encouraged by the initial production rate (IPR).
“We would expect the average IPR for Mississippi Lime wells to be in the region of 250-350 boepd so this result, almost double, is particularly robust,” said McGeary.
The shares rose 7% to 2.79p each on Thursday, up a staggering 250% since its float less than 18 months ago.