Magnolia Expects Strong Production Growth amid More Drilling

Onshore US-focused junior producer Magnolia Petroleum said Friday that it expects strong production growth in 2014 as drilling activity increases on its already-producing US leases.

Magnolia, which has stakes in dozens of producing assets in North Dakota and Oklahoma, reported that it has received a large number of proposals from operators such as Devon Energy, Newfield Exploration, Chesapeake Energy and Kodiak Exploration to drill increased-density (or infill) wells across its portfolio of producing leases.

Magnolia said that since the start of the year it has elected to participate in nine increased-density wells. Four of these are Skunk Creek wells targeting the Bakken and Three Forks Sanish formation in North Dakota. In addition, the company is participating in an increased-density well targeting the Woodford formation on the same spacing unit as the producing Conduit 1-5 well in Oklahoma and four increased-density wells on the same unit as the producing Kelly 1-2H well operated by Eagle Rock Energy.

Applications to drill a further twelve increased density wells have been lodged by the relevant operators including several in which Magnolia has higher than average interests, specifically more than 3 percent, the firm added.

Magnolia Chief Operating Officer Rita Whittington commented in a company statement:

"With production already established on the relevant leases, increased-density wells are very much the low hanging fruit by which US onshore operators can rapidly increase production, maximize recovery rates on individual spacing units, and upgrade reserves to the proven developed producing [PDP] category. Significantly, PDP reserves are used by lenders to determine reserves based lending such as Magnolia's $5 million credit facility which in turn helps fund further drilling.

"The combination of the above, along with the considerably lower exploration risk associated with increased-density wells, and the time and cost savings on offer through drilling multiple wells from the same pad or consecutively, helps explain the surge in infill well proposals we have seen since the turn of the year.

"With the above in mind, we expect the pick-up in the number of increased-density wells to continue to grow and this bodes well for those leases in which Magnolia has above average interests… We are therefore confident 2014 will see us build upon the excellent momentum behind the company, specifically in terms of the excellent production and reserves growth seen to date, as we look to deliver on our objective and generate value for our shareholders."

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