Magnolia Petroleum has landed a $18.5million financial injection.
Magnolia entered into an exclusive agreement Western Energy Development (WED) to invest, on behalf of WED, up to $18,500,000 into the Oklahoma oil and gas market. In exchange for this exclusivity, WED is to be issued with 763,730,000 new ordinary shares at a price of 0.1p per share in the Company, representing 29% of the enlarged issued share capital.
The deal dictates Magnolia will be responsible for the acquisition of oil and gas working interests. The working interests can be acquired in 27 counties within Oklahoma. Magnolia will deal with all land and accounting related issues; well elections; and negotiations with operators and the Oklahoma Corporation Commission.
Magnolia chief executive Rita Whittington said: “For Western Energy to entrust us with the management of up to $18.5million of their clients’ funds, together with their agreement to receive shares in lieu of a cash fee for the deal, represents a major endorsement of the current Board and management team. It is a real triumph for the Company in the face of significant competition and cements the relationship that started in late 2016. In an extremely challenging oil and gas market, the Board believes this deal will deliver significant near-term growth in Magnolia’s revenues, profits and shareholder value and at the same time raises our profile in key US States and with potential operating partners.
“We expect that this Agreement will be a win-win for both parties. WED benefits from our proven expertise in the specialist field of US onshore oil and gas lease acquisition, development and management; while Magnolia stands to gain an additional revenue stream based on the provision of third party asset management services, as well as de-risked, nil cost entry into attractive leases and wells. For comparison using the pilot project as a benchmark, to equal the new well inventory that Magnolia could secure under the minimum capital contribution in the Agreement, we calculate Magnolia would have had to raise approximately US$2,500,000 in new equity. On top of this we will receive cash fees along the way.
“Importantly, the capital management service is already proven following the successful pilot programme. The opportunity to scale up our activities with WED should fast track the execution of our strategy and the delivery of our primary objectives. Our strategy remains to create significant value for our shareholders through the acquisition and development of leases in proven US onshore formations alongside established operators. Our lenders are supportive of the deal, and the Board believes the increased revenues will provide the Company with real financial stability moving forward. We are delighted to secure WED as a new shareholder of the Company and look forward to working with them over the next five years to deliver value and returns to their investors and our shareholders.”
The deal dictates a lock-in period in which WED agrees not to sell, trade or assign the Consideration Shares for two years.
WED chief executive Greg Neher added: “We have been looking for an industry partner for some time and are delighted we have now signed the Capital Management Agreement with Magnolia. The pilot programme with Magnolia has been successful thus far – meaning our alliance has already shown it will work. Rita and her team have the industry expertise to deliver results for our EB-5 investors. As Magnolia’s largest shareholder, we share the Board’s view that the partnership between WED and Magnolia can deliver real Magnolia shareholder value in the near term.”
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