16.06.15 - 13:27 Uhr
  Hi there,

Please see attached the initiation of coverage by Sanlam Securities on US onshore focused Magnolia Petroleum. Sanlam highlights Magnolia’s successful business model which delivered revenue growth of 440% and gross profit of 400% between FY12 and FY14. Going forward, Magnolia plans to invest in both non-operator and owner operator wells in order to further grow these profits and revenues from its portfolio of 193 producing wells predominately in Oklahoma and North Dakota.

With a recent $1.5m fund raise complete, Magnolia can now deliver a more aggressive drilling programme, and it plans to spud an operated well in July.

The full note is attached. If you are interested in speaking to Magnolia, please let me know and I will happily arrange.

Best regards,

Lottie

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Lottie Brocklehurst
St Brides Partners
3 St Michael’s Alley, London, EC3V 9DS<

Tel: 0207 236 1177 | Mob: 07917010468 | Twitter: @StBrides1

Magnolia Petroleum* (MAGP.L) BUY

Target Price 1.2p

Profitable growth

Please click here< to read the full note

Magnolia’s portfolio generates circa 280 barrels of oil equivalent per day and, with an operating cost of c.$32/boe, generates $140K per month of operating cashflow. It then reinvests in the best well opportunities, typically where Magnolia is non-operator with a small interest. This successful model delivered revenue growth of 440% and gross profit of 400% between FY12 and FY14.

The recent $1.5m fund raise will allow Magnolia to accelerate these investments at the bottom of the cycle, while drilling and lease acquisition costs are at a 5-year low. Going forward, Magnolia plans to invest in both non-operator and owner operator wells, focusing on lower geological risk prospects. We forecast underlying EBITDA to increase 33% to $1.67m in FY15 ($55/bbl WTI) and initiate with a 1.20p target price and BUY recommendation.

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Diversified onshore U.S: Magnolia owns small working interests in on-shore wells typically operated by major E&P companies. This provides diversification in terms of geological and technical risks and exposure to the oil price.

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Non-operator wells: Last week Magnolia elected to participate in 16 new wells and now has a working interest in 221 wells, 193 of which produce. It has 13,500 net acres in active oil regions, and expects further well proposals in 2H15 and beyond.

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Owner operator well in July: Magnolia plans to spud the Shimanek #2 well in July. It anticipates drilling and completion costs of circa $550k and an IRR of 36%. We have modelled initial production of 20bopd in our forecasts.

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Financial strength: In FY15 Magnolia should generate monthly sales of c.$350k and after opex and G&A of $210k, produce $140k of monthly operating cashflow.

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Valuation: Our SOTP valuation is based on a 7.5x FY16E EBITDA multiple and Magnolia’s reserve value. It produces a £12.8m valuation or 1.20p per share.

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Price/Mkt Cap: 0.7p/£7.4m 15 June 2015 Source: Sanlam Securities UK

*Sanlam Securities UK acts as joint broker








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