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Replies to post #177 on Magellan Petroleum Corp. (MPET)
11/14/10 9:12 PM
For the quarter, Magellan recorded a net loss of $3.4 million on total revenues of $3.7 million. The following items impacted our first quarter earnings and cash flow for fiscal year 2011 as compared to 2010:
Gas Sales decreased 92% to $0.4 million due to the term end of the Mereenie Sales Agreement
Oil Sales decreased due primarily to the sale of the Cooper Basin and Nockatunga assets
Production Costs decreased by 45% primarily due to cost reduction efforts at Mereenie and Palm Valley and pipeline repairs at Mereenie in prior year offset by the costs associated with the addition of the Poplar assets in Montana
The net loss in the first quarter is attributable to the term end of the Mereenie Sales Agreement. We believe that the residual gas reserves at Mereenie and in the Dingo field remain valuable assets to the company. Gas reserves can, ultimately, be worked into the feed stream for new industrial development in the Darwin area, be it Magellan's industrial development plans or those of third parties, including expansion of existing assets there and/or supplements for operational shortfalls.
Magellan has begun new development within the Poplar Fields in Montana. The first of several new wells spud in September 2010 pursuant to a drilling and development plan at Poplar. This first well was also designed to provide data via logs, cores, and petrography analysis of a number of hydrocarbon pay zones extending from near 700 feet in depth all the way, in intervals, to 7,400 feet.
Magellan is planning for, and will likely incur, substantial capital expenditures for Poplar field development and for the remainder of the Evans Shoal acquisition and subsequent development in coming years. We are working toward the scheduled completion of the acquisition of a 40% working interest in the Evans Shoal Gas Field. Both of these properties have significant upside and, with investment, provide material growth opportunities to shareholders.
Additionally, the increased development brings with it the need to increase Company staff in both management and technical roles. The Company is actively discussing partnerships with experienced, knowledgeable partners toward the development of both fields. We have also enlisted various market participants, particularly for the Evans Shoal opportunity, to help monetize and secure a unique market development opportunity.
Further, and to address the long-term structure of the Company moving forward, the Company is seeking shareholder authorization for an amendment to our Certificate of Incorporation to permit the future issuance of various forms of new equity. These are authorizations only and any incremental issuance of shares pursuant to the authorizations will be conducted in a separate Board approved transaction.
It is important to note that the assets to be acquired by the Company are far larger than any the Company has held in the past and so, equally, the authorizations for the issuance of new equity are larger as well. Given that the Company share price has already increased to the current level at a compound annual growth rate of 88% from December 2008 to November 2010, we believe that the new share authorizations will help us continue this trend and give us the flexibility to build the Company into a substantial entity along the lines of what has already been described. For this reason, we see new share issuance as accretive rather than dilutive. The intent is to create value and issue new shares, when needed and approved, at higher price levels rather than at lower price levels. This can only be done with a good asset base backing and we believe we have built that.
Along the same lines, as mentioned, Magellan's operational personnel base will grow requiring an expanded Stock Incentive Plan base which can be used to incentivize and compensate new staff. This has also been proposed for shareholder approval at the upcoming annual meeting.
Lastly, the Company believes that most companies restructuring within a development phase, like Magellan, would seek to establish an authorized class of Preferred Shares under their charter documents, if they do not already have such a class of Shares authorized. Again, we are seeking only authorizations rather than actual share issuance. Having a Preferred Share class in place and authorized allows Magellan to broaden its structuring scope and to properly respond to the market-based "offers" that might be attractive but which involve a "preferred" element. Any such proposal would be approved by the Board as a value-adding transaction.
An example of our growth efforts on an accretive basis would be the YEP Securities Purchase Agreement (see Note 2) that is expected to be implemented on or before December 25, 2010, with the proceeds to be used to cover operating and financing expenditures associated with the purchase by MPAL of the 40% interest in the Evans Shoal. The placement involves the issuance and sale of up to 5.2 million new shares of the Company's common stock to YEP and/or one or more of its affiliates in return for $3.00 per new share issued and sold. The $3.00 share price for this transaction is indicative of our largest stockholder's confidence in the Evans Shoal acquisition and our other projects, as the Company continues with its efforts to build substantial stockholder value. However, the Purchase Agreement provides that the obligations of YEP to complete the purchase of the Shares are subject to closing conditions, including a condition that the progress and status of the Evans Shoal transaction shall be satisfactory to YEP (see Note 2).
11/14/10 10:16 PM
11/14/10 10:23 PM
