Magnum on the verge of drilling a company changing well
Rarely do you see such a dramatic company-making opportunity as the one that is looming for Australian oil and gas junior Magnum Gas & Power Ltd (ASX: MPE).
After battling hard for a number of years to develop assets in sometimes difficult circumstances in Africa and Australia, the company is about to drill what can only be described as world class onshore asset in one of the world’s premier gas markets.
The big turning point for Magnum came in June this year when the company entered into an agreement to acquire a share in a conventional gas project, right on the doorstep of the energy hungry Californian market.
And not only is this project, Tulainyo, ideally located with regards to market demand and key infrastructure, it is of truly significant size.
Current estimates are that Tulainyo could contain up to six trillion cubic feet (tcf) of gas – and billions of dollars in potential revenue.
And excitingly, previous drilling has already identified that a conventional gas asset is in place.
The introduction of a new geographical direction for Magnum followed a major management change earlier this year which saw stock market identity Nathan Featherby take over as Executive Chairman.
Featherby has been highly successful for a number of years in providing early (venture) risk capital for many aspiring junior explorers across mining and energy, and was one of the early movers of the stock market darling Sirius (ASX:SIR)
It was through Featherby’s contacts, and in particular a close association with well-known oil and gas identity John Begg, that Magnum was introduced to the Tulainyo asset.
“John has had a lot of success in the US and he took us up to have a look at some properties and we saw something with significant scale that we liked,”Mr Featherby.
Featherby and his fellow board members didn’t waste any time grabbing the outstanding opportunity in both hands and signed a binding letter of intent (LOI) to acquire a 60% interest in Gasfields LLC, which holds rights to farmin to earn a 33.3% interest in the 152 km2 lease position over the large Sites Anticline structure containing the Tulainyo Gas Discovery.
To meet its obligations Magnum was required to provide Gasfields with US$3.4 million towards satisfying the conditions of the latter’s farm-in agreement for the Tulainyo Project, with those funds covering the majority of the costs of the initial farm-in well.
That task was quickly completed and the company is now counting down the days until the farm-in well spuds, which is expected to be in mid October.
According to Mr Featherby, not only was the dramatic size of Tulainyo a major attraction for Magnum, the field’s location and their JV partners in the permit are major bonuses.
“Tulainyo is located on the west side of the Sacramento Basin, a prolific hydrocarbon producing area and the project is located in the region of some significant infrastructure, including major pipelines connected to a very hungry energy market.
“Add to that the fact that the senior partner in the JV is California Resource Corporation (CRC), California’s largest gas producer, and you can see we are in an absolutely ideal position to take advantage of any commercial drilling success,” Mr Featherby said.
As this upcoming well is an appraisal of a gas discovery rather than a rank wildcat, the odds are certainly on Magnum’s side.
The previous drilling programme undertaken by CRC in late 2014 encountered multiple, stacked gas bearing conventional reservoirs and the conventional word is also an important point to remember when it comes to commercialising any drilling successes.
“Following the drilling of the farm-in wells, which is consistent with the JV arrangement, we will have the right to 20% net in Tulainyo,” Mr Featherby said. “That gives us approximately 1.2 tcf of gas on the current estimates, that a huge asset for a small company like ours.”
All eyes will now be on the spud of the Tulainyo appraisal well, which is expected to take around 21 days to reach its target formations.
With such a company-making opportunity looming in the very near future, Magnum Gas & Power definitely is a company to take a close look at.