Magnolia Petroleum plc (AIM: MAGP) cancellation to trading on AIM, what went wrong?

Magnolia Petroleum Plc is an AIM quoted, US focused, oil and gas exploration and production company.  Its portfolio includes interests in 154 producing and non-producing assets, primarily located in Oklahoma, USA.

You read the intro and everything looks great, even if you look at the official website  magnoliapetroleum.com you may take comfort from the mission statement

” Led by a highly skilled management team with over 100 years’ combined experience in the onshore oil and gas industry, Magnolia has interests in over 154 producing properties and significant acreage in two major project areas, the highly productive Bakken shale in North Dakota and the proven Woodford/Mississippi and Hunton formations in Oklahoma.”

Yet the alarm bells could be heard across the Atlantic for investors as a war of words broke out and investors had a chose to make, one that would prove to come to fruitarian because of today’s announcement that has basically robbed investors while Rita Fern Whittington, President, CEO & Executive Director of Magnolia Petroleum Plc walk away in to the sunset.

Full RNS Update Link: http://share-talk.co.uk/announcements/prn/magnolia-petroleum-plc/proposed-cancellation-of-admission-to-trading-o/20180523070000P7121

 

Magnolia Petroleum began trading on AIM in November 2011 and at that time they had 67 wells, in Share Talk last interview (1s June 2017) Rita Fern Whittington said” Magnolia holds an interest in over 150 producing wells, in addition, we have almost 60 wells in different stages of development. Yet a war of words was to unfold in the public arena at this point and the CEO would try her hardest to hold on to power

 

Full interview here: Jun 1, 2017

 

 

Look at this LinkedIn profile and the one stand out question, why hide your identity while you are the head representative of an AIM-listed company?

Go even deeper and ask the question, why list on the AIM market back in 2011, we look at the companies past performance and you can see the chart for yourselves. Exposure to investors on the Alternative Investors Market gains companies a lot of exposure, but the downside is you are open to scrutiny.

Once the dust settled all eyes would be focused on production and how the company would deliver crude production figures with over 150 producing wells?

 

As time passed it become apparent that production figures were increasing and the cash burn of the company continued. We move forward to  2017 and on 26th May Nostra Terra Oil and Gas Company plc made its intentions clear by announcing Acquisition of interest in Magnolia Petroleum Plc

“Nostra Terra (AIM:NTOG), the oil and gas exploration and production company with a portfolio of assets in the USA and Egypt, announces that it has agreed today to acquire 204,226,748 ordinary shares of £0.001 each in Magnolia Petroleum plc (“Magnolia”) (the “Magnolia Shares”), which represents a 10.9% interest in the ordinary share capital of Magnolia.”

The Magnolia Shares have been purchased from Steven Snead, the former CEO of Magnolia, and his family.

 

Now we waited for a response from  Rita Fern Whittington and the Magnolia board. On 2nd June 2017, the company called Notice of Requisition of General Meeting

Nostra Terra (AIM:NTOG) issued a market update (9th June) to state “that Steven Snead, the former CEO and founder of Magnolia, and members of his family, have requisitioned the EGM using the ordinary shares in Magnolia that Nostra Terra agreed to purchase as announced on 26 May 2017.”

Notice of Requisition of General Meeting

 

1. That in accordance with the provisions of Article 90 of the Articles of Association of the Company and section 168 of the Companies Act 2006 Rita Fern Whittington be removed from office as a director of the Company immediately.

2. That in accordance with the provisions of Article 86 of the Articles of Association and subject to the AIM Rules for Companies of the London Stock Exchange Plc Kristian Ewen Ainsworth be appointed a director of the Company.

3. That in accordance with the provisions of Article 86 of the Articles of Association and subject to the AIM Rules for Companies of the London Stock Exchange Plc Donald Zac Phillips be appointed a director of the Company.

 

Further to the announcement of 21 June 2017, Nostra Terra (AIM:NTOG) sets out below an open letter from the Chairman of the Company to shareholders of Magnolia (AIM:MAGP) in response to the announcement made by Magnolia on 20 June 2017.

It is clear from the outside that Magnolia’s current business model is in danger of failing. By Magnolia’s own admission that Company is “non-compliant on all (banking) covenants” stated Ewen Ainsworth, Non-Executive Chairman, Nostra Terra Oil & Gas Plc”

Magnolia’s borrowing base limit was $1,604,565 as of 31 December 2016, yet that Company’s borrowings on the facility “amounted to $2,638,447”. Magnolia’s borrowing base limit “is due for repayment in full on 8 August 2017 and the decision to extend is at SNB Bank’s (Magnolia’s bank) discretion.”

  • Magnolia’s 2016 Annual Report, states that they have net current liabilities of $3,928,983, including the $2,638,447 borrowings to SNB Bank and $1,290,536 in trade and other payables. Magnolia has warned its shareholders:
  • “As noted in the Company’s recently published report and accounts, the Company does not have the cash reserves to repay this loan in full and would therefore be required to raise funds or sell down its assets to repay this loan. In the event that the bank is unwilling to allow the Company time to achieve this, the bank would be entitled to call upon its security which could involve a formal insolvency of its subsidiary.”
  • Despite this obvious looming threat to Magnolia, the current Chief Executive has failed to take sufficient action to avoid a potentially catastrophic outcome for Magnolia’s shareholders. 

 

The warning signs had been posted in the public domain and the numbers did not lie, Magnolia could not keep cash burning at this rate and had a lifeline to rescue the company. 

Magnolia Petroleum stated on 6th July that the Company notes that NTOG has today confirmed that settlement for the shares to be acquired from Steven Snead and his family was made in cash on 26 May 2017 and that completion will now take place by 31 July 2017. The Board of Magnolia looks forward to welcoming NTOG as a shareholder.

Yet this story still had more turns and twists to come with shareholders not even getting past the starters block.

Withdrawal of Requisition for General Meeting

The board of Magnolia advises that proxies received as at noon on 13 July 2017 (“Received Proxies”) for the three resolutions recorded a minimum vote in support of the Company (voting against the proposed resolutions) of 98.78 per cent.

The Company is aware that shareholders may have already made plans to attend the General Meeting.  Accordingly, the Company would like to use the opportunity of the General Meeting to thank shareholders for their support

So basically the  Magnolia board closed ranks to self-preserve their positions and it was business as usual, but how could the company continue with $2,638,447 borrowings to SNB Bank and $1,290,536 in trade and other payables as stated above? This was a total disregard of the reality that was facing the company and the writing was on the wall.  

Nostra Terra confirms the withdrawal of the requisition for a General Meeting on 14th July and walked away.

Magnolia issued an RNS on the same day Capital Management Agreement and Issue of Equity Rita Whittington, gave away nearly 30% of the business to Western Energy Development (WED) to save her own skin.

I watched with interest as the months unfolded and the cash burn, fundraise, dilution continued yet it was business as usual for Rita Fern Whittington and the Magnolia board. They got paid and trod water, but hey they were ok.

The last  RNS to be released would have the world think they are working hard on shareholders behalf and everything was business as usual?

Q1 2018 Operations Update – 16th April 2018

  • US$500,000 pilot programme generated in excess of US$200,000 value net to Magnolia in terms of fees, equity in new wells, and uplift in reserves

Do the maths and US$200,000 from US$500,000 leaves a bit of a hole, or have l missed something, it gets worse. Why beecasue five weeks late they would throw in the towel, but l can assure you they will not out of pocket.

Magnolia CEO, Rita Whittington said, “Activity during the quarter has been centred on investing the first US$500,000 of our exclusive US$18.5 million agreement with WED into qualifying leases in Oklahoma. As demonstrated by our successful pilot programme with WED, as well as fees, every US$500,000 invested has the potential to generate 27 new drilling opportunities for Magnolia.  Together with the pick-up in activity we are seeing in our core areas of focus, specifically the low cost and prolific SCOOP and STACK plays in Oklahoma, we are putting in place a pipeline of new wells which, once drilled and subject to the results, will enable us to add to our proven reserves and build value.”

I take no pleasure in highlighting the incompetence, the lifestyle some of these companies have while listed on AIM. The red flag was raised in 2017 and agree or disagree with NTOG business strategy, once the Magnolia board closed ranks, they showed contempt for the grassroots shareholders.

Today announcement that Proposed cancellation of admission to trading on AIM

Expected last day of dealings in Ordinary Shares on AIM 21 June
Expected time and date that the admission to trading of the Ordinary Shares on AIM will be cancelled 07:00 a.m. on 22 June

 

A very sad state of affairs indeed

@ABMckinley 

These are my own personnal opions and l hold no stock in either company.



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