Magnum Gas & Power Ltd (MPE)

“Its not about the geology, its all about the drill”

Summary Key Points

MPE is an ASX listed Oil and Gas company: MPE is primarily a gas explorer whose main project is in the Sacramento Basin in Northern California. MPE is participating via a farm in agreement in 3 exploration/appraisal wells in the Tulainyo conventional gas project.

MPE via Gasfields is partnered with California Resources Corporation (NYSE:CRC): CRC is California’s largest gas company and produces 85% of the gas produced in the Sacramento Basin. CRC was originally a spin-off from Occidental Petroleum (NYSE:OXY) and operates in 4 producing basins in California; the Sacramento Basin, San Joaquin Basin, Ventura Basin and the Los Angeles Basin. It has 135 fields producing 129mboe/d spread across these basins.

The Sacramento Basin is a good address with prospective geology: The Sacramento Basin a prolific natural gas province, and most of the gas found in the basin is produced from sandstone reservoirs in the Upper Cretaceous part of the Great Valley Sequence.

The Dempsey high pressure Tulainyo-2 well about to spud: The Tulainyo-1 discovery and sidetrack wells were drilled in 2014/15 into a 50 km2 anticline. The wells intersected gas in a series of stacked sandstone reservoirs at depths of less than 1,700m. The Tulainyo-1 well was challenging due to overpressure in the formation which is a result of several factors including regional stresses. The Tulainyo-2 well is going to be drilled nearby the original Tulainyo-1 well and the JV is only planning to drill to 1,600m. The well aims to test the upper sands and determine if the well can flow a gas at a rate that proves the commercial viability of the play. There is no doubt there is gas in the formation, but the well will be a success if it can be completed and gas produced to surface.

The key to success is fit for purpose well engineering: Well control is going to be key to the success of the project. It is more than likely the JV will use the following drilling and completion techniques that have been used successfully in the past to control difficult-to-drill wells:

Use of an oil-based drilling mud vs a water-based mud: Oil based muds are less reactive with the clays in the formation. If the water in the mud reacts with the clays and causes swelling of the formation, the well bore can become destabilised making well control in an over pressured well challenging.

Higher mud weights: When drilling an oil and gas well it is important to keep the hydrocarbons in the formation otherwise a gas kick can occur. This can be dangerous if not controlled properly. One way to control the well is to use higher mud weights as the weight of the mud stops hydrocarbons coming out of the formation and into the wellbore.

Increasing the number of casing points: Running casing into a well makes the well bore stable as the hole is held open by steel and cement. The casing also keeps the hydrocarbons or other fluids from entering the well in an uncontrolled manner. The use of more casing points reduces the amount of open hole in the well thereby lowering the risk of well failure.

Disclosure & Disclaimer


This Research Report, accurately expresses the personal view of the Author. DJ Carmichael Pty Limited, including authors of this report, its directors and employees advise that at the time of publication they hold or may become entitled to securities representing up to 3.6% of the issued capital of the company and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report.

DJ Carmichael Pty Limited acts as Corporate Adviser to Magnum Gas and Power Limited and is paid a fee for that service.

The Author of this Research Report made contact with Magnum Gas and Power Limited for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company.

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Recommendation Definitions

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
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Michael Eidne

Director - Research

Michael has over 14 years experience working in financial markets in South Africa, UK and Australia. Prior to joining DJ Carmichael, Michael held research analyst positions at Bell Potter Securities and Blackswan Equities. He also spent several years working as a consultant for various Perth-based resource companies before moving back to the equity markets. Michael is originally from South Africa where he was a portfolio manager at Edge Capital, which is a large South African alternative investment manager. He also worked for a number of years at Investec Asset Management as an investment analyst.

Michael has a MSc in Mineral and Energy Economics from Curtin University and a MBA in Finance from the University of Cape Town.