Magnum Energy (MEN.v)

Magnum Energy is another tiny driller that is about to show significant growth in production. They hit two discovery wells in 2007 that should dramatically boost production in 2008.

1. They hit a Cardium oil well that tested at 600bpd. They hold 31% WI. The well is waiting for GPP approval. Unfortunately it has been several months with no decision from the ERB so the well has passed the temporary production rates and is now being severely curtailed. Magnum is hoping for full production approval this month.

2. Magnum has the rights to two shutin ngas wells at Sedalia. They completed the first well and completed in a different position from the original completion. The well was tested at 15-30boepd 20 years ago. However with modern well logs, Magnum was able to complete in a more porous section of shale and the well tested at 1 million mcfpd. They own 100% WI. That's 166boepd equivalent. There is a second well that is drilled and shutin in the next section. Magnum has not recompleted that well because they don't have any way to get the gas to market. There was an abandoned pipeline on the property but the new owner is a bigger company that has dragged their feet in giving Magnum the permission to test the pipe for structual integrity as required by the ERB. This has delayed hookup. Magnum is hoping for testing and hookup of the first well by the end of July. They will then test the second section of the pipelne that leads to the second well. They will complete and hopefully tie in the second well sometime in August/Sept.

Magnum had average production of 81boepd in Q2 ending 2/29/08. They did have some production from the Cardium oil well but no gas from Sedalia. Once everything is hooked up and flowing, their production should be closer to 400boepd. If the second Sedalia well is 150boepd, they could be at 600boepd by fall 08. At 600boepd, they would cashflow around .045. The increases would be mostly ngas so the impact is not as great for Magnum as others. Still at .37, Magnum is fairly cheap and has good upside. They have secured land surrounding the land at Sedalia and have other possibilities that are on trend with the Cardium oil well. Magnum is also looking at potential acquisitions but again, their share price is too low to effectively purchase assets without high dilution.

At this point, the ERB is holding up the production increases and I am pessimistic that everything is approved and hooked up by the end of July, as the company rep, Richard Nemeth is hoping. However, I would expect 400boepd production by 9/08.

website: http://www.magnumenergyinc.com/s/Home.asp