Magnolia Petroleum : Adjournment of General Meeting and Posting of Circular

Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas

7 June 2018

Magnolia Petroleum plc (‘Magnolia’ or ‘the Company’)

Adjournment of General Meeting and Posting of Circular

Magnolia Petroleum plc, the AIM quoted US focused oil and gas exploration and production company, announces that the general meeting scheduled to be held today, as notified on 23 May 2018, was opened and adjourned.

The adjourned general meeting has been rescheduled to be held at 15:45 p.m. BST (09:45 a.m. local time) on 22 June 2018 to be held at the offices of Pray Walker P.C., 100 West Fifth Street, Suite 900, Tulsa, OK 74103, USA (the "Adjourned General Meeting").

Shareholders who have submitted forms of proxy for the Adjourned General Meeting but who wish to change their voting instructions may do so by resubmitting a proxy form which is available from the Company’s website www.magnoliapetroleum.com. Proxy forms will be accepted for the Adjourned General Meeting up until 20 June 2018 and should be returned to Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA to arrive by 15:45 p.m. BST.

Shareholders who have already submitted forms of proxy for the Adjourned General Meeting and who do not wish to change their voting instructions will not need to take any further action.

Subject to shareholder consent, the revised timetable for Cancellation is as follows:

Posting of Circular

Further to the Company’s announcement of 6 June 2018, the Company has today posted a circular to shareholders to seek consent to dispose of certain assets. The circular contains a notice convening a general meeting for 15:30 p.m. BST (09:30 a.m. local time) on 22 June 2018 to be held at the offices of Pray Walker P.C., 100 West Fifth Street, Suite 900, Tulsa, OK 74103, USA.

Below is an extract from the circular which will also be available on the Company’s website www.magnoliapetroleum.com and which should be read in full.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information on Magnolia Petroleum Plc visit www.magnoliapetroleum.com or contact the following:

Proposed Disposal of Assets

Notice of General Meeting

Dear Shareholder,

1. Introduction

This circular sets out the reasons for seeking Shareholder consent to dispose of certain assets and why the Board believes the proposal is in the best interests of Shareholders.

A notice of a general meeting is included at the end of this document convening a general meeting (“General Meeting”) to be held at the offices of Pray Walker, P.C. at 100 West Fifth Street, Suite 900, Tulsa, OK 74103, USA at 15:30 p.m. BST (to be held at 09:30 a.m. local time) on 22 June 2018.

2. Background to the proposal

On 6 June 2018, the Company announced that, following protracted negotiations with its bank, Simmons Bank (the “Bank”), an Arkansas state bank (successor by merger to bank SNB, an Oklahoma state banking corporation), the Bank would not extend the reserved based lending facility provided to its wholly owned operating subsidiary, Magnolia Petroleum, Inc. (“Magnolia Inc”). The amount outstanding to the Bank is approximately $2,000,000 and Magnolia Inc has been given until 9 July 2018 to repay or refinance its loan. The Bank has further placed restrictions on Magnolia Inc’s bank account until such time as the loan is satisfied resulting in the Group not being able to manage its working capital effectively.

The Board is extremely disappointed with the Bank’s decision and attributes the reasons for this to the Bank’s recent sale and change of management.  The Board has previously stated its intention to reduce the Group’s debt due to its loss of confidence in the long term support of the Bank. Further, the Company recently put a proposal to Shareholders to seek a cancellation from trading on AIM as it considered that it would not be able to raise further funds from the equity market such that the costs of remaining on AIM outweighed the benefits.

As a result of the previously announced planned debt reduction programme, the Board had designated a portfolio of interests in wells (the “Target Assets”) as appropriate for disposal.  The Board recognises that the best option available to preserve shareholder value is to accelerate its disposal plan.  Due to the nature of its assets, the Board is confident that it can sell a sufficient value of its interests in wells (the “Disposal”) prior to the Bank’s deadline to satisfy the bank loan in full. In the event that the loan cannot be repaid or refinanced, it is likely that the directors would need to commence Chapter 11 bankruptcy proceedings with respect to Magnolia Inc which would lead to a loss of control of the debt reduction programme and reduced value being received by the Company for the Target Assets (and its portfolio of remaining wells). In this scenario it is likely shareholders would receive no value for the Company’s portfolio of wells with all proceeds of sales being used to settle creditors and the costs of the Chapter 11 proceedings.

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The portfolio of wells to be sold from the Target Assets is likely to include its interests in wells in North Dakota and certain properties in Oklahoma, however, the specific interests in wells subject to the Disposal may change.  The Company’s current portfolio comprises interests in 108 wells and further details of the interests in wells and their economics were included in the Company’s operations update on 16 April 2018. The Company expects current PDP reserves to be approximately $3,300,000 and it is anticipated that the Disposal will result in approximately 50 per cent of its wells being sold by number.  

Pursuant to Rule 15 of the AIM Rules for Companies, the proposed sale of the Target Assets will exceed 75 per cent. in at least one of the class tests, resulting in a fundamental change of business requiring the Company to obtain the consent of Shareholders at a general meeting prior to completing the Disposal. Accordingly, a notice of the General Meeting is included at the end of this document.  Whilst the Disposal is not considered at this stage to have the effect of divesting the Company of substantially all of its trading assets, to the extent that the sale of Target Assets, subject to Shareholder approval, is considered to have this effect then Magnolia will be regarded as a AIM Rule 15 cash shell as defined in the AIM Rules for Companies.

There is likely to be more than one buyer for the wells making up the Target Assets (the market for working interests in wells in North Dakota and Oklahoma is relatively liquid) and it is expected all buyers will be arm’s length third party cash buyers (not “connected persons” or “related parties” of the Company or the Directors, as such terms are defined in the Act and the AIM Rules for Companies respectively). At this stage, the identity of the specific wells to be sold, and the profits and/or losses and/or costs attributable to such wells, cannot be confirmed. Further, the identity of buyers of particular wells (or regional portfolios that are likely to be packaged together) is not known, and the final consideration the Company will receive for a particular well or portfolio of wells, and for the Disposal as a whole, is unknown. The Company will endeavour to achieve the best possible price for each well as part of the disposal programme and will make a further announcement after the Disposal has been competed (subject to Shareholder approval) to confirm details of Target Assets sold (and the portfolio of assets retained by Magnolia Inc), buyers (to the extent the same can be publicly disclosed), net consideration received by the Group, and the results of the debt reduction with the Bank.

3. Adjournment of general meeting in respect of the proposed cancellation

On 23 May 2018, the Company sent a circular to all Shareholders to consider a proposal to cancel admission of its Ordinary Shares to trading on AIM and convened a general meeting for 7 June 2018 (“Cancellation General Meeting”).

In light of the information contained in this circular, the Disposal and threat of insolvency proceedings for Magnolia Inc, the Board considers that it is appropriate to adjourn the Cancellation General Meeting to allow Shareholders time to better consider the situation as a whole.  The Cancellation General Meeting will accordingly be adjourned until 15:45 BST on 22 June 2018, to be reconvened for immediately after the General Meeting.         

Shareholders who have submitted forms of proxy for the Cancellation General Meeting but who wish to change their voting instructions may do so by resubmitting a proxy form which is available from the Company’s website www.magnoliapetroleum.com. Proxy forms will be accepted for the Cancellation General Meeting up until 20 June 2018 and should be returned to Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA to arrive by 15:45 p.m. BST.

Shareholders who have already submitted forms of proxy for the Cancellation General Meeting and who do not wish to change their voting instructions will not need to take any further action.          

4. General Meeting

You will find set out at the end of this document a notice convening the General Meeting to be held at the offices of Pray Walker, P.C. at 100 West Fifth Street, Suite 900, Tulsa, OK 74103, USA at 15:30 p.m. BST (to be held at 09:30 a.m. local time) on 22 June 2018 to consider the resolution seeking approval for the Disposal.

5. Action to be taken

Holders of Existing Ordinary Shares will find enclosed with this document a Form of Proxy for use by them at the General Meeting.

Whether or not you are able to attend the General Meeting, you are requested to complete the enclosed Form of Proxy and return it to Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA as soon as possible and, in any event, so as to arrive by 15:30 p.m. on 20 June 2018. The completion and return of a Form of Proxy will not prevent you from attending the General Meeting and voting in person if you subsequently wish to do so.

Shareholders are reminded that, if their Ordinary Shares are held in the name of a nominee, only that nominee or its duly appointed proxy can be counted in the quorum at the General Meeting.

If you are in any doubt as to what action you should take, you are recommended to seek your own personal financial advice from your broker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended) if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser, immediately.

6. Recommendation

The Directors consider the Disposal to be in the best interests of the Company and Shareholders as a whole. The Board advise that the likely alternative to the Disposal will be the commencement of Chapter 11 proceedings for Magnolia Inc, a loss of control of the debt reduction programme, and reduced value being received by the Company for the Target Assets (and its portfolio of remaining wells) as a result of the insolvency proceedings it will be required to take. The Directors unanimously recommend that Shareholders vote in favour of the resolution as they intend to do in respect of their aggregate interests.

The Directors further encourage Shareholders to resubmit proxy forms in favour of Cancellation at the adjourned Cancellation General Meeting as, in the event the Disposal is approved, the asset base of the Company will be significantly reduced to the extent that maintain admission to trading on AIM is likely to impact the value to all Shareholders.

Yours faithfully

Leonard Wallace

Non-executive Chairman

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

DEFINITIONS

The following definitions apply throughout this document (including the Notice of General Meeting) and the form of proxy unless the context requires otherwise:

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Notes:

1. References to times in this document are to London time (unless otherwise stated).

2. The General Meeting is being held in the United States and will take place at 09:30 a.m. local time (BST -6)

3. The times are subject to change by the Company, in which case details of the new times and dates will be notified to the London Stock Exchange and the Company will make an appropriate announcement through a Regulatory Information Service.

EQUITY STATISTICS