Annual report pursuant to Section 13 and 15(d)

Supplemental Oil and Gas Information (Unaudited)

v3.3.0.814
Supplemental Oil and Gas Information (Unaudited)
 12 Months Ended
Jun. 30, 2015
Oil and Gas Exploration and Production Industries Disclosures [Abstract]  
Supplemental Oil and Gas Information (Unaudited)
Note 19 - Supplemental Oil and Gas Information (Unaudited)
Supplemental Oil and Gas Reserve Information
The Company relies upon a combination of internal technical staff and third party consulting arrangements for reserve estimation and review. The reserve information presented below is based on estimates of net proved reserves as of June 30, 2015, and 2014, and was prepared in accordance with guidelines established by the SEC.
Reserve estimates were prepared by Hector Wills of Mi3 Petroleum Engineering, a Golden, Colorado based petroleum engineering firm, for the fiscal years ended June 30, 2015 and 2014. Reserve estimates were audited by the Company's independent petroleum engineering firm, Allen & Crouch Petroleum Engineers ("A&C") for each of the fiscal years presented. A copy of the summary reserve audit report of A&C is provided as Exhibit 99.1 to this Annual Report on Form 10-K. A&C does not own an interest in any of Magellan's oil and gas properties and is not employed by Magellan on a contingent basis.
Proved reserves are the estimated quantities of oil, gas, and natural gas liquids, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined and the price to be used is the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. All of the Company's estimated proved reserves are located in the US.

Analysis of Changes in Proved Reserves
The following table sets forth information regarding the Company's estimated proved oil and gas reserve quantities. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established producing oil and gas properties. Accordingly, these estimates are expected to change as economic conditions change and new information becomes available.
 
United States
Australia (1)
 
Total
 
Oil
(Mbbls)
 
Gas
(Bcf)
 
Oil
(Mbbls)
 
Gas
(Bcf)
Proved Reserves:
 
 
 
 
 
 
 
Fiscal year ended June 30, 2013
7,368.6

 
11.4

 
7,368.6

 
11.4

Revision of previous estimates
(1,515.0
)
 
—

 
(1,515.0
)
 
—

Sales of minerals in place
—

 
(11.4
)
 
—

 
(11.4
)
Production
(117.9
)
 
—

 
(117.9
)
 
—

Fiscal year ended June 30, 2014
5,735.7

 
—

 
5,735.7

 
—

Revision of previous estimates
(3,417.1
)
 
—

 
(3,417.1
)
 
—

Production
(79.0
)
 
—

 
(79.0
)
 
—

Fiscal year ended June 30, 2015
2,239.6

 
—

 
2,239.6

 
—

 
 
 
 
 
 
 
 
Proved Developed Reserves:
 
 
 
 
 
 
 
Fiscal year ended June 30, 2014
2,494.6

 
—

 
2,494.6

 
—

Fiscal year ended June 30, 2015
2,239.6

 
—

 
2,239.6

 
—

 
 
 
 
 
 
 
 
Proved Undeveloped Reserves:
 
 
 
 
 
 
 
Fiscal year ended June 30, 2014
3,241.1

 
—

 
3,241.1

 
—

Fiscal year ended June 30, 2015
—

 
—

 
—

 
—

(1) The amount of proved reserves applicable to Australia gas reflects the amount of gas committed to specific long term supply contracts.
Revision of previous estimates. Revisions of estimates represent downward changes in previous estimates attributable to new information gained primarily from development activity, production history, and changes to the economic conditions and the financial condition of the Company at the time of each estimate. During the year ended June 30, 2015, there was a 3,417 Mbbls downward revision of estimated proved reserves. The majority of the revision relates to the removal of 3,083 Mbbls of proved undeveloped reserves from the classification of proved reserves due to the uncertainty surrounding the Company's ability to continue as a going concern and to obtain the necessary capital to develop the PUD locations. During fiscal 2015, the Company did not convert any proved undeveloped reserves to proved developed reserves. The proved undeveloped reserves as of June 30, 2014, which were attributable to a new 9-well drilling program at Poplar are in the immediate vicinity of the five wells that have been drilled for the CO2-EOR pilot project.
Standardized Measure of Oil and Gas
The Company computes a standardized measure of future net cash flows and changes therein relating to estimated proved reserves in accordance with authoritative accounting guidance. Certain information concerning the assumptions used in computing the valuation of proved reserves and their inherent limitations are discussed below. The Company believes such information is essential for a proper understanding and assessment of the data presented.
The "standardized measure" is the present value of estimated future cash inflows from proved oil and natural gas reserves, less future development and production costs and future income tax expenses, using prices and costs as of the date of estimation without future escalation, without giving effect to hedging activities, non-property related expenses such as general and administrative expenses, debt service, depreciation, depletion, and amortization, and tax, and are discounted using an annual discount rate of 10% to reflect timing of future cash flows.
The assumptions used to calculate estimated future cash inflows do not necessarily reflect the Company's expectations of actual revenues or costs, nor their present worth. In addition, variations from the expected production rate also could result directly or indirectly from factors outside of the Company's control, such as unexpected delays in development, changes in prices, or regulatory or environmental policies. The reserve valuation further assumes that all reserves will be disposed of by production. However, if reserves are sold in place, additional economic considerations could also affect the amount of cash eventually realized.
Prices. All prices used in calculation of our reserves are based upon a twelve month unweighted arithmetic average of the first day of the month price for the twelve months of the fiscal year, unless prices were defined by contractual arrangements. Prices are adjusted for local differentials and gravity and, as required by the SEC, held constant for the life of the projects (i.e., no escalation). The following table summarizes the resulting prices used for proved reserves for the fiscal years ended:
 
 
June 30,
 
 
2015
 
2014
Oil (per Bbl)
 
$58.93
 
$86.11
Gas (per Mcf)
 
NA
 
NA

Costs. Future development and production costs are calculated by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions.
Income taxes. Future income tax expenses are calculated by applying the appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, to the future pre-tax net cash flows relating to the Company's proved oil and gas reserves. Permanent differences in oil and gas related tax credits and allowances are recognized.
Discount. The present value of future net cash flows from the Company's proved reserves is calculated using a 10% annual discount rate. This rate is not necessarily the same as that used to calculate the current market value of our estimated oil and natural gas reserves.
The following table presents the standardized measure of discounted future net cash flows related to proved oil and gas reserves for the United States cost center only:
 
Year Ended June 30,
 
2015
 
2014
 
(In thousands)
Future cash inflows
$
131,979

 
$
493,901

Future production costs
(85,372
)
 
(226,464
)
Future development costs
(7,021
)
 
(23,594
)
Future income tax expense
—

 
(73,820
)
Future net cash flows
39,586

 
170,023

10% annual discount
(22,569
)
 
(82,980
)
Standardized measures of discounted future net cash flows
$
17,017

 
$
87,043



A summary of changes in the standardized measure of discounted future net cash flows is as follows:
 
United States
 
Australia
 
Total
 
(In thousands)
Fiscal year ended June 30, 2013
$
97,391

 
$
10,285

 
$
107,676

Net change in prices and production costs 
(10,222
)
 
—

 
(10,222
)
Revisions of previous quantity estimates
(34,441
)
 
—

 
(34,441
)
Divestiture of reserves
—

 
(10,285
)
 
(10,285
)
Changes in estimated future development costs
3,161

 
—

 
3,161

Sales and transfers of oil and gas produced
(4,720
)
 
—

 
(4,720
)
Previously estimated development cost incurred during the period
1,723

 
—

 
1,723

Accretion of discount
14,632

 
—

 
14,632

Net change in income taxes
16,746

 
—

 
16,746

Net change in timing and other
2,773

 
—

 
2,773

Fiscal year ended June 30, 2014
87,043

 
—

 
87,043

Net change in prices and production costs (1)
(71,406
)
 
—

 
(71,406
)
Revisions of previous quantity estimates (2)
(54,415
)
 
—

 
(54,415
)
Divestiture of reserves
—

 
—

 
—

Changes in estimated future development costs
9,071

 
—

 
9,071

Sales and transfers of oil and gas produced
(440
)
 
—

 
(440
)
Previously estimated development cost incurred during the period
7,749

 
—

 
7,749

Accretion of discount
8,853

 
—

 
8,853

Net change in income taxes (3)
32,188

 
—

 
32,188

Net change in timing and other
(1,626
)
 
—

 
(1,626
)
Fiscal year ended June 30, 2015
$
17,017

 
$
—

 
$
17,017

(1) For fiscal year 2015, there was a $71.4 million downward revision in reserve value due to the net change in prices and production costs. This change was the result of the steep decline in the WTI price, the benchmark oil price for sale of the Company's crude oil.
(2) The downward revision of $54.4 million relates to the elimination of PUDs of 3,241Mbbls from the classification as proved reserves and is discussed in greater detail above under the heading "Analysis of Changes in Proved Reserves."
(3) The increase in cash flows from the net change in income taxes represents the decrease in future income taxes as a result of the elimination of cash flows from PUD reserves.