Magnum Energy Inc.

Magnum Energy Inc.

February 03, 2011 09:30 ET

Magnum Energy Inc. and Nextraction Energy Corp. Sign Joint Venture Agreement to Acquire Viking Oil Property

Agreement Includes Acquisition of Existing Production and Horizontal Drilling Development in the Provost Area

CALGARY, ALBERTA--(Marketwire - Feb. 3, 2011) - Magnum Energy Inc. (TSX VENTURE:MEN) ("Magnum") is pleased to announce a joint venture agreement ("JVA") with Nextraction Energy Corp. (TSX VENTURE:NE) ("Nextraction") for the acquisition of a Viking Oil property located in the Provost Area of eastern Alberta, Canada.

The acquisition will include four wells currently producing a total of 30 barrels of oil per day from the Viking A pool, three and one-fourth (3.25) sections of land with the potential to develop an additional 10 to 12 horizontal wells in the defined pool, a water disposal well, pipelines and production facilities necessary for further development. The acquisition is expected to close on or before March 15, 2011. The Provost area is known for its prolific Viking A formation where vertical wells have produced up to 300,000 barrels of oil per well.

Terms of the JVA provide for the Companies to acquire the 100% owned property from a third private party for $2.8 million on a fifty-fifty basis. Nextraction shall fund 100% of the acquisition and receive 100% of the production revenue until payout of the Purchase Price, or until Magnum has paid to Nextraction 50% of the Purchase Price. Upon payout of the acquisition, production revenue will be shared on a 50/50 basis.

Nextraction shall also pay 100% of the costs to drill and complete to tie-in two horizontal wells to earn its 50% interest. The wells are projected at 800 meters in depth and at least 900 meters horizontally, with the first well commencing before June 30, 2011. Preliminary estimated costs are $1.5 million per well. The Companies shall share revenue from the two wells on a 50/50 basis from the date of first production. Costs and revenue for subsequent development will then be shared on a 50/50 basis.

Richard Nemeth, President and CEO of Magnum, states, "Magnum is very pleased to joint venture with a strong financial and technical partner like Nextraction. Both companies share similar corporate strategies to create a balanced portfolio of oil and natural gas production. Horizontal wells in the Provost Viking A pool, which is an extension of the Viking fairway that trends northwest up to the Redwater Viking play, have proved to have superior economic returns than the deeper horizontal oil plays found in W5. We look forward to developing this Viking project with Nextraction."

Magnum and Nextraction are targeting the projected 12 million barrels of oil in place on the joint venture acreage. This estimate is based on both Nextraction's and Magnum's technical evaluation of the pool and coincides with a 1968 reservoir study by McDaniel Consultants submitted to the Energy Resources Conservation Board wherein they reported a field total potential of 80 million barrels of oil for the Provost Viking A pool. The joint venture acreage represents one-seventh of the total pool acreage. Recovery from the pool to date has been less than 4% of the Original Oil in Place which allows for significant upside recovery from horizontal infill drilling and waterflood optimization.

Operators in the general area developing the Viking formation include Penn West Energy, Westfire Energy Ltd., and privately held Mancal Energy Inc. and Cutpick Energy Inc. Horizontal drilling and technological advances in completion techniques have brought a resurgence of interest in the Viking A oil pool.

About Magnum Energy Inc.

Magnum is a junior oil and gas producer with operations located in the Western Canadian Sedimentary Basin. The Company produces from operations in Alberta, and maintains 100% ownership of the Sedalia gas facility in East-Central Alberta.

About Nextraction Energy Corp.

Nextraction is a Canadian junior oil and gas producing company engaged in the exploration and development of oil and gas resources in North America. Nextraction targets projects with known reserves and plays that provide lower risk, high return development opportunities in both conventional and unconventional resource projects, where their technical expertise can be applied to enhance production. 

On behalf of the Company

Richard A. Nemeth, President and CEO 


Certain statements in this document may contain "forward-looking statements" or "forward-looking information" within the meaning of applicable securities legislation. Such forward-looking statements or information include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. The Company does not assume the obligation to update any forward-looking statement, except as required by applicable law.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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