Posts Tagged ‘Investing in Oil and Gas’

Trouble With Magellan Energy

Magellan Energy New (MGLG.PK) looks like neck deep in trouble. There seems to be no escape from the continuing problems faced by the corporation. Company is traded in OTC under the symbol MGLG.PK.

Almost a year before company released information on its Lankford Lease. The Lankford Lease, comprising of 11 producing wells, is located on the Chattanooga Shale. A recent report on the Chattanooga shale reserve potential confirms the Company’s own due diligence and its subsequent participation in the project with its partner, TMD Energy.

On September 3, 2009, company informs that a high BTU situation don’t allow for continuous natural gas production. In late 2008, the federal government, through the agency FERC, mandated that any gas with a BTU count higher than 1100 was unsafe and should not be transported in interstate pipelines or sold to consumers. Gas originating from oil wells usually has a high BTU count, and this is especially true in the Burville area where the Anderson and Martin wells are located. As a result, Magellan, as well as many other area producers, had their wells shut in by Citizens Gas for a protracted period of time. Following this announcement, the share price dropped to all time low of $0.0001. At this rate one can by 1 million shares for $100.00.

To add the misery, the MGLG is listed as one of the companies allegedly hijacked by some nice gentle man. They are approaching the deadline to submit paperwork on this issue. Hopefully some decision will be made soon and the trading will be back to normal.

However there is a ray of hope in this situation. A potentially huge consumer of natural gas in Tennesee has come to the forefront with TVA’s announcement that a natural gas-fired electric plant in Rogersville is scheduled to come online in late 2011 and will require up to 160 million cubic feet of natural gas daily. Tennessee is now producing about 16 million cubic feet of gas, but has immense potential to produce a great deal more, with the most potential coming from the Chattanooga Shale. Magellan and other area producers stand to benefit greatly from this enormous new demand source. TVA is the nation’s largest public power provider and is completely self-financing. TVA provides power to large industries and 158 power distributors that serve approximately 9 million people in seven southeastern states.

According to the EIA Annual Energy Outlook 2009, U.S dependence on imported oil is expected to decline over the next 25 years — due to high prices and limited resources; and natural gas production, led by gas shales, is expected to provide the majority of growth in gas supply. As the economy improves, we should see a marked improvement in the price of natural gas and in the overall value of the Chattanooga Shale gas reserves.

To cap it up: Magellan Energy New can look forward to do well if and only if, they could come out of the court battle and TVA is in a position to use high BTU gas for the new plant. For the time being no considerable investment is recommended in this stock. However for a gambler,  it may be an opportunity to buy at the bottom now.

Investing in Oil and Gas

Investing in stocks is a fool proof way against inflation. If you are holding the stock for long time, the stock should increase with inflation over an extended period of time, providing you safety against inflation. What are the factors you should consider for investing in Oil and Gas sector.

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