MVN Madalena Energy Inc

Expresses Serious Concerns with the Company's Declining Share Price Performance

Outlines a Series of Actions for the Board to Take Immediately to Protect and Enhance Shareholder Value

Reserves its Rights to Take Whatever Future Actions Maglan Capital Believes May Be Necessary to Protect the Best Interests of Shareholders, Including the Calling of a Special Shareholder Meeting to Remove and Replace Current Board Members

NEW YORK, Dec. 8, 2014 /PRNewswire/ -- Maglan Capital LP, together with its affiliates ("Maglan Capital"), a significant shareholder of Madalena Energy Inc. ("Madalena" or the "Company")(TSXV: MVN and US: OTC: MDLNF) with beneficial ownership of approximately 9.8% of the Company's outstanding shares of common stock, today announced that it has delivered a letter to Kevin Shaw, Madalena's Chief Executive Officer, Ray G. Smith, Chairman of the Board, and to the other members of Madalena's Board of Directors.

Full text of Maglan Capital's letter to Madalena:

December 8, 2014

Ray G. Smith, Chairman of the Board of Directors
Kevin Shaw, Chief Executive Officer
Douglas Brooks
Steven B. Sharpe
Barry B. Larson
Keith Elliott Macdonald
Ving Y. Woo
Jay P. Reid

c/o Madalena Energy Inc.
3200, 500 – 4^th Avenue SW
Calgary, Alberta  T2P 2V6
Canada

Gentlemen:

Investment funds affiliated with Maglan Capital LP ("we" or "Maglan") are significant shareholders of Madalena Energy Inc. ("Madalena" or the "Company"), with holdings together representing beneficial ownership of approximately 9.8 percent of Madalena's outstanding common equity.

We have been invested in the Company for over a year, and we have substantially increased our position during that time frame.  In 2014, the share price of Madalena has declined an astounding 67%.  Over the course of the year, the Company incrementally issued additional equity three times, including an equity raise in connection with the purchase by the Company of the Argentine assets of Gran Tiera Energy (the "GTE Transaction"), announced in May 2014, causing a massive amount of share dilution.  In addition to these shareholder destructive equity raises, the Company has failed to execute on any joint ventures or partnerships to create value for shareholders.  Aside from the lack of execution, management has failed to formulate and communicate a cogent plan for the development of the Argentine shale assets and growth for the next few years.  As a result, shareholders have endured a period of substantial value destruction.

As you know, we have maintained an on-going and constructive dialogue with management and the Board of Directors (the "Board") over the last year.  Those discussions, together with conversations with industry observers and our own research and analysis, have led us to the conclusion that Madalena's troubling underperformance is largely a result of a failure of leadership.

The Board, as our fiduciaries, must act now to restore investor confidence and put the Company back on the right track towards substantial value creation. Specifically, we urge the Board to immediately:

• Consider management changes that include the dismissal of ineffective members and the addition of seasoned oil and gas operating executives;
• Immediately appoint Gus Halas to the Board;
• Engage in a process to sell non-core assets of the Company, potentially including the Canadian assets and certain non-strategic assets in Argentina;
• Use the proceeds of such sales for the further development of the Company's shale assets and conventional production in Argentina, and to repurchase shares of the Company;
• Engage with third-parties for potential partnerships and joint ventures for the further development of the Company's vast shale assets in Argentina; and
• Conduct a strategic review for the sale of the entire Company, merger or other strategic transaction.

As you know, the Company's assets are comprised of over 1mm acres in Argentina, including prime unconventional shale acreage in the Vaca Muerta and Agrio shales, Mulichinco tight sand play and Loma Montosa oil resource play, and assets in Western Canada comprised of the Ostracod and Nordegg areas.  Madalena's operations are self-sustainable and provide a solid annual cash flow stream.  Currently, the Company produces 4,700 boe/d, with production output expected to continue to meaningfully increase. And, by management's estimation, Madalena generates $45mm per annum in cash flow before capital expenditures, providing a solid foundation for funding capital expenditures over the near- to medium-term, without any need to raise further capital, equity or debt.  Moreover, the Company's balance sheet is clean, with approximately $20mm of cash on hand, with no debt and a market capitalization of just $120mm. 

At this point, the market is ascribing little to no value to the Company's massive shale assets in the Neuquen Basin where transactions have recently been completed at greater than $10,000 per acre, which when applied to just the Company's acreage in the Coiron Amargo would equate to $350mm, or 3x the Company's market capitalization.  Madalena is the only junior oil and gas, exploration and production company in Argentina which holds substantial shale assets and is able to self-fund its commitments and capex.  With a new energy bill recently passed in Argentina promoting energy investment, presidential elections in Argentina coming towards the end of 2015, and the eventual resolution of the current technical debt default, the macro-environment for Madalena will only improve.

It is easy to blame the decline of the Company's value on the decline of WTI oil over the past few months from over $100 per barrel to less than $70 per barrel today.  However, unlike other companies, Madalena makes more than $80 per barrel on its Argentina oil sales and receives higher oil prices in Argentina than WTI oil pricing.  Therefore, Madalena has not been impacted by the slide in world oil prices even though the market has sold off the stock alongside the rest of the energy industry. 

It is our view that the key to value creation for shareholders is to prove up and de-risk the shale assets whether by self-funded capex and/or joint ventures/partnerships.  Everything else is noise.

We believe there is a serious discrepancy between Madalena's shale assets in Argentina, current production and prospects, and its current market valuation.  We believe the Company's shares are worth over $2 per share, versus $0.25 today.  It is our view that this value disparity is directly linked to the failure of the Board and management to take the necessary steps to create shareholder value.  We suspect that our concerns are shared by a number of other large shareholders. 

Accordingly, the time has come for the Board to review the management of the Company and to bring in seasoned oil and gas executives to drive value for shareholders by developing the shale assets, growing production, monetizing non-core assets and reducing the share float.  At the same time, the Board should consider a sale of the Company or other strategic transactions to maximize value for shareholders.

As shareholders we have been patient with the Company's initiatives but suffered because the Board and management have not been vigilant in protecting shareholder value.  We note that the Board and management have de minimis ownership of the Company's shares and have not purchased shares in a material fashion.  As meaningful shareholders we find that troubling as the stock is down more than 50% since the GTE Transaction was announced in May 2014. It does not appear that the Board's interests are fully aligned with the best interests of shareholders.

It is time for this Board to prove to its shareholders that the Board is committed to protecting and enhancing shareholder value.  We hope that the Company will do the right thing and take the required steps we have outlined herein to drive shareholder value creation. We must, however, reserve our rights to take whatever actions in the future we believe may be required to protect the best interests of shareholders, including the requisition of a special meeting of shareholders to remove and replace members of the Board with director candidates who are committed to taking the actions that are required to create shareholder value.  We are willing and ready to discuss the contents of this letter and other value creation initiatives with Mr. Smith and the other directors at your earliest convenience.

Sincerely,

Maglan Capital has retained Olshan Frome Wolosky LLP as its legal and strategic advisor in connection with its investment and involvement at Madalena. 

About Maglan Capital

Maglan Capital is an event-driven investment fund with a core focus on all parts of the distressed cycle, investing in liquid instruments across the capital structure of companies approaching or experiencing financial distress, bankruptcy or restructuring.

Contact:

Olshan Frome Wolosky LLP
Andrew M. Freedman, Partner, (212) 451-2250

SOURCE Maglan Capital LP