Magnolia Oil & Gas Corp

Previous wording

Natural gas and NGL prices have significantly declined, while material and labor costs have flattened, resulting in lower operating margins. In 2024, lower well costs combined with improved operating efficiencies are allowing for more wells to be drilled, completed and turned in line helping to support Magnolia’s overall high-margin growth from a disciplined capital program.

Current wording

Commodity prices experienced significant volatility in 2022 after the Russia-Ukraine conflict began and this has continued into 2024. Global conflict and supply chain disruptions drove high oil prices in 2022, which then moderated throughout 2023 and 2024. Natural gas and NGL prices significantly declined beginning in 2023, while material and labor costs have flattened, resulting in lower operating margins. In 2024, lower well costs combined with improved operating efficiencies are allowing for more wells to be drilled, completed and turned in line helping to support Magnolia’s overall high-margin growth from a disciplined capital program.

Previous wording

As of March 31, 2024, Magnolia’s assets in South Texas included 72,503 gross (50,681 net) acres in the Karnes area, and 718,400 gross (527,754 net) acres in the Giddings area. As of March 31, 2024, Magnolia held an interest in approximately 2,496 gross (1,687 net) wells, with total production of 84.8 thousand barrels of oil equivalent per day for the three months ended March 31, 2024.

Current wording

As of June 30, 2024, Magnolia’s assets in South Texas included 77,278 gross (55,286 net) acres in the Karnes area, and 743,069 gross (553,835 net) acres in the Giddings area. As of June 30, 2024, Magnolia held an interest in approximately 2,615 gross (1,786 net) wells, with total production of 90.2 thousand and 87.5 thousand barrels of oil equivalent per day for the three and six months ended June 30, 2024, respectively.

Previous wording

Magnolia recognized net income attributable to Class A Common Stock of $85.1 million, or $0.46 per diluted common share, for the three months ended March 31, 2024. Magnolia recognized net income of $97.6 million, which includes noncontrolling interest of $12.5 million, for the three months ended March 31, 2024.

Current wording

Magnolia recognized net income attributable to Class A Common Stock of $95.6 million and $180.6 million, or $0.51 and $0.97 per diluted common share, for the three and six months ended June 30, 2024. Magnolia recognized net income of $105.1 million and $202.7 million, which includes a noncontrolling interest of $9.6 million and $22.1 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three and six months ended June 30, 2024, respectively.

Previous wording

As of March 31, 2024, the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame. The Company had repurchased 33.1 million shares under the program at a cost of $577.3 million and had 6.9 million shares of Class A Common Stock remaining under its share repurchase authorization as of March 31, 2024.

Current wording

As of June 30, 2024, the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame. The Company had repurchased 34.1 million shares under the program at a cost of $603.3 million and had 5.9 million shares of Class A Common Stock remaining under its share repurchase authorization as of June 30, 2024.

Previous wording

As of March 31, 2024, Magnolia owned approximately 89.3% of the interest in Magnolia LLC and the noncontrolling interest was 10.7%.

Current wording

As of June 30, 2024, Magnolia owned approximately 94.5% of the interest in Magnolia LLC and the noncontrolling interest was approximately 5.5%.

Previous wording

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023

Previous wording

Oil, Natural Gas and NGL Sales Revenues. The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes. This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel. This ratio may not be reflective of the current price ratio between the two products.

Current wording

The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes. This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel. This ratio may not be reflective of the current price ratio between the two products.

Previous wording

Natural gas revenues were 7% and 9% of the Company’s total revenues for the three months ended March 31, 2024 and 2023, respectively. Natural gas production was 30% of total production volume for each of the three months ended March 31, 2024 and 2023. Natural gas revenues for the three months ended March 31, 2024 were $6.7 million lower than the three months ended March 31, 2023. A 30% decrease in average price decreased first quarter 2024 revenues by $8.4 million compared to the same period in the prior year, partially offset by a 9% increase in natural gas production which increased revenues by $1.7 million. The realized revenue pricing included the impact of gas plant fees that were netted from revenue.

Current wording

Natural gas revenues for the three months ended June 30, 2024 were $2.3 million lower than the three months ended June 30, 2023 caused by an 18% decrease in average prices that decreased revenues by $3.8 million, partially offset by a 9% increase in natural gas production which increased revenues by $1.5 million. Natural gas revenues for the six months ended June 30, 2024 were $9.0 million lower than the six months ended June 30, 2023 caused by a 25% decrease in average prices that decreased revenues by $12.1 million, partially offset by a 9% increase in natural gas production which increased revenues by $3.1 million. The realized revenue pricing included the impact of gas plant fees that were netted from revenue.

Previous wording

Operating Expenses and Other Income (Expense). The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

Current wording

The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

Previous wording

Lease operating expenses are costs incurred in the operation of producing properties, including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies. Lease operating expenses for the three months ended March 31, 2024 were $3.8 million, or $0.05 per boe, higher compared to the three months ended March 31, 2023, due to an increase in costs associated with a higher well count.

Current wording

Lease operating expenses are costs incurred in the operation of producing properties, including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies. Lease operating expenses for the three months ended June 30, 2024 were $7.6 million, or $0.46 per boe, higher compared to the corresponding 2023 period. Lease operating expenses for the six months ended June 30, 2024 were $11.3 million, or $0.25 per boe, higher compared to the corresponding 2023 period. The increases in both periods were due to an increase in costs associated with a higher well count, including workover activity, chemicals, compression, and operating and maintenance costs.

Previous wording

Gathering, transportation and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market. These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing. The gathering, transportation and processing costs for the three months ended March 31, 2024 were $4.2 million, or $0.67 per boe, lower than the three months ended March 31, 2023, primarily due to lower natural gas and NGL prices which resulted in lower processing costs. The Company is party to a number of contracts that are recorded gross within natural gas and NGL revenues, which track with natural gas and NGL pricing, and thereby have contributed to a decrease in gathering, transportation, and processing expense.

Current wording

Gathering, transportation and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market. These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing. The Company is also party to a number of percent-of-proceeds arrangements that track closely to natural gas and NGL pricing and affect the cost of commodity processing. The gathering, transportation and processing costs for the three months ended June 30, 2024 were $1.9 million, or $0.36 per boe, lower than the three months ended June 30, 2023. Gathering, transportation and processing costs for the six months ended June 30, 2024 were $6.1 million, or $0.51 per boe, lower than the six months ended June 30, 2023. The decrease in both periods is primarily due to a change in volumes sold under a percent-of-proceeds arrangement and lower natural gas and NGL pricing.

Previous wording

Taxes other than income include production, ad valorem, and franchise taxes. These taxes are based on rates primarily established by state and local taxing authorities. Production taxes are based on the market value of production. Ad valorem taxes are based on the fair market value of the mineral interests or business assets. Taxes other than income for the three months ended March 31, 2024 were $1.4 million, or $0.38 per boe, lower compared to the three months ended March 31, 2023, primarily due to a decrease in production taxes as a result of the decrease in natural gas and NGL revenues and tax incentives realized.

Current wording

Taxes other than income include production, ad valorem, and franchise taxes. These taxes are based on rates primarily established by state and local taxing authorities. Production taxes are based on the market value of production. Ad valorem taxes are based on the fair market value of the mineral interests or business assets. Taxes other than income for the three months ended June 30, 2024 were $4.6 million, or $0.38 per boe, higher compared to the three months ended June 30, 2023. Taxes other than income for the six months ended June 30, 2024 were $3.2 million, or $0.01 per boe, higher compared to the six months ended June 30, 2023. The increase in both periods was primarily due to an increase in production taxes as a result of the increase in oil and NGL revenues, which was partially offset by the decrease in natural gas revenues.

Previous wording

Depreciation, depletion and amortization (“DD&A”) during the three months ended March 31, 2024 was $26.4 million, or $2.68 per boe, higher than the three months ended March 31, 2023, due to increased production and a higher depreciable cost basis.

Current wording

Depreciation, depletion and amortization (“DD&A”) during the three months ended June 30, 2024 was $27.7 million, or $2.42 per boe, higher compared to the three months ended June 30, 2023. DD&A for the six months ended June 30, 2024 was $54.1 million, or $2.55 per boe, higher compared to the six months ended June 30, 2023. The increase in both periods was due to increased production and a higher depreciable cost basis.

Previous wording

General and administrative expenses during the three months ended March 31, 2024 were $3.8 million, or $0.28 per boe, higher than the three months ended March 31, 2023, primarily driven by increased legal expenses, professional services, and other non-recurring costs.

Current wording

General and administrative expenses during the three months ended June 30, 2024 were $4.1 million, or $0.27 per boe, higher compared to the three months ended June 30, 2023. General and administrative expenses during the six months ended June 30, 2024 were $7.9 million, or $0.27 per boe, higher when compared to the six months ended June 30, 2023. The increase in both periods was primarily driven by increased corporate payroll expenses, legal expenses, professional services, and other non-recurring costs.

Previous wording

The Company recognized interest expense, net, during the three months ended March 31, 2024 as compared to interest income, net during the three months ended March 31, 2023. This $2.8 million change was driven by lower interest income realized during 2024 as a result of lower cash balances.

Current wording

Interest expense, net, during the three months ended June 30, 2024 was $2.4 million higher compared to the three months ended June 30, 2023. Interest expense, net during the six months ended June 30, 2024 was $5.2 million higher compared to the six months ended June 30, 2023. The increase in interest expense, net, for both periods was driven by lower interest income realized during 2024 as a result of lower cash balances.

Previous wording

Other expense, net, during the three months ended March 31, 2024 was $3.2 million higher than the three months ended March 31, 2023. This is primarily comprised of the loss on revaluation of the contingent consideration liability associated with the acquisition of certain oil and gas producing properties in the Giddings area in the fourth quarter of 2023.

Current wording

Other income, net, during the three months ended June 30, 2024 was $8.2 million lower than the three months ended June 30, 2023, primarily driven by the gain on sale of the Company’s 84.7% interest in Highlander (“Highlander sale”) and an earnout payment associated with the sale of the Company’s 35% membership interest in Ironwood Eagle Ford Midstream LLC (the “2023 earnout”) in the prior year. During the six months ended June 30, 2024 the Company recognized $3.3 million of other expense compared to $8.1 million of other income during the six months ended June 30, 2023, primarily driven by a loss on revaluation of the contingent consideration liability associated with the acquisition of certain oil and gas properties in the Giddings area acquired during 2023, as compared to the six months ended June 30, 2023, which includes the Highlander sale and 2023 earnout.

Previous wording

For the three months ended March 31, 2024, income tax expense was $0.7 million higher than the three months ended March 31, 2023, comprised of movements in both current and deferred income taxes. This was driven by a $7.4 million increase in current income tax expense partially offset by a $6.7 million decrease in deferred income tax expense, primarily due to the statutory reduction in accelerated depreciation of capital expenditures. See Note 9— Income Taxes in the notes to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail.

Current wording

See Note 9— Income Taxes in the notes to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail.

Previous wording

As of March 31, 2024, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility. As of March 31, 2024, the Company had $849.3 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, and $399.3 million of cash and cash equivalents.

Current wording

As of June 30, 2024, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility. As of June 30, 2024, the Company had $725.7 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, and $275.7 million of cash and cash equivalents.

Previous wording

At March 31, 2024, Magnolia had $399.3 million of cash and cash equivalents. The Company’s cash and cash equivalents are maintained with various financial institutions in the United States. Deposits with these institutions may exceed the amount of insurance provided on such deposits. However, the Company regularly monitors the financial stability of such financial institutions and believes that the Company is not exposed to any significant default risk.

Current wording

At June 30, 2024, Magnolia had $275.7 million of cash and cash equivalents. The Company’s cash and cash equivalents are maintained with various financial institutions in the United States. Deposits with these institutions may exceed the amount of insurance provided on such deposits. However, the Company regularly monitors the financial stability of such financial institutions and believes that the Company is not exposed to any significant default risk.

Previous wording

Net cash provided by operating activities totaled $210.9 million and $219.8 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, cash provided by operating activities was negatively impacted by the timing of collections and a decrease in realized natural gas and NGL prices, partially offset by the timing of payments and an increase in realized oil prices.

Current wording

Net cash provided by operating activities totaled $480.3 million and $421.6 million for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, cash provided by operating activities was positively impacted by the timing of collections and payments and an increase in realized oil prices, partially offset by a decrease in realized natural gas and NGL prices.

Previous wording

During the first quarter of 2024, Magnolia was running a two-rig program. The number of operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending to accommodate the Company’s business model. The Company’s ongoing plan is to continue to spend within cash flow on drilling and completing wells while maintaining low financial leverage.

Current wording

During the second quarter of 2024, Magnolia was running a two-rig program. The number of operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending to accommodate the Company’s business model. The Company’s ongoing plan is to continue to spend within cash flow on drilling and completing wells while maintaining low financial leverage.

Previous wording

As of March 31, 2024 the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors. During each of the three months ended March 31, 2024 and 2023, the Company repurchased 2.4 million shares under this authorization, for a total cost of approximately $52.4 million and $51.3 million, respectively.

Current wording

As of June 30, 2024 the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors. During the six months ended June 30, 2024 and 2023, the Company repurchased 3.4 million and 4.7 million shares for a total cost of approximately $78.3 million and $96.1 million, respectively.

Previous wording

During the three months ended March 31, 2024, the Company declared cash dividends to holders of its Class A Common Stock totaling $24.0 million. During the same time period, cash paid for dividends was $24.0 million, inclusive of dividends on vested non-participating securities. Additionally, $2.8 million was distributed to the Magnolia LLC Unit Holders. During the three months ended March 31, 2023, the Company declared cash dividends to holders of its Class A Common Stock totaling $22.4 million, of which $22.6 million was paid as of March 31, 2023, inclusive of dividends on vested non-participating securities. Additionally, $2.5 million was distributed to the Magnolia LLC Unit Holders. The amount and frequency of future dividends is subject to the discretion of the Company’s board of directors and primarily depends on earnings, capital expenditures, debt covenants, and various other factors.

Current wording

During the six months ended June 30, 2024, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $47.8 million. Additionally, $5.7 million was distributed to the Magnolia LLC Unit Holders. During the six months ended June 30, 2023, the Company declared cash dividends to holders of its Class A Common Stock totaling $44.5 million. During the same time period, cash paid for dividends was $44.7 million, inclusive of dividends on vested non-participating securities. Additionally, $5.0 million was distributed to the Magnolia LLC Unit Holders. The amount and frequency of future dividends is subject to the discretion of the Company’s board of directors and primarily depends on earnings, capital expenditures, debt covenants, and various other factors.