Magnolia Oil & Gas Corp

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Organization and Nature of Operations

Magnolia Oil & Gas Corporation (either individually or together with its consolidated subsidiaries, as the context requires, the “Company” or “Magnolia”) is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and natural gas liquid (“NGL”) reserves. The Company’s oil and natural gas properties are located primarily in the Karnes and Giddings areas in South Texas where the Company primarily targets the Eagle Ford Shale and Austin Chalk formations. Magnolia’s objective is to generate stock market value over the long term through steady organic production growth, high full cycle operating margins, an efficient capital program with short economic paybacks, significant free cash flow after capital expenditures, and effective reinvestment of free cash flow.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2025 (the “2025 Form 10-K”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s 2025 Form 10-K.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

Certain reclassifications of prior period financial statements have been made to conform to current reporting practices. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated. The Company reflected a noncontrolling interest that represented the interest owned by the Magnolia LLC Unit Holders through their ownership of Magnolia LLC Units in the consolidated financial statements. The noncontrolling interest is presented as a component of equity. See Note 12—Stockholders’ Equity for further discussion of the noncontrolling interest.

Segment Information

The Company operates inone reportable segment engaged in the acquisition, development, exploration, and production of oil and natural gas properties (“Operating segment”). Magnolia’s operations are conducted predominantly inone geographic area of the United States. The Operating segment sells oil, natural gas, and NGLs which are disaggregated on the Company’s consolidated statements of operations. The profit or loss metric used to evaluate segment performance is net income reported on the Company’s consolidated statements of operations. The measure of segment assets is reported on the Company’s consolidated balance sheets as Total Assets. Significant segment expenses are the same as those in the consolidated statements of operations.

2. Summary of Significant Accounting Policies

As of September 30, 2026, the Company’s significant accounting policies are consistent with those discussed in Note 2—Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s 2025 Form 10-K, with the exception of Derivativesand Business Combinations as noted below.

Derivatives

Magnolia currently utilizes oil costless collars and swaps to reduce its exposure to price volatility for a portion of its oil production volumes. The Company’s policies do not permit the use of derivative instruments for speculative purposes. The Company has elected not to designate any of its derivative instruments as hedging instruments. Accordingly, changes in the fair value of the Company’s derivative instruments are recorded immediately to earnings as “Loss on derivatives, net” on the Company’s consolidated statements of operations. The Company classifies cash settlements associated with derivative instruments, including derivative contracts acquired in business combinations, within operating activities in the Company’s consolidated statements of cash flows.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed measured at the estimated acquisition date fair value. Transaction and integration costs associated with business combinations are expensed as incurred.

The Company makes various assumptions in estimating the fair value of the assets acquired and liabilities assumed. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. The most significant assumptions relate to the estimated fair value of proved and unproved oil and gas properties. The fair value of the oil and gas properties was calculated by a third party valuation expert using an income approach based on the net discounted future cash flows that utilized inputs requiring significant judgment and assumptions, including future production volumes based upon estimates of reserves prepared by the Company’s reserve engineers, future commodity prices (adjusted for basis differentials), future operating and development costs and a market-based weighted average cost of capital discount rate. In addition, when appropriate, the Company reviews comparable transactions between market participants for the purchase and sale of oil and gas properties within the same region to measure fair value, which illustrates the amount a willing buyer and seller would enter into in exchange for such properties.

The Company records goodwill for any amount of the consideration transferred in excess of the estimated fair value of the net assets acquired and a bargain purchase gain for any amount of the estimated fair value of net assets acquired in excess of the consideration transferred. Deferred taxes are recorded for any difference between the acquisition date fair value and the tax basis of assets and liabilities. Estimated deferred taxes are based on available information concerning the tax basis of assets acquired and liabilities assumed and loss carryforwards at the acquisition date, although such estimates may change in the future as additional information becomes known. The Company may adjust the provisional amounts recorded in a business combination during the measurement period which extends for up to one year after the acquisition date.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” requiring disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual periods beginning January 1, 2027, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

3. Revenue Recognition

Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated statements of operations for all periods presented. The Company’s receivables consist mainly of trade receivables from commodity sales and joint interest billings due from owners on properties the Company operates. Receivables from contracts with customers totaled $322.9 million as of September 30, 2026 and $116.5 million as of December 31, 2025. For further detail regarding the Company’s revenue recognition policies, please refer to Note 2—Summary of Significant Accounting Policies of the consolidated financial statements contained in the Company’s 2025 Form 10-K.

4. Acquisitions

WildFire Business Combination

On September 10, 2026, the Company consummated that certain Purchase and Sale Agreement (the “WildFire Purchase Agreement” and the transactions contemplated thereby, the “WildFire Acquisition”) with WildFire Energy I LLC, a Delaware limited liability company (“WildFire Seller”), pursuant to which Magnolia Operating acquired 100% of the issued and outstanding limited liability company interests of WildFire Intermediate Holdings, LLC, a Delaware limited liability company (“WildFire”). It was unanimously approved by Magnolia’s board of directors. At the closing of the WildFire Acquisition, WildFire Seller received $2.6 billion cash consideration,32.2 million shares of Class A Common Stock, and Magnolia assumed $600 million of WildFire’s 7.500% Senior Notes due 2029 (the “WildFire Senior Notes”).

Refer to Note 9—Long Term Debt and Note 12—Stockholders’ Equity for additional information regarding the debt and equity financing transactions related to the WildFire Acquisition.

The WildFire Acquisition was undertaken to expand the Company’s inventory of high-quality development opportunities, enhance its scale and operating position in South Texas, and extend the duration of its expected production, cash flow and returns-driven development program. The acquired assets are complementary to Magnolia’s existing operations and are expected to support long-term cash flow generation and capital efficiency.

The WildFire Acquisition has been accounted for using the acquisition method. The acquisition method of accounting is based on ASC 805 “Business Combinations,” and uses the fair value concepts defined in ASC 820. ASC 805 requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date by the Company.

The purchase price allocation is preliminary and is based on information available as of the date of these financial statements. The Company is still finalizing the fair values of oil and natural gas properties, asset retirement obligations, certain working capital balances and the related final settlement statement adjustments. As additional information becomes available, the Company may adjust the preliminary allocation during the measurement period, which may last up to one year from the acquisition date. Any such adjustments could be material.

The purchase consideration for the WildFire Acquisition was as follows:

(1)On September 10, 2026, as part of the WildFire Acquisition, WildFire Seller received 32.2 million shares of Class A Common Stock valued at $27.70 per share, based on closing market price.

The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed on the acquisition date:

(1)The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate.

No goodwill or bargain purchase gain was recognized in connection with the WildFire Acquisition, as the estimated fair value of the consideration transferred was equal to the estimated fair value of the identifiable net assets acquired. The WildFire Acquisition was treated as an asset acquisition for U.S. federal income tax purposes. Accordingly, the tax basis of the assets acquired and liabilities assumed approximates their fair values at the acquisition date, and no deferred income taxes were recognized in the preliminary purchase price allocation.

Transaction and Integration Costs

Transaction costs consist primarily of legal, advisory and other professional fees incurred in connection with the WildFire Acquisition. The integration costs are the incremental costs directly attributable to integrating the acquired operations, including consulting, system-conversion, employee severance and acquisition-related employee compensation and other transition-related costs.

WildFire Revenues and Net Income

The WildFire Acquisition closed on September 10, 2026, and the results of operations of WildFire have been included in Magnolia’s consolidated statements of operations since September 11, 2026. Revenues and net income associated with the WildFire Acquisition for the period from September 11, 2026 through September 30, 2026 totaled $81.7 million and $22.2 million, respectively.

Unaudited Pro Forma Operating Results

The following unaudited pro forma combined financial information has been prepared as if the business combination and other related financing transactions had taken place on January 1, 2025, including $71.9 million of transaction and integration costs.

The information reflects pro forma adjustments based on available information and assumptions that management believes are reasonable, including adjustments to reflect the acquisition-date fair values of assets acquired and liabilities assumed, the related impact on depletion expense associated with the fair-valued proved oil and gas properties, financing transactions completed in connection with the acquisition, and the estimated income tax effects of the pro forma adjustments. The unaudited pro forma financial information is not necessarily indicative of what would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor is it indicative of future results.

Other Acquisitions

During the nine months ended September 30, 2026 and September 30, 2025, the Company completed various other bolt-on property acquisitions of certain oil and natural gas assets totaling $156.3 million and $64.4 million, respectively. All other acquisitions were settled in cash and accounted for as asset acquisitions.

5. Derivative Instruments

Magnolia currently utilizes derivative instruments, such as costless collars and fixed price swaps, to achieve a more predictable cash flow by reducing its exposure to commodity price volatility for a portion of its oil production volumes. Commodity derivative contracts are thereby used to ensure adequate cash flow to fund the Company’s capital programs, reduce debt, and to manage returns on acquisitions and drilling programs. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company’s policies do not permit the use of derivative instruments for speculative purposes. A description of the Company’s derivative financial instruments is provided below:

Costless collars. Derivative instruments designed to limit the range of oil price fluctuations by establishing a floor and a ceiling price, allowing the Company to benefit from favorable market movements while protecting against adverse price declines.

Fixed price swaps. Derivative instruments designed to establish a fixed price for anticipated future oil production.

The Company has elected not to designate any of its derivative instruments as hedging instruments. Accordingly, changes in the fair value of the Company’s derivative instruments are recorded immediately to earnings as “Loss on derivatives, net” on the Company’s consolidated statement of operations. During the three and nine months ended September 30, 2026, the Company recognized a $39.9 million unrealized loss related to its derivative instruments. During the three and nine months ended September 30, 2026, the Company recognized a $1.4 million realized loss from the settlement of its derivative instruments. During the three and nine months ended September 30, 2026, derivative settlements totaled $20.4 million.

The Company had the following outstanding derivative contracts in place as of September 30, 2026:

(1)All oil costless collars settle against the average of the prompt month Argus WTI Houston futures price.

(2)All oil fixed price swaps settle against the average of the prompt month NYMEX WTI futures price.

See Note 6—Fair Value Measurement for the fair value hierarchy of the Company’s derivative contracts.

6. Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or nonrecurring basis. The Company’s fair value measurements are based either on actual market data or assumptions that other market participants would use in pricing an asset or liability in an orderly transaction, using the valuation hierarchy prescribed by GAAP under Accounting Standards Codification (“ASC”) 820.

The three levels of the fair value hierarchy under ASC 820 are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level 2 - Pricing inputs are other than quoted prices included within Level 1 that are observable for the investment, either directly or indirectly. Level 2 pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. The inputs used in determination of fair value require significant judgment and estimation.

The Company has other financial instruments consisting primarily of receivables, payables, and other current assets and liabilities that approximate fair value due to the nature of the instruments and their relatively short maturities.

Recurring Fair Value Measurements

Long-Term Debt

At September 30, 2026 and December 31, 2025, the carrying value of borrowings under the RBL Facility approximated their fair value as they are subject to short-term floating interest rates that reflect market rates available to the Company at the time and are classified at Level 2 in the fair value hierarchy.

The following table summarizes the carrying values, net of unamortized deferred financing costs, and fair values of outstanding senior unsecured notes at September 30, 2026 and December 31, 2025 (in thousands). The fair values are based on unadjusted quoted prices in an active market, which is considered a Level 1 input in the fair value hierarchy.

Liability-Classified Stock Based Compensation

The fair value of the liability for future cash-settled stock based compensation was $5.5 million and $5.6 million as of September 30, 2026 and December 31, 2025, respectively, and is included in “Other current liabilities” and “Other long-term liabilities” on the Company’s consolidated balance sheets. The fair value of the liability for future cash-settled stock based compensation is estimated using observable market data (the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group) and Monte Carlo simulation models, which is considered a Level 2 input in the fair value hierarchy.

Derivative Instruments

The fair values of the Company’s outstanding oil swaps and oil costless collar derivative instruments were measured using an industry-standard pricing model and were provided by a third party. The inputs used in the third-party pricing model included quoted forward prices for oil, the contracted volumes, volatility factors, and time to maturity, which are considered Level 2 inputs.

The Company’s derivative instruments outstanding as of September 30, 2026 were recorded at fair value within “Current derivative liabilities” and “other long-term liabilities” on the Company’s consolidated balance sheet. These fair values were recorded by netting asset and liability positions with the same counterparty and were subject to contractual terms that provided for net settlement.

The following table presents the classification of the outstanding derivative instruments and the fair value hierarchy table for the Company’s derivative assets and liabilities as of September 30, 2026 that were required to be measured at fair value on a recurring basis:

See Note 5—Derivative Instruments for additional information on the Company’s derivative contracts.

Nonrecurring Fair Value Measurements

Certain of the Company’s assets and liabilities are measured at fair value on a nonrecurring basis. As needed, non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations. In addition, equity-classified stock based compensation is not measured at fair value on an ongoing basis but is subject to fair value calculations in certain circumstances. For further detail, see Note 4—Acquisitions, Note 8—Asset Retirement Obligations, and Note 13—Stock Based Compensation.