Good morning and welcome to the Magnolia Oil & Gas Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Jim Johnson. Please go ahead.

Thank you, Gary. Good morning, everyone. Welcome to Magnolia Oil & Gas' fourth quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer; and Brian Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the Federal Securities Laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the Company’s Annual Report on Form 10-K filed with the SEC. A full Safe Harbor can be found on Slide 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia’s fourth quarter 2022 earnings press release as well as the conference call slides from the Investors section of the Company’s website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Thanks, Jim and good morning, everyone. Thanks for joining us today. I'll provide some comments on our results and accomplishments during 2022 and will then give an update on our outlook for 2023, and how we plan to allocate our free cash flow during the year. Brian will then review our fourth quarter and full year 2022 results and provide some additional guidance before we take your questions. As we enter our sixth year as a public company, the core principles of Magnolia's business model established at the beginning are expected to continue. I've said previously that my plan is not to make significant changes or put my personal stamp on Magnolia. Throughout the halls here, in the office and out in the field, every one of our employees is a Magnolia shareholder and is aligned with our investors. We run Magnolia for our shareholders and my objective will always be to do what is in the best interest of our investors. We plan to maintain our discipline around capital spending while keeping low levels of debt. We expect to continue our track record of achieving moderate annual production growth while generating significant amounts of free cash flow with strong operating margins. 2022 was a record year for Magnolia and I want to recognize our team's strong contributions, which helped support Magnolia's exceptional financial and operational results. We achieved goals that further solidify the strength of Magnolia's business model and strategy while also marking some important milestones. Record production in 2022 combined with higher product prices and our team's continued focus on managing costs all contributed to expand our full year pre-tax operating margins to 63%, leading to record net income for the company. Last year, we successfully executed our development program at Giddings, and the positive performance of this asset is reflected in our financial results. Giddings now represents more than half of Magnolia's overall production and proved reserves and is a significant contributor to our strong financial performance. Our Giddings development was responsible for driving overall production growth of more than 14% during 2022, while spending only 34% of our total EBITDAX on D&C and associated facilities capital. We generated a record $823 million of free cash flow last year and returned 54% of this amount to our shareholders in the form of share repurchases and a regular base dividend which is paid quarterly. We repurchased more than 15 million Magnolia shares during 2022, reducing our diluted share count by 8% compared to 2021 levels. Our ability to deliver moderate annual production growth in our production volumes and reducing our outstanding shares builds greater dividend per share payout capacity over time and as demonstrated by the recent announcement of a 15% increase to our quarterly base dividend. The increase to our dividend reflects our strong operating and financial performance achieved during 2022 and demonstrates our ongoing confidence in the outlook of the business. Inclusive of the cash returned to shareholders and after spending approximately $90 million on some small bolt-on oil and gas property acquisitions during the year, our cash balance nearly doubled during 2022, ending the year at $675 million. While Magnolia's unhedged business captured the benefit of much higher product prices last year, this year's plan will focus on improving our execution and generating further operating and cost efficiencies in order to partially offset the impact of higher oilfield service costs. Operationally, we expect our 2023 plan to be quite similar to last year. We expect to continue to operate a two-rig drilling program, which we estimate should generate full year production growth of approximately 10%. Our production is expected to steadily climb throughout the year starting in the first quarter. As I noted earlier, we will stay disciplined around our D&C capital and limit our spending to approximately 55% of EBITDAX, which would provide us with significant free cash flow. We estimate the current year's capital expenditures to be approximately $500 million, with the year's heaviest capital outlays occurring in the earlier part of 2023. Our supply chain and operations team did a superb job of strengthening the valued partnerships with our key vendors, as well as managing through the inflationary environment of rising oilfield service costs that occurred throughout 2022. These efforts have helped to mitigate some of the increased costs, and with recent signs indicating that some of the service cost inflation is starting to flatten or even decline modestly in certain products and services. We plan to continue to allocate a sizable portion of our free cash flow toward enhancing the value of the existing business, and improving our per share metrics. This includes our ongoing share repurchase program, where we expect to repurchase at least 1% of our outstanding shares each quarter. We also expect to pursue small accretive bolt-on oil and gas property acquisitions, in and around our current operating areas. These acquisition opportunities would have characteristics comparable to our existing assets and match some of the skills and learnings from our experience in Giddings. As an example, in late 2022, we were able to acquire some acreage, minerals, and additional working interest in Giddings, primarily outside of our core development area. This further builds on our strong position in the play, and is in line with our strategy of incrementally improving our opportunity set as well as our drilling economics. Allocating our free cash flow through these actions is intended to enhance the underlying value of the business, expand our dividend per share payout capacity and strengthen our investment proposition of providing 10% average annual dividend growth over time. I'll now turn the call over to Brian, who will review our fourth quarter and full year financial results.

Thanks, Chris and good morning, everyone. I will review some items from our fourth quarter and full year results and refer to the presentation slides found on our website. I also provide some additional guidance for the first quarter of 2023 and remainder of the year before turning it over for questions. Beginning with Slide 3, Magnolia continued to execute on our business model as demonstrated by our fourth quarter and full year 2022 financial and operating results. We established records for many of our key operating and financial metrics during the year including production, free cash flow, net income and most notably operating income margins of 63% during the year. The overall results for 2022 were supported by very strong product price realizations, our efforts around cost containment and supply chain management, and stronger overall production growth. During the fourth quarter, we generated total net income of $255 million, which included a non-cash tax benefit to earnings of $66 million. Excluding this non-cash tax item, we generated total adjusted net income for the quarter of $189 million or $0.88 per diluted share. Our adjusted EBITDAX for the quarter was $268 million and for the year was $1.3 billion. Total capital associated with drilling, completions and associated facilities for the fourth quarter was $150 million or 52% of our EBITDAX. D&C capital for the year was $460 million, or just 34% of our EBITDAX. Fourth quarter production volumes grew 6% year-on-year to 73,800 barrels of oil equivalent per day. For the year, company production volumes grew 14% to 75,400 barrels of oil equivalent per day. As Chris noted earlier, we repurchased 15.5 million shares during 2022, reducing our diluted share count by 8% year-over-year. Looking at the 2022 cash flow waterfall chart on Slide 4, we started the year with $367 million of cash. Cash flow from operations before changes in working capital was $1.25 billion, with working capital changes partially offset by other items, benefiting cash by $54 million. Our D&C capital incurred, including land acquisitions, was $465 million and we spent $90 million on several small bolt-on oil and gas property acquisitions. During the year, we allocated $352 million towards share repurchases and paid dividends of $90 million. We ended 2022 with $675 million of cash on our balance sheet, an increase of more than $300 million during the year and after returning approximately 54% of our free cash flow to shareholders in the form of share repurchases and dividends. Looking at slide 5, this chart illustrates the progress of the reduction in our total outstanding shares since we began our repurchase program in the second half of 2019. Since that time, we have reduced our total diluted share count by 52.3 million shares or approximately 20%. Magnolia's weighted average fully diluted share count declined by 2.4 million shares sequentially averaging 215.4 million during the fourth quarter. We currently have 8.9 million shares remaining on our current repurchase authorization, which is specifically directed toward repurchasing Class A shares in the open market. Turning to slide 6 and as Chris discussed earlier, we recently announced a 15% increase in our quarterly dividend to $0.115 per share, which is payable on March 1st and provides an annualized dividend payout rate of $0.46 per share. The increase in our dividend is supported by the 24% year-over-year increase in our production per share that we achieved during 2022. Our plan for annualized dividend growth of at least 10% is part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth and reducing our outstanding shares by at least 1% per quarter. We plan to examine our dividend payout rate at least annually after assessing our full year results recast at a $55 oil price environment. Magnolia has the benefit of a very strong balance sheet and we ended the quarter with a net cash position of $275 million. Our $400 million of gross debt is reflected in our senior notes, which do not mature until 2026. Including our fourth quarter ending cash balance of $675 million and our undrawn $450 million revolving credit facility, our total liquidity is more than $1.1 billion. Our condensed balance sheet and liquidity as of December 31st are shown on slides 7 and 8. Turning to slide 9 and looking at our per unit cash costs and operating income margins, our total adjusted cash operating costs, including G&A, was $12.15 per BOE in the fourth quarter of 2022. It's an increase of $0.83 per BOE compared to year-ago levels. The year-over-year increase was primarily due to higher production taxes due to higher product prices and higher LOE as a result of increased oilfield service costs and higher workover-related activity. Including our DD&A rate of about $9.40 per BOE, our operating income margin for the fourth quarter was $29.16 per BOE or 57% of our total revenue. Magnolia had a very successful organic drilling program during last year, with our 2022 proved reserves increasing 16% to 157 million barrels of oil equivalent and we replaced 179% of our 2022 production. Magnolia books only one year of proved undeveloped reserves and as a result, 80% of our 2022 proved reserves were developed. The proved undeveloped reserves represent what we plan to convert to proved developed during 2023. Turning to guidance for the first quarter and for the remainder of 2023, we are currently operating two drilling rigs and plan to continue this level of activity through the end of the year. One rig will continue to drill multi-well development pads in our Giddings asset. The second rig will drill a mix of wells in both Karnes and Giddings areas, including some appraisal wells in Giddings. We continue to improve our operating efficiencies in the Giddings field and are seeing signs that cost inflation is flattening for some of our drilling and completion materials compared to last year's steep increases. We estimate our D&C capital to be between $490 million and $520 million for the full year 2023, which includes some non-operated capital that is expected to be similar to 2022 levels. At this level of spending and activity, we expect to deliver full year production growth of approximately 10% with most of the growth expected to come from our development program at Giddings. For the full year 2023, we expect our effective tax rate to be approximately 21% with most of this being deferred. Our cash tax rate is expected to be 6% to 9% for 2023. Looking at the first quarter of 2023, we expect total production volumes to be between 80,000 BOE per day and 82,000 BOE per day. And our D&C capital is estimated to be in the range of $140 million and $150 million. We expect our first quarter capital expenditures to be at the highest quarterly level for the year, with modest reductions in spending in subsequent quarters. Our price differentials are anticipated to be a $3 per barrel discount to MEH. Our fully diluted share count for the first quarter is estimated to be approximately 214 million shares, which is 6% below year-ago levels. We're now ready to take your questions.

We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. Our first question comes from Leo Mariani with ROTH MKM. Please go ahead.

Hi. I was hoping you could talk a little bit more about some of the acquisitions in the fourth quarter. You said that it sounds like the preponderance of the stuff was outside the core in Giddings. I guess that certainly implies some confidence in the appraisal program. So maybe you could just talk a little bit more about how the appraisal program went in 2022? And are you seeing more of these bolt-on opportunities of late than maybe you had say a year ago?

Good morning, Leo. Thank you for your question. We had an active appraisal program last year, and it went well. We expect that to continue into this year. We have a significant amount of acreage in Giddings, over 600,000 gross acres, which we are gradually exploring. This has helped us identify several new and promising areas in Giddings. We plan to keep working on appraisals in and around our acreage over time to enhance our understanding. The appraisal work has given us greater confidence, contributing to one of our larger recent acreage acquisitions. We will continue these efforts, which may lead to more infill acreage acquisitions and provide insights that could guide us in related directions. This will help support and further sustain Giddings, leveraging the knowledge we've gained over the years. Overall, things are going well. The exact amount of money we allocate to this will depend on various factors, but we feel good about our drilling prospects. Appraisal efforts benefit our economics, and it's preferable to have the money actively working rather than just earning a modest return.

Okay. Very thorough answer, I appreciate that. Could you provide a little bit more details around the performance of the 8-well Giddings pad? I know you guys said it was sort of better than expected. Can we get maybe a little more color around that? Was that all in the core? And are there any other plans maybe for large pads of that nature here in 2023?

We aimed to be as transparent as possible earlier this year when we encountered a few factors that affected our volume expectations for the fourth quarter, including weather-related issues and a slight delay with a significant 8-well pad. The delay was only a few days, but it was impactful since we were relying heavily on this one pad for much of our activity during that period. This situation arose not because of any major issues, but simply because it was a new experience for us. However, the pad has been operational since December and is performing better than we anticipated. There are no concerns regarding that. As for additional eight-well pads in the near future, we don't have any plans for that. I even joked that if we had a chainsaw, we might just cut the pad in half, but that's not something we intend to do. This was a unique situation, and we don't see anything beyond that.

Okay. Thanks guys.

Your next question is from Geoff Jay with Daniel Energy Partners. Please go ahead.

Good morning guys.

Good morning Jeff.

Hi Jeff.

So, just simply for me looking at Q4 D&C annualizing that it looks like a 10% reduction in your guide for 2023. Just wondering kind of what the sort of components of that are and really trying to get to sort of see where you see sort of the greatest I guess either sort of flattening or actually deflation in your service costs, where are you seeing pricing and where is it getting loose?

Yes, in the fourth quarter and continuing into the first quarter, which we've previously discussed, our forecast for capital expenditures indicates a heavier allocation toward the latter part of last year and the early part of this year. This aligns with our scheduling plan, making this year somewhat front-end loaded. We expect to notice this trend in volumes and production during the first half of the year, leading to clear growth. As we transition into the second, third, and fourth quarters, capital spending will begin to decrease. Therefore, annualizing either of those figures may not accurately reflect the overall outcome for 2023. Regarding cost inflation, some areas are showing signs of flattening or even softening, particularly in steel, certain OCTG items, fuel, and potentially drilling fluids. Rigs remain well-supported, but given the recent product price fluctuations, especially related to natural gas, there appears to be a disconnect between current service and material costs and our position in the cycle. This discrepancy seems to be a lagging issue, and companies will likely attempt to mitigate the high costs for a while before conditions start to ease.

Yes, that's super helpful. And then thinking about the current pricing environment and it's obviously a little soft. Will that have any impact on your ability to kind of get some of the bolt-on deals you guys may be looking at now or interested in going forward?

I don't think so. I don't see that at all. I'm not sure why it would. Nothing that I can see frankly.

All right. Well, thanks for that guys. Appreciate it.

Yes, sure. See you soon.

The next question is from Nicholas Pope with Seaport Research. Please go ahead.

Good morning guys.

Hi Nick.

Hey Nick.

I was hoping you guys could talk a little bit about the Karnes asset. It's obviously a little further along in development. Maybe if you could provide a little context on kind of inventory there and how you're thinking about kind of what you have available on the operated side versus the non-operated side and the Karnes side of things?

Yes, of course. If you consider the pace at which we are operating, we are using one dedicated rig in Giddings while the second rig operates between Giddings and a bit in Karnes. Proportionately, there is more potential for us. The decision to allocate our capital away from Karnes is largely influenced by the returns and performance we are observing from the Giddings wells. While we could increase drilling in Karnes, it typically shows high initial production rates followed by a faster decline compared to Giddings. The Giddings program generally offers longer productivity and better efficiency, which is why we are focusing our efforts there.

Got it. That's helpful. As a follow-up on the cost discussion, I am curious about how you view the timing of rig contracts and the consumables you mentioned that are moderating in costs. What is the timing for setting up some of those contracts and planning for them?

Yes. Without going into too much detail, we're looking at significant time frames of about three to six months. In this environment, not much more can be done regarding that. I believe it's acceptable for the service providers, and it's fine with us. We plan to continue as we always have, focusing on efficiency in our supply chain to avoid any issues with procurement. We maintain regular communication with our vendors, staying actively engaged in scheduling and planning. We provide them with schedules, ensuring they feel secure about our commitments both short-term and long-term. This consistent approach helps nurture our relationship and is beneficial for both parties.

Got it. That's helpful. That's all I got. I appreciate the time. Thanks, Chris.

Sure.

The next question is from Tim Rezvan with KeyBanc. Please go ahead.

Hey good morning guys. Thanks for taking my question. I want to start on the repurchase front. You've been very steady on that. Brian had mentioned 8.9 million shares left on our authorization. So Chris, if you could put your director hat on, should we just assume that that would probably be kind of extended or increased the authorization program since you could run through that in 3Q or 4Q this year?

Yes. As Brian mentioned, the share repurchase authorization approved by the Board pertains exclusively to the Class A shares that are traded in the market. It's important to note that a private equity owner holds a small portion of Class A shares and a larger number of Class B shares, so the repurchase program involving 8.9 million shares does not apply to the Class B shares. From my perspective as a director, I don't see this as an issue. If we want to seek approval from the Board to authorize additional shares for repurchase, I believe they will accommodate that. This has always been part of the investment strategy for Magnolia. I want to emphasize that we are focused on enhancing our capacity to pay dividends per share. By consistently repurchasing shares that we consider to be a good value, we improve that capability over time.

Okay. Thanks. Just wanted to make sure that that would be part of the medium long-term plan it sounds like it is?

Yeah that will be.

Okay. Great. Great. And then on the acquisitions front a big number in 4Q, $78 million. So kind of two questions related to that. First, was there a production that came with those acquisitions? And then secondly, as you look forward kind of what – you're sitting on a lot of cash here. How big could that be opportunistically? Would you go $200 million, $300 million, $400 million for the right opportunities this year? Just trying to understand kind of what your appetite is or how big you could get on that front? Thanks.

Yeah, sure. I mean, the $78 million in the quarter or the $90 million for the year, frankly, I don't view that as a large number. It's just larger than maybe some things that we've done fairly recently. And so anything of any size is probably going to stand out. We did all this and we sort of walked you through and we ended with $700 million or thereabouts of cash. Having a little bit more cash right now is probably not such a terrible thing, especially given some of the uncertainty around the economy at least we're getting a little bit more interest and offsetting almost all of the cash interest expense. Having said that, we're not Bank of America. The goal of the money is to find a better use for it and it generates stronger returns and helps the business over time. So we'll continue to execute on our model with moderate growth that we talk about and frankly we've over-shopped that. And we'll continue to repurchase shares and continue to pay a safe and growing dividend. As you know, we have this sizable private equity owner, continue to accommodate their sales process over time. I can't say – I can say if, but I can't say when that will happen, but we'll be very supportive through our own purchases around that to help them. The M&A, as I said, this included a mix of acreage and working interest in minerals. Could we go larger, if we found the right opportunity? Yeah, sure we could do that. We don't need – the business doesn't need a lot of money to continue to run well and do what we need to do execution-wise. We found that out the hard way during COVID, but where we really didn't burn much cash at all. And so if we only spend 55% of our gross cash flow you sort of generate free cash flow year in, year out. So we're pretty focused on that and compensated around that. So if we find the right deal we'll find the right opportunity that improves the business and enhances sustainability of the business provides us more running room, yeah. But we're not looking to do a deal where we would require any additional outside financing. So it's sort of limited to our capabilities around what we have on hand in terms of cash and also around our skill set.

Okay. Thanks for that detail. And just close the loop, can you disclose any production that came with the acquisitions in the fourth quarter?

So, yeah. No. So it was very small. I mean, not a consequential amount or material amount of production volumes.

Okay. All right. Thanks so much.

The next question is from Noel Parks with Tuohy. Please go ahead.

Good morning.

Good morning.

So just a couple of things. You talked about expecting to see some efficiencies this year that could help offset some of the service cost inflation. And I wonder if you could just talk a little bit about it? Most operations are working on different efficiency projects kind of all the time. I was just wondering, are there any particular resource shifts? I mean, more staff or shifting staff around various functions to tackle any particular types of projects in the field that you haven't before?

No, I wouldn't say we're shifting any staff or generating new staff to work on this especially. I would tell you with Giddings, remember I said we're entering our sixth year as a public company now, and so if you skip over the COVID gap, we really just got at this maybe in late-2020, more so 2021. And so we're in the earlier middle innings of what is the evolution of trying to get at Giddings and understand it better. And so there's more to I think, be squeezed out of it. So the usual operational efficiencies that most talk to or speak to in terms of improving our drilling feet per day or reducing our drilling days and frac stages per day improving. We recently set a new record on a pad in terms of the completion time. So, there's still some of that to be done and captured this year. And so I think we'll see some benefit of that.

Great. I noticed there was a sequential decline in cash general and administrative expenses between the first quarter and from the third quarter to the fourth quarter. While I'm not complaining—it's always good to see costs going down—I was wondering if there was anything specific or one-time that contributed to this difference.

The cash G&A is relatively small for us, and there can occasionally be one-off items that come up from period to period, such as insurance payments or executive bonuses. It's difficult to predict these with a lot of accuracy from quarter to quarter, so I wouldn’t read too much into it. Nothing stands out in my mind. There are also some costs related to certain share sales, but generally, these are very minor items.

Got you. And I was just wondering one thing about reserves. Did you see any tight curve of improvements or upward revisions in reserves this year with the engineers?

We did discuss this, and you will see more details once we release the 10-K, which will be available soon. We addressed some positive performance revisions directly in that document.

Terrific. That’s all for me.

Thanks.

The next question is from Neal Dingmann with Truist. Please go ahead.

Good morning. Chris, I think I've always had to answer this for you or Brian. Could you talk about capital allocation? How do you currently evaluate buybacks versus dividends, and has anything prompted a change in your strategy?

Yes, we regularly plan for share repurchases of at least 1% each quarter, and that's not changing. However, over the last two years, we've likely repurchased at double that rate to support EnerVest as they sold down their shares. As that situation stabilizes, while we remain committed to the 1%, it's possible that some of the extra cash allocated for share repurchases could shift towards dividends. Regarding the dividend, I want to emphasize that we aim to grow it prudently, without rushing the process. It's important to maintain the stability and security of the dividend, so we won't be pursuing a variable dividend strategy. Our focus is on steady, sustainable growth in dividends, which is what successful dividend growth companies do.

I was wondering if you can bring up that your wife like dividends like your great leader once said but…

I always consult with her before, yes.

And with that can I just have a follow-up on that with the immense amount of cash you all have, is that out there just in case that with the EnerVest, or could you talk about that cash that you have on the books very significant?

Yes, it is. We'll see how things develop with EnerVest and any potential mergers and acquisitions or smaller deals we might consider. I don’t have any immediate plans at the moment. As I mentioned, having some extra cash in this unpredictable environment is fine. It's certainly not an ideal time to report results because of market volatility. However, having a bit more cash on hand can be beneficial given the current macroeconomic uncertainty and fluctuations in the market. We feel safe and secure, but the important point is that simply holding onto cash doesn't really help us. It might provide some comfort, but we ultimately want to utilize it to enhance the business.

Great point. One last question about the development program in Giddings. Will it stay around 70,000 acres, or are you planning to add more land to that area?

We did that in the fourth quarter. Where possible, through appraisal work or other activities, we will consider expanding our presence in Giddings, not just on our current acreage. Over time, we may see opportunities to be active outside of our core development area. While our core development area is strong, we want to continue exploring other options.

Great point. Thanks guys. Great quarter.

Thanks.

All right. Thanks Neal.

This concludes our question-and-answer session and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.