8-K
Magnolia Oil & Gas Corp (MGY)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 11, 2020
| | | |
|---|---|---|
| Magnolia Oil & Gas Corporation | ||
| (Exact name of registrant as specified in its charter) | ||
| | | |
| Delaware | 001-38083 | 81-5365682 |
| (State or other jurisdiction <br>of incorporation) | (Commission <br>File Number) | (I.R.S. Employer <br>Identification Number) |
| | | |
| | Nine Greenway Plaza, Suite 1300<br><br>Houston , Texas **** 77046 | |
| (Address of principal executive offices, including zip code) | ||
| | | |
| | ( 713 ) 842-9050 | |
| Registrant’s telephone number, including area code |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| | | |
|---|---|---|
| Securities registered pursuant to section 12(b) of the Act: | ||
| | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.0001 Per Share | MGY | New York Stock Exchange |
Item 2.02Results of Operations and Financial Condition.
****On May 11, 2020, Magnolia Oil & Gas Corporation (the ‘Company”) issued a press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated by reference herein, announcing its financial and operational results for the quarter ended March 31, 2020.
The information furnished pursuant to this Item 2.02 (including Exhibit 99.1) shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
| Item 7.01 | Regulation FD Disclosure. |
|---|
On May 11, 2020, the Company provided information in an earnings presentation on its website, www.magnoliaoilgas.com, regarding its financial and operational results for the quarter ended March 31, 2020.
The earnings presentation, which is attached hereto as Exhibit 99.2, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise be subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d)Exhibits.
| | |
|---|---|
| Exhibit | |
| Number | Description |
| 99.1 | Press Release dated May 11, 2020 |
| | |
| 99.2 | Earnings Presentation dated May 11, 2020 |
| | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| <br><br><br><br> | |
|---|---|
| | MAGNOLIA OIL & GAS CORPORATION |
| | |
| | |
| Date: May 11, 2020 | By: /s/ Timothy D. Yang |
| | Name: Timothy D. Yang |
| | Title: Executive Vice President,<br> General Counsel and Corporate Secretary |
2
EX99.1EarningsRelease
Exhibit 99.1
Magnolia Oil & Gas Corporation Announces First Quarter 2020 Results
HOUSTON, TX, May 11, 2020 - Magnolia Oil & Gas Corporation (“Magnolia,” “we,” “our,” or the “Company”) (NYSE: MGY) today announced its financial and operational results for the first quarter of 2020.
First Quarter 2020 Highlights: | · | Magnolia reported a first quarter 2020 net loss of $1.9 billion and net loss attributable to Class A Common Stock of $1.2 billion, or $7.34 per share. Included in the Company’s first quarter results are $1.9 billion of pretax asset impairment charges related to the significant weakness in product prices. Excluding the impact of these charges, the first quarter 2020 total adjusted earnings were a loss of $18.5 million, or $0.11 per share. | | --- | --- | | · | First quarter 2020 production averaged 68.4 thousand barrels of oil equivalent per day ("Mboe/d"), exceeding our earlier guidance. Oil production averaged 37.3 thousand barrels per day ("Mbbl/d") or 55 percent of total volumes. Total production increased by 10 percent compared to the first quarter of 2019 with oil production increasing by 15 percent. The higher than expected production was a result of stronger than expected well performance and new wells coming on line in the Giddings field. | | --- | --- | | · | Giddings and other production averaged 23.9 Mboe/d with oil production averaging 6.5 Mbbl/d, a 17 percent sequential oil increase. Four new wells were brought online during the quarter with an average per well 60‑day oil rate of approximately 800 barrels per day. Recent drilling cost reductions and further efficiencies have allowed Magnolia to reduce drilling and completion ("D&C") costs in Giddings by more than 20 percent compared to 2019, lowering average well costs to approximately $7 million. | | --- | --- | | · | Adjusted EBITDAX during the first quarter of 2020 was $123.9 million. D&C costs for the quarter were 81 percent of EBITDAX or $100.6 million, which was lower than our guidance. Magnolia continues to target 2020 D&C capital to be around 60 percent of EBITDAX and expect capital expenditures to significantly decline during the remainder of 2020. | | --- | --- | | · | Total cash operating costs, including general and administrative ("G&A") expenses, were $9.42 per boe in the first quarter 2020 representing a 14 percent decline compared to $11.00 per boe in the prior year period. | | --- | --- | | · | Magnolia has identified cash cost savings during 2020 of approximately $55 million compared to the original 2020 plan. The reduction is generated from operating costs and G&A expenses. | | --- | --- | | · | Magnolia ended the quarter with approximately $146.5 million of cash on its balance sheet and has not drawn on its $450 million revolving credit facility. The Company has no debt maturities until 2026 and has no plans to increase its debt levels. | | --- | --- | “Our underlying business and assets performed better than expected during the first quarter,” said Magnolia Chairman, President, and CEO, Steve Chazen. “Our philosophy toward disciplined capital spending and low financial leverage should continue to support us during the current challenging environment. Our drilling results in the Giddings field were particularly strong, with two of our best wells drilled to date brought online during the quarter. We have taken steps to help mitigate the impact of much weaker product prices caused by weaker global demand due to COVID‑19, and our business model provides us with ample liquidity, as well as the flexibility to adjust our activity levels relatively quickly. Our capital spending for drilling and completions will decline significantly during the remainder of the year as we are currently running only one operated rig and have ceased all well completion activity. We will continue to focus on what we can control and have implemented cost reduction initiatives throughout the organization in order to better align our cost structure with the current market environment.
“Magnolia continues to benefit from its strong financial position. We ended the quarter with $146.5 million of cash on our balance sheet and do not expect to add any new debt. Our current cash on hand would be able to cover all our remaining capital, overhead, and interest payments at least through 2020, even before considering the revenue from our production.”
Cost Reduction Initiatives
Magnolia has initiated a corporate-wide cost reduction program to help lower expenses throughout the organization, including both our capital program and cash operating costs. As part of this plan, we have engaged with our vendors and suppliers for a reduction in the costs of their services in order to better align our costs to the current environment. We have also implemented corporate-wide salary reductions of approximately 10 percent. | · | Magnolia has identified cash cost savings of approximately $55 million to be achieved during 2020 and compared to our original plan. These reductions are generated from a combination of operating costs and G&A expenses and, excludes any additional savings from the capital program. | | --- | --- | | · | D&C capital outlays for the remainder of the year should be less than the D&C levels of the first quarter. | | --- | --- | Evidence of these savings should be partially reflected in the second quarter, and more fully reflected in the second half of the year. Further cost reduction initiatives remain ongoing and the Company will continue to pursue efforts to improve margins.
Operational Update
First quarter total company production averaged 68.4 Mboe/d, a 10 percent increase compared to the first quarter 2019 levels. Production in the Karnes area averaged 44.5 Mboe/d during the first quarter 2020, a 10 percent increase from prior year levels of 40.5 Mboe/d. Production from Giddings and other increased 9 percent to 23.9 Mboe/d in the most recent quarter compared to prior year levels of 21.9 Mboe/d. Oil production in the Giddings area increased 17 percent sequentially as a result of new wells brought online in the quarter.
Magnolia brought four new Giddings wells online, including a two-well pad in the development area, during the quarter. The per well average oil production from these four wells was approximately 800 barrels of oil per day over the first 60 days and oil accounted for 75% of the total production. Recent drilling cost reductions and further efficiencies have allowed Magnolia to reduce D&C costs in Giddings by more than 20 percent compared to 2019, lowering average well costs to approximately $7 million.
The operated Karnes rig was released in early April and Magnolia currently has just one rig drilling a multi-well pad in Giddings. The Company ceased completing wells in February and does not plan to complete additional wells in the current commodity environment. Magnolia’s business model provides for flexibility to our activity levels allowing the Company to better navigate the downturn.
Guidance and Other Financial Information
During the first quarter of 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties as a result of the sharp decline in commodity prices. Proved property impairment of $1.4 billion is included in “Impairment of oil and natural gas properties” and unproved property impairment of $0.6 billion is included in “Exploration expense” on the Company’s Consolidated Statement of Operations for the three months ended March 31, 2020. As a result of the non-cash impairment in the first quarter, Magnolia expects the depreciation, depletion and amortization rate to average about $9 per boe for the remainder of the year.
Magnolia is expecting a significant reduction of capital for the remainder of 2020. The total D&C capital spending for the remaining three quarters of the year is expected to be less than the first quarter levels. Magnolia operates approximately 75 percent of the total Company production volumes and less than 5 percent of the operated volumes are expected to be shut-in for the month of May and a smaller amount for June. As a result, we expect our second quarter production to be in the range of 62 to 65 Mboe/d. Oil production is expected to make up 52 to 54 percent of our total volumes for the second quarter.
Quarterly Report on Form 10‑Q
Magnolia’s financial statements and related footnotes will be available in its Quarterly Report on Form 10‑Q for the three months ended March 31, 2020, which is expected to be filed with the U.S. Securities and Exchange Commission ("SEC") on May 11, 2020.
2
Conference Call and Webcast
Magnolia will host an investor conference call on Tuesday, May 12, 2020 at 10:00 a.m. Central (11:00 a.m. Eastern) to discuss these operating and financial results. Interested parties may join the webcast by visiting Magnolia’s website at www.magnoliaoilgas.com/investors/events-and-presentations and clicking on the webcast link or by dialing 1‑844‑701‑1059. A replay of the webcast will be posted on Magnolia’s website following completion of the call.
About Magnolia Oil & Gas Corporation
Magnolia (MGY) is a publicly traded oil and gas exploration and production company with operations primarily in South Texas in the core of the Eagle Ford Shale and Austin Chalk formations. Magnolia focuses on generating value for shareholders through steady production growth, strong pre-tax margins, and free cash flow. For more information, visit www.magnoliaoilgas.com.
Cautionary Note Regarding Forward-Looking Statements
The information in this press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included in this press release, regarding Magnolia’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward looking statements. When used in this press release, the words could, should, will, may, believe, anticipate, intend, estimate, expect, project, the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Magnolia disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release. Magnolia cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Magnolia, incident to the development, production, gathering and sale of oil, natural gas and natural gas liquids. In addition, Magnolia cautions you that the forward looking statements contained in this press release are subject to the following factors: (i) the length, scope and severity of the recent coronavirus disease 2019 (“COVID‑19”) pandemic, and the impacts of the competition between Russia and Saudi Arabia for crude oil market share, including the effects of related public health concerns and the impact of actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices, supply and demand considerations, and storage capacity; (ii) the outcome of any legal proceedings that may be instituted against Magnolia; (iii) Magnolia’s ability to realize the anticipated benefits of its business combination, which may be affected by, among other things, competition and the ability of Magnolia to grow and manage growth profitably; (iv) changes in applicable laws or regulations; and (v) the possibility that Magnolia may be adversely affected by other economic, business, and/or competitive factors. Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in Magnolia’s filings with the SEC, including its Annual Report on Form 10‑K for the fiscal year ended December 31, 2019. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov.
Contacts for Magnolia Oil & Gas Corporation
Investors
Brian Corales
(713) 842‑9036
bcorales@mgyoil.com
Media
Art Pike
(713) 842‑9057
apike@mgyoil.com
3
Magnolia Oil & Gas Corporation
Operating Highlights
| | For the<br> <br>Quarter Ended<br> <br>March 31, 2020 | | | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | | |
| --- | --- | --- | --- | --- | --- | --- | | Production: | | | | | | | | Oil (MBbls) | 3,391 | | | 2,906 | | | | Natural gas (MMcf) | 10,053 | | | 9,763 | | | | NGLs (MBbls) | 1,155 | | | 1,084 | | | | Total (Mboe) | 6,222 | | | 5,617 | | | | Average daily production: | | | | | | | | Oil (Bbls/d) | 37,259 | | | 32,289 | | | | Natural gas (Mcf/d) | 110,475 | | | 108,478 | | | | NGLs (Bbls/d) | 12,688 | | | 12,044 | | | | Total (boe/d) | 68,360 | | | 62,413 | | | | Revenues (in thousands): | | | | | | | | Oil sales | $ | 154,686 | | $ | 171,654 | | | Natural gas sales | 16,175 | | | 27,375 | | | | NGL sales | 10,504 | | | 19,645 | | | | Total Revenues | $ | 181,365 | | $ | 218,674 | | | Average sales price: | | | | | | | | Oil (per Bbl) | $ | 45.62 | | $ | 59.07 | | | Natural gas (per Mcf) | 1.61 | | | 2.80 | | | | NGL (per Bbl) | 9.09 | | | 18.12 | | | | Total (per boe) | $ | 29.15 | | $ | 38.93 | | | NYMEX WTI ($/Bbl) | $ | 46.08 | | $ | 54.90 | | | NYMEX Henry Hub ($/Mcf) | $ | 1.95 | | $ | 3.15 | | | Realization to benchmark: | | | | | | | | Oil (per Bbl) | 99 | | % | 108 | | % | | Natural Gas (per Mcf) | 83 | | % | 89 | | % | | Operating Expenses (in thousands): | | | | | | | | Lease operating expenses | $ | 24,163 | | $ | 21,518 | | | Gathering, transportation and processing | 8,020 | | | 9,315 | | | | Taxes other than income | 10,018 | | | 14,401 | | | | Depreciation, depletion and amortization | 142,671 | | | 115,946 | | | | Operating costs per boe: | | | | | | | | Lease operating expenses | $ | 3.88 | | $ | 3.83 | | | Gathering, transportation and processing | 1.29 | | | 1.66 | | | | Taxes other than income | 1.61 | | | 2.56 | | | | Depreciation, depletion and amortization | 22.93 | | | 20.64 | | |
4
Magnolia Oil & Gas Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
| For the<br> <br>Quarter Ended<br> <br>March 31, 2020 | For the<br>Quarter Ended<br>March 31, 2019 | ||||
|---|---|---|---|---|---|
| REVENUES | |||||
| Oil revenues | $ | 154,686 | $ | 171,654 | |
| Natural gas revenues | 16,175 | 27,375 | |||
| Natural gas liquids revenues | 10,504 | 19,645 | |||
| Total revenues | 181,365 | 218,674 | |||
| OPERATING EXPENSES | |||||
| Lease operating expenses | 24,163 | 21,518 | |||
| Gathering, transportation and processing | 8,020 | 9,315 | |||
| Taxes other than income | 10,018 | 14,401 | |||
| Exploration expense | 556,427 | 2,476 | |||
| Impairment of oil and natural gas properties | 1,381,258 | — | |||
| Asset retirement obligation accretion | 1,438 | 1,328 | |||
| Depreciation, depletion and amortization | 142,671 | 115,946 | |||
| Amortization of intangible assets | 3,626 | 3,626 | |||
| General & administrative expenses | 18,080 | 16,196 | |||
| Transaction related costs | — | 353 | |||
| Total operating costs and expenses | 2,145,701 | 185,159 | |||
| OPERATING INCOME (LOSS) | (1,964,336 | ) | 33,515 | ||
| OTHER INCOME (EXPENSE) | |||||
| Income from equity method investee | 440 | 388 | |||
| Interest expense, net | (6,757 | ) | (7,416) | ||
| Other expense, net | (472 | ) | 1 | ||
| Total other income (expense) | (6,789 | ) | (7,027) | ||
| INCOME (LOSS) BEFORE INCOME TAXES | (1,971,125 | ) | 26,488 | ||
| Income tax expense (benefit) | (75,826 | ) | 3,775 | ||
| NET INCOME (LOSS) | (1,895,299 | ) | 22,713 | ||
| LESS: Net income (loss) attributable to noncontrolling interest | (668,289 | ) | 9,687 | ||
| NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK | $ | (1,227,010 | ) | $ | 13,026 |
| NET INCOME (LOSS) PER COMMON SHARE | |||||
| Basic | $ | (7.34 | ) | $ | 0.08 |
| Diluted | $ | (7.34 | ) | $ | 0.08 |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||
| Basic | 167,149 | 156,322 | |||
| Diluted | 167,149 | 158,140 | |||
| WEIGHTED AVERAGE NUMBER OF CLASS B SHARES OUTSTANDING(1) | 85,790 | 93,312 |
| \(1\) | Shares of Class B Common Stock, and corresponding Magnolia LLC Units, are anti-dilutive in the calculation of weighted average number of common shares outstanding. |
| --- | --- |
5
Magnolia Oil & Gas Corporation
Summary Cash Flow Data
(In thousands)
| For the<br> <br>Quarter Ended<br>March 31, 2020 | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | |||||
|---|---|---|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net income (loss) | $ | (1,895,299 | ) | $ | 22,713 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation, depletion and amortization | 142,671 | 115,946 | ||||
| Amortization of intangible assets | 3,626 | 3,626 | ||||
| Exploration expense, non-cash | 555,189 | 483 | ||||
| Impairment of oil and natural gas properties | 1,381,258 | — | ||||
| Asset retirement obligations accretion expense | 1,438 | 1,328 | ||||
| Amortization of deferred financing costs | 896 | 871 | ||||
| Deferred tax expense (benefit) | (74,654 | ) | 3,415 | |||
| Stock based compensation | 2,879 | 2,432 | ||||
| Other | (447 | ) | (393 | ) | ||
| Net change in operating assets and liabilities | 17,321 | (33,859 | ) | |||
| Net cash provided by operating activities | 134,878 | 116,562 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Acquisition of EnerVest properties, final settlement | — | 4,250 | ||||
| Acquisitions, other | (69,390 | ) | (53,326 | ) | ||
| Additions to oil and natural gas properties | (94,210 | ) | (134,435 | ) | ||
| Other investing | (200 | ) | 197 | |||
| Net cash used in investing activities | (163,800 | ) | (183,314 | ) | ||
| CASH FLOW FROM FINANCING ACTIVITIES | ||||||
| Contributions from noncontrolling interest owners | — | 7,301 | ||||
| Distributions to noncontrolling interest owners | (284 | ) | — | |||
| Repurchase of common stock | (6,483 | ) | — | |||
| Other financing activities | (452 | ) | — | |||
| Net cash used in financing activities | (7,219 | ) | 7,301 | |||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (36,141 | ) | (59,451 | ) | ||
| Cash and cash equivalents – Beginning of period | 182,633 | 135,758 | ||||
| Cash and cash equivalents – End of period | $ | 146,492 | $ | 76,307 |
6
Magnolia Oil & Gas Corporation
Summary Balance Sheet Data
(In thousands)
| March 31, 2020 | December 31, 2019 | |||||
|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 146,492 | $ | 182,633 | ||
| Other current assets | 82,753 | 110,585 | ||||
| Property, plant and equipment, net | 1,209,606 | 3,116,757 | ||||
| Other assets | 51,978 | 56,431 | ||||
| Total assets | $ | 1,490,829 | $ | 3,466,406 | ||
| Current liabilities | $ | 170,700 | $ | 175,208 | ||
| Long-term debt, net | 390,147 | 389,835 | ||||
| Other long-term liabilities | 101,092 | 172,834 | ||||
| Common stock | 26 | 26 | ||||
| Additional paid in capital | 1,703,996 | 1,703,362 | ||||
| Treasury stock | (16,760 | ) | (10,277 | ) | ||
| Retained earnings (accumulated deficit) | (1,144,070 | ) | 82,940 | |||
| Noncontrolling interests | 285,698 | 952,478 | ||||
| Total liabilities and equity | $ | 1,490,829 | $ | 3,466,406 |
7
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income (loss) to adjusted EBITDAX
In this press release, we refer to adjusted EBITDAX, a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders, and rating agencies. We define adjusted EBITDAX as net income (loss) before interest expense, income taxes, depreciation, depletion and amortization, amortization of intangible assets, accretion of asset retirement obligations, non-cash stock based compensation expense, exploration costs, and certain transaction costs. Adjusted EBITDAX is not a measure of net income (loss) in accordance with GAAP.
Our management believes that adjusted EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We also believe that securities analysts, investors, and other interested parties may use adjusted EBITDAX in the evaluation of our Company. We exclude the items listed above from net income (loss) in arriving at adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of adjusted EBITDAX. Our presentation of adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.
The following table presents a reconciliation of net income (loss) to adjusted EBITDAX, our most directly comparable financial measure calculated and presented in accordance with GAAP:
| (In thousands) | For the<br> <br>Quarter Ended<br> <br>March 31, 2020 | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | |||
|---|---|---|---|---|---|
| Net income (loss)(1) | $ | (1,895,299 | ) | $ | 22,713 |
| Exploration expense | 556,427 | 2,476 | |||
| Asset retirement obligations accretion | 1,438 | 1,328 | |||
| Depreciation, depletion and amortization | 142,671 | 115,946 | |||
| Amortization of intangible assets | 3,626 | 3,626 | |||
| Interest expense, net | 6,757 | 7,416 | |||
| Income tax expense (benefit) | (75,826 | ) | 3,775 | ||
| EBITDAX | (1,260,206 | ) | 157,280 | ||
| Impairment of oil and natural gas properties | 1,381,258 | — | |||
| Non-cash stock based compensation expense | 2,879 | 2,432 | |||
| Transaction related costs(2) | — | 353 | |||
| Adjusted EBITDAX | $ | 123,931 | $ | 160,065 |
| \(1\) | Includes net income \(loss\) attributable to noncontrolling interest. |
| --- | --- | | (2) | Transaction costs incurred related to the execution of our business combination with EnerVest, Ltd. and its affiliates, including | | --- | --- | legal fees, advisory fees, consulting fees, accounting fees, employee placement fees, and other transaction and facilitation costs.
8
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income (loss) attributable to Class A Common Stock to adjusted earnings (loss)
Our presentation of adjusted earnings and adjusted earnings per share are non-GAAP measures because they exclude the effect of certain items included in Income Attributable to Class A Common Stock. Management uses adjusted earnings and adjusted earnings per share to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted earnings may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted earnings and adjusted earnings per share may not be comparable to similar measures of other companies in our industry.
| For the<br> <br>Quarter Ended<br> <br>March 31, 2020 | Per Share Diluted EPS | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | Per Share Diluted EPS | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | |||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK | $ | (1,227,010 | ) | $ | (7.34 | ) | $ | 13,026 | $ | 0.08 | |
| Adjustments: | |||||||||||
| Impairment of proved oil and natural gas properties | 1,381,258 | 8.26 | — | — | |||||||
| Impairment of unproved properties(1) | 555,175 | 3.32 | — | — | |||||||
| Transaction costs | — | — | 353 | — | |||||||
| Noncontrolling interest impact of adjustments | (656,527 | ) | (3.93 | ) | — | — | |||||
| Tax adjustments(2) | (71,362 | ) | (0.42 | ) | (74 | ) | — | ||||
| ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK | $ | (18,466 | ) | $ | (0.11 | ) | $ | 13,305 | $ | 0.08 |
| \(1\) | Impairment of unproved properties is included within Exploration expense on the Consolidated Statement of Operations. |
| --- | --- | (2) | Tax adjustments relate to impairment of oil and natural gas properties and valuation allowance associated with the company’s deferred tax asset. |
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9
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income (loss) to adjusted net income (loss)
Our presentation of adjusted net income (loss) is a non-GAAP measures because it excludes the effect of certain items included in Net income (loss) and adjusts for income taxes assuming the exchange of all outstanding Magnolia LLC Units and corresponding Class B Common Stock for shares of Class A Common Stock. Management uses adjusted net income (loss) to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted net income (loss) may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes adjusting these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted net income (loss) may not be comparable to similar measures of other companies in our industry.
| For the<br> <br>Quarter Ended<br> <br>March 31, 2020 | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | ||||
|---|---|---|---|---|---|
| (In thousands) | |||||
| NET INCOME (LOSS)(1) | $ | (1,895,299 | ) | $ | 22,713 |
| Income tax expense (benefit) | (75,826 | ) | 3,775 | ||
| INCOME (LOSS) BEFORE INCOME TAXES | (1,971,125 | ) | 26,488 | ||
| Adjustments: | |||||
| Impairment of proved oil and natural gas properties | 1,381,258 | — | |||
| Impairment of unproved properties(2) | 555,175 | — | |||
| Transaction costs | — | 353 | |||
| ADJUSTED INCOME (LOSS) BEFORE INCOME TAXES | (34,692 | ) | 26,841 | ||
| Adjusted income tax expense (benefit)(3) | (7,452 | ) | 5,883 | ||
| ADJUSTED NET INCOME (LOSS) | $ | (27,240 | ) | $ | 20,958 |
| Diluted weighted average shares of Class A Common Stock outstanding during the period | 167,149 | 158,140 | |||
| Weighted average shares of Class B Common Stock outstanding during the period(4) | 85,790 | 93,312 | |||
| Total weighted average shares of Class A and B Common Stock, including dilutive impact of other securities(4) | 252,939 | 251,452 |
| \(1\) | Includes net income \(loss\) attributable to noncontrolling interest. |
| --- | --- | | (2) | Impairment of unproved properties is included within Exploration expense on the Consolidated Statement of Operations. | | --- | --- | | (3) | Represents corporate income taxes at an assumed effective tax rate of 21.5% and 21.9% for the quarters ended March 31, 2020 and 2019, respectively, applied to adjusted income before income taxes. | | --- | --- | | (4) | Shares of Class B Common Stock, and corresponding Magnolia LLC Units, are anti-dilutive in the calculation of weighted average number of common shares outstanding. | | --- | --- |
10
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of revenue per boe to cash operating margin
Our presentation of cash operating margin is a supplemental non-GAAP financial measure that is used by management. Cash operating margin excludes stock based compensation expense and unproved property impairment because they are non-cash in nature. We define cash operating margin per boe as total revenues per boe less operating expenses per boe adjusted for certain unusual or non-recurring items per boe that management does not consider to be representative of the Company’s on-going business operations. Management believes that cash operating margin per boe provides relevant and useful information, which is used by our management in assessing the Company’s profitability and comparability of results to our peers.
As a performance measure, cash operating margin may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of cash operating margin per boe may not be comparable to similar measures of other companies in our industry.
| (in $/boe) | For the<br> <br>Quarter Ended<br>March 31, 2020 | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | ||||
|---|---|---|---|---|---|---|
| Revenue | $ | 29.15 | $ | 38.93 | ||
| Direct operating expenses | ||||||
| Lease operating expenses | (3.88 | ) | (3.83 | ) | ||
| Gathering, transportation and processing | (1.29 | ) | (1.66 | ) | ||
| Taxes other than income | (1.61 | ) | (2.56 | ) | ||
| Exploration expense(1) | (0.20 | ) | (0.44 | ) | ||
| General & administrative expense(2) | (2.44 | ) | (2.45 | ) | ||
| Transaction related expense | — | (0.06 | ) | |||
| Total cash operating costs | (9.42 | ) | (11.00 | ) | ||
| Cash operating margin | $ | 19.73 | $ | 27.93 |
| \(1\) | Exploration expense excludes unproved property impairment of $555.2 million, or $89.23 per boe, for the quarter ended March 31, 2020. |
| --- | --- | (2) | General & administrative expense excludes non-cash stock based compensation of $2.9 million and $2.4 million, or $0.46 per boe and $0.43 per boe, for the quarters ended March 31, 2020 and 2019, respectively. |
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11
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net cash provided by operating activities to cash flows from operations before net change in operating assets and liabilities and free cash flow
Free cash flow and cash flows from operations before net change in operating assets and liabilities are non-GAAP financial measures. Free cash flow is defined as cash flows from operations before net change in operating assets and liabilities less additions to oil and natural gas properties. Management believes free cash flow and cash flows from operations before net change in operating assets and liabilities are useful for investors and widely accepted by those following the oil and gas industry as financial indicators of a company’s ability to generate cash to internally fund drilling and completion activities, fund acquisitions, and service debt. They are also used by research analysts to value and compare oil and gas exploration and production companies and are frequently included in published research when providing investment recommendations. Free cash flow and cash flows from operations before net change in operating assets and liabilities, therefore, are additional measures of liquidity but are not measures of financial performance under GAAP and should not be considered alternatives to cash flows from operating, investing, or financing activities.
| (In thousands) | For the<br>Quarter Ended<br>March 31, 2020 | For the<br> <br>Quarter Ended<br> <br>March 31, 2019 | ||||
|---|---|---|---|---|---|---|
| Net cash provided by operating activities | $ | 134,878 | $ | 116,562 | ||
| Add: Net change in operating assets and liabilities | (17,321 | ) | 33,859 | |||
| Cash flows from operations before net change in operating assets and liabilities | 117,557 | 150,421 | ||||
| Less: Additions to oil and natural gas properties | (94,210 | ) | (134,435 | ) | ||
| Free cash flow | $ | 23,347 | $ | 15,986 |
12
Exhibit 99.2
| First Quarter 2020<br>Earnings Presentation<br>May 11, 2020<br>Stephen I. Chazen – Chairman, President & CEO<br>Christopher Stavros – Executive Vice President & CFO<br>Brian Corales – Vice President, Investor Relations |
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| Disclaimer<br>2<br>FORWARD LOOKING STATEMENTS<br>The information in this presentation and the oral statements made in connection therewith include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended<br>(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included in this presentation, regarding Magnolia<br>Oil & Gas Corporation’s (“Magnolia,” “we,” “us,” “our” or the “Company”) financial and production guidance, strategy, future operations, financial position, estimated revenues, and losses, projected costs,<br>prospects, plans and objectives of management are forward-looking statements. When used in this presentation, including any oral statements made in connection therewith, the words “could,” “should,”<br>“will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all<br>forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events. Except as otherwise<br>required by applicable law, Magnolia disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after<br>the date of this presentation. Magnolia cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond<br>the control of Magnolia, incident to the development, production, gathering and sale of oil, natural gas and natural gas liquids. In addition, Magnolia cautions you that the forward looking statements<br>contained in this press release are subject to the following factors: (i) the length, scope and severity of the recent coronavirus disease 2019 (“COVID-19”) pandemic, and the impacts of the competition<br>between Russia and Saudi Arabia for crude oil market share, including the effects of related public health concerns and the impact of actions taken by governmental authorities and other third parties in<br>response to the pandemic and its impact on commodity prices, supply and demand considerations, and storage capacity; (ii) the outcome of any legal proceedings that may be instituted against Magnolia; (iii)<br>Magnolia’s ability to realize the anticipated benefits of its business combination, which may be affected by, among other things, competition and the ability of Magnolia to grow and manage growth profitably;<br>(iv) changes in applicable laws or regulations; and (v) the possibility that Magnolia may be adversely affected by other economic, business, and/or competitive factors. Should one or more of the risks or<br>uncertainties described in this press release occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.<br>Additional information concerning these and other factors that may impact Magnolia's operations and projections can be found in its filings with the Securities and Exchange Commission (the "SEC"), its Annual<br>Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov.<br>NON-GAAP FINANCIAL MEASURES<br>This presentation includes non-GAAP financial measures, including free cash flow, EBITDAX, adjusted EBITDAX, cash operating margin, adjusted net income (loss), and adjusted earnings (loss). Magnolia<br>believes these metrics are useful because they allow Magnolia to more effectively evaluate its operating performance and compare the results of its operations from period to period and against its peers<br>without regard to financing methods or capital structure. Magnolia does not consider these non-GAAP measures in isolation or as an alternative to similar financial measures determined in accordance with<br>GAAP. The computations of these non-GAAP measures may not be comparable to other similarly titled measures of other companies.<br>Magnolia excludes certain items from net income in arriving at cash operating margin, adjusted net income (loss) and adjusted earnings (loss) because these amounts can vary substantially from company to<br>company within its industry depending upon accounting methods, book values of assets and the method by which the assets were acquired. Adjusted EBITDAX, cash operating margin, adjusted net income<br>(loss) and adjusted earnings (loss) should not be considered as alternatives to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Certain items excluded from adjusted<br>EBITDAX, cash operating margin, adjusted net income (loss), and adjusted earnings (loss) are significant components in understanding and assessing a company’s financial performance, and should not be<br>construed as an inference that its results will be unaffected by unusual or non-recurring terms.<br>As performance measures, cash operating margin, adjusted EBITDAX and adjusted net income (loss) may be useful to investors in facilitating comparisons to others in the Company’s industry because certain<br>items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes<br>excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused<br>by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. As liquidity measures, management believes free cash flow and cash flows from<br>operations before changes in operating assets and liabilities are useful for investors and widely accepted by those following the oil and gas industry as financial indicators of a company’s ability to generate<br>cash to internally fund drilling and completion activities, fund acquisitions, and service debt. Our presentation of free cash flow, cash operating margin, adjusted net income (loss), and adjusted EBITDAX may<br>not be comparable to similar measures of other companies in our industry. A free cash flow reconciliation is shown on page 12, a cash operating margin reconciliation is shown on page 6 of the presentation,<br>an adjusted EBITDAX reconciliation is shown on page 13 of the presentation, adjusted net Income (loss) reconciliation is shown on page 15 and adjusted earnings (loss) reconciliation is shown on page 16.<br>INDUSTRY AND MARKET DATA<br>This presentation has been prepared by Magnolia and includes market data and other statistical information from sources believed by Magnolia to be reliable, including independent industry publications,<br>governmental publications or other published independent sources. Some data is also based on the good faith estimates of Magnolia, which are derived from its review of internal sources as well as the<br>independent sources described above. Although Magnolia believes these sources are reliable, it has not independently verified the information and cannot guarantee its accuracy and completeness. |
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| Magnolia Oil & Gas – First Quarter 2020 Highlights<br>3<br>• Generated $134.9 million net cash flow from operating activities and $23.3 million of free cash flow in<br>1Q20.<br>• Ended the first quarter of 2020 with $146.5 million of cash on the balance sheet and an undrawn $450<br>million revolver providing MGY with ~$600 million of liquidity.<br>• MGY has enough cash on hand today to more than pay for the remaining Capex, overhead and<br>interest expense at least through the remainder of 2020, before considering the revenue from<br>production.<br>• Magnolia has identified cash cost savings during 2020 of ~$55 million compared to the original budget.<br>The reduction is generated from operating costs and general and administrative expenses.<br>• Increased total production 10% and oil production 15% compared to 1Q19. Oil production made up<br>55% of total company volumes.<br>• Further de-risked our Giddings asset, brought 4 new wells online during the quarter with an average<br>60-day oil rate of 800 barrels of oil per day. Lowered Giddings wells costs 20% to ~$7 million.<br>• Total cash operating costs including G&A were $9.42/boe, a 14% decline compared to $11.00/boe in<br>the first quarter of 2019. |
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| Magnolia Oil & Gas – Q1 2020 Key Metrics<br>4<br>Free Cash Flow (1) Total Production<br>68.4 Mboe/d (55% oil)<br>10% Growth<br>Cash Balance at 3/31/2020<br>$146.5 Million<br>Adjusted EBITDAX (1)<br>$123.9 Million<br>D&C Capex<br>$100.6 Million<br>Cash Operating Costs + G&A<br>$9.42/boe<br>14% Decrease<br>(1) Free cash flow and adjusted EBITDAX are non-GAAP measures. For a reconciliation to the most directly comparable GAAP measure see pages 12 and 13.<br>$23.3 Million |
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| Q1 2020 Cash Flow Summary<br>183<br>118<br>15 7<br>69<br>94<br>146<br>0<br>50<br>100<br>150<br>200<br>250<br>300<br>350<br>Cash<br>12/31/19<br>Cash Flow<br>from Operations<br>Changes in<br>Working Capital<br>Common Stock<br>Repurchases<br>Acquisitions D&C and<br>Facilities Capital<br>Cash<br>3/31/20<br>(1)<br>(3)<br>(2)<br>5<br>($ In Millions)<br>(1) Cash flow from operations before changes in working capital.<br>(2) Changes in working capital is comprised of the net change in operating assets and liabilities and other cash flow activity.<br>(3) Acquisitions include leasehold acquisitions. |
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| Magnolia Oil & Gas – Cash Operating Margin Reconciliation<br>6<br>(1) Exploration expense excludes unproved property impairment of $555.2 million, or $89.23 per boe, for the quarter ended March 31, 2020.<br>(2) General & administrative expense excludes non-cash stock based compensation of $2.9 million and $2.4 million, or $0.46 per boe and $0.43 per boe, for the<br>quarters ended March 31, 2020 and 2019, respectively.<br>(3) Cash Operating Margin is a non-GAAP measures. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measures.”<br>$ / Boe For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>Revenue $29.15 $38.93<br>Direct Operating Expenses<br>Lease Operating Expenses (3.88) (3.83)<br>Gathering, Transportation & Processing (1.29) (1.66)<br>Taxes Other Than Income (1.61) (2.56)<br>Exploration Expense(1) (0.20) (0.44)<br>General & Administrative Expense (2) (2.44) (2.45)<br>Transaction Related Expense -(0.06)<br>Total Cash Operating Costs (9.42) (11.00)<br>Cash Operating Margin(3) $19.73 $27.93 |
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| 7<br>Karnes Net Acreage Additions Since Inception<br>Magnolia has added ~9,065 net<br>acres to its Karnes position since<br>inception, or an increase of >60%.<br>Achieving Key Objectives Through Steady Growth<br>Production Growth<br>(1) Inception production is based Q3 2018 Successor Period is July 31, 2018 through September 30, 2018.<br>(1) |
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| Magnolia Oil & Gas – Summary Balance Sheet<br>8<br>(In thousands)<br>March 31, 2020 December 31, 2019<br>Cash $146,492 $182,633<br>Current assets 82,753 110,585<br>Property, plant and equipment, net 1,209,606 3,116,757<br>Other assets 51,978 56,431<br>Total assets $1,490,829 $3,466,406<br>Current liabilities $170,700 $175,208<br>Long-term debt, net 390,147 389,835<br>Other long-term liabilities 101,092 172,834<br>Total stockholders' equity 828,890 2,728,529<br>Total liabilities and equity $1,490,829 $3,466,406 |
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| 1Q20 Capital Structure and Liquidity Overview<br>9<br>Capital Structure Overview<br>• Maintaining low financial leverage profile<br>‒ Net Debt / Total Book Capitalization of 21%<br>‒ Net Debt / 1Q20 Annualized Adjusted EBITDAX of 0.5x<br>• Current Liquidity of $596 MM, including fully undrawn credit facility (1)<br>• No debt maturities until senior unsecure notes mature in 2026<br>Debt Maturity Schedule ($MM)<br>Borrowing<br>Base<br>Credit Facility<br>Borrowings<br>(as of 3/31/20)<br>$0<br>$450<br>2018 2019 2020 2021 2022 2023 2024 2025 2026<br>6.00% Senior<br>Unsecured<br>Notes<br>(1) Liquidity defined as cash plus availability under revolving credit facility.<br>(2) Total Shareholders’ Equity includes noncontrolling interest.<br>Capitalization & Liquidity ($MM)<br>Capitalization Summary As of 3/31/2020<br>Cash and Cash Equivalents $146<br>Revolving Credit Facility $0<br>6.00% Senior Notes Due 2026 $400<br>Total Debt Outstanding $400<br>Total Shareholder's Equity (2) $829<br>Net Debt / Q1 Annualized EBITDAX 0.5x<br>Net Debt / Total Book Capitalization 21%<br>Liquidity Summary<br>Cash and Cash Equivalents $146<br>Credit Facility Availability $450<br>Liquidity (1) $596 |
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| Appendix |
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| Magnolia Oil & Gas – Overview<br>• High-quality, low-risk pure-play South Texas operator with a core<br>Eagle Ford and Austin Chalk position acquired at an attractive entry<br>multiple<br>• Significant scale and PDP base generates material free cash flow,<br>reduces development risk and increases optionality<br>• Asset Overview:<br>– ~23,500 net acres in a well-delineated, low-risk position in the<br>core of Karnes County, representing some of the most prolific<br>acreage in the United States with industry leading breakevens<br>– ~430,000 net acres in the Giddings Field, a re-emerging oil play<br>with significant upside and what we believe to be substantial<br>inventory<br>– Both assets expected to remain self funding and within cash flow<br>11<br>Karnes County<br>Giddings Field<br>~450,000 Net Acre Position Targeting Two of the Top<br>Oil Plays in the U.S.<br>Market Statistics<br>Trading Symbol (NYSE) MGY<br>Share Price as of 5/8/2020 $5.01<br>Common Shares Outstanding (1) 252.3 million<br>Market Capitalization $1.3 billion<br>Long-term Debt - Principal $400 million<br>Total Enterprise Value $1.5 billion<br>Operating Statistics Karnes Giddings Total<br>Net Acreage 23,535 428,778 452,313<br>1Q20 Net Production (Mboe/d) 44.5 23.9 68.4<br>Industry Leading Breakevens ($/Bbl WTI)<br>Source: IHS Performance Evaluator.<br>$28 $32 $34 $35 $38 $39 $39<br>$45<br>Karnes Austin<br>Chalk<br>Karnes Lower<br>Eagle Ford<br>Midland Delaware DJ Basin Eagle Ford STACK Bakken<br>Source: RSEG.<br>Wilson<br>Dewitt<br>Gonzales<br>(1) Common Stock outstanding includes Class A and Class B Stock.<br>(2) Giddings Includes “other” production not located in the Giddings Field.<br>(2) |
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| Reconciliation of Free Cash Flow<br>12<br>(1) Free cash flow is a non-GAAP measure. For reasons management believes these are useful to Investors, refer to slide 2 “Non-GAAP Financial Measures.”<br>(In thousands)<br>Free Cash Flow Reconciliation For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>Net Cash provided by operating activities $134,878 $116,562<br>Changes in operating assets and liabilities (17,321) 33,859<br>Cash flows from operations before changes in operatings assets and<br>liabilities $117,557 $150,421<br>Additions to oil and natural gas properties (94,210) (134,435)<br>Free Cash Flow(1) $23,347 $15,986 |
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| Reconciliation of Net Income (Loss) to Adjusted EBITDAX<br>13<br>(1) Includes net income (loss) attributable to noncontrolling interest.<br>(2) Transaction costs incurred related to the execution of our business combination with EnerVest, Ltd. and its affiliates including legal fees, advisory fees, consulting fees,<br>accounting fees, employee placement fees, and other transaction and facilitation costs.<br>(3) EBITDAX and Adjusted EBITDAX are non-GAAP measures. For reasons management believes these are useful to Investors, refer to slide 2 “Non-GAAP Financial Measures.”<br>(In thousands)<br>Adjusted EBITDAX reconciliation to net income (loss): For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>Net income (loss)(1) ($1,895,299) $22,713<br>Exploration expense 556,427 2,476<br>Asset retirement obligation accretion 1,438 1,328<br>Depreciation, depletion and amortization 142,671 115,946<br>Amortization of intangible assets 3,626 3,626<br>Interest expense 6,757 7,416<br>Income tax expense (75,826) 3,775<br>EBITDAX (3) ($1,260,206) $157,280<br>Impairment of oil and natural gas properties $1,381,258 -<br>Non-cash stock based compensation expense $2,879 $2,432<br>Transaction related costs (2) - 353<br>Adjusted EBITDAX (3) $123,931 $160,065 |
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| Magnolia Oil & Gas – Operating Highlights<br>14<br>(1) Benchmarks are the NYMEX WTI and NYMEX HH average prices for oil and natural gas, respectively.<br>For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>Production:<br>Oil (MBbls) 3,391 2,906<br>Natural Gas (MMcf) 10,053 9,763<br>NGLs (MBbls) 1,155 1,084<br>Total (Mboe) 6,222 5,617<br>Average Daily Production:<br>Oil (Bbls/d) 37,259 32,289<br>Natural Gas (Mcf/d) 110,475 108,478<br>NGLs (Bbls/d) 12,688 12,044<br>Total (Mboe) 68,360 62,413<br>Revenues (in thousands):<br>Oil Sales $154,686 $171,654<br>Natural Gas Sales 16,175 27,375<br>NGL Sales 10,504 19,645<br>Total Revenues $181,365 $218,674<br>Average Sales Price:<br>Oil (per Bbl) $45.62 $59.07<br>Natural Gas (per Mcf) 1.61 2.80<br>NGL (per Bbl) 9.09 18.12<br>Total (per Boe) $29.15 $38.93<br>NYMEX WTI ($/Bbl) $46.08 $54.90<br>NYMEX Henry Hub($/Mcf) 1.95 3.15<br>Realization to benchmark (1):<br>Oil (per Bbl) 99% 108%<br>Natural Gas (per Mcf) 83% 89% |
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| Adjusted Net Income (Loss) Reconciliation<br>15<br>(1) Includes net income (loss) attributable to noncontrolling interest.<br>(2) Impairment of unproved properties is included within Exploration expense on the Consolidated Statement of Operations.<br>(3) Represents corporate income taxes at an assumed effective tax rate of 21.5% and 21.9% for the quarters ended March 31, 2020 and 2019, respectively, applied to adjusted income before income taxes.<br>(4) Shares of Class B Common Stock, and corresponding Magnolia LLC Units, are anti-dilutive in the calculation of weighted average number of common shares outstanding.<br>(5) Adjusted Net Income is a non-GAAP measure. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measure.”<br>(In thousands)<br>Adjusted Net Income (Loss) For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>NET INCOME (LOSS)(1) ($1,895,299) $22,713<br>Income tax expense (benefit) (75,826) 3,775<br>INCOME (LOSS) BEFORE INCOME TAXES (1,971,125) 26,488<br>Adjustments:<br>Impairment of oil and natural gas properties 1,381,258 -<br>Impairment of unproved properties(2) 555,175 -<br>Transaction costs - 353<br>ADJUSTED INCOME (LOSS) BEFORE INCOME TAXES (34,692) 26,841<br>Adjusted income tax expense (benefit) (3) (7,452) 5,883<br>ADJUSTED NET INCOME (LOSS) (5) ($27,240) $20,958<br>(in thousands)<br>Total Share Count For the Quarter Ended<br>March 31, 2020<br>For the Quarter Ended<br>March 31, 2019<br>Diluted weighted average of Class A Common Stock outstanding during the<br>period 167,149 158,140<br>Weighted average shares of Class B Common Stock outstanding during the<br>period (4) 85,790 93,312<br>Total weighted average shares of Class A and B Common Stock, including<br>dilutive impact of other securities (4) 252,939 251,452 |
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| Adjusted Earnings (Loss) Reconciliation<br>16<br>(1) Impairment of unproved properties is included within Exploration expense on the Consolidated Statement of Operations.<br>(2) Tax adjustments relate to impairment of oil and natural gas properties and valuation allowance associated with the company's deferred tax asset.<br>(3) Adjusted earnings (loss) is a non-GAAP measure. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measures.”<br>(In thousands, except per share data)<br>For the Quarter Ended<br>March 31, 2020<br>Per Share<br>Diluted EPS<br>For the Quarter Ended<br>March 31, 2019<br>Per Share<br>Diluted EPS<br>NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON<br>STOCK ($1,227,010) ($7.34) $13,026 $0.08<br>Adjustments:<br>Impairment of oil and natural gas properties 1,381,258 8.26 --<br>Impairment of unproved properties(1) 555,175 3.32 --<br>Transaction costs -- 353 -<br>Noncontrolling interest impact of adjustments (656,527) (3.93) --<br>Tax Adjustments(2) (71,362) (0.42) (74) -<br>ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A<br>COMMON STOCK (3) ($18,466) ($0.11) $13,305 $0.08 |
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| Magnolia Oil & Gas – Production Results<br>17<br>Combined Karnes Giddings & Other Combined Karnes Giddings & Other<br>Three Months Ended March 31, 2020 Three Months Ended March 31, 2019<br>Production:<br>Oil (MBbls) 3,391 2,799 592 2,906 2,442 464<br>Natural Gas (MMcf) 10,053 3,836 6,217 9,763 3,861 5,902<br>NGLs (MBbls) 1,155 607 548 1,084 558 526<br>Total (Mboe) 6,222 4,046 2,176 5,617 3,644 1,973<br>Average Daily Production Volume:<br>Oil (MBbls/d) 37.3 30.8 6.5 32.3 27.1 5.2<br>Natural Gas (MMcf/d) 110.5 42.2 68.3 108.5 42.9 65.6<br>NGLs (MBbls/d) 12.7 6.7 6.0 12.0 6.2 5.8<br>Total (MBoe/d) 68.4 44.5 23.9 62.4 40.5 21.9 |
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