8-K
Magnolia Oil & Gas Corp (MGY)
UNITED STATES
SECURITIES 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): November 1, 2021
| 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 2.02 Results of Operations and Financial Condition.
On November 1, 2021, 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 September 30, 2021.
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 November 1, 2021, the Company provided information in an earnings presentation on its website, www.magnoliaoilgas.com, regarding its financial and operational results for the quarter ended September 30, 2021.
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 |
| 99.2 | Earnings Presentation |
| 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.
| MAGNOLIA OIL & GAS CORPORATION | |
|---|---|
| Date: November 1, 2021 | By: /s/ Timothy D. Yang |
| Name: Timothy D. Yang | |
| Title: Executive Vice President,<br> General Counsel and Corporate Secretary |
2
Document
Exhibit 99.1
Magnolia Oil & Gas Corporation Announces Third Quarter 2021 Results
HOUSTON, TX, November 1, 2021 - Magnolia Oil & Gas Corporation (“Magnolia,” “we,” “our,” or the “Company”) (NYSE: MGY) today announced its financial and operational results for the third quarter of 2021.
Third Quarter 2021 Highlights:
| (In millions, except per share data) | For the<br>Quarter Ended<br>September 30, 2021 | |
|---|---|---|
| Net income | $ | 159.9 |
| Earnings per share - diluted | 0.67 | |
| Adjusted net income(1) | 157.9 | |
| Adjusted earnings per share(1) | 0.67 | |
| Adjusted EBITDAX(1) | 221.5 | |
| Capital expenditures - D&C | 67.2 | |
| Cash balance as of September 30, 2021 | $ | 245.0 |
| Average daily production (Mboe/d) | 67.4 | |
| Diluted weighted average total shares outstanding(2) | 236.0 |
•Magnolia reported third quarter 2021 net income attributable to Class A Common Stock of $119.4 million, or $0.67 per diluted share. Third quarter 2021 total net income was $159.9 million and adjusted net income was $157.9 million, or $0.67 per diluted share.
•Adjusted EBITDAX for the third quarter of 2021 was $221.5 million, a 14% sequential quarterly increase driven by higher total production, stronger product prices, and lower overall operating costs and expenses. Total capital allocated to drilling and completions (“D&C”) during the third quarter was $67.2 million, or 30% of adjusted EBITDAX.
•Net cash provided by operating activities was $221.9 million during the third quarter and the Company generated free cash flow(1) of $143.5 million.
•During the third quarter of 2021, Magnolia generated operating income as a percent of total revenue of 60%.
•Total production in the third quarter of 2021 increased 4% sequentially to 67.4 thousand barrels of oil equivalent per day (“Mboe/d”) and was ahead of our earlier guidance. Quarterly production in Giddings saw an 80% increase compared to last year’s third quarter.
•Magnolia incurred $78.7 million repurchasing 5 million of its shares during the third quarter of 2021. Year to date, the company has repurchased 22.6 million shares(3) resulting in a 9% reduction in our fully diluted shares compared to the fourth quarter 2020 levels. We ended the third quarter with 8.5 million Class A Common shares remaining under the current share repurchase authorization.
•Magnolia had $245.0 million of cash on its balance sheet at the end of the third quarter, a nearly 30% sequential increase. The Company remains undrawn on its $450.0 million revolving credit facility, with no debt maturities until 2026 and has no plans to increase its debt levels.
•Magnolia paid its first interim semi-annual dividend of $0.08 on September 1, 2021 and plans to make the remaining semi-annual dividend payment in the first quarter of 2022 after announcing full-year 2021 results.
(1) Adjusted net income, adjusted earnings per share, adjusted EBITDAX, and free cash flow are non-GAAP financial measures. For reconciliations to the most comparable GAAP measures, please see “Non-GAAP Financial Measures” at the end of this press release.
(2) Weighted average total shares outstanding include diluted weighted average shares of Class A Common Stock outstanding during the period and shares of Class B Common Stock, which are anti-dilutive in the calculation of weighted average number of common shares outstanding.
(3) Includes 3.6 million shares related to the non-compete agreement that were settled in cash in lieu of a Class A Common Stock issuance.
“Our strong third quarter financial results demonstrate the quality of our assets and the efficiency of our capital program. We continue to execute on our business model which prioritizes disciplined capital spending, moderate production growth, high pre-tax margins and with low levels of debt,” said Chairman, President and CEO Steve Chazen. “These principles, combined with a lower overall cost structure and unhedged production, allowed us to achieve several records during the quarter including EBITDAX, free cash flow, net income margin, and earnings per share.
“Total production volumes grew 4 percent sequentially during the third quarter as a result of continued strong well performance and despite investing only 30% of our EBITDAX on drilling and completing wells. The quality of our asset base is reflected in the overall growth in our production volumes, low reinvestment rates and finding costs, and high full cycle margins. While still in the early stages of development, the results of our Giddings drilling program have become more repeatable and increasingly predictable. We continue to improve our operating efficiencies by increasing the number of wells per pad, extending the average lateral length per well, and increasing the average drilling foot per day.
“Year to date we have generated more than $375 million of free cash flow, the majority of which has been used to opportunistically repurchase our own stock. We have repurchased 22.6 million shares, including 5 million shares during the third quarter, resulting in a 9-percent reduction in our fully diluted shares compared to fourth quarter 2020 levels. Our share repurchase efforts continue to enhance our per share metrics, and we expect to continue to repurchase at least 1 percent of our shares each quarter. We also made the first payment of our semi-annual dividend in the third quarter and plan to make the remaining dividend payment in the first quarter of 2022 after reporting our full-year 2021 results. Our share repurchase program and the payment of a secure, sustainable and growing dividend are important components of Magnolia’s total shareholder return proposition.”
Operational Update
Third quarter total company production averaged 67.4 Mboe/d, representing a 4% sequential increase from second quarter levels, and despite spending only 30% of adjusted EBITDAX on drilling and completing wells. During the third quarter of 2021, Giddings and Other production averaged 36.8 Mboe/d, an increase of 80% percent compared to year-ago levels. Production in the Karnes area averaged 30.6 Mboe/d during the third quarter of 2021, a sequential increase of 6%, driven by the completion of several DUCs.
Magnolia continues to operate two drilling rigs and plans to maintain this level through the remainder of the year. One rig will continue to drill multi-well development pads in our Giddings area. The second rig will drill a mix of wells in both the Karnes and Giddings areas, including appraisal wells in Giddings. At our Giddings development, Magnolia continues to see improved operating efficiencies while maintaining strong well productivity. The 2021 development plan to-date has averaged 4 wells per pad with an average lateral length of greater than 7,000 feet. This compares favorably to last year which averaged less than 3 wells per pad with an average lateral length of about 6,000 feet. More wells per pad combined with longer laterals have helped drive further efficiencies at Giddings.
Guidance
Looking at the fourth quarter of 2021, we expect our D&C capital outlays to be approximately $80 million. This is lower than the midpoint of our earlier guidance and primarily due to continued efficiencies from our Giddings development. Fourth quarter total production is estimated to be in the range of 68 to 70 Mboe/d. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for both its oil and natural gas production. We expect our fourth quarter 2021 effective tax rate to be approximately 2 percent. The fully diluted share count for the fourth quarter of 2021 is expected to be approximately 232 million shares which is 9 percent lower than fourth quarter 2020 levels.
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 September 30, 2021, which is expected to be filed with the U.S. Securities and Exchange Commission (“SEC”) on November 2, 2021.
Conference Call and Webcast
Magnolia will host an investor conference call on Tuesday, November 2, 2021 at 9:00 a.m. Central (10:00 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 ongoing coronavirus disease 2019 (“COVID-19”) pandemic, including the effects of related public health concerns and the impact of continued actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices as well as supply and demand considerations; (ii) the outcome of any legal proceedings that may be instituted against Magnolia; (iii) Magnolia’s ability to realize the anticipated benefits of its acquisitions, 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, 2020. 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
| Magnolia Oil & Gas Corporation | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating Highlights | ||||||||||||
| For the Quarters Ended | For the Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||
| Production: | ||||||||||||
| Oil (MBbls) | 2,851 | 2,485 | 8,346 | 8,965 | ||||||||
| Natural gas (MMcf) | 11,429 | 9,444 | 31,617 | 29,261 | ||||||||
| Natural gas liquids (MBbls) | 1,444 | 937 | 4,097 | 3,213 | ||||||||
| Total (Mboe) | 6,200 | 4,996 | 17,713 | 17,055 | ||||||||
| Average daily production: | ||||||||||||
| Oil (Bbls/d) | 30,989 | 27,016 | 30,573 | 32,718 | ||||||||
| Natural gas (Mcf/d) | 124,224 | 102,653 | 115,812 | 106,790 | ||||||||
| Natural gas liquids (Bbls/d) | 15,692 | 10,181 | 15,008 | 11,725 | ||||||||
| Total (boe/d) | 67,385 | 54,306 | 64,883 | 62,241 | ||||||||
| Revenues (in thousands): | ||||||||||||
| Oil revenues | $ | 195,132 | $ | 95,677 | $ | 529,641 | $ | 311,153 | ||||
| Natural gas revenues | 42,828 | 14,895 | 110,187 | 44,238 | ||||||||
| Natural gas liquids revenues | 45,619 | 10,495 | 102,140 | 29,880 | ||||||||
| Total Revenues | $ | 283,579 | $ | 121,067 | $ | 741,968 | $ | 385,271 | ||||
| Average sales price: | ||||||||||||
| Oil (per Bbl) | $ | 68.44 | $ | 38.50 | $ | 63.46 | $ | 34.71 | ||||
| Natural gas (per Mcf) | 3.75 | 1.58 | 3.49 | 1.51 | ||||||||
| Natural gas liquids (per Bbl) | 31.60 | 11.20 | 24.93 | 9.30 | ||||||||
| Total (per boe) | $ | 45.74 | $ | 24.23 | $ | 41.89 | $ | 22.59 | ||||
| NYMEX WTI (per Bbl) | $ | 70.55 | $ | 40.94 | $ | 64.85 | $ | 38.30 | ||||
| NYMEX Henry Hub (per Mcf) | $ | 4.01 | $ | 1.97 | $ | 3.19 | $ | 1.88 | ||||
| Realization to benchmark: | ||||||||||||
| Oil (% of WTI) | 97 | % | 94 | % | 98 | % | 91 | % | ||||
| Natural Gas (% of Henry Hub) | 94 | % | 80 | % | 109 | % | 80 | % | ||||
| Operating expenses (in thousands): | ||||||||||||
| Lease operating expenses | $ | 23,593 | $ | 18,802 | $ | 64,957 | $ | 61,275 | ||||
| Gathering, transportation and processing | 10,077 | 5,771 | 27,839 | 20,579 | ||||||||
| Taxes other than income | 14,082 | 7,331 | 38,657 | 22,874 | ||||||||
| Depreciation, depletion and amortization | 47,993 | 44,731 | 134,268 | 238,273 | ||||||||
| Operating costs per boe: | ||||||||||||
| Lease operating expenses | $ | 3.81 | $ | 3.76 | $ | 3.67 | $ | 3.59 | ||||
| Gathering, transportation and processing | 1.63 | 1.16 | 1.57 | 1.21 | ||||||||
| Taxes other than income | 2.27 | 1.47 | 2.18 | 1.34 | ||||||||
| Depreciation, depletion and amortization | 7.74 | 8.95 | 7.58 | 13.97 |
Magnolia Oil & Gas Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
| For the Quarters Ended | For the Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||
| REVENUES | ||||||||
| Oil revenues | $ | 195,132 | $ | 95,677 | $ | 529,641 | $ | 311,153 |
| Natural gas revenues | 42,828 | 14,895 | 110,187 | 44,238 | ||||
| Natural gas liquids revenues | 45,619 | 10,495 | 102,140 | 29,880 | ||||
| Total revenues | 283,579 | 121,067 | 741,968 | 385,271 | ||||
| OPERATING EXPENSES | ||||||||
| Lease operating expenses | 23,593 | 18,802 | 64,957 | 61,275 | ||||
| Gathering, transportation and processing | 10,077 | 5,771 | 27,839 | 20,579 | ||||
| Taxes other than income | 14,082 | 7,331 | 38,657 | 22,874 | ||||
| Exploration expense | 317 | 701 | 2,440 | 563,589 | ||||
| Impairment of oil and natural gas properties | — | — | — | 1,381,258 | ||||
| Asset retirement obligations accretion | 1,329 | 1,501 | 4,065 | 4,403 | ||||
| Depreciation, depletion and amortization | 47,993 | 44,731 | 134,268 | 238,273 | ||||
| Amortization of intangible assets | — | 3,626 | 9,346 | 10,879 | ||||
| General and administrative expenses | 14,695 | 16,663 | 59,816 | 50,472 | ||||
| Total operating expenses | 112,086 | 99,126 | 341,388 | 2,353,602 | ||||
| OPERATING INCOME (LOSS) | 171,493 | 21,941 | 400,580 | (1,968,331) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Income from equity method investee | — | 1,007 | — | 2,059 | ||||
| Interest expense, net | (7,474) | (7,333) | (23,519) | (21,345) | ||||
| Loss on derivatives, net | (623) | (2,208) | (3,110) | (2,208) | ||||
| Other income (expense), net | 142 | (51) | 48 | (510) | ||||
| Total other expense, net | (7,955) | (8,585) | (26,581) | (22,004) | ||||
| INCOME (LOSS) BEFORE INCOME TAXES | 163,538 | 13,356 | 373,999 | (1,990,335) | ||||
| Income tax expense (benefit) | 3,631 | (339) | 6,428 | (79,340) | ||||
| NET INCOME (LOSS) | 159,907 | 13,695 | 367,571 | (1,910,995) | ||||
| LESS: Net income (loss) attributable to noncontrolling interest | 40,543 | 4,548 | 100,518 | (674,860) | ||||
| NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK | 119,364 | 9,147 | 267,053 | (1,236,135) | ||||
| NET INCOME (LOSS) PER COMMON SHARE | ||||||||
| Basic | $ | 0.68 | $ | 0.05 | $ | 1.54 | $ | (7.41) |
| Diluted | $ | 0.67 | $ | 0.05 | $ | 1.53 | $ | (7.41) |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||
| Basic | 174,764 | 166,467 | 172,281 | 166,728 | ||||
| Diluted | 175,683 | 170,676 | 173,280 | 166,728 | ||||
| WEIGHTED AVERAGE NUMBER OF CLASS B SHARES OUTSTANDING (1) | 60,358 | 85,790 | 68,827 | 85,790 |
(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.
Magnolia Oil & Gas Corporation
Summary Cash Flow Data
(In thousands)
| For the Quarters Ended | For the Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| NET INCOME (LOSS) | $ | 159,907 | $ | 13,695 | $ | 367,571 | $ | (1,910,995) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation, depletion and amortization | 47,993 | 44,731 | 134,268 | 238,273 | ||||
| Amortization of intangible assets | — | 3,626 | 9,346 | 10,879 | ||||
| Exploration expense, non-cash | — | — | — | 561,629 | ||||
| Impairment of oil and natural gas properties | — | — | — | 1,381,258 | ||||
| Asset retirement obligations accretion | 1,329 | 1,501 | 4,065 | 4,403 | ||||
| Amortization of deferred financing costs | 1,131 | 913 | 3,149 | 2,710 | ||||
| Unrealized (gain) loss on derivatives, net | (2,043) | 2,208 | 277 | 2,208 | ||||
| Deferred tax expense (benefit) | — | — | — | (77,834) | ||||
| Stock based compensation | 2,910 | 2,927 | 9,143 | 8,871 | ||||
| Other | — | (1,007) | (85) | (2,059) | ||||
| Net change in operating assets and liabilities | 10,677 | (3,438) | 201 | 11,656 | ||||
| Net cash provided by operating activities | 221,904 | 65,156 | 527,935 | 230,999 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisitions | (1,408) | (3,920) | (10,817) | (73,702) | ||||
| Additions to oil and natural gas properties | (68,388) | (27,674) | (162,744) | (157,325) | ||||
| Changes in working capital associated with additions to oil and natural gas properties | 621 | 5,409 | 12,435 | (18,972) | ||||
| Other investing | (1,661) | (496) | (2,316) | (842) | ||||
| Net cash used in investing activities | (70,836) | (26,681) | (163,442) | (250,841) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
| Class A Common Stock repurchases | (25,988) | (6,479) | (70,316) | (12,962) | ||||
| Class B Common Stock purchase and cancellation | (49,140) | — | (171,671) | — | ||||
| Non-compete settlement | — | — | (42,074) | — | ||||
| Dividends paid | (14,103) | — | (14,103) | — | ||||
| Cash paid for debt modification | — | — | (4,976) | — | ||||
| Distributions to noncontrolling interest owners | (5,276) | (104) | (5,706) | (594) | ||||
| Other financing activities | (1,820) | (209) | (3,185) | (702) | ||||
| Net cash used in financing activities | (96,327) | (6,792) | (312,031) | (14,258) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 54,741 | 31,683 | 52,462 | (34,100) | ||||
| Cash and cash equivalents – Beginning of period | 190,282 | 116,850 | 192,561 | 182,633 | ||||
| Cash and cash equivalents – End of period | $ | 245,023 | $ | 148,533 | $ | 245,023 | $ | 148,533 |
Magnolia Oil & Gas Corporation
Summary Balance Sheet Data
(In thousands)
| September 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 245,023 | $ | 192,561 |
| Other current assets | 131,730 | 88,965 | ||
| Property, plant and equipment, net | 1,195,875 | 1,149,527 | ||
| Other assets | 13,151 | 22,367 | ||
| Total assets | $ | 1,585,779 | $ | 1,453,420 |
| Current liabilities | $ | 190,685 | $ | 128,949 |
| Long-term debt, net | 387,537 | 391,115 | ||
| Other long-term liabilities | 102,040 | 93,934 | ||
| Common stock | 24 | 26 | ||
| Additional paid in capital | 1,665,805 | 1,712,544 | ||
| Treasury stock | (112,796) | (38,958) | ||
| Retained earnings (accumulated deficit) | (858,397) | (1,125,450) | ||
| Noncontrolling interest | 210,881 | 291,260 | ||
| Total liabilities and equity | $ | 1,585,779 | $ | 1,453,420 |
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income 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 before interest expense, income taxes, depreciation, depletion and amortization, amortization of intangible assets, exploration costs, and accretion of asset retirement obligations, adjusted to exclude the effect of certain items included in net income. Adjusted EBITDAX is not a measure of net income 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 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 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 to adjusted EBITDAX, our most directly comparable financial measure, calculated and presented in accordance with GAAP:
| For the Quarters Ended | ||||
|---|---|---|---|---|
| (In thousands) | September 30, 2021 | September 30, 2020 | ||
| NET INCOME | $ | 159,907 | $ | 13,695 |
| Exploration expense | 317 | 701 | ||
| Asset retirement obligations accretion | 1,329 | 1,501 | ||
| Depreciation, depletion and amortization | 47,993 | 44,731 | ||
| Amortization of intangible assets | — | 3,626 | ||
| Interest expense, net | 7,474 | 7,333 | ||
| Income tax expense (benefit) | 3,631 | (339) | ||
| EBITDAX | 220,651 | 71,248 | ||
| Non-cash stock based compensation expense | 2,910 | 2,927 | ||
| Unrealized (gain) loss on derivatives, net | (2,043) | 2,208 | ||
| Adjusted EBITDAX | $ | 221,518 | $ | 76,383 |
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income attributable to Class A Common Stock to adjusted earnings
Our presentation of adjusted earnings and adjusted earnings per share are non-GAAP measures because they exclude the effect of certain items included in net 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>September 30, 2021 | Per Share Diluted EPS | For the<br><br>Quarter Ended<br><br>September 30, 2020 | Per Share Diluted EPS | |||||
|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | ||||||||
| NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK | $ | 119,364 | $ | 0.67 | $ | 9,147 | $ | 0.05 |
| Adjustments: | ||||||||
| Unrealized (gain) loss on derivatives, net | (2,043) | — | 2,208 | 0.01 | ||||
| Noncontrolling interest impact of adjustments | 507 | — | (752) | — | ||||
| Change in estimated income tax | 34 | — | — | — | ||||
| ADJUSTED NET INCOME ATTRIBUTABLE TO <br>CLASS A COMMON STOCK | $ | 117,862 | $ | 0.67 | $ | 10,603 | $ | 0.06 |
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net income to adjusted net income
Our presentation of adjusted net income is a non-GAAP measures because it excludes the effect of certain items included in net income 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 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 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 may not be comparable to similar measures of other companies in our industry.
| For the Quarters Ended | ||||
|---|---|---|---|---|
| (In thousands) | September 30, 2021 | September 30, 2020 | ||
| NET INCOME | $ | 159,907 | $ | 13,695 |
| Income tax expense (benefit) | 3,631 | (339) | ||
| INCOME BEFORE INCOME TAXES | 163,538 | 13,356 | ||
| Adjustments: | ||||
| Unrealized (gain) loss on derivatives, net | (2,043) | 2,208 | ||
| ADJUSTED INCOME BEFORE INCOME TAXES | 161,495 | 15,564 | ||
| Adjusted income tax expense | 3,586 | — | ||
| ADJUSTED NET INCOME | $ | 157,909 | $ | 15,564 |
| Diluted weighted average shares of Class A Common Stock outstanding during the period | 175,683 | 170,676 | ||
| Weighted average shares of Class B Common Stock outstanding during the period (1) | 60,358 | 85,790 | ||
| Total weighted average shares of Class A and B Common Stock, including dilutive impact of other securities (1) | 236,041 | 256,466 |
(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.
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of revenue to adjusted cash operating margin and to operating income margin
Our presentation of adjusted cash operating margin and total adjusted cash operating costs are supplemental non-GAAP financial measures that are used by management. Total adjusted cash operating costs exclude the impact of non-cash activity. We define adjusted cash operating margin per boe as total revenues per boe less operating expenses per boe. Management believes that total adjusted cash operating costs per boe and adjusted cash operating margin per boe provide 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, total adjusted cash operating costs and adjusted 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 adjusted cash operating margin may not be comparable to similar measures of other companies in our industry.
| For the Quarters Ended | ||||||
|---|---|---|---|---|---|---|
| (in $/boe) | September 30, 2021 | September 30, 2020 | ||||
| Revenue | $ | 45.74 | $ | 24.23 | ||
| Total cash operating costs: | ||||||
| Lease operating expenses (1) | (3.79) | (3.76) | ||||
| Gathering, transportation and processing | (1.63) | (1.16) | ||||
| Taxes other than income | (2.27) | (1.47) | ||||
| Exploration expense | (0.05) | (0.14) | ||||
| General and administrative expenses (2) | (1.92) | (2.75) | ||||
| Total adjusted cash operating costs | (9.66) | (9.28) | ||||
| Adjusted cash operating margin | $ | 36.08 | $ | 14.95 | ||
| Margin (%) | 79 | % | 62 | % | ||
| Non-cash costs: | ||||||
| Depreciation, depletion and amortization | $ | (7.74) | $ | (8.95) | ||
| Asset retirement obligations accretion | (0.21) | (0.30) | ||||
| Amortization of intangible assets | — | (0.73) | ||||
| Non-cash stock based compensation | (0.47) | (0.59) | ||||
| Total non-cash costs | (8.42) | (10.57) | ||||
| Operating income margin | $ | 27.66 | $ | 4.38 | ||
| Margin (%) | 60 | % | 18 | % |
(1) Lease operating expenses exclude non-cash stock based compensation of $0.1 million, or $0.02 per boe, for the quarter ended September 30, 2021.
(2) General and administrative expenses exclude non-cash stock based compensation of $2.8 million, or $0.45 per boe, and $2.9 million, or $0.59 per boe, for the quarters ended September 30, 2021 and 2020, respectively.
Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures
Reconciliation of net cash provided by operating activities to free cash flow
Free cash flow is a non-GAAP financial measure. 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 and changes in working capital associated with additions to oil and natural gas properties. Management believes free cash flow is 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. It is 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, therefore, is an additional measure of liquidity, but is not a measure of financial performance under GAAP and should not be considered an alternative to cash flows from operating, investing, or financing activities.
| For the Quarters Ended | For the Years Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||
| Net cash provided by operating activities | $ | 221,904 | $ | 65,156 | $ | 527,935 | $ | 230,999 |
| Add back: net change in operating assets and liabilities | (10,677) | 3,438 | (201) | (11,656) | ||||
| Cash flows from operations before net change in operating assets and liabilities | 211,227 | 68,594 | 527,734 | 219,343 | ||||
| Additions to oil and natural gas properties | (68,388) | (27,674) | (162,744) | (157,325) | ||||
| Changes in working capital associated with additions to oil and natural gas properties | 621 | 5,409 | 12,435 | (18,972) | ||||
| Free cash flow | $ | 143,460 | $ | 46,329 | $ | 377,425 | $ | 43,046 |
12
mgy_3q21xearningspresent
Third Quarter 2021 Earnings Presentation November 2, 2021 Stephen Chazen – Chairman, President & CEO Christopher Stavros – Executive Vice President & CFO Brian Corales – Vice President, Investor Relations
Disclaimer 2 FORWARD LOOKING STATEMENTS 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 (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 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, 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,” “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. 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 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 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 ongoing coronavirus disease 2019 (“COVID-19”) pandemic (including the emergence and spread of variant strains of COVID- 19), including the effects of related public health concerns and the impact of continued or new actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices and supply and demand considerations; (ii) the outcome of any legal proceedings that may be instituted against Magnolia; (iii) Magnolia’s ability to realize the anticipated benefits of its acquisitions, 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 Magnolia's operations and projections can be found in its filings with the Securities and Exchange Commission (the "SEC"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 23, 2021. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov. NON-GAAP FINANCIAL MEASURES This presentation includes non-GAAP financial measures, including free cash flow, EBITDAX, adjusted EBITDAX, adjusted net income, adjusted earnings, adjusted cash operating costs and adjusted cash operating margin. Magnolia 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 without regard to accounting 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 GAAP. The computations of these non-GAAP measures may not be comparable to other similarly titled measures of other companies. Magnolia excludes certain items from net income in arriving at adjusted net income and adjusted earnings because these amounts can vary substantially from company to company within its industry depending upon accounting methods, book values of assets and the method by which the assets were acquired. Adjusted EBITDAX, adjusted net income, and adjusted earnings should not be considered as alternatives to, or more meaningful than, net income as determined in accordance with GAAP. Certain items excluded from free cash flow, adjusted EBITDAX, adjusted net income, adjusted earnings, adjusted cash operating costs and adjusted cash operating margin are significant components in understanding and assessing a company’s financial performance, and should not be construed as an inference that its results will be unaffected by unusual or non-recurring terms. As performance measures, adjusted EBITDAX, adjusted net income, adjusted earnings, adjusted cash operating costs and adjusted 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. As a liquidity measure, management believes free cash flow is 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. Our presentation of adjusted EBITDAX, adjusted net income, free cash flow, adjusted earnings, adjusted cash operating costs and adjusted cash operating margin may not be comparable to similar measures of other companies in our industry. A free cash flow reconciliation is shown on page 14, adjusted EBITDAX reconciliation is shown on page 15 of the presentation, adjusted net income reconciliation is shown on page 16, adjusted earnings reconciliation is shown on page 17 and adjusted cash operating costs and adjusted cash operating margin reconciliations are shown on page 10. INDUSTRY AND MARKET DATA 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, 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 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.
Magnolia Oil & Gas – 3Q 2021 Highlights 3 • Generated total net income of $160 million or 67 cents per diluted share during 3Q21. • Total production for 3Q21 increased 4% sequentially to 67.4 Mboe/d. Giddings production increased 80% from 3Q20 levels. • Generated adjusted EBITDAX of $222 million, with D&C Capital of $67 million, or just 30% of adjusted EBITDAX, during 3Q21. • Generated free cash flow of $143 million during 3Q21. • 3Q21 operating income margin was 60%. • Total Adjusted Cash Operating Costs per boe and Total Operating Costs per boe saw sequential declines of 14% and 12%, respectively. ‒ Cash G&A expense during 3Q21 was $1.92/boe compared to $2.60/boe(1) in FY2020. • Magnolia incurred $79 million repurchasing shares during 3Q21. As a result, the fully diluted share count is expected to decline by approximately 9% to 232 million diluted shares in 4Q21 compared to 255 million shares in 4Q20. • Magnolia paid its inaugural semi-annual cash dividend of $0.08 per share based on $40 oil prices. We expect the remaining 2021 dividend payment to be made in 1Q22 and based on oil prices of $55. • 4Q21 D&C capital is expected to be approximately $80 million, and our production should be in the range of 68 to 70 Mboe/d, a 2 percent sequential increase at the midpoint. (1) Full year 2020 cash G&A costs of $2.60 per boe are derived from general and administrative expenses of $3.05 per boe less non-cash stock based compensation of $0.45 per boe.
Magnolia Oil & Gas – 3Q 2021 Key Metrics 4 Adj. Net Income (1) & Adj. EPS (1) Total Production 67.4 Mboe/d (4% sequential growth) Adjusted EBITDAX (1) $221.5 Million D&C Capex $67.2 Million 30% of Adj. EBITDAX Free Cash Flow (1) $143.5 Million Giddings Production 36.8 Mboe/d (80% YOY growth) (1) Adjusted EPS, Adjusted Net Income, Free Cash Flow and Adjusted EBITDAX are non-GAAP measures. For a reconciliation to the most directly comparable GAAP measure see pages 17, 16, 14 and 15. (2) Includes 60.4 million shares of Class B Common Stock that are anti-dilutive in the calculation of weighted average number of common shares outstanding. $157.9 Million $0.67/share Fully Diluted Shares (2) 236 Million (2% sequential decline)
3Q 2021 QTD Cash Flow Summary 190 211 6 19 68 75 245 0 50 100 150 200 250 300 350 400 450 Cash 06/30/21 Cash Flow from Operations Changes in WC and Other Dividends D&C and Facilities Capital Common Stock Repurchases Cash 09/30/21(1) (3) (2) (4) ($In millions) (1) Cash flow from operations before changes in working capital. (2) Includes $11 million change in working capital offset by $5 million in other investing and financing activities. (3) Includes $14 million of dividends paid and $5 million of distributions to noncontrolling interest holders. (4) Comprised of $26 million Class A Common Stock and $49 million Class B Common Stock Repurchases. 5
YTD Cash Flow Summary 193 528 10 19 163 284 245 0 100 200 300 400 500 600 700 800 Cash 12/31/20 Cash Flow from Operations Acquisitions and Other Dividends D&C and Facilities Capital Common Stock Repurchases Cash 9/30/21 (1) (2) (5)(4)(3) (In millions) (1) Cash flow from operations before changes in working capital. (2) Includes $11 MM of acquisitions and $12 MM in other activities offset by a $13 MM increase in capital accruals which are included in the investing activities of cash flows. (3) Includes $14 MM of dividends paid and $5 million of distributions to noncontrolling interest holders. (4) D&C Capital of $163 MM includes $13 MM of capital activities that have been accrued but not yet paid. (5) Comprised of $70 MM Class A Common Stock, $172 MM Class B Common Stock and a $42 MM cash settlement for the non-compete agreement in lieu of Class A Common Stock issuance. 6
Share Repurchase Summary Through 3Q 2021 7 Quarterly Share Reduction Summary (Million Shares) • Since the initial repurchase authorization in 3Q19, Magnolia has reduced its dilutive share count by 15.1(1) million shares of Class A common stock as well as 19 million shares of Class B common stock, for a total reduction of 34.1 million shares, or approximately 13% of the diluted shares outstanding as of the authorization date. ‒ Q4 2021 diluted share count is expected to be approximately 232 million shares. • Magnolia plans to continue to opportunistically repurchase 1% of the total shares outstanding each quarter. • There are 8.5 million shares remaining under the current share repurchase authorization. (1) Class A share reduction includes 3.6 million non-compete shares that were paid in cash in lieu of stock. (1) (1)
Magnolia Oil & Gas – Summary Balance Sheet 8 (in thousands) September 30, 2021 December 31, 2020 Cash $245,023 $192,561 Current assets 131,730 88,965 Property, plant and equipment, net 1,195,875 1,149,527 Other assets 13,151 22,367 Total assets $1,585,779 $1,453,420 Current liabilities $190,685 $128,949 Long-term debt, net 387,537 391,115 Other long-term liabilities 102,040 93,934 Total stockholders' equity 905,517 839,422 Total liabilities and equity $1,585,779 $1,453,420
3Q 2021 Capital Structure and Liquidity Overview 9 Capital Structure Overview • Maintaining low financial leverage profile ‒ Net Debt / Total Book Capitalization of 12% ‒ Net Debt / Q3 Annualized adjusted EBITDAX of 0.2x • Current Liquidity of $695 million, including fully undrawn credit facility (1) • No debt maturities until senior unsecured notes mature in 2026 Debt Maturity Schedule ($MM) (1) Liquidity defined as cash plus availability under revolving credit facility. (2) Total Equity includes noncontrolling interest. Capitalization & Liquidity ($MM) $450 $400 2020 2021 2022 2023 2024 2025 2026 Borrowing Base Credit Facility Borrowings (as of 9/30/21) $0 6.00% Senior Unsecured Notes Capitalization Summary As of 9/30/2021 Cash and Cash Equivalents $245 Revolving Credit Facility $0 6.00% Senior Notes Due 2026 $400 Total Principal Debt Outstanding $400 Total Equity (2) $906 Net Debt / Q3 Annualized Adjusted EBITDAX 0.2x Net Debt / Total Book Capitalization 12% Liquidity Summary As of 9/30/2021 Cash and Cash Equivalents $245 Credit Facility Availability $450 Liquidity (1) $695
Magnolia Oil & Gas – Margin and Cost Structure 10 (1) Lease operating expenses exclude non-cash stock based compensation of $0.1 million, or $0.02 per boe, for each of the quarters ended September 30, 2021 & June 30, 2021. (2) General and administrative expenses exclude non-cash stock based compensation of $2.8 million, or $0.45 per boe, and $3.4 million, or $0.58 per boe, for the quarters ended September 30, 2021 & June 30, 2021, respectively. (3) Adjusted cash operating costs and adjusted cash operating margin are non-GAAP measures. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measures.” $ / Boe, unless otherwise noted For the Quarter Ended September 30, 2021 For the Quarter Ended June 30, 2021 Revenue $45.74 $42.42 Total Cash Operating Costs: Lease Operating Expenses (1) (3.79) (3.70) Gathering, Transportation & Processing (1.63) (1.52) Taxes Other Than Income (2.27) (2.34) Exploration Expense (0.05) (0.01) General & Administrative Expense (2) (1.92) (3.61) Total Adjusted Cash Operating Costs (3) (9.66) (11.18) Adjusted Cash Operating Margin (3) $36.08 $31.24 Margin % 79% 74% Non-Cash Costs: Depreciation, Depletion, and Amortization (7.74) (7.33) Asset Retirement Obligations Accretion (0.21) (0.24) Amortization on Intangible Assets - (1.22) Non-cash stock-based compensation (0.47) (0.60) Total non-cash expenses (8.42) (9.39) Operating Income Margin $27.66 $21.85 Margin % 60% 52% 14% Improvement
Magnolia Oil & Gas – Differentiated Dividend Framework 11 • Differentiated dividend framework is aligned with the principles of our business model and reinforces our plan. • The initiation of a dividend conveys our continued confidence in the business plan and the quality of our assets. • Our approach is meant to appeal to long-term investors who seek dividend safety, moderate and regular dividend growth, and a dividend that is paid out of actual earnings. • We intend to use this dividend framework to demonstrate the underlying results of our business in a stable product price environment ($55 oil and $2.75 natural gas), and within our current cost structure. • Our objective is to provide a superior total shareholder return by improving the per share value of the enterprise while providing a secure and growing dividend. Dividend Principles Secure & Sustainable – Dividend is safe, and supported by our strong balance sheet, prudent spending and consistent free cash flow Paid out of Earnings – Dividend is paid out of earnings generated by the business and, will not exceed 50% of the prior year’s reported net income Dividend Growth – We expect each of these regular dividend payments to grow annually based on execution of our plan, which includes moderate production growth and share reduction Paid in 3Q21 Payable 1Q22 $0.08/share First interim semi-annual dividend – based on ~$40 Oil Second remaining dividend payment – based on the prior year’s results & our view of long-term product prices – $55 Oil
Appendix
Magnolia Oil & Gas – Overview • High-quality, low-risk pure-play South Texas operator with a core Eagle Ford and Austin Chalk position acquired at an attractive entry multiple • Significant scale and PDP base generates material free cash flow, reduces development risk, and increases optionality • Asset Overview: – ~23,500 net acres in a well-delineated, low-risk position in the core of Karnes County, representing some of the most prolific acreage in the United States with industry leading break-evens – ~450,000 net acres in the Giddings area, a re-emerging oil play with significant upside and what we believe to be substantial inventory – Both assets expected to remain self funding and within cash flow 13 ~478,000 Net Acre Position Targeting Two of the Top Oil Plays in the U.S. Market Statistics Trading Symbol (NYSE) MGY Share Price as of 10/29/2021 $20.88 Common Shares Outstanding (1) 231 million Market Capitalization $4.8 billion Long-term Debt – Principal $400 million Cash as of 9/30/2021 $245 million Total Enterprise Value $5.0 billion Operating Statistics Karnes Giddings Total Net Acreage 23,513 454,687 478,200 3Q21 Net Production (Mboe/d) (2) 30.6 36.8 67.4 Industry Leading Breakevens ($/Bbl WTI) $28 $32 $34 $35 $38 $39 $39 $45 Karnes Austin Chalk Karnes Lower Eagle Ford Midland Delaware DJ Basin Eagle Ford STACK Bakken Source: RSEG. (1) Common Stock outstanding includes Class A and Class B Stock. (2) Giddings Includes other production not located in the Giddings Field. Karnes County Giddings Field Source: IHS Performance Evaluator. Wilson Dewitt Gonzales
Free Cash Flow Reconciliation 14 (1) Free cash flow is a non-GAAP measure. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measures.” (in thousands) Free Cash Flow Reconciliation For the Quarter Ended September 30, 2021 For the Quarter Ended September 30, 2020 Net cash provided by operating activities $221,904 $65,156 Add back: Changes in operating assets and liabilities (10,677) 3,438 Cash flows from operations before changes in operating assets and liabilities $211,227 $68,594 Additions to oil and natural gas properties (68,388) (27,674) Changes in working capital associated with additions to oil & gas properties 621 5,409 Free cash flow (1) $143,460 $46,329
Reconciliation of Net Income to Adjusted EBITDAX 15 (1) 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.” (in thousands) Adjusted EBITDAX reconciliation to net income: For the Quarter Ended September 30, 2021 For the Quarter Ended September 30, 2020 Net income $159,907 $13,695 Exploration expense 317 701 Asset retirement obligation accretion 1,329 1,501 Depreciation, depletion and amortization 47,993 44,731 Amortization of intangible assets - 3,626 Interest expense, net 7,474 7,333 Income tax expense (benefit) 3,631 (339) EBITDAX (1) $220,651 $71,248 Non-cash stock-based compensation expense $2,910 $2,927 Unrealized (gain) loss on derivatives, net ($2,043) $2,208 Adjusted EBITDAX (1) $221,518 $76,383
Adjusted Net Income Reconciliation 16 (1) 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.” (2) 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. (in thousands) Adjusted Net Income For the Quarter Ended September 30, 2021 For the Quarter Ended September 30, 2020 Net income $159,907 $13,695 Income tax expense (benefit) $3,631 ($339) Income Before Income Taxes 163,538 13,356 Adjustments: Unrealized (gain) loss on derivatives, net (2,043) 2,208 Adjusted Income before income taxes 161,495 15,564 Adjusted income tax expense 3,586 - Adjusted Net Income (1) $157,909 $15,564 (in thousands) Total Share Count For the Quarter Ended September 30, 2021 For the Quarter Ended September 30, 2020 Diluted weighted average of Class A Common Stock outstanding during the period 175,683 170,676 Weighted average shares of Class B Common Stock outstanding during the period (2) 60,358 85,790 Total weighted average shares of Class A and B Common Stock, including dilutive impact of other securities (2) 236,041 256,466
Adjusted Earnings Reconciliation 17 (1) Adjusted earnings is a non-GAAP measure. For reasons management believes this is useful to investors, refer to slide 2 “Non-GAAP Financial Measures.” (in thousands) For the Quarter Ended September 30, 2021 Per Share Diluted EPS For the Quarter Ended September 30, 2020 Per Share Diluted EPS Net income attributable to Class A Common Stock $119,364 $0.67 $9,147 $0.05 Adjustments: Unrealized (gain) loss on derivatives, net (2,043) - 2,208 0.01 Noncontrolling interest impact of adjustments 507 - (752) - Change in estimated income tax 34 - - - Adjusted net income attributable to Class A Common Stock (1) $117,862 $0.67 $10,603 $0.06
Magnolia Oil & Gas – Operating Highlights 18 (1) Benchmarks are the NYMEX WTI and NYMEX HH average prices for oil and natural gas, respectively. For the Quarter Ended September 30, 2021 For the Quarter Ended September 30, 2020 Production: Oil (MBbls) 2,851 2,485 Natural gas (MMcf) 11,429 9,444 Natural gas liquids (MBbls) 1,444 937 Total (Mboe) 6,200 4,996 Average daily production: Oil (Bbls/d) 30,989 27,016 Natural gas (Mcf/d) 124,224 102,653 Natural gas liquids (Bbls/d) 15,692 10,181 Total (Mboe) 67,385 54,306 Revenues (in thousands): Oil revenues $195,132 $95,677 Natural gas revenues 42,828 14,895 Natural gas liquids revenues 45,619 10,495 Total Revenues $283,579 $121,067 Average Sales Price: Oil (per Bbl) $68.44 $38.50 Natural gas (per Mcf) 3.75 1.58 Natural gas liquids (per Bbl) 31.60 11.20 Total (per Boe) $45.74 $24.23 NYMEX WTI (per Bbl) $70.55 $40.94 NYMEX Henry Hub (per Mcf) $4.01 $1.97 Realization to benchmark: (1) Oil (% of WTI) 97% 94% Natural gas (% of Henry Hub) 94% 80%
Magnolia Oil & Gas – Production Results 19 Combined Karnes Giddings & Other Combined Karnes Giddings & Other Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 Production: Oil (MBbls) 2,851 1,631 1,220 2,485 2,025 460 Natural gas (MMcf) 11,429 3,872 7,557 9,444 3,888 5,556 Natural gas liquids (MBbls) 1,444 540 904 937 442 495 Total (Mboe) 6,200 2,816 3,384 4,996 3,115 1,881 Average Daily Production Volume: Oil (MBbls/d) 31.0 17.7 13.3 27.0 22.0 5.0 Natural gas (MMcf/d) 124.2 42.1 82.1 102.7 42.3 60.4 Natural gas liquids (MBbls/d) 15.7 5.9 9.8 10.2 4.8 5.4 Total (MBoe/d) 67.4 30.6 36.8 54.3 33.9 20.4
Commitment to Sustainability 20 ENVIRONMENTAL SOCIAL GOVERNANCE Flaring Flare less than 1% of our total net production Fugitive Emissions Operate vent and flare systems to minimize fugitive emissions from storage tanks Water Resources Operations do not produce large volumes of water after initial production Groundwater Design wells to minimize the possibility of well failure and ensure groundwater is protected Workforce Health & Safety Both employee total recordable incident rate and fatality rate were zero in 2020 Diversity 24% of employee population are women (38% in our Houston corporate office) and 32% identify as Asian, Black or African American, Hispanic or Latino, or two or more races Community Support Gave more than $105,000 to local communities, supporting more than 100 organizations Board Independence 71% of board members are independent Board Diversity 29% of board members are women Executive Compensation Ratio of 2020 Chief Executive Officer’s compensation to median employee’s compensation was 1.48 to 1 Say-on-Pay More than 99% of stockholders approved say-on-pay at 2021 Annual Meeting of Stockholders Magnolia 2021 Sustainability Report is Available on Our Website Under the Sustainability Tab