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Magnolia Oil & Gas Second Quarter 2020 Results

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   |    Wednesday,August 05,2020

Magnolia Oil & Gas Corp. announced its financial and operational results for the second quarter of 2020.

Q2 2020 Highlights:

  • Magnolia reported a second quarter 2020 net loss of $29.4 million and net loss attributable to Class A Common Stock of $18.3 million, or $0.11 per share. Second quarter 2020 total adjusted loss was $14.0 million, or $0.08 per share.
  • Second quarter 2020 production averaged 64.1 thousand barrels of oil equivalent per day ("Mboe/d") and toward the higher end of our guidance range. Oil production averaged 33.9 thousand barrels per day ("Mbbl/d") or 53 percent of total volumes. Magnolia did not complete any operated wells during the second quarter and production shut-ins were in line with earlier guidance of less than 5 percent of our May 2020 operated volumes.
  • Production from Giddings(1) averaged 23.3 Mboe/d in the second quarter 2020, with oil production representing 6.4 Mbbl/d. Oil production at Giddings during the quarter was flat compared to first quarter levels despite having not brought any new wells on line since February, demonstrating the lower production decline rate from this asset.
  • Magnolia currently has 14 wells producing in our initial core development area. The 30, 90, and 180-day production rates have averaged 1,534, 1,557, and 1,374 barrels of oil equivalent per day ("boe/d"), respectively (~50% oil on a two-stream basis).
  • Adjusted EBITDAX during the second quarter of 2020 was $40.2 million. Drilling and Completion costs ("D&C") for the quarter were $27.3 million. Magnolia continues to target D&C spending during 2020 of approximately 60 percent of adjusted EBITDAX.
  • Total adjusted cash costs(2) declined 18 percent sequentially to $8.50 per boe in the second quarter 2020 compared to $10.37 per boe in the first quarter 2020. We remain on track to achieve approximately $55 million of savings in our 2020 total cash costs as guided earlier this year.
  • Magnolia ended the quarter with approximately $116.9 million of cash on its balance sheet and remains undrawn on its $450 million revolving credit facility. The Company has no debt maturities until 2026 and has no plans to increase its debt levels.

CEO Steve Chazen said: “Despite one of the most challenging macro environments ever experienced by the industry, Magnolia successfully managed through the recent period of severe weakness in product prices. This was due to our low levels of debt and our high quality, capital efficient assets. Our business model continues to prioritize low financial leverage and disciplined capital spending, providing consistent free cash flow generation. Our focused business has allowed us to reduce our overhead and operating expenses to the current environment and we expect to make further progress.

“All of our assets have outperformed our expectations. We continue to advance our understanding and operating capabilities at Giddings, as evidenced by the per well 6-month production results averaging approximately 120,000 barrels of oil and 750,000 Mcf of natural gas. Positive drilling results at Giddings combined with the recent improvement and stability in product prices, should allow for further drilling in our core area. We plan to begin completing the Giddings DUCs in the latter part of the third quarter. Our pace of activity continues to be guided by commodity prices and free cash flow generation.

“Our objectives remain the same, with the level of spending for the year to be around 60 percent of our adjusted EBITDAX. At current product prices, we would expect to return to profitability and our cash levels to build through the remainder of the year.”

Ops Update

Second quarter total company production averaged 64.1 Mboe/d, with oil production representing 53 percent of our volumes. Production from the Karnes area and from Giddings and Other averaged 40.8 Mboe/d and 23.3 Mboe/d, respectively, during the second quarter 2020. Despite not bringing any new wells on line during the second quarter, Giddings and Other production volumes were approximately flat with the 23.9 Mboe/d produced in the first quarter of 2020. Giddings oil production was 6.4 Mbbl/d and similar with first quarter levels of 6.5 Mbbl/d.

Magnolia did not bring any operated wells on line throughout our assets during the second quarter. We are currently operating one rig at Giddings which is drilling a three-well pad. Once drilling on this pad is finished, we will have 8 uncompleted wells from 3 pads at Giddings and a total of 10 uncompleted wells in the Karnes area. We expect to begin completing the drilled but uncompleted wells ("DUCs") at Giddings before the end of this quarter. The drilling of additional wells in Giddings is dependent on product prices. Magnolia does not currently plan to complete any operated wells in the Karnes area during the remainder of 2020.

Magnolia has brought on line a total of 28 horizontal wells in Giddings over the last three years. Until this year, we focused on evaluating and appraising a sizable portion of approximately 630,000 gross acres in the Giddings Field. Beginning with this year, we applied some of our learnings and shifted some of our appraisal activity to an early stage development program concentrated on an area encompassing approximately 70,000 acres. In this early stage development area, Magnolia currently has 14 producing wells with at least 180 days of production history. These wells have average 30, 90, and 180-day production rates of 1,534, 1,557, and 1,374 boe/d, respectively, with oil consisting of approximately half of the total production.

 

 

30-Day

 

90-Day

 

180-Day

Well Count

 

14

 

14

 

14

Oil Bbls/d

 

781

 

783

 

677

boe/d (two-stream)

 

1,534

 

1,557

 

1,374

The production results demonstrate the shallower production declines from the Giddings wells. The shift from appraisal to development activity has also helped to drive down our overall well costs. Despite the average lateral length increasing from 5,000 feet to between 6,000 to 7,000 feet, recent development well costs have fallen to less than $7 million. We believe we can drive overall well costs toward $6 million per well through additional experience and efficiencies. The shallower decline rates and lower well costs speaks to the improved capital efficiency we are seeing from our early stage development at Giddings.

Guidance

Magnolia continues to target capital spending of within approximately 60 percent of adjusted 2020 EBITDAX. We expect our third quarter production to average between 55-58 Mboe/d with oil expected to be 50-52 percent of the total volumes. These estimates assume no new operated wells come on line during the quarter. As we bring wells on line in Giddings later this year, we expect our production levels for both the fourth quarter and the 2020 exit rate to exceed our production in the third quarter. Oil differentials are expected to be at an approximately $3 per barrel discount to MEH, which is similar to our historical levels.


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