Quarterly / Earnings Reports | Second Quarter (2Q) Update

Magnolia Oil & Gas Talks Q2 Results

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Magnolia Oil & Gas Corp. announced its financial and operational results for the second quarter of 2019.

Second Quarter 2019 Summary Financial Results:

• Total reported net income: $31.3 million
• Earnings per share - diluted: $0.12
• Adjusted net income⁽¹⁾: $31.4 million; Weighted average total shares outstanding⁽²⁾: 250.8 million
• Adjusted EBITDAX⁽¹⁾: $181.7 million
• Capital expenditures - drilling and completions: $116.0 million
• Cash acquisition expenditures: $38.6 million
• Cash balance as of June 30, 2019: $96.7 million

Second Quarter 2019 Highlights:

• Magnolia reported second quarter net income attributable to Class A Common Stock of $18.5 million, or $0.12 per diluted share. Total net income including noncontrolling interest was $31.3 million.

• Our second quarter production benefited from a mix of organic development and small acquisitions. Total production averaged 65.1 thousand barrels of oil equivalent per day ("Mboe/d") for the second quarter of 2019, a 4.3 percent increase compared to 62.4 Mboe/d in the first quarter and in line with our earlier guidance. Second quarter oil production improved to 53.8 percent of total volumes compared to 51.7 percent last quarter, and at the higher end of the range guided for the second half of the year.

• Adjusted EBITDAX was $181.7 million during the second quarter of 2019, with drilling and completions capital expenditures of $116.0 for the period, nearly at our target of spending within 60 percent of adjusted EBITDAX. Total capital for drilling and completions is expected to continue to decline in the second half of the year and average well below 60 percent of adjusted EBITDAX based on current product prices.

• Our average realized oil price was $64.13 per barrel for the second quarter of 2019, or 107 percent of the average NYMEX WTI benchmark price during the period.

• We successfully completed the exchange of all our outstanding warrants in July of 2019. This simplified our capital structure and reduced the ultimate potential dilution associated with the warrants.

• Cash on the balance sheet increased to $96.7 million at the end of the second quarter. In addition, we had an undrawn revolving credit facility with $550.0 million of capacity and $400.0 million of principal debt outstanding.

"As we cross the one-year mark as a public company, Magnolia continues to execute on the strategy we laid out over a year ago," said Magnolia Chairman, President and CEO, Steve Chazen. "The latest quarter's results continue to demonstrate our ability to deliver on our original founding principles - generating steady and moderate production growth while spending within 60 percent of our cash flow for drilling and completing wells. The latest quarter saw our business benefit from heavier levels of both operated and non-op development spending early in the year, as well as the completion of several small acquisitions. Capital spending declined significantly during the second quarter and we expect that trend to continue through the back half of the year, averaging 60 percent for all of 2019. Our differentiated business model allows us to continually generate free cash flow providing us with a variety of options to create stock market value over time. The three options available for the use of our free cash include acquisitions, dividends, and share repurchases. We continue to seek small accretive bolt-on acquisition opportunities and have now added share repurchases to our active use of free cash."

Operational Update

Production averaged 65.1 Mboe/d during the second quarter of 2019, a 4.3 percent sequential increase and in line with our expectations. Total oil production increased to 53.8 percent of our overall volumes compared to 51.7 percent during the first quarter 2019. This increase was due to a combination of new wells turned in line in Karnes as well as lower natural gas volumes in Giddings due to an extended maintenance turnaround period at a third-party gas processing plant. Production in the Karnes area averaged 43.8 Mboe/d during the second quarter, an 8 percent sequential increase from first quarter levels of 40.5 Mboe/d, due to the combination of several new operated and non-operated wells coming on line. Production from Giddings and Other decreased slightly to 21.3 Mboe/d in the second quarter from 21.9 Mboe/d in the prior quarter due to fewer wells brought on line, the gas plant maintenance, and several gas wells which were shut-in due to high water levels.

We continue to operate one rig in each of our Karnes area and Giddings assets, as well as using one completion crew between our assets to optimize efficiencies. Our Giddings appraisal program is ongoing, and we expect to provide a further progress update later in the year. All acquisitions announced previously have now closed, and we continue to evaluate other small and accretive bolt-on opportunities in the Karnes area.

Free Cash Flow

Our cash flow from operating activities was $192.8 million during the second quarter and we ended the period with $96.7 million of cash on hand compared to $76.3 million at the end of the prior quarter. Total cash outlays related to our capital program including drilling, completions and leasehold acquisitions were $132.9 million, and we spent $38.6 million of cash acquiring oil and gas properties.

During the eleven-month period from our inception, Magnolia has generated approximately $614.9 million cash flow from operating activities. Over the same timeframe, our production increased nearly 30 percent and we have grown our Karnes area acreage position by approximately 50 percent. Our growth was entirely self-funded as we have not added any additional debt to the balance sheet.

Updated Guidance

We expect our total production to be approximately 70 Mboe/d for the third quarter and in line with our prior guidance. Our oil production mix is now expected to be at the high end of our 52 to 54 percent guidance range. The higher percentage of oil production is a result of a combination of new operated and non-operated wells turned in line in the Karnes area during the quarter.

The Company's Board of Directors authorized an initial share-repurchase program of up to 10 million shares, to be executed as deemed appropriate by Company management and based on market conditions. Share purchases would be funded with cash on hand and the program does not require purchases to be made within a particular timeframe.