Quarterly / Earnings Reports | Third Quarter (3Q) Update | Drilling Program-Rig Count

Magnolia Oil & Gas Talks Q3, Drilling; Two Rigs Running

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   |    Friday,November 01,2019

Magnolia Oil & Gas Corp. reported its Q3 2019 results.

Q3 Summary Financial Results:

• Total reported net income: $17.4 million
• Earnings per share - diluted: $0.05
• Adjusted net income⁽¹⁾: $16.2 million; Weighted average total shares outstanding⁽²⁾: 258.9 million
• Adjusted earnings per share⁽¹⁾: $0.06
• Adjusted EBITDAX⁽¹⁾: $183.4 million
• Capital expenditures - drilling and completions ("D&C"): $88.4 million
• Cash acquisition expenditures: $1.3 million
• Cash balance as of September 30, 2019: $164.5 million

Third Quarter 2019 Highlights:

• Magnolia reported third quarter net income attributable to Class A Common Stock of $7.8 million, or $0.05 per diluted share. Total adjusted net income including noncontrolling interest was $16.2 million, or $0.06 per adjusted diluted share, which excludes a non-cash special item associated with our earlier warrant exchange.

• Our production averaged 71.3 thousand barrels of oil equivalent per day ("Mboe/d") for the third quarter of 2019, a 9.5 percent increase compared to 65.1 Mboe/d in the second quarter. Third quarter oil production averaged 53.7 percent of total volumes. Both total production and total oil volumes were at the high end of our guidance, with the strong sequential increase in production driven almost entirely by our organic drilling program and primarily due to new wells in the Karnes area.

• Adjusted EBITDAX was $183.4 million during the third quarter of 2019, with capital expenditures for drilling and completions of $88.4 million for the period. D&C capital represented 48 percent of our adjusted EBITDAX and slightly better than expectations.

• Our average realized oil price was $59.05 per barrel for the third quarter of 2019, or 105 percent of the average NYMEX WTI benchmark price during the period.

• Total cash operating costs including G&A declined to $9.96 per Boe in the third quarter compared to $10.98 per Boe in the second quarter of 2019.

• Cash on the balance sheet increased to $164.5 million at the end of the third quarter from $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.

Magnolia Chairman, President and CEO, Steve Chazen, said: "We continue to focus on building a business which generates significant free cash flow and our third quarter results further demonstrate our ability to execute on our strategy. While our production grew nearly 10 percent sequentially our capital spending for drilling and completing wells declined to less than half of our operating cash flow during the third quarter. The quality of our assets and disciplined business model positions us to spend within 60 percent of our adjusted EBITDAX for 2019.

"Using our current methodology, we brought on two new wells in the Giddings Field late in the third quarter. Combined, these two wells produced more than 2,700 Boe per day during their first 30 days on line, which included approximately 1,700 barrels of oil per day and 6,400 Mcf per day of natural gas. These wells are currently producing about 2,900 Boe per day, including more than 1,800 barrels per day of oil and approximately 6,700 Mcf per day of gas. We plan to complete three additional wells in Giddings later in the fourth quarter as part of our ongoing appraisal program."

Operational Update

Production averaged 71.3 Mboe/d during the third quarter of 2019, a nearly 10 percent sequential increase and ahead of our expectations. Total oil production averaged 53.7 percent of our overall volumes and at the higher end of guidance range. Production in the Karnes area averaged 49.2 Mboe/d during the third quarter, a 12.3 percent sequential increase from second quarter levels of 43.8 Mboe/d, due to the combination of new operated and non-operated wells coming on line. Production from Giddings and Other increased to 22.1 Mboe/d in the third quarter from 21.3 Mboe/d in the prior quarter, 85 percent of which was from the Giddings Field.

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. In our Karnes area, we added 430 net acres during the quarter, bringing our acreage position to 21,946 net acres. Our appraisal program in Giddings remains ongoing and we continue to make meaningful progress toward better understanding this sizeable asset. While we have had good recent success implementing our current methodology in Giddings, we are still pursuing an appraisal program which by its nature is inherently higher risk.

Cash Flow

Our cash flow from operating activities was $179.2 million during the third quarter and we ended the period with $164.5 million of cash on the balance sheet compared to $96.7 million at the end of the prior quarter. Total cash outlays related to our capital program including drilling, completions and leasehold acquisitions were $97.6 million, including $1.3 million of cash spent acquiring oil and gas properties.

Updated Guidance

We expect our fourth quarter production to be similar as compared to third quarter volume levels. Total capital spending for drilling and completions is expected to decline slightly in the fourth quarter, and in keeping with our business model. As our overall well completions will be weighted more towards Giddings, we expect production in Giddings to increase about 10 percent sequentially during the fourth quarter.