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Magnolia Oil & Gas Third Quarter 2021 Results

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   |    Wednesday,November 03,2021

Magnolia Oil & Gas Corp. announced its financial and operational results for the third quarter of 2021.

Highlights:

• 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.

Chairman, President and CEO Steve Chazen commented: "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. 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.