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Drilling & Completions | Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Capital Markets | Capital Expenditure

Magnolia Oil & Gas Corporation First Quarter 2023 Results

Thursday,May 11,2023

Magnolia Oil & Gas Corporation announced first quarter 2023 results.

Highlights

  • Magnolia reported first quarter 2023 net income attributable to Class A Common Stock of $96.3 million, or $0.50 per diluted share. First quarter 2023 total net income was $106.7 million and total adjusted net income(1) was $119.3 million. Diluted weighted average total shares outstanding decreased by 6% to 213.9 million(2) compared to first quarter 2022.
  • Adjusted EBITDAX(1) was $216.9 million during the first quarter of 2023. Total drilling and completions ("D&C") capital during the first quarter was $139.7 million, which was below the low end of our guidance and is expected to be the highest quarterly level of capital expenditures during the year.
  • Magnolia currently expects its 2023 capital spending for D&C to be between $440 million and $460 million, at least 10% lower than previous guidance and lower than the prior year. The reduction in capital is intended to improve our allocated spending in a period where oil service costs are not reflective of lower oil and especially natural gas prices. The lower spending is expected to be achieved primarily through lower oil services and materials costs and a modest reduction in our operated activity. Despite the decline in activity, full-year 2023 production is expected to grow 5 to 7% compared to 2022 levels, and in line with our business model.
  • Net cash provided by operating activities was $219.8 million during the first quarter of 2023 and the Company generated free cash flow(1) of $60.6 million. Magnolia generated adjusted operating income(1) as a percentage of revenue of 46% during the quarter.
  • Total production in the first quarter of 2023 grew 10% compared to the prior-year first quarter and 8% sequentially to 79.3 thousand barrels of oil equivalent per day ("Mboe/d"). Production at Giddings and Other in the first quarter of 2023 grew 22% compared to last year's first quarter to 52.3 Mboe/d, including oil production growth of 36%.
  • The Company repurchased 2.4 million of its Class A Common shares during the first quarter for $51.3 million. Magnolia has 6.5 million Class A Common shares remaining under its current repurchase authorization, which are specifically allocated toward open market share repurchases.
  • As previously announced, the Board of Directors declared a cash dividend of $0.115 per share of Class A common stock, and a cash distribution of $0.115 per Class B unit, payable on June 1, 2023 to shareholders of record as of May 11, 2023.
  • Magnolia returned $76.4 million(3) to shareholders during the first quarter through a combination of share repurchases and dividends while ending the period with $667.3 million of cash on the balance sheet. The Company remains undrawn on its $450.0 million revolving credit facility, has no debt maturities until 2026 and has no plan to increase its debt levels.
Magnolia Oil & Gas Corporation announced its financial and operational results for the first quarter of 2023.

President and CEO Chris Stavros, said:"Magnolia delivered a strong start to the year, supported by solid operating performance and a firm commitment to the founding principles of our business model and overall strategy."

"Magnolia's focus has remained consistent and includes a disciplined approach toward capital spending, targeting moderate annual production growth, with high pre-tax operating margins, while generating reliable free cash flow. We strive to achieve these goals while continuously improving our per share metrics and maintaining a strong balance sheet with low levels of debt."

"Strong well performance in both the Karnes and Giddings areas and continued operating efficiencies at Giddings helped support year-over-year production growth of 10 percent during the first quarter. We generated over $60 million of free cash flow during the quarter while sustaining lower operating margins because of weaker oil and gas prices and higher costs associated with oil field service inflation."

"The current cost structure for oil field services and materials does not reflect the sharp decline in overall product prices as compared to last year. Rather than allocating more capital to achieve higher growth and diluting our margins during this time, we are taking actions to better align our capital spending to reflect the current environment. Beginning in the first quarter, we proactively worked with our top service providers and material suppliers in order to reduce our costs while deferring only a modest amount of operated activity. These measures should result in at least a 10 percent reduction in this year's expected capital spending, deliver full-year 2023 production growth of 5 to 7 percent, and provide us with greater operating flexibility while generating more free cash flow during the year. The outcome is consistent with our business model which includes limiting our capital spending to approximately 55 percent of our EBITDAX to generate mid-single digit annual production growth."

"I commend our teams and our valued partners for working together cooperatively to help us reduce costs and maintain a steady pace of activity. Magnolia's disciplined approach around capital allocation ideally positions us to create value through the cycle while supporting our differentiated return of capital program which focuses on increasing the per share value of the company. Our balanced strategy is underpinned by pursuing moderate annual production growth, repurchasing at least one percent of our outstanding shares per quarter and targeting small, accretive bolt-on oil and gas property acquisitions. These activities reinforce our investment proposition of providing 10 percent annual dividend growth over time."

Operational Update

First quarter 2023 total company production volumes averaged 79.3 Mboe/d, representing growth of more than 10 percent over the prior-year first quarter and 8 percent sequentially. Production from Giddings and Other increased 22 percent compared to last year's first quarter to 52.3 Mboe/d with oil production growing 36 percent over the same period. Magnolia's first quarter 2023 capital spending of $139.7 million was below the low end of guidance range and should represent the highest quarter of capital spending for the year.

Magnolia continues to operate two drilling rigs and expects to maintain this level of activity throughout 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 some appraisal wells at Giddings. For 2023 in Giddings, we currently expect to average approximately 4 wells per pad with average lateral lengths of approximately 8,000 feet. We continue to generate additional D&C efficiencies in our Giddings area including establishing new records for the number of completion stages per day.

Additional Guidance

We currently expect our total D&C capital for 2023 to be in the range of $440 to $460 million, which represents at least a 10 percent reduction from our original guidance. This new level of spending, which is expected to be lower than our full year 2022 outlays, focuses on achieving improved returns until service and material costs are better aligned with the decline seen in oil and gas prices. While we plan to maintain our 2-rig operated drilling program during 2023, we currently expect to defer a modest amount of our operated activity. This level of activity is expected to deliver full-year 2023 production growth of approximately 5 to 7 percent, primarily from the development program at our Giddings field asset.

We expect second quarter D&C capital expenditures to be approximately $100 million with total production for the second quarter estimated to be approximately 80 Mboe/d. Oil price differentials are anticipated to be approximately a $3.00 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for all its oil and natural gas production. The fully diluted share count for the second quarter of 2023 is expected to be approximately 212 million shares, which is approximately 5 percent lower than second quarter 2022 levels.

 



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