Magnolia Oil & Gas Corporation (“Magnolia,” “we,” “our,” or the “Company”) (NYSE: MGY) announced its financial and operational results for the first quarter of 2024.
First Quarter 2024 Highlights:
- Magnolia reported first quarter 2024 net income attributable to Class A Common Stock of $85.1 million, or $0.46 per diluted share. First quarter 2024 total net income was $97.6 million and total adjusted net income(1) was $101.0 million. Diluted weighted average total shares outstanding decreased by 5% to 204.3 million(2) compared to first quarter 2023.
- Adjusted EBITDAX(1) was $227.8 million during the first quarter of 2024. Total drilling and completions (“D&C”) capital was $119.0 million and below our earlier guidance. First quarter D&C capital represented approximately 52% of adjusted EBITDAX and was 15% lower than the prior-year’s first quarter.
- Net cash provided by operating activities was $210.9 million during the first quarter of 2024 and the Company generated free cash flow(1) of $117.1 million. Magnolia generated adjusted operating income(1) as a percentage of revenue of 39% during the quarter.
- The Company has embarked on a field-level optimization and cost reduction program across our assets that is expected to deliver a 5 to 10% reduction in cash operating costs (LOE) per boe during the second half of the year compared to the first quarter 2024.
- Total production in the first quarter of 2024 grew 7% on a year-over-year basis to 84.8 thousand barrels of oil equivalent per day (“Mboe/d”) including 37.5 thousand barrels per day of oil. Production at Giddings and Other was 61.4 Mboe/d, providing overall growth of 17% compared to last year’s first quarter, including oil production growth of 16%.
- On April 30, 2024, Magnolia acquired oil and gas properties in Giddings from a private operator encompassing roughly 27,000 net acres for approximately $125 million. These assets included total production of approximately 1,000 Mboe/d (~35% oil), in addition to leasehold and royalty acres. The acquisition significantly increases Magnolia’s working interest in future high-return development areas and adds new acreage which further expands the Company’s leading position in the Giddings area.
- The Company repurchased 2.4 million of its Class A Common Stock during the first quarter for $52.4 million. Magnolia has 6.9 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 $0.13 per share of Class A common stock, and a cash distribution of $0.13 per Class B unit, payable on June 3, 2024 to shareholders of record as of May 13, 2024.
- Magnolia returned $79.2 million(3), or 68% of the Company’s free cash flow(1), to shareholders during the first quarter through a combination of share repurchases and dividends while ending the period with $399.3 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 does not currently plan to increase its bonded indebtedness.
“Magnolia’s first quarter performance delivered a solid start to 2024, continuing our strategy of disciplined capital spending, while delivering steady production growth with strong pre-tax margins and consistent free cash flow,” said President and CEO Chris Stavros. “Our growing production and continued low reinvestment rate provided free cash flow generation of roughly $117 million. We returned 68 percent of our free cash flow to our shareholders through our recently increased dividend and share repurchase program. Higher oil production of 37.5 thousand barrels per day during the quarter was driven by strong well performance and additional volumes from assets acquired last year.
“A key objective of Magnolia’s business plan and strategy is to utilize some of the excess cash generated by the business to pursue attractive bolt-on oil and gas property acquisitions. Properties are targeted not to simply replace the oil and gas that has already been produced but importantly, to improve the future opportunity set of our overall business and enhance the sustainability of our high returns. The latest example is an acquisition from a private operator that we closed at the end of April for $125 million which includes approximately 27,000 net acres in Giddings and leverages the significant knowledge we have gained through operating in the field. While these properties come with a relatively small amount of current production, they have similar attractive operational characteristics to our core acreage position in Giddings. The acquisition further lengthens our already deep inventory of high return locations in Giddings while adding duration to our overall portfolio as well as significantly increasing our working interest in some of our existing inventory. We continue to look for bolt-on oil and gas property acquisitions utilizing our technical expertise and where we have a competitive advantage in the development of the Austin Chalk and Eagle Ford formations in South Texas.
“While I am proud of our teams’ accomplishments, we continue to seek out areas where we can improve. Our field operations team recently initiated a field-level optimization and cost reduction program throughout our assets. Part of these efforts will employ improved field management systems that will increase efficiencies and optimize processes across the field while capturing synergies from acquired assets. These and other initiatives are expected to deliver a 5 to 10 percent reduction in cash operating costs (LOE) per boe during the second half of the year compared to the first quarter. Our goal is to improve on our track record for generating high operating margins while providing additional free cash flow to either return to our shareholders or reinvest in the business.”
Operational Update
First quarter 2024 total company production volumes averaged 84.8 Mboe/d including oil production of 37.5 Mbbls/d. Production from Giddings and Other increased by 17% compared to last year’s first quarter to 61.4 Mboe/d with oil production growing 15% over the same period. Total Company production volumes benefited from continued strong well performance, in addition to some production from assets acquired last year, as well as a slightly oilier development program. First quarter 2024 capital spending on drilling, completions, and associated facilities was $119.0 million.
Magnolia continues to operate two drilling rigs and one completion crew and expects to maintain this level of activity throughout the year. While this activity level is similar to the 2023 operating plan, lower well costs combined with improved operating efficiencies allow for more wells to be drilled, completed and turned in line during 2024 and help to support Magnolia’s overall high-margin growth. Most of this year’s development activity will consist of multi-well development pads in the Giddings area, with a proportionally smaller amount of development planned in the Karnes area, in addition to some appraisal wells on our assets. For Giddings development activity in 2024, we currently expect to drill multi-well pads with somewhat longer lateral lengths of approximately 8,500 feet as compared to last year.
On April 30, 2024, Magnolia acquired approximately 27,000 net acres in Giddings for approximately $125 million. These oil and gas properties include both leasehold and royalty interests, as well as approximately 1,000 Mboe/d of total production (~35% oil and ~68% liquids). The acquisition covers over 80,000 gross acres, a portion of which Magnolia currently operates. The incremental acreage offers both new operated development locations in addition to increasing the working interest in many existing high-return development locations.
Additional Guidance
We are reiterating the Company’s full-year 2024 capital spending and production guidance, with D&C capital expected to be in the range of $450 to $480 million. We estimate this should deliver high single digit total production growth during this year as compared to 2023, and with oil production growing at a similar rate. We expect second quarter D&C capital expenditures to be between $120 to $125 million and total production for the second quarter to be approximately 89 Mboe/d.
Magnolia plans to apply the Company’s operating expertise to its newly acquired assets which should lead to improved field operations and efficiencies allowing for lower unit operating costs that we expect to be reflected in the second half of 2024. Our lengthy experience and knowledge acquired while operating in the Giddings area gives us confidence that these initiatives should lead to higher margins on these assets and increased free cash flow for the Company.
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 2024 is expected to be approximately 203 million shares, which is approximately 4% lower than second quarter 2023 levels.
Quarterly Report on Form 10-Q
Magnolia's financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the three months ended March 31, 2024, which is expected to be filed with the U.S. Securities and Exchange Commission (“SEC”) on May 8, 2024.