- Total Company Production: Approximately 90,000 barrels oil equivalent per day, a company record, growing by 10% year-over-year and 6% sequentially.
- Total Company Oil Production: Nearly 38,000 barrels per day, representing growth of 11% from year-ago levels.
- Giddings Production: 69,600 barrels of oil equivalent per day, representing 77% of Magnolia's total volumes, with a 21% year-over-year growth.
- Adjusted EBITDAX: $246 million for the second quarter.
- Free Cash Flow: $97 million for the second quarter.
- Shareholder Returns: Approximately $130 million returned, including $103 million for the repurchase of 4 million shares.
- Bolt-on Acquisition: $125 million acquisition adding 27,000 net acres in Giddings.
- LOE (Lease Operating Expense): Reduced to $5.40 per BOE, a 10% sequential quarterly decline.
- Return on Capital Employed (ROCE): Annualized ROCE of 23% for the first half of 2024.
- GAAP Net Income: $96 million attributed to Class A common stock.
- Adjusted Net Income: $104 million or $0.52 per diluted share.
- CapEx: $123 million associated with drilling completions and associated facilities.
- Cash Flow from Operations: $233 million before changes in working capital.
- Ending Cash Balance: $276 million at the end of the quarter.
- Dividend: $0.13 per share on a quarterly basis, with an annualized payout rate of $0.52 per share.
- Total Liquidity: Approximately $726 million, including $276 million of cash and an undrawn $450 million revolving credit facility.
- Operating Income Margin: $16.37 per BOE, 40% of total revenue.
- Expected 2024 D&C Capital Spending: $450 million to $480 million.
- Third Quarter Production Estimate: Approximately 91,000 BOEs per day.
- Third Quarter Fully Diluted Share Count: Approximately 199 million shares.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Magnolia Oil & Gas Corp (MGY, Financial) achieved a company record production of approximately 90,000 barrels of oil equivalent per day in Q2 2024, growing by 10% year-over-year and 6% sequentially.
- The company successfully integrated a recent bolt-on acquisition in Giddings, adding 27,000 net acres and enhancing development opportunities.
- Magnolia Oil & Gas Corp (MGY) returned approximately $130 million to shareholders in Q2 2024, including $103 million for the repurchase of 4 million shares.
- The company reported a significant reduction in field-level operating costs, lowering LOE to $5.40 per BOE, representing a 10% sequential quarterly decline.
- Magnolia Oil & Gas Corp (MGY) maintains a strong balance sheet with $276 million in cash and an undrawn $450 million revolving credit facility, totaling approximately $726 million in liquidity.
Negative Points
- Total adjusted cash operating costs, including G&A, increased by 7% year-over-year to $11.10 per BOE in Q2 2024.
- The company anticipates a $3 per barrel discount to Magellan East Houston for oil price differentials in Q3 2024.
- Magnolia Oil & Gas Corp (MGY) remains unhedged for all its oil and natural gas production, exposing it to market volatility.
- The company expects to be in the upper half of its full-year capital expenditure guidance range, indicating potential higher spending.
- Non-operating activity is expected to increase in the latter part of the year, which may impact capital and production volumes.
Q & A Highlights
Q: Can you talk about the variability among the 200,000 net development acres in Giddings and if there is potential for adding more acreage?
A: Giddings has some variability, but within our core development area, it is less pronounced. There is potential for adding more acreage over time. Half of the increase in development acreage came from a bolt-on acquisition, and the other half from our appraisal program. This process is gradual and measured, often taking years to fully develop.
Q: Do you anticipate the reinvestment rate to remain low, and will the capital return strategy change?
A: Our reinvestment rate has averaged 47% over six years, with a ceiling of 55%. This discipline is foundational to our business model, delivering moderate growth and significant free cash flow. We do not anticipate major changes in our capital return strategy.
Q: Should we expect any trends or nuances in oil mix over the next few quarters?
A: The oil mix has been steady and resilient. Some acquisitions and our activity program have been oilier, helping maintain this steadiness. We expect oil production to hold up well for the remainder of the year and into next year.
Q: Once EnerVest is completely out of the stock, will your cash return methodology change?
A: We may pivot slightly, but we are sensitive to share price. Having a consistent and ongoing share repurchase program is important. The cumulative benefit of repurchasing shares has improved our per-share earnings significantly, creating value for remaining shareholders.
Q: Is there a plan for a step-down in spending in Q4 to meet the full-year CapEx guidance?
A: There is no planned frac holiday. Spending can be lumpy due to timing of completions and non-op activity. We expect to be in the upper half of the full-year guidance range for capital, influenced by additional non-op activity and improved cycle times.
Q: With the additional acreage in Giddings, should we expect a higher allocation in the drilling schedule?
A: We will continue to allocate roughly 80% of our activity towards Giddings. The expanded development area will be integrated into our overall drilling program, but we do not anticipate a significant shift in allocation.
Q: What are the next steps for cost reduction after recent successes?
A: We have implemented a field-level data management platform to reduce spending and increase control over field services. We plan to expand this to other field services and pursue bids for materials and equipment. Maintaining current cost levels is a fair forecast for now.
Q: Can you provide an update on the appraisal well in Northern Giddings targeting an oilier formation?
A: There is no specific appraisal work in Northern Giddings right now. The area was part of an acquisition last year, and modest activity is integrated into our overall development plan.
Q: Is the 9%-10% cash tax rate for this year a good assumption for next year?
A: Yes, it is a fair assumption for next year, but it is highly sensitive to product prices.
Q: Where do you see the biggest opportunity set for bolt-on acquisitions in Fayette, Washington, and Lee counties?
A: Opportunities could arise in various areas. We follow a process of appraisal work that often leads to acquisition opportunities. It is competitive, so we prefer not to specify exact areas of focus.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
