Magnolia Oil & Gas (MGY) Q1 Results - May 7

[dan_s]

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. < Beat my forecast of $93.8 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. < Close to my forecast of $214.2 million Adjusted Operating Cash Flow.

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%. < My Q1 production forecast was 84,500 Boepd.

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.

(1) Adjusted net income, adjusted EBITDAX, free cash flow, and adjusted operating income are non-GAAP financial measures. For reconciliations to the most comparable GAAP measures, please see "Non-GAAP Financial Measures" at the end of this press release.
(2) Weighted average total shares outstanding include diluted weighted average shares of Class A Common Stock outstanding during the period and shares of Class B Common Stock, which are anti-dilutive in the calculation of weighted average number of common shares outstanding.
(3) Includes $2.9 million of share repurchases incurred during the first quarter, but settled during the second quarter of 2024, and excludes $1.7 million of share repurchases incurred during the fourth quarter of 2023, but settled during the first quarter of 2024.

"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. < This is good news. My Q1 oil production forecast was 35,000 bopd.

"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."

I will update my forecast/valuation model in on Wednesday morning.