Magnolia Oil & Gas (MGY) Q2 Results - Aug 3

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Second Quarter 2024 Highlights:

Magnolia reported second quarter 2024 net income attributable to Class A Common Stock of $95.6 million, or $0.51 per diluted share. Second quarter 2024 total net income was $105.1 million and total adjusted net income was $104.3 million. < Beat my forecast of $98.2 million net income.

Diluted weighted average total shares outstanding decreased by 5% to 201.2 million compared to second quarter 2023.

Adjusted EBITDAX was $246.1 million during the second quarter of 2024 and total drilling and completions (“D&C”) capital was $123.4 million, approximately 50% of adjusted EBITDAX, and in line with our earlier guidance.

Lease operating expenses declined by 10% on a sequential quarterly basis to $5.40 per boe in the second quarter of 2024 and as part of the Company’s field-level optimization and cost reduction program announced earlier this year.

Net cash provided by operating activities was $269.4 million during the second quarter of 2024 and the Company generated free cash flow of $96.7 million. Magnolia generated operating income as a percentage of revenue of 40% during the second quarter. < Beat my forecast.

Total production in the second quarter of 2024 grew by 10% on a year-over-year basis to 90.2 thousand barrels of oil equivalent per day (“Mboe/d”) including 37.9 thousand barrels per day of oil and reinforced by strong overall well performance. Production from Giddings was 69.6 Mboe/d in the most recent quarter, providing overall growth of 21% compared to last year’s second quarter, including oil production growth of 28%. < Beat my Q2 production forecast of 89,000 Boepd, but oil production was slightly lower than my forecast of 38,500 bopd.

The Company repurchased a total of 4 million shares of its Class A and Class B Common Stock during the second quarter for $102.7 million. Magnolia has 5.9 million Class A Common shares remaining under its current repurchase authorization, which are specifically allocated toward open market share repurchases. < MGY's steady decline in outstanding common stock should support a higher share price.

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 September 3, 2024 to shareholders of record as of August 9, 2024.

Magnolia returned approximately $130 million to shareholders during the second quarter through a combination of share repurchases and dividends while ending the period with $275.7 million of cash on the balance sheet and an undrawn $450.0 million revolving credit facility. < MGY is in very good financial shape.

“Magnolia exhibited strong progress from several of the initiatives outlined earlier this year as demonstrated in our second quarter results supporting the continued and consistent execution of our business plan,” said President and CEO Chris Stavros. “Total production grew 6 percent sequentially to more than 90 thousand boe per day establishing a new quarterly record for the Company with oil production growing by 11 percent year-over-year to nearly 38 thousand barrels per day, and both benefiting from the integration of newly acquired assets and continued strong well performance.

Activity at our Giddings asset remains the driver of Magnolia’s overall growth with production volumes climbing by 21 percent compared to last year’s second quarter to nearly 70 thousand boe per day, including oil growth of 28 percent. We were able to achieve this growth by spending approximately half of our gross cash flow on drilling and completing wells. Our ability to generate moderate production growth with a low rate of reinvestment continues to highlight the quality of our assets.

Magnolia’s field teams successfully captured some early improvements as part of our field-level optimization and cost reduction program initiated earlier this year. These efforts included the implementation of digital field management software in addition to the optimization of maintenance, workovers, and the usage of field-level equipment. These actions have already resulted in a meaningful reduction to our field-level operating costs and should help improve our operating margins and free cash flow over time. Additionally, as a result of efficiencies and lower costs for materials, we expect to achieve a reduction in our overall well costs this year, enabling more wells to be drilled, completed and turned in line during 2024 to support Magnolia’s overall high-margin growth.

“Our disciplined approach toward allocating capital and highly efficient assets provides consistently high free cash flow generation. We continued to return a sizable amount of cash to our shareholders through our dividend and share repurchase program, amounting to approximately $130 million during the second quarter, including the repurchase of 4 million shares, or 2 percent of our total outstanding shares. Some of the cash on our balance sheet was used to close the recently announced bolt-on acquisition in Giddings which added approximately 27,000 net acres primarily in our development area. This asset has been fully integrated into our Giddings development area, and will be part of our activity program next year. Our Giddings development area, facilitated by learnings from our appraisal program and recent bolt-on acquisitions, now encompasses more than 200,000 net acres.”