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Magnolia Oil & Gas Second Quarter 2021 Results

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Magnolia Oil & Gas Corp. announced its financial and operational results for the second quarter of 2021.

Q2 2021 Highlights:

• Magnolia reported second quarter 2021 net income attributable to Class A Common Stock of $84.4 million, or $0.48 per diluted share. Second quarter 2021 total net income was $116.2 million and adjusted net income was $135.0 million, or $0.56 per diluted share. The adjustments to net income primarily reflect the positive impact of one-time cash and non-cash items associated with the termination of the Services Agreement with EnerVest Operating L.L.C.
• Adjusted EBITDAX for the second quarter of 2021 was $195.1 million a 29% sequential quarterly increase driven by both higher overall production and stronger product prices. Total capital allocated to drilling and completions ("D&C") during the second quarter was $53.8 million, or 28% of adjusted EBITDAX.

• Net cash provided by operating activities was $187.9 million during the second quarter and the Company generated free cash flow⁽¹⁾ of $134.0 million.

• During the second quarter of 2021, Magnolia generated operating income as a percent of total revenue of 52%.

• Total production in the second quarter of 2021 increased 4% sequentially to 64.9 thousand barrels of oil equivalent per day ("Mboe/d"). Oil production increased 11% sequentially to 31.9 thousand barrels per day ("MBbls/d"), with both our Karnes and Giddings assets contributing to the increase. Total production in Giddings increased by 55% compared to last year's second quarter.

• Magnolia spent $120.7 million reducing its diluted shares during the second quarter of 2021. As a result, the fully diluted share count is expected to decline to 237 million shares in the third quarter of 2021. During the first half of 2021, Magnolia has reduced its fully diluted share count by 17.6 million shares or 7% compared to the fourth quarter 2020 levels. Magnolia ended the second quarter with 10.5 million Class A Common shares remaining under the current share repurchase authorization.

• Magnolia had $190.3 million of cash on its balance sheet at the end of the second quarter and remains undrawn on its $450.0 million revolving credit facility. The Company has no debt maturities until 2026 and has no plans to increase its debt levels.

• Magnolia declared its first partial semi-annual dividend of $0.08 per share payable on September 1, 2021.

Chairman, President and CEO Steve Chazen commented: "We continue to consistently execute on our business plan as demonstrated by the strength of our second quarter operating and financial performance. The business has fundamentally improved resulting from the strong productivity and efficiencies in our Giddings asset. The quality of our assets and a business unencumbered by large debt allows for moderate production growth, with high operating margins while generating significant free cash flow at much lower product prices. We now believe this can be achieved by spending within 55 percent of our adjusted EBITDAX. Another of our important corporate objectives was to generate EBIT equal to 50 percent or more of our realized price per boe. Our ability to attain this goal in the second quarter is a direct result of our team's focus on cost control, safety, and well productivity and I am especially pleased with this achievement.

"Our disciplined capital investment provided 4 percent sequential organic volume growth in the second quarter, with most of our free cash flow allocated toward repurchasing our shares. During the first half of 2021, we spent more than $200 million in reducing our share count by 17.6 million shares or about 7 percent of the total shares outstanding. This approach toward allocating our capital and free cash has provided volume growth of 7 percent compared to fourth quarter 2020 levels while enhancing our per share metrics and leaving our cash position unchanged during that period. We plan to continue to repurchase at least 1 percent of our shares each quarter.

"I am pleased to declare our first partial semi-annual dividend which conveys continued confidence in our business plan and the quality of our assets. Our differentiated dividend framework is aligned with the principles of our business model and this first interim dividend payment is secure and sustainable at oil prices below $40 a barrel. We plan to declare the remaining annual dividend payment next February with the release of our full-year 2021 financial results. The second payment will be based on our longer-term view of product prices, or approximately $55 oil, and the prior year's results. We expect that these regular dividend payments should grow annually based on our ability to execute our business plan which includes moderate production growth and the reduction of our outstanding shares."

Operational Update

Second quarter total company production averaged 64.9 Mboe/d, representing 4 percent sequential growth from first quarter levels, and despite spending only 28 percent of our adjusted EBITDAX on drilling and completing wells. Oil production averaged 31.9 MBbl/d, an 11 percent sequential increase. Giddings and Other production grew 5 percent sequentially averaging 36.2 Mboe/d during the most recent quarter, or a year-over-year increase of 55 percent. Production in the Karnes area averaged 28.7 Mboe/d during the second quarter of 2021, a sequential increase of 4 percent, and driven by the completion of several DUCs.

We added a second drilling rig at the end of the second quarter which is currently drilling wells in the Giddings field. We plan to use this rig to drill wells in both the Karnes and Giddings areas, including some appraisal wells in Giddings. The other rig will continue to drill multi-well pads in our Giddings area. Recent Giddings wells have averaged approximately $6 million with continued efficiencies offsetting the modest inflation experienced in the field. The results of recent wells drilled as part of our early-stage Giddings development continue to be representative of the strong outcome we previously disclosed as part of this program.

Guidance

Concurrent with the addition of the second drilling rig, we expect our capital spending for drilling and completing wells to be in the range of approximately $150 to $175 million for the back half of the year. We expect that most of the impact to production generated from the second rig to be realized in the latter part of this year with the full benefit reflected in 2022.

Looking at the third quarter of 2021, total production is estimated to be around 67 Mboe/d, representing a 3 percent increase from second quarter levels. A portion of our capital and activity will be directed toward drilling and completing some gassier wells in both Karnes and Giddings and in order to benefit from the recent strength in natural gas prices. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston ("MEH") during the third quarter. The fully diluted share count for the third quarter of 2021 is expected to be approximately 237 million shares which is 7 percent lower than fourth quarter 2020 levels.

The EnerVest operating and other agreements were terminated at the end of the second quarter, resulting in several one-time cash and non-cash charges. As a result of the conclusion of the operating services agreement, the run rate for our cash G&A costs is expected to be approximately $2.00 per boe beginning in the third quarter, compared to $2.60 per boe⁽³⁾ during full-year 2020. In addition, EnerVest had 1.6 million time-vested contingent shares remaining from the time of Magnolia's formation, that were settled by the Company for cash during the quarter, thereby reducing the fully diluted share count.