Magnolia Oil & Gas (MGY) 4 May 232023 Q1 Earnings call transcript

Good day, and welcome to the Magnolia Oil & Gas First Quarter 2023 Conference Call. [Operator Instructions] Please note that this event is being recorded. I’d like to turn the conference over to Mr. Jim Johnson. Please go ahead.

morning, good and you, everyone. Thank Oil Welcome Conference First Earnings Gas’ to Magnolia Call. Quarter & the Chris Vice Participating and today call on are Officer; Financial Brian Chief Chief Stavros, and Corales, and Senior President Officer. Executive President Magnolia’s

in to a expressed and and forward-looking statements. projections cause uncertainties these the securities that statements contains are or statements results of other laws. meaning may today’s These call differ the subject As those reminder, federal certain implied materially conference from within to actual risks

Additional the on cause SEC. available filed information that to results could the on risk company’s factors differ is with Form in report annual XX-K

A full the the of presentation safe X with can harbor supplemental data on website. Slide call our slide found conference on be

as Investors conference slides You can download of Magnolia’s section first at release as from call well quarter www.magnoliaoilgas.com. the company’s press XXXX website the the earnings

the Mr. I over will Stavros. call now turn to Chris

joining of are review year. provide we our and rest spending this Brian impact guidance before more of address I Thank additional around appreciate talk We that you, for you some latest and questions. our the financial we the for will your some XXXX capital about will then results quarter our outlook results. and today actions first good quarter how quarter, where discussion in stand morning, and taking will comments about first currently us some the a brief make everyone. our detail take we

Giddings Karnes growth strong and Giddings XX% results activity provided performance quarter areas. solid Our first at first last the operating year’s of supported to delivered a and production efficiencies quarter. versus ongoing well year, start in both the by Steady

to have Giddings our costs. the in realized efficiencies higher assets partly helped mitigate D&C Additional

achieve cash annual moderate sheet oilfield remained our and pre-tax share Magnolia’s million production prices generating continuously cash despite as a targeting margins while spending, with higher free as capital We of toward Since and goals balance reliable the debt. oil margins with metrics operating well operating a our service levels to consistent of low flow generated focus quarter high more improving costs gas growth approach has strong caused by inflation. weaker disciplined inception, these than during with $XX while includes strive maintaining lower We and associated sustaining per free flow.

Oil product The prices materials services and and costs moved since have and materials XXXX, prices operating lower combination our to decline current last reflect while This year. sharp for structure compared has gas elevated. year cost overall as oilfield the service last and does significantly in returns. weakened remained margins into oilfield late not

proactively Beginning So how environment. operated with our F&D have while our service we have the we current defer our costs our capital this? first growth, our quarter, Instead would spending planning of taken which to capital to of we responded achieve higher better to further reduce and top providers dilute more reflect worked only our and drive actions to costs the higher modest align margins, in amount prudent allocating a material activity. to to suppliers

prices. reduction this aligned improved with growth full the of from focuses material X% least expect year amounts new the of range better year’s a flow of should in capital higher while be the our currently and XXXX full achieving free $XXX measures Magnolia? D&C to service we XXXX to We guidance. on do be in expect $XXX XX% lower impact represents XXXX returns during oil spending, provide least of production is at expected greater until operating in costs This which cash free gas year than and how original So capital reduction to XX% our a which million, for These total in million to are to and X% and spending, us generating cash level year. range at our flexibility deliver with result capital this greater flow

As our were I capital immediately decisions to our with cost and This XX% began million, mentioned, which the first more The EBITDAX, expected later environment discussions become quarter lower our capital to model, achieving our reflected activity also actions levels. is to costs. which modest guidance The our growth. for flexibility, about part includes and should our $XXX proactive of quarter consistent approximately the for on during outcome overall our the plan quarter service of and first reduce year. capital production with is aligned our suppliers annual second providers and mid-single-digit approximately our spending evident impact be adjustments of XX% business on this limiting the than operational and allows is with is commodity along D&C

I want our current working the and adapting to preserve collaboratively environment capital and solutions praise in to to maximize efficiencies. teams for creatively find our to

drill relationships us appraisal modest around of plan while the operated efficiencies our will the strong development help cooperatively to rig to momentum wells the of drill with maintain with costs, operating continue Giddings. Karnes and our to partners at a activity, us through steady valued which amount reduce wells we Our hard rigs have both without worked to remainder Despite of a some year. we including drilling work teams the X One achieve. we other the at Giddings, losing of build continue deferral allows that pace operating in will Giddings whom activity to

maximize of and pads gain cash proportion this per two-third well continue completion Giddings with area. options provide currently growth our Magnolia’s is Most recent year efficiencies and come represents per efficiencies will is our larger flow. new stages allocated company Giddings capital over from total to We free further of approximately producing day. this These XX,XXX for to several as the our records Giddings to at company establishing us asset a BOE day flexibility production. of

X% on through of the while cycle increasing company in our per create our capacity. the Our to pursuing actions the payout of dividend return differentiated share value value focuses disciplined around program, allocation capital us This to increase which ideally approach supporting positions we balanced capital each accretive growth providing production quarter reinforce These oil purchasing XX% annual by acquisitions. of activities of growth time. production underpinned our bolt-on small least shares property at is targeting are proposition investment and pursuing and over gas outstanding annual moderate our strategy

I’ll now turn Brian. the call over to

additional and over website. I for from will remainder review our found and Thanks, morning, also and Chris, the questions. guidance XXXX year slides of quarter turning good provide first the for everyone. some refer before the the second on our quarter it presentation to of I’ll some items

demonstrated Magnolia financial and quarter business results strong as Slide Beginning first with despite X. by our our continued execute to commodity operating prices. softer on model

with on detailed, our the Chris We creating our margins As with shareholders towards environment per actions prudent align goal product for our capital free is long-term objective spending the believe generate steps share be the the price current for outlined company. value can to eye returns. better help and cash more an enhance operating to today to which to value of the that flow, Magnolia by and achieve taking focusing used

we $XXX quarter, million. generated first the net income GAAP of During

well, share. was net $XXX per associated impairment the non-cash income our or diluted Excluding Louisiana for million $X.XX quarter our adjusted the total with

and associated adjusted with completions for capital $XXX Our $XXX EBITDAX approximately with quarter the million. facilities total of associated drilling, was million,

of equivalent fourth the First sequential X% oil per growth quarter day quarter from XXXX. and production volumes XX,XXX to grew of barrels XX% year-over-year

shares X.X diluted quarter, we by During repurchased the share first year-over-year. X% our million fell and count

working Looking quarterly was cash before impacting at changes million small $XXX operations the started flow chart Slide from $XXX other on items capital the $XX flow quarter we in changes of cash Cash with with X, capital million, million. working by first cash. and

the and same of million. that we approximately repurchases at the with million During level we paid We started. and million $XX $XX the toward ended quarter $XXX quarter, allocated share dividends

X. fully currently average since program in million total Slide shares at have or chart current under repurchasing XXXX. million count share open first which Looking weighted diluted million remaining the by market. in X.X XXX.X the of the our have by shares shares approximately of million in repurchase diluted the count illustrates quarter. towards half Magnolia’s directed repurchase specifically declined the Since during progress Class reduced We we that sequentially second XX%. shares are averaging authorization, X.X we shares our A began This XX.X share outstanding time, our total reduction our

Turning X. to Slide

announced has grown dividend Our this year a years, increase $X.XXX including earlier over to quarterly per substantially share on XX% a the past few basis.

Our $X.XX and rate next quarterly X provides on June an dividend payable payout is per dividend annualized share. of

Magnolia’s XX% per an moderate is growth plan of the part proposition by quarter. growth annualized important outstanding of least achieving shares for overall by at and our strategy reducing at and annual supported investment Our production of X% least dividend

of position ended strong balance a Magnolia quarter has net the sheet, million. benefit with the a cash we and of $XXX

until Our ending do and is notes, revolving $X.X $XXX our our XXXX. first total Including our $XXX credit million than cash million quarter our billion. $XXX senior more in debt mature facility, of million which balance is undrawn gross liquidity reflected of not

condensed sheet Slides X. Our and as X and are shown March balance of liquidity XX on

per first our margins, costs, X taxes, quarter $XX.XX expense, cash our the cost income at and a operating offset per total Slide to of in operating looking Turning BOE year-over-year higher That’s primarily to GP&T exploration production due year-ago decrease levels. and was partially of $X.XX compared lower decrease XXXX. by to LOE. cash unit per BOE adjusted including and The were lower G&A, lower

to compared well year of material Our is labor per higher last to costs. resulting directly increased XX% and and rising roughly costs DD&A $X.XX from related oilfield service, rate BOE

margin was decrease is BOE commodity impairment, year-over-year of by adjusted the our in our Excluding decrease driven non-cash prices. operating XX% our quarter pre-tax or first $XX.XX revenue. the operating per our margins The total primarily in for income

rigs for multi-well continue currently for pads the asset. of and rig One activity to of the end of the development second in and operating our will X remainder drill continue XXXX, to through Giddings we to guidance the are year. level plan quarter this Turning

drill Karnes areas, in Giddings. in will second Giddings and a wells including wells appraisal mix both some of The

of As The million, Chris which represents this to at a from year we’d we forward. increased expected reduction XXXX the reduction of total capital in of Magnolia D&C with capital Giddings. cost a modest mix million production X% original reduction reduced activity. guidance. deliver going our mentioned, of X% growth The and to from development both of savings for to a in decrease program to the is to expect free expect be level flow range $XXX most full from XXXX generate come our for flexibility provide between to cash growth with At and comes XX% least at $XXX our expected to our us more spending,

most year For effective XX%, we the to with tax of approximately this XXXX, be deferred. our expect rate full being

X% to tax approximately rate expected for be is Our XXXX. cash

day with quarter to the volumes be be volumes total XX,XXX the of to quarter. of anticipated at per to production overall compared expect weighted Looking first second XXXX, equivalent gas approximately barrels more we

Our to differentials D&C capital to Oil discount which was is are sequential per $X to estimated $XXX a million, anticipated price approximately barrel be be MEH. decrease. XX% approximately

Our share which quarter for fully diluted second year-ago below be is estimated approximately to count is X% million shares, levels. XXX the

take questions. ready your We to now are

First you. go from question Neal Thank of [Operator Instructions] will Please Dingmann ahead. Truist. be

thanks market CapEx morning, changed overall the change have good been capital the you and I commodity how now My the company. among latest appreciate for you Hi, of time. the balance is, to thoughts down? always on disciplined as Chris, has definitely your break uses the have question continue most cash guys

– situation certainly these clear, than with be year. we’re from sort in of proactive more concessions going into reasons, of address it’s get from costs. pricing that about just we as out it actions Neal. to doing I’ll this, the to our just Thanks, and last and our this rather and my costs It take get relative really do the the prices early be aspect want a on and We late that really cash cash a movers talked – a the after to on towards first angle, capital. reasons kilter suppliers. from movers. vendors address I I screen to to remarks, today where Again, to I’ll that were choosing a year, approach Yes. then bit seeing guess little capital you’re is we’re try said The price on

capitalizing And along And and here do don’t think so outcome. improvements. reserves we’re a we’re last what basically any try our capture But of costs. to doing higher just year’s we on at mosey to continue good that’s I can and not sort

than – we start I going savings going to things the coming more I would even savings to we’re more the lean prices, on from on that probably thinking. the down coming see will you, and materials are at services capital already tell these benefit these because are

could production a keep the on mind, bit. in to. we we just we that But On wanted faster growth, if growth, the grow adjusted little

to, retain perspective the importance program more that simply choosing to and the from words, the capital other a cost into just of not option. We’re we In fit with for time. reducing activity allows

but I at as become more think better, balanced, what of the current this things level is be is So growth the could outcome costs. the

during the – the some winnings period cash, squander accumulated winnings to peak were a we’re Certainly, On of of cycles. the the not cash period, the winnings. looking

we’ll continue the So which get quarter of or peers, could on Certainly, with using doesn’t as in growth, model that. of run of perform perform share whack as mid-single-digit line of the stock again the what the with if think we a more outstanding. doesn’t on this repurchases call or approach, sort the would line calls in business of lean perform to we for X% I order balanced well in or out per model sort things

do of and the the to base model we to a ability pay just year grow as about, strategy. dividend, will have XX% the We our to continue outcome And that. we talked on based which expect

asked I it. address may M&A well sort as somebody market, figured The who of

So that I volatility assets there that. approach game with I expect do you’re that, look assets, to ground We’ll more large model have be command singles focus natural that right from all And inclined, not very lesser now. to and market or strategy opportunities. are looking I very opportunistic But to imagine, been you that. things the And and offer and pick see have see now. around gas Slams. things from the into opposed just just the wouldn’t it’s as are I there’s an just certainly around yanked there’s uncertainty inclined prices, going think But I it’s some can around Grand I interested product we in that that like to on think of soft assets much like here up this as things might Giddings. up around fit business that we can sellers that lesser type something we with more or single what anticipate getting. us and think they’re continue the some there’s been as right doubles and disciplined just and to things said, don’t And that improving

balance. that’s we’re because few it. are We in a don’t We things happy to – they So, use than want want squander challenging cash the months just with it to way were a ago. now good more

Are of getting have, around of or these sort you’re today? I Yes. able and how idea in what assets mean, an big, just follow-up of color you maybe methodical a really just with area Karnes each prospective have I sit optionality. on locations. top locations guys to still tier have you big glad like I been And obviously I’m believe need the then is that. my you details, give exact on of you you don’t broader number to your maybe seeing

we’re on X-year tell after talked this Yes. still And And an years would as interesting year, I mean of It’s years I a we up question. X years planning about about you, process are incorporates especially we Magnolia’s activity. the that years ago, X anniversary sort X we here activity. of X fact. of come talking

to to of lots things have lots We of busy, keep on. work things us

this inventory I so whatnot. or And any issue see don’t as around

a two keep rigs So we’ll while. busy able to be our for sort of

Thank you so much.

the of next ahead, will go Sachs. Choudhary question be And you. Goldman Thank sir. Umang from Please

you updated to things thank question Can was my guidance. benefit first give color and understand ongoing pieces you deflation – you And moving mean, a and cost are from of service and questions. I many also highlighted My any help lot completions, efficiencies. morning, for good you you plans that Like can your defer a the plans unpack taking us trend, on to Hi, from Giddings many year? that modeling the of this how points defer? cost these completions how on cadence trying perspective? to planning production us wells

of mean known some I down materials, material tubular fluids, certainly sand, goods, seeing side, a on steel, services lot we’re our completion Yes. OCTG, costs our most pumping. of but as the material granular pressure on materials, valves, for come well, side, the otherwise

So everything is coming down.

certainly it continuing things Some bit second next more lines labor-related And LOE. the expenses, tap a the costs, to our over field others, time. up may be mention some items, us this items. for little anticipate to go would to stickier declines address half some thing for lifting year. them service-related than in and I environment, of But better after is on Not see the

belief in year, my some make to that the too. there we’ll back is so And the progress able of half be

would So I see how it. that’s of sort

it few In amounts terms of to the a just wells, wells.

deferred You’re just looking some completions, it. at that’s about

it completions, deferred QX would way a the on better the in imply gas in at of look contango more Because back it there is half and this the the pronounced probably bit if this curve, in And you is little year? more QX? pricing a weakness

out No, around time you’re say look, it’s I of I I come the bit be to the about average, of in million a $XXX might – through bit might per the the capital bump lumpiness, but XQ, a capital million that we’re for rest year. spread about quarter. little down for hard a looking it bit lower at of year. year, little little that you on sort that XQ be a again probably up mean, tell might smart wouldn’t would we’re There XQ, quarter but of on in of lumpy, in say, really there’s average, be remainder could it $XXX the of that it. that

helpful. you. Very Thank

Geoff be the Daniel go Energy of And question from Jay ahead. will you. next Partners. Please Thank

So, If dead longer. can hey, little service just I beat a guys. the horse

was held have How if of, to you service on a year? do down would of remainder of Just of the out come need you and costs of far order you kind the you back six the to sort I – if right, the this handle and beginning here curious next at think year kind to the for year. planned you next activity script of get in rate guess, for

XXXX. the some into stated we clawing mean, I Geoff, now, back Well, haven’t right we’re – going all of increases still is

saw And XXXX. so up this still is that you ramp not some in the of of reflective

look, in – view you’re here. things sort And XX% wind bit is I’m a so better path aligned. and may probably little But the be XX%, of to my down get in order finger that the another

makes hey, It’s calculus, of started it. we year. say, make that interesting some always to point at think right, last obviously, sense. guys service I money Got would Probably an sort the because just

to trying the where right figure So out was? you balance thought

we with situation Well, consistency providers a vendors that’s we you stall continue time your out. going, and to is they where the and steadiness than we’ve do so themselves to your collaboratively creating work here rather and the drop that, realize if trying say, relative of with work you sort want through and can drop folks or to activity we’re going and tried look, that have why keep and to activity it service all crews

color. Well, guys. that’s it. Thanks, I great Cool. appreciate

Thanks, Geoff.

Thank from ahead. go [Operator Paul next This Instructions] of Please will time Diamond you. Citi. question be

about or take given to – wanted as dislocated I taking that or my your see Hi, call. base of just had the we progressing of kind you all. we kind see the spoken volatility get touch I for how just year in pricing to some well. pricing? through Thanks dislocating current on I quickly. good wanted know morning realizations

we if that. think still continue plus Hey, $X little in we’ve price Yes. use. a a number but to general, guided off several around $X the oil mean look or There is MEH at minus for Paul, good volatility, years, I that’s long-term and to we

Channel Channel. of some wider Magnolia, lot our just to compared has as sell been we’ve especially Ship seen seen, gas gas volatility, outage, you there’s at but Now Hub. not Henry spreads And Ship a we know, Freeport most with that more just

largest stubbornly for so I but Oil, contributors. narrowed, $X And months. of think, be will off it was mean consistent, relatively about but roughly those wide I several the I think are Channel, it that Ship MEH, has

the Thank Understood. kind wells appraisal one follow-up, you. some just just up talking about of of And Giddings. in quick

on guys or there’s that to there, was if been in Just have if that know cadence a sort wanted there you we any change – of trend seen? update

I timing. things in Not mentioned, really. said, I more results. of would around of of but quite tweaking, And on completion pace characterize doing, we’re trying I efficiencies just Giddings optimize I bit to activity terms a way mean deferrals, some as what in as just we’re like little the really more, still seeing a bit,

Understood. Thanks for the clarity.

concludes has Thank conference question-and-answer session. you. concluded. That our The now

you for attending. You may now disconnect. Thank