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Magnolia Oil & Gas Corporation Announces Certain Second Quarter 2018 Results for Acquired Assets and Updated Full Year 2018 Guidance

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Magnolia Oil & Gas Corporation (including its subsidiaries, the
"Company" "Magnolia," "we," "us," or "our") (NYSE:MGY) (NYSE:MGY)
today announced certain financial and operating results for the second
quarter of 2018 for its Karnes County and Giddings Field assets (the
"Magnolia Assets") and updated guidance for 2018. The Company completed
its acquisition of the Magnolia Assets from affiliates of EnerVest, Ltd.
(including its affiliates, "EnerVest") on July 31, 2018.

Magnolia Assets – Second Quarter 2018 Highlights

  • Average combined production totaled 49.6 thousand barrels of oil
    equivalent per day ("MBoe/d") for the second quarter of 2018 (61% oil,
    77% liquids), an increase of 7 percent compared to first quarter of
    2018.
  • Combined1 operating revenue totaled $229.4 million for the
    second quarter of 2018, with oil revenues representing approximately
    84 percent of the total. Total revenues increased 14 percent compared
    to the first quarter of 2018.
  • The average realized oil price on a combined basis was $70.50 per
    barrel in the second quarter of 2018, compared to an average realized
    price of $65.08 per barrel in the first quarter of 2018. The second
    quarter realized oil price represented a $2.61 per barrel premium to
    the NYMEX WTI price, which averaged $67.89 per barrel during the
    quarter.
  • Combined revenues less direct operating expenses after estimated G&A
    expense2 was $178.9 million during the second quarter of
    2018.
  • Total capital expenditures incurred during the second quarter of 2018,
    excluding leasehold and acquisition costs, were $90.8 million (51% of
    revenues less direct operating expenses after estimated G&A expense).

Magnolia Chairman and CEO, Steve Chazen, commented "We are pleased to
have achieved an important milestone with the closing of the acquisition
of the Magnolia Assets from EnerVest. Our business plan is on track and
we have already made significant progress by delivering better than 50
percent pretax margins and generating moderate volume growth while
spending within 60 percent of our anticipated cash flow. Our 2018
development program is ahead of plan as demonstrated by the better than
expected production results during the first half of the year. We expect
the business to continue to generate significant cash flow after
capital, and we are on track to exceed our previously announced
financial and operating objectives for the year.

"Looking ahead to the third quarter, we expect to bring on line multiple
wells in both Karnes and Giddings that should further highlight our
strong presence in these areas. We are also evaluating a few
small-to-medium size bolt-on acquisition opportunities that fit our
business plan and have similar financial and operating characteristics
to Magnolia's existing assets."

Operational Update

As part of its 2018 development plan, a drilling rig was added in Karnes
County during May of the second quarter. The Company is currently
operating three drilling rigs across its acreage with two rigs in Karnes
County and one rig in the Giddings Field. The Company expects to
continue to utilize one completion crew through 2018. The drilling
program is designed to provide flexibility to opportunistically adjust
activity between Karnes County and Giddings Field and to maximize
development and completion efficiencies. The Company expects to add a
second rig in the Giddings Field in 2019 to further appraise the
opportunities within its sizable acreage position.

The Karnes County assets produced an average of 39.6 MBoe/d in the
second quarter of 2018, representing a production increase of 9 percent
over the first quarter of 2018, while production from the Giddings Field
assets averaged 10.0 MBoe/d. The completion crew recently shifted from
Karnes to Giddings and we expect production from these completed wells
to be reflected in results for the second half of 2018.

Updated Guidance

We are increasing our production guidance for 2018 based on a
combination of better than expected first half results due to continued
strong well performance and an updated forecast for the second half of
2018. We now expect our full year 2018 production to average
approximately 50 MBoe/d compared to our previous outlook of 45.6 MBoe/d.
We anticipate that the number of net wells drilled will increase
compared to our previous outlook resulting from an increase in
non-operated activity and an increase in efficiency in our Karnes
drilling program. We expect the production related to this activity to
be evident later this year and into 2019. While actual capital
expenditure levels will depend on third-party spending, we continue to
expect that our total capital will be in the range of 50 to 55 percent
of our full year 2018 EBITDA, and in line with our earlier guidance.
Every $1 per barrel change in oil price impacts our operating cash flows
by approximately $11 million on an annualized basis. The table below
summarizes the revised guidance for calendar year 2018 and provides a
comparison to the previously disclosed guidance for the year. On July
31, 2018 and at the close of the transaction, Magnolia had approximately
$400 million of debt from the senior notes offering, approximately $100
million of cash on the balance sheet, and an undrawn revolving credit
facility of $550 million resulting in approximately $650 million of
total liquidity. Magnolia's senior management is scheduled to
participate in the Barclays Energy Conference on September 5th
in New York.

 

Prior Guidance3

  Actual   Revised Guidance
Full year 2018E 1H 2018 Full year 2018E
Net Daily Production (MBoe/d) 45.6 48.0 50.0
 

Shares Outstanding

Below is a table showing our equity capitalization after giving effect
to the closing of the EnerVest business combination and all related
financings.

  Number of Shares
(in millions)
Public Stockholders and External PIPE Investors

98.0

EnerVest Class A and Class B Common Stock 115.7
Sponsor and Directors 18.8
Total Shares Outstanding at 7/31 232.5

Earnout Shares4

4.5

Warrants5

2.5
Estimated fully diluted shares outstanding for 3Q18 239.5
 

About Magnolia

Magnolia (MGY) is a publicly traded oil and gas exploration and
production company with South Texas operations in the core of the Eagle
Ford. Magnolia will focus on generating value for shareholders through
steady production growth and free cash flow. For more information, visit www.magnoliaoilgas.com.

Forward-Looking Statements

The information in this press release includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements, other than statements of present or
historical fact included in this press release, regarding Magnolia's
strategy, future operations, financial position, estimated revenues, and
losses, projected costs, prospects, plans and objectives of management
are forward looking statements. When used in this press release, the
words "could," "should," "will," "may," "believe," "anticipate,"
"intend," "estimate," "expect," "project," the negative of such terms
and other similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such
identifying words. These forward-looking statements are based on
management's current expectations and assumptions about future events
and are based on currently available information as to the outcome and
timing of future events. Except as otherwise required by applicable law,
Magnolia disclaims any duty to update any forward-looking statements,
all of which are expressly qualified by the statements in this section,
to reflect events or circumstances after the date of this press release.
Magnolia cautions you that these forward-looking statements are subject
to all of the risks and uncertainties, most of which are difficult to
predict and many of which are beyond the control of Magnolia, incident
to the development, production, gathering and sale of oil, natural gas
and natural gas liquids. In addition, Magnolia cautions you that the
forward-looking statements contained in this press release are subject
to the following factors: (i) the outcome of any legal proceedings that
may be instituted against Magnolia; (ii) Magnolia's ability to realize
the anticipated benefits of its business combination, which may be
affected by, among other things, competition and the ability of Magnolia
to grow and manage growth profitably; (iii) changes in applicable laws
or regulations; and (iv) the possibility that Magnolia may be adversely
affected by other economic, business, and/or competitive factors. Should
one or more of the risks or uncertainties described in this press
release occur, or should underlying assumptions prove incorrect, actual
results and plans could different materially from those expressed in any
forward-looking statements. Additional information concerning these and
other factors that may impact the operations and projections discussed
herein can be found in Magnolia's periodic filings with the SEC,
including its Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 and the Definitive Proxy Statement that Magnolia filed
on July 2, 2018. Magnolia's SEC filings are available publicly on the
SEC's website at www.sec.gov.

 
Magnolia Oil & Gas
Selected Operating Results
 

  Three Months Ended March 31, 2018   Three Months Ended June 30, 2018  

Six Months Ended
June 30, 2018

Karnes
Assets

 

Giddings
Assets

 

Combined
Magnolia
Assets

Karnes
Assets

 

Giddings
Assets

 

Combined
Magnolia
Assets

Combined
Magnolia
Assets

Net Production:
Oil (MBbls) 2,362 263 2,625 2,496 236 2,732 5,357
Natural Gas (MMcf) 2,888 2,497 5,385 3,554 2,591 6,145 11,530
NGL (MBbls) 420 238 658 517 242 759 1,417
Total Oil Equivalent (MBoe) 3,263 917 4,180 3,605 910 4,515 8,696
 
Average Daily Net Production Volumes:
Oil (Bbls/d) 26,244 2,922 29,166 27,428 2,593 30,022 29,597
Natural Gas (Mcf/d) 32,089 27,744 59,833 39,055 28,473 67,527 63,702
NGL (Bbls/d) 4,667 2,644 7,311 5,681 2,659 8,341 7,829
Total Oil Equivalent (Boe/d) 36,256 10,188 46,450 39,615 10,000 49,615 48,044
 
 

Three Months Ended
March 31, 2018

 

Three Months Ended
June 30, 2018

 

Six Months Ended
June 30, 2018

Combined
Magnolia Assets

Combined
Magnolia Assets

Combined
Magnolia Assets

Operating Revenue ($ in thousands):
Oil Sales 170,829 192,609 363,438
Natural Gas Sales 15,327 16,772 32,099
NGL Sales 15,823 20,017 35,840
Total Operating Revenue 201,979 229,398 431,377
 
Average Sales Prices ($ / Unit):
Oil (per Bbl) 65.08 70.50 67.84
Natural Gas (per Mcf) 2.85 2.73 2.78
NGL (per Bbl) 24.05 26.37 25.29
Total (per Boe) 48.32 50.81 49.61
 
Index oil price ($/Bbl) 62.87 67.89 65.44
Index gas price ($/Mmcf) 2.80 2.84 2.82
 
Realization to Index Prices:
Oil (per Bbl) 104% 104% 104%
Natural Gas (per Mcf) 102% 96% 99%
 
Operating Expenses ($ in thousands):
Lease Operating Expenses 16,726 19,478 36,204
Severance and Ad Valorem Taxes 10,574 14,230 24,804
Gathering, Transportation & Marketing 4,737 6,174 10,911
Total Operating Expenses 32,037 39,882 71,919
 
Expenses per Boe ($ / Boe):
Lease Operating Expenses 4.00 4.31 4.16
Severance and Ad Valorem Taxes 2.53 3.15 2.85
Marketing, Gathering & Transportation 1.13 1.37 1.25
Total Operating Expenses per Boe 7.66 8.83 8.26
 
Capital Expenditures ($ in thousands):
Leasehold Acquisition 1,414 802 2,216
Drilling, Completion and Facilities 82,249 90,830 173,079
 
 

Three Months Ended
March 31, 2018

 

Three Months Ended
June 30, 2018

 

Six Months Ended
June 30, 2018

($ in thousands)

 

Combined Operating Revenue 201,979 229,398 431,377
Combined Direct Operating Expense 32,037 39,882 71,919

Estimated General and Administrative Expense6

10,600 10,600 21,200
Combined Revenues less Direct Operating Expenses after estimated
General and Administrative Expense
159,342 178,916 338,258
 
1 Combined financial and operating information is based on unaudited
condensed combined financial statements for the Karnes County assets
and unaudited statements of revenues and direct operating expenses
for the Giddings Field assets.
2 Includes a $10.6 million estimated general and administrative (G&A)
expense for each quarter, representing the previously announced
estimate of quarterly G&A expense following the completion of the
business combination and build out of Magnolia's management team and
overhead structure and excluding any extraordinary items.
3 Initial guidance provided March 20, 2018.
4 Includes 4.5 million shares of common stock that we expect to issue
to EnerVest in the third quarter of 2018 in connection with the
satisfaction of the first earnout threshold pursuant to the Karnes
County Contribution Agreement, based on achieving a stock price of
greater than or equal to $12.50 for at least 10 out of any 20
consecutive trading day period prior to December 31, 2020.
5 The 31,666,666 outstanding warrants are exercisable for one share of
Class A Common Stock at a strike price of $11.50 per share. This
table assumes all warrants are exercised and that we use all
proceeds from such exercise to purchase public shares of Class A
Common Stock utilizing the treasury stock method at a purchase price
of $12.50 per share, which was the closing price on August 13, 2018.
6 10.6 million estimated general and administrative (G&A) expense
represents the previously announced estimate of quarterly G&A
expense following the completion of the business combination and
build out of Magnolia's management team and overhead structure and
excludes any extraordinary items.

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