Magnolia Oil & Gas Corp (MGY) Earnings & Analysis

Latest quarter

Magnolia reported second-quarter revenue of $478.8 million, above the consensus estimate of $440.1 million. Adjusted earnings per share of $0.99 also exceeded the consensus of $0.90. Revenue rose from $319.0 million a year earlier, while diluted earnings per share increased to $0.97 from $0.41.

The filing shows that oil revenue increased by $147.4 million year over year: higher average prices accounted for $130.8 million of the increase, and higher production contributed $16.6 million. Natural gas revenue fell by $3.2 million as lower prices more than offset increased production. Natural gas liquids revenue rose by $15.6 million, supported by higher prices and production.

Magnolia’s operating margin rose to 50.0% from 33.8%, while free cash flow increased to $256.7 million from $92.0 million. The filing also reported higher lease operating expenses, principally due to workover activity and surface repair, maintenance and compression associated with a higher well count.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the second-quarter call, CEO Christopher Stavros attributed the quarter’s financial results to production growth and higher year-over-year oil and natural gas liquids prices. He said total production rose 8% to 106 thousand barrels of oil equivalent per day, above earlier guidance, while oil production increased 5% to 41.9 thousand barrels per day.

Stavros identified Giddings as the primary growth driver: production there rose 10% year over year to 85.5 thousand barrels of oil equivalent per day. CFO Brian Corales said revenue per barrel of oil equivalent rose approximately 39% year over year because of oil prices. He put adjusted operating income margin at $25.15 per BOE, or 51% of revenue, and second-quarter drilling, completion and associated facilities capital at $125 million.

Stavros discussed the agreement to acquire Wildfire Energy for approximately $4.06 billion. He said the transaction would add acreage and production in Giddings, and that Magnolia had issued shares and senior notes to help fund it. On the call, he expected the acquisition to close late in the third quarter and said the company would continue to limit drilling and completion spending to 55% of adjusted EBITDAX.

In questions, analysts asked about the benefits of an acquired sand mine. Stavros said Magnolia had sourced most of its sand requirements from the mine, but had not broken out specific savings; he put the aggregate synergy and cost-saving benefits at several million dollars. Asked about repayment after closing, he said reducing debt would be a priority and described the plan as “getting that leverage and debt balance down quickly and fairly ratably.”

Stavros also said Magnolia was open to resuming share repurchases after restrictions related to the transaction. Corales said the quarterly dividend had risen to $0.18 per share in connection with the Wildfire agreement.

Guidance

In its October release, Magnolia estimated third-quarter production at 116 to 118 Mboe/d after factoring in the Wildfire closing and divested properties. On the second-quarter call, Corales had estimated standalone production at approximately 106 thousand barrels of oil equivalent a day.

The October release put third-quarter drilling and completion spending at $155 to $165 million; Corales had previously estimated standalone spending of approximately $115 million. On the call, Magnolia also raised its standalone full-year production growth outlook to 6% from 5%.