Magnolia Oil & Gas Corporation Q3 FY2025 earnings call

• Chris Stavros highlighted strong quarterly results, consistent execution, and the capital-efficient program, with year-to-date performance demonstrating ability to execute despite product price decline. Emphasized primary goals of being efficient operator, generating high returns, and using minimal capital. Mentioned Giddings well results outperforming expectations, deferring well completions for capital savings and operational flexibility. - Brian Corales reviewed third quarter results: adjusted net income of $78 million or $0.41 per diluted share, adjusted EBITDAX of $219 million, total capital for drilling, completions, etc., at $118 million (54% of adjusted EBITDAX), production volumes grew 11% year-over-year to 100,500 BOE/day, free cash flow of $134 million. Discussed share repurchases, dividend growth, strong balance sheet with $280 million cash at quarter end, and per unit cash costs/operating income margins.

During the third quarter, Magnolia achieved a record quarterly total production rate of 100,500 barrels of oil equivalent per day, representing year-over-year production growth of 11%. Adjusted EBITDAX for the third quarter was $219 million, with operating income margins at 31%. Free cash flow for the quarter was $134 million. Total revenue per BOE declined approximately 12% year-over-year due to oil price decline, partially offset by natural gas price increase.

• Fourth quarter D&C capital expenditures expected to be approximately $110 million, bringing total capital for the year to the midpoint of the reduced annual capital budget. - Reiterated full year 2025 total production growth outlook of approximately 10% (up from initial 5%-7%). - Fourth quarter total production estimated to be approximately 101,000 barrels equivalent per day, expected to be the highest level of the year. - Fully diluted share count for the fourth quarter of 2025 expected to be approximately 189 million shares. - Effective tax rate expected to be approximately 21%, with 0 cash taxes for full year 2025.

No specific detailed risks discussed in depth, but general risks associated with commodity price volatility, potential disruption to operational efficiencies, and uncertainties in the oil and gas market that could impact financial performance.

Q: Neal Dingmann asked about能否加速生产超过10%以及未来CapEx的可能，Christopher Stavros回应会坚守业务模型，不会因短期利益加速活动，会随时间实现增长，通过持续评估Giddings和Karnes等区域实现效率提升 A: Chris Stavros: Neil, thanks for the question. Good to have you back. Look, we can do largely anything we'd like to do, or we want to do within the context or framework that you mentioned. I think the point is, we want to stay true to the business model, and it is -- it works for us and it works for our shareholders in terms of maximizing the free cash flow that we have to give back to them. So rather than elevating activity levels, if you will, or rushing to get there, they will get there with time and over time. And as we continue to pursue new areas and probe around the vast acreage position that we have in Giddings and also parts of Karnes and appraise more of it and bring more of it into the fold, we will have more of the way in realized efficiencies. I'm very confident of that. We've seen it. There's a litany of things that I can tell you that the teams are working on that they currently see rather than -- I could spend 20 minutes on talking just about that, and we're going to talk more about it as a team. So that will happen as we go forward. There's no real reason to rush the activity levels or rush the production volumes or reach or stretch for higher levels that could get you into a situation where you're forced to spend that much more as your volumes sort of decline and get you on that sort of treadmill. So, we sort of live within the model, moderate mid-single-digit growth. If the assets exceed that, which oftentimes they have over the life of Magnolia, we've seen that better-than-expected performance, we'll take it. But we're not going to overstretch or overreach on the capital or activity just because we'll live within the model and we'll live within our governor of the capital. And I think in that way, everyone will be satisfied.

Q: Timothy Rezvan asked about Karnes appraisal activity, Christopher Stavros responded that Karnes rock is good and there may be more to be had, with appraisal work ongoing to test potential upside and extended life A: Christopher Stavros: Well, I wouldn't write Karnes off just yet. Certainly, good rock is good and tends to have a long life. So that is good rock and some of the best, they're in Karnes. We're continuing to look at that and see what else we can do, what iteration of it that we're on. And fortunately, I still think it's relatively early for us. So, there may be more to be had there, and we'll continue to probe around. I'm not going to say exactly what we're going to do, but -- or exactly what we're planning on doing, but there will be some things that we will test that may have some upside or provide some extended life, if you will, to Karnes. That would not surprise me in the least. The question is always, when you do these appraisal things, what do the economics look like? There's no unlikelihood that we're not going to find producing quantities of oil and gas. That's certain, for sure. The question is, can we do it economically and provide a good amount of duration around it. I think there's a reasonable chance around that. So, I'm not -- certainly not going to write it off. And again, I would say the same thing with Giddings, although Giddings is a lot bigger just in terms of its footprint, and we're quite active there, too, and we have some things planned as well. So, I think I'm optimistic.

Q: Carlos Escalante asked about appraisal program management in 2026 and natural gas realizations, Christopher Stavros responded that the appraisal program is beneficial, will continue with it as there's still room for activity, and natural gas realizations are influenced by many factors with no deterministic actions planned yet A: Christopher Stavros: Yes. Thanks for the question, Carlos. Look, the appraisal program has been quite beneficial to Magnolia in terms of our resource and capabilities over time and expanding the footprint in Giddings. So, I'd be somewhat reluctant to take a machete to that program and just cut it off too harshly. You need to do what you need to do and some mix of oil and gas prices. But in the current outlook or in the current sort of price dynamics that we're seeing, there is still room for a reasonable amount of that type of activity, and we'll continue with that. Look, I say this internally all the time, few ways to find resource and you decline every day, just like all our peers, you either buy it or you find it. And we continue to look for ways to supplement our existing resource and the appraisal program for us up to now has worked out exceptionally well. And -- particularly in Giddings, we've tested some new concepts. We've tested some of the boundaries. There's almost always really -- not almost, but really always going to be producible amounts, again, of oil and gas when we drill. The question is, can we make the economics of a particular area work well for us that fit into our matrix of returns and a competitive for other -- competitive for capital. So, we'll continue to do that. It's an important element of what we do, and we'll continue to examine different parts of it and try to high-grade the program, if you will.

Q: Charles Meade asked about A&D market view on Giddings and Eagle Ford trend, Christopher Stavros responded that Giddings is concentrated with few public company packages, bigger packages may hold out, smaller things more likely to move, and South Texas is generally gassier with waning quality and scattered opportunities A: Christopher Stavros: Yes. Well, let's start with Giddings. Giddings is, it's fairly -- in terms of the bigger packages or bigger concentrated assets, it's fairly concentrated. There's us and a large private player without naming names. And then there's probably a smattering scattered positions of a variety of private players. There are very few, if any, sizable or even smaller packages in Giddings that are operated by public companies, just to set that straight. In this environment, what may happen is that bigger packages may be sort of holdouts for live to fight another day or live to see a better day, if you will, on product prices, oil prices before considering a sale. And smaller things may be more reasonable as far as connectivity and alignment between a buyer and a seller because the seller may run out of patience or money or whatever. And those are small things, and they may just ultimately pop up somewhere else at the end of the day. So that smaller things may be more easy to move. I can't guarantee that, but certainly a better chance at that than a larger thing as prices come down because the bid and the ask just widen apart between the players. Broadly, in South Texas, I would tell you that, look, everything is getting generally gassier. GORs are rising and the quality is waning. There are pockets of things here and there, but I would characterize it as generally over time, gassier; generally over time, somewhat scattered and maybe less synergistic opportunities. On occasion, you'll find a private player who's done a good job. But true to form, many private equity backed players will press on the accelerator to push activity and volumes in order to create more cash and [ EBITDA ] to try to sell an asset. That typically doesn't work very well for a public buyer to acquire somebody else's declined rate while they run through the better part of their inventory. So that's sort of how I would just characterize things generally.