Magnolia Oil & Gas Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2024

There are 14 speakers on the call.

Operator

Good morning, everyone, and thank you for participating in Magnolia Oil and Gas Corporation's 4th Quarter 2023 Earnings Conference Call. My name is Andrea, and I will be your moderator for today's call. At this time, all participants will be placed in a listen only mode call is being recorded. I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session. Please go ahead.

Speaker 1

Thank you, Andrea, and good morning, everyone. Welcome to Magnolia Oil and Gas' 4th Quarter Earnings Conference Call. Participating on the call today are Chris Staphros, Magnolia's President and Chief Executive Officer and Brian Corrales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

Speaker 1

Additional information on risk factors that could cause results to differ is available on the company's annual report on Form 10 ks filed with the SEC. A full safe harbor can be found on Slide 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's 4th quarter 2023 earnings press release as well as the conference call slides from the Investors section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Speaker 2

Thank you, Tom, and good morning, everyone. We appreciate you joining today for a discussion of our Q4 and full year 2023 financial and operating results. I plan to briefly speak to our results, which closed out a strong year for Magnolia and during which we took several actions to improve our overall business. I will also discuss our business model and our core pulls in the context of some of last year's accomplishments and note how Magnolia stacks up compared to many other E and P companies on several key financial metrics. Lastly, I will provide an update on Magnolia's 2024 Capital and Operating Plan, which follows the same principles on which the company was founded nearly 6 years ago.

Speaker 2

Brian will then review our Q4 and full year financial results in greater detail along with some additional first quarter guidance before we take your questions. Starting on Slide 3 of the investor presentation and looking at some of the highlights. Magnolia ended 2023 on a high note with 4th quarter production volumes 84.8 5,400 barrels of oil equivalent per day bringing full year 2023 production to 82,300 BOE per day. This represented year over year production growth of 16% for the Q4 and full year 2023 volume growth of more than 9%. Production at our Giddings asset grew 55% compared to the prior year 4th quarter reaching 63,000 BOE per day, which included oil production growth of 59%.

Speaker 2

Giddings production represented approximately 71% of overall Magnolia volumes last year And the Giddings area continues to see operating efficiency improvements in the field such as fewer drilling days per well and realizing significant gains in stimulation stage per day. D and C Capital totaled $91,000,000 for the quarter and $422,000,000 for the year representing 47 of adjusted EBITDAX for the year and leading to free cash flow generation of $413,000,000 roughly 10% of our current enterprise value. We returned 74% of this free cash flow to shareholders through our dividend and share repurchase programs with the remaining allocated to our balance sheet which helps support attractive bolt on oil and gas property acquisitions geared toward improving the overall business. Turning to Slide 4, Magnolia's business model remains unique since it was devised in 2018 with the objective To create a highly investable attractive E and P business that is enduring and focused on generating absolute per share value over the long term. As we've often expressed, Magnolia's primary objectives are to be the most efficient operator of best in class oil and gas assets, generating the highest returns on those assets while employing the least amount of capital for drilling and completing wells.

Speaker 2

Our high quality asset base allows for a low reinvestment rate while still providing moderate growth for the business over time. This results in significant free cash flow generation and we strive to return a significant portion of this to our shareholders in the form of share repurchases and a safe, sustainable and growing dividend. Some of the excess cash may accrue to the balance sheet helping us to We pursue bolt on attractive bolt on oil and gas property acquisitions that improve the business, which help to sustain our returns and enhance dividend per share payout capacity. We continue to adhere to our core principles and believe this is a sound formula for creating long term shareholder value for our shareholders. I'd like to spend a moment reviewing how this model has helped us achieve our goals over the past several years and as our operating program has shifted more to our kiddings asset.

Speaker 2

Slide 5 shows that Magnolia has had one of the lowest capital reinvestment rates compared to most other E and key companies, while achieving a superior compound annual rate of growth in terms of production per share over the past 3 years. This is a powerful combination allowing us to maximize our free cash flow generation. Turning to Slide 6, Our corporate level returns or return on capital employed continue to be some of the best in the upstream energy sector highlighting our strategy of capital spending, including last year's success in reducing our well costs and the beneficial impact of our ongoing share repurchases. Our cost reduction efforts in 2023 helped further support these returns as we were able to meaningfully grow our production per share with capital that was 17% less what we had expected at the beginning of the year and 8% below full year 2022 levels. 2 key elements of our business model our low leverage and generating high operating margins.

Speaker 2

Slide 78 demonstrate that Magnolia is best in class when coupling 1 of the lowest leverage profiles in the industry with some of the highest operating margins. This is compared to E and P companies of similar size to Magnolia as well as much larger companies as a testament to our underlying asset quality and the characteristics of our overall strategy and philosophy. Turning to our 2024 guidance shown on Slide 9. We expect this year's plan to deliver similarly strong results to current product prices. Magnolia's capital and operating plan is expected to deliver high single digit percentage growth this year or approximately 7% to 9 on both an oil and on a BOE basis with a capital budget estimated in the range of $450,000,000 to $480,000,000 This would result in a spending level below 55 percent of our EBITDAX for 2024 assuming current strict pricing for products.

Speaker 2

Total production for the Q1 is estimated to be approximately 84000 to 85000 BOE per day, which includes production of facilities downtime caused by severe winter weather conditions during a portion of mid January. Despite the transitory weather impact last month, our production is fully recovered and is running normally We are confident in our full year plan and guidance of high single digit production growth for the year. We expect this we 1st quarter D and C capital expenditures to be approximately $130,000,000 and anticipate this to be the highest quarterly rate spending for the year. Most of the full year 2024 production growth is expected to come from our development program in our Giddings area. And as the main driver, we'll receive approximately 80% of our overall capital and include some activity on our recently acquired assets.

Speaker 2

We plan to operate 2 drilling rigs and 1 completion crew during 2024 and expect to maintain this level of activity throughout the year. While this activity level is similar to last year's operating plan, lower well costs combined with improved operating efficiencies allow for more net wells to be drilled, completed and turned in line helping us support Magnolia's overall high margin growth. Most of the development activity will consist of multi well development pads in Giddings with a smaller amount of development planned in the Karnes area in addition to some appraisal wells. For this year's development in Giddings, we currently expect to drill multi well pads with somewhat longer lateral lengths of approximately 8,500 feet. We continue to run a focused business and in an industry where operational execution and financial discipline are essential.

Speaker 2

The actions we took last year to reduce Our well costs helped to significantly reduce our capital, improve our operating margins and generate additional free cash flow. Together with the acquisitions completed last year, these accomplishments have strengthened our position into 2024 and we expect high single digit growth, high margin and high margin total company production growth with our oil volumes growing at similar rates. We have a strong 5 year history of demonstrated operating results and expect our business model to enhance per share value over time. I'll now turn the call over to Brian to provide more details on our Q4 2023 financial and operating results.

Speaker 3

Thanks, Chris, and good morning, everyone. I'll review items from our Q4 and full year results and refer to the presentation found on our website. I'll also provide some additional guidance for the quarter of 2024 and the remainder of the year before turning it over for questions. I know you closed out 2023 on a high note we continue to execute on our business model, during the Q4, we generated total net income attributable to Class A common stock of $98,000,000 with total adjusted net income of $108,000,000 or $0.52 per diluted share. Our adjusted EBITDAX for the quarter was 240,000,000 with total capital associated with drilling, completions and associated facilities of $91,000,000 or just 38% of our adjusted EBITDAX and below our guidance.

Speaker 3

For the full year, adjusted EBITDAX was $899,000,000 with D and C Capital representing 47 percent of EBITDAX. 4th quarter production volumes grew 16% year over year to 85,400 barrels of oil equivalent per day. For the full year production volumes grew 9% to 82,300 barrels of oil equivalent per day. During the year, we repurchased a total of 9,600,000 shares and our diluted share count fell by 5% year over year. Looking at the annual cash flow waterfall chart on Slide 11, We started the year with $675,000,000 of cash.

Speaker 3

Cash flow from operations before changes in working capital was $872,000,000 With working capital changes and other small items impacting cash by $59,000,000 During the year, we paid dividends of $102,000,000 and allocated $205,000,000 towards share repurchases. We added $355,000,000 of bolt on acquisitions primarily in Giddings and spent $425,000,000 on D and C and Facilities Capital. And we ended the year with $401,000,000,000 of cash. Looking at Slide 12, this chart illustrates the progress in reducing our total shares since we began our repurchase program in the second half of twenty nineteen. Since that time, we have repurchased 61,900,000 shares leading to a change in diluted shares outstanding of over 20% net of issuances.

Speaker 3

This is one of the largest decreases in the upstream energy space, but the majority of the company is increasing their diluted shares outstanding over the past 5 years. Magnolia's weighted average fully diluted share count declined by more than 2,000,000 shares sequentially averaging 206,500,000 shares during the 4th quarter. We have 9,200,000 shares remaining under our current share repurchase authorization, which are specifically directed toward repurchasing Class A shares in the open market. Turning to Slide 13, our dividend has grown substantially over the past few years including a 13% increase announced earlier this year to $0.13 per share on a quarterly basis. Our next quarterly dividend is payable on March 1 and provides an annualized dividend payout rate of $0.52 per share.

Speaker 3

Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares and increasing the dividend per share payout capacity of the company. Vynolia has the benefit of a very strong balance sheet We ended the quarter with 0 net debt and $401,000,000 of cash on the balance sheet. Our $400,000,000 of principal debt is reflected in our senior notes, which do not mature until 2026. Including our 4th quarter ending cash balance of 401,000,000 In our undrawn $450,000,000 revolving credit facility, our total liquidity is approximately $850,000,000 Our condensed balance sheet as of December 31st shown on Slide 14. Turn to Slide 15 and looking at our per unit cash costs and operating income margins.

Speaker 3

Total revenue per BOE declined to the substantial decline due to the substantial decrease in product prices and especially natural gas prices when compared to Q4 of 2022. Our total adjusted cash operating costs including G and A were $10.55 per BOE in the Q4 of 2023, a decrease of $1.60 per BOE or 13% compared to year ago levels. The year over year decrease was primarily due to lower production taxes in GP and T. Our operating income margin for the Q4 was $17.56 per BOE or 43% of our total revenue. The year over year decrease in pre tax operating margins was driven by the significant decrease in commodity prices.

Speaker 3

On Slide 16, Magnolia had a very organic drilling program during last year. The total proved developed reserves at year end 2023 were 135,000,000 barrels of oil equivalent. Excluding acquisitions, sales and price related revisions, the company added 44,000,000 barrels of oil equivalent approved developed reserves during the year. Total drilling completion capital was $422,000,023 resulting in organic proved developed F and D costs of $9.60 per BOE and reflective of our drilling program. Our organic proved developed F and D costs declined by approximately 40% compared to last year as a result of our well cost reduction efforts and strong well results.

Speaker 3

Turning to guidance. We expect our 2024 D and C capital spending to be in the range of $450,000,000 to $480,000,000 which includes an estimate of non operating capital that is about the same as 2023 levels. We expect 1st quarter D and C capital expenditures to be approximately $130,000,000 and expect this to be the highest quarterly rate of spending for the year. Total production for the Q1 is estimated to be approximately 84,000 to 85,000 barrels a day, which incorporates the impact of production facilities downtime caused by severe winter weather conditions in January. Despite this impact, our production has fully recovered and we are maintaining our guidance for high single digit production growth in 2024.

Speaker 3

Most of this growth is expected to come from our development program in our Giddings area. Oil price differentials are anticipated to be approximately $3 per barrel discount to Magellan East Houston, our MEH and Magnolia remains completely unhedged for all of its oil and natural gas production. The fully diluted share count for the Q1 of 2024 is expected to be approximately 205,000,000 shares, which is 4% lower than Q1 2023 levels. We expect our effective tax rate to be approximately 21% with most of this being deferred. Our cash tax rate is expected to be between 6% and 9% for 2024.

Speaker 3

We are now ready to take your questions.

Operator

And our first question comes from Neal Dingmann of Truist. Please go ahead.

Speaker 4

Good morning, Chris and team and guys, another nice print and guide. My first question is on Giddings. Specifically, can you all talk about The recent Giddings acquisitions and how these assets are looking, definitely realizing its early days. And then maybe Chris, anything we should be thinking about on the development plan specifically there?

Speaker 2

Yes. Thanks. Good morning. Giddings is one of those fields, old fields that it sort of just keeps getting better. And My level of confidence now versus say 5, 6 years ago is quite a bit better.

Speaker 2

And a lot of that is born out of the results obviously. And certainly, What we've learned and what we've been able to do with the field. So, the subsurface And as I said, it's one of those fields that where you it's gone through different phases of its life over the last several decades. And we happen to get involved really prior to it going through this latest phase in utilizing modern frac techniques and design. So where this is headed is we've got a sizable position more than 500,000 acres.

Speaker 2

And we've done some recent acquisitions and I think that's improved our position and will help us learn some more. There's some gassier areas of Giddings or some oilier areas of Giddings. But I think the proof is in the pudding in terms of the results having been borne out. When we picked it up with the original acquisition, the field and the asset was producing maybe 10,000 a day equivalent or so. As I said it's producing more than 60,000 a day now and that will continue to grow.

Speaker 2

And this is really what The returns, the quality returns that we've seen in the business are really in many cases a function of the outcome of Giddings. So where does it go? Frankly, I think there's more for us to go after Here and there, I mean some of them will be a little bit smaller, some things might be a little bit larger like in similar terms of what we did or size of what we did back in Q4 of last year, we'll just have to see. I can't tell you that we'll go after thing or anything and everything, but we'll go after some things and we're starting to integrate the assets that we recently acquired. Early days look good.

Speaker 2

It's this particular asset happens to be a bit oilier. The wells that we plan to drill are shallower, several 1,000 feet shallower As I said a little bit earlier with the economics broadly quite similar to Giddings as a whole overall. So I remain real optimistic about our prospects going forward for the fields and what it's going to mean to Magnolia going forward.

Speaker 4

Yes, definitely love the footprint there. And maybe following up a little bit with Giddens, you noticed as you pointed out, the operating margins are certainly notable. And I'm just wondering, When you look at the expanded getting results, I mean, is that potentially and will that even lead to, do you think even lower reinvestment rates, it's certainly notable how good your reinvestment rate and as you highlighted the operating margin. I'm just wondering Baked on maybe a higher Giddings plan, could we see even potential increases in this?

Speaker 2

Yes. That's a tough one. I mean, I think the results are pretty good over 3 year, 5 year type period. And if you want to say it's almost through a cycle, if you will. I don't think it's going to be meaningfully different.

Speaker 2

I mean there might be some things around the edges as we learn more. But I think The outcome, if I had to look out, I think the outcome is not going to be meaningfully different, which I will take that sort of any day of the week.

Speaker 4

Absolutely. Thank you all. Thanks, Gord.

Operator

The next question comes from Leo Mariani of MKM Partners. Please go ahead.

Speaker 5

Hi, guys. I was hoping you could provide maybe a little bit more color on the increased activity in 2024. I think in the Press release, you guys alluded to the fact that B, some more wells this year. Is there any way to quantify that? Is it kind of 5 or 6 wells and just kind of any detail around any of the splits here?

Speaker 5

Is it primarily more of a development drilling program? You did mention there would be Some appraisals, is it a fairly similar appraisal split versus last year? And I guess there's going to be some drilling on The newly acquired acquisition from the Q4, do you also consider that kind of appraisal drilling? And is it just a handful of wells? Any color around the kind

Speaker 2

of complexion of the program this year Yes. Thanks, Leo. I think you repeated Some of what I said and answered your own question in some ways, but anyway, yes. So we'll probably drill maybe a little more than a half dozen additional wells This year versus last year net wells, most of that is Or part of it anyway is, some of the new assets that will be broader integrated into the plan. Some is just the ongoing development in Giddings.

Speaker 2

Keep in mind that the average lateral length is a little longer in this year's program compared to last year. I would tell you also that the working interest in the wells is also a little bit higher. As far as appraisal goes, No, I wouldn't consider the drilling on the new assets as appraisal in Giddings. But there may be depending on product prices, there may be some appraisal drilling in Giddings Just to sort of see if we can learn a little bit more around other areas, so we'll see how that goes. So that's by and large some of the color I would tell you.

Speaker 2

The current program will be fairly similar to what it had been, not really very different generally.

Speaker 5

Okay, that's helpful. And then just do you have any color you might provide on a few of the big picture expense items? I think that Perhaps the new Orly asset had a little kind of higher cost, any kind of range at all, you can kind of throw out there if LOE is going to continue to tick up a little bit and maybe DD and A and maybe G and A is not really changed. Is there anything you can have high level on some of those kind of key cost items?

Speaker 2

Yes, sure. Well, The new assets, especially the latter acquisition that we did in Giddings considering that it is oilier in nature, Yes, there is a little bit more in the way of LOE as would be common or typical and as we're also sort of bringing it up to Magnolia standards, if you will. We're owners of the assets where the prior folks might have been viewed as more renters of the assets. So there's some things that we need to do or probably will do to bring it up to our standards. However, I will tell you that my choice and my view is that we're going to sort of a program to focus a little bit more on LOE broadly through the year to try to get that down a bit.

Speaker 2

So as we transition with the new asset into the first quarter you might see a little bit more in terms of bump in LOE not very meaningful frankly, but a little bit. And then my hope and view is that we're going to try to attack this and manage it to the point where we could see some decline later into the year.

Speaker 5

Okay. That's helpful. And I guess just anything on any other costs? Is G and A per barrel still pretty flat. I don't know if there's any impact on GP and T from the new asset either.

Speaker 5

Is that pretty ratably flat?

Speaker 2

Not really. I mean, GP and T actually, I think we're doing a pretty good job there and We'll see how that goes. I'll just say we're doing a good job around that. G and A, I Not going to change very much frankly at all, not meaningfully on a per barrel basis.

Speaker 6

Yes. Okay. Thanks guys.

Speaker 2

Okay, thanks.

Operator

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

Speaker 7

Good morning, Chris and Brian and the rest of the Magnolia team there. Chris, at risk of frustrating you, I'm going to ask one more question about The, about your activity on those recently acquired.

Speaker 2

That's all right. That's all right. You wouldn't be the first one.

Speaker 7

Well, maybe I will be the best. I want to presumably, I think you indicated that you guys had a slightly different view of that asset or maybe you thought you had A differential insight on that asset. And so I'm curious, if you could tell us what for the activity you have, maybe just characterize the number of wells that you're going to drill and the number of the pads you're going to drill on that newly acquired asset. And if there's Any aspect to be well designed that's going to test perhaps some of those differentiated ideas that you have, in which case what's kind of a timeline for Any kind of results or update there?

Speaker 2

Yes. Thanks, Charles. It's a little early days to be too granular Specific around how we're going to drill the well or wells, there will be a handful of wells that will be drilled later this year where we'll have some results that probably through some of this data, these data sets you will be able to see over time. I just don't know. We're still sort of studying it and looking at prior results to see how this How it's gone, we may make some smallish modest changes going forward.

Speaker 2

But We're not at the point frankly where these are going to be probably more single wells frankly at this stage. So we're just not quite there yet. Frankly, we closed on the deal About 3 months ago, so we're still integrating it and devising it, developing it, folding it into the plan. So it's still somewhat early days.

Speaker 7

Okay. Well, thanks for that added detail. And then second question, this is about A and D and the Eagle Ford more broadly, how do you characterize the opportunity set for Magnolia? And how much of your attention are you spending on looking at opportunities right around Giddings and how much of it is directed to the larger Eagle Ford and also talk trend across Texas?

Speaker 2

Yes, it's a fair question. Percentage of my time, pretty meaningful, I mean, because it's There's a lot of things out there. And again, as I said earlier, much of this is born out of our own experiences and knowledge and as we gain further understanding of the wells that we drill and directionally where we want to go and What excites us, what is more attractive for us and I've said this to folks before, at the end of the day, We're trying to and maybe this is why we're not overly open about what our plans are, but we're trying to Build a little bit of a mosaic around the asset and fill in some of the blanks and improve the business based on some of the quality areas that we see. So we won't go after everything. It's not like I say, Well, I'd like to own all the acreage everywhere.

Speaker 2

It's not that. But there are some areas that look interesting and will help us and will help the business where I can see this enhancing the runway if you will and provide more sustainability for the business over time. So I think the opportunity set is reasonably good.

Speaker 7

All right. Thanks for that.

Speaker 2

Sure.

Operator

The next question comes from Oliver Hoang of TPH and Co. Please go ahead.

Speaker 8

Good morning, Chris and Brian, and thanks for taking my questions. Just wanted to hit on the 2024 outlook really quick. I think you all did a great job last year in being able to exceed initial expectations. CapEx 17% lower for nearly in line production volumes. And I know last year is probably a unique year just kind of given the misalignment start the year on service costs, but as we kind of look forward into 2024, what are some of the key levers or upside catalysts you all foresee or are most excited about that could drive better than expected capital efficiency?

Speaker 8

And also any sort of color on what drives the lower and ends of the CapEx guidance range would be helpful as well.

Speaker 2

Thanks, Oliver. I don't know How much of a disconnect there was, but we got after this early and I credit our teams both on the supply chain side and on the operations side, drilling completions working with everyone to make it happen. But it didn't just happen. It took a lot of work Talking with the vendors and creating some linkage between us and them as being true partners. And we did benefit from some of the weakness in large Gassier fields to the northeast of us that where activity was slowing up and we saw some benefit from that proximity to us.

Speaker 2

So it did take a lot of work. In terms of what's left, we've locked in our costs for the certainly for the first half of the year. So I'm very comfortable with where things are headed in the first half of the year in terms of our outlook. For the second half of the year, it doesn't seem to me as if activity is just going to soar away higher. In fact, maybe you sort of see things flat to a little bit lower or softer considering where gas prices are.

Speaker 2

It's not all that pleasant. And so we'll just have to see. It may provide us with a little bit of wiggle room for the back half of the year. But generally things feel pretty good. On the Specific areas or items, we did a terrific job around efficiencies last year especially on the completion side and completion stages per day.

Speaker 2

I'd like to think that we could See some improvements on the drilling side and we'll work towards that with some Hopefully, some efficiencies and maybe something on the cost side as well, but we'll see. So I hope that gives you a little bit of color.

Speaker 8

Yes, that's definitely helpful. And just a quick follow-up on a comment you made earlier about potentially higher working interest in wells this year. Just wondering if there's any way to kind of quantify the magnitude of that really just trying to get a sense of how the net lateral footage might have increased on a year over year basis?

Speaker 3

We can get back to you and answer that more specifically.

Speaker 8

Sounds good. Thanks for the time, guys.

Speaker 2

Okay. Thank you.

Operator

The next question comes from Ati Modak of Goldman Sachs. Please go ahead.

Speaker 6

Hi, good morning team. Thank you for taking the questions. I guess you mentioned there's still a lot of opportunity in acquisitions in the Just wondering if these are largely smaller acreages or are there entities that are relatively large as well? And what is the level of interest maybe that those players have to try and replicate what you are doing versus hand the asset over to you. And does that mean that you would be more active in M and A this year versus last?

Speaker 2

Well, I don't know what other operators are looking to do or willing to do or able to do frankly, if they're looking to replicate our plan or whatever. I wouldn't think that this is necessarily going to be a more active year than what we just had in 2023. We're going to our plan is to digest and integrate some of what we've done last year, which was overall a bit of a heavier year in yield related activity for us acquisitions. So there is some digestion and integration that needs to occur. So I think it'll if there are some things they'll tend to be a bit smaller, But may hopefully pack a punch and really again as I said Fill in that mosaic of what we've been trying to accomplish in recent history and going forward.

Speaker 2

I don't think it's going to be larger, at least that's not my sense right now.

Speaker 6

Got it. And then anything around the expectations for well Productivity in 'twenty four versus the prior years, if you can talk about oil per foot basis, how should we think about the trends this year?

Speaker 2

Yes. I mean, that's been talked about to be honest and it's sort of an evolution of The program in Giddings over time, I mean early days, there were the population set of wells was Smaller obviously and much more focused and concentrated with a very, very limited area and as that's broad out, there may have been some movement around the productivity, but frankly Not in a major way or terrible way. I think that this year's program and results should yield similar results to what you saw in 2023. I don't see any major change, frankly.

Speaker 6

Got it. Thank you for taking the questions. I will turn it over.

Speaker 2

Okay. Thanks.

Operator

The next question comes from Nicholas Pope of Seaport Research. Please go ahead.

Speaker 9

Good morning, everyone.

Speaker 2

Hi, Nick.

Speaker 9

Quick question on the reserves details that you provided in the in the presentation. The price related revisions, just wanted to make sure, is that Is there anything specific there or is it kind of balanced across the two assets? Is it just tail, the tail of some of those PDP reserves coming off? Just trying to make sure I understand that $15,000,000 kind of hit the uptick there?

Speaker 3

Yes. And when you roll forward from last year, which had significantly higher pricing, you do lose reserves. So the year over year change in the SEC required Pricing was relatively significant, both oil and gas.

Speaker 9

So across both assets fairly

Speaker 2

It's both

Speaker 3

assets. But I mean, just remember, I think we're at 75 plus percent of our or 75% of our production is Giddings. So it's probably proportionate.

Speaker 9

And on the Giddings acquisition, can you help me a little more specific, what was the timing of the close of that acquisition?

Speaker 2

It was right around mid November.

Operator

The next question comes from Jeff Jay of Daniel Energy Partners. Please go ahead.

Speaker 10

Hey, guys. I was just kind of curious, You talk about the efficiency gains, particularly on the completion side. Can you help me understand, I guess, like how significant that increase is? And if you Sort of looked around and benchmarked that against your peers and if you think there's further efficiencies to come this year?

Speaker 2

We're looking into that now. I mean, we're going through that process right now. As we look to the latter portion or trying to think ahead into the back half of the year On our equipment and crews, I don't know how much I can really add On that specific item for EHA, Jeff. I just don't know.

Speaker 3

And Jeff, I'll just maybe add one thing and Chris talked about a little bit earlier is we did a really, really good job on stages per day on the completion side. One of the focuses on more for this year is on the drilling side to improve more of those efficiencies.

Speaker 10

Right. Got it. I guess, you know what I saw in the press release that the cost of getting oil costs were down about 20%. My curiosity was peaked about sort of how that might sort of break down between efficiency gains and sort of pricing and I don't know if you can if there was a way that you can kind of help me understand the interplay there?

Speaker 2

Well, a lot of it was, as you know, A lot of it was steel, OCTG, but there was a there are meaningful steps in STEM and frac, so there are people benefits there as well.

Speaker 10

Excellent. Thank you.

Operator

The next question comes from Zack Farnam of JPMorgan. Please go ahead.

Speaker 11

Yes. Thanks for taking my question. I guess, First, just could you quantify where your leading edge D and C costs are in Giddings? And maybe give us some color on how much cheaper you expect the wells to be on the newly acquired shallower acreage?

Speaker 2

Yes. The wells now are running About 1100 of a foot, I would say and that's about 20% lower than a year ago. And so that for the longer some of the longer laterals that we'll drill this year that's maybe $9,000,000 roughly per well. The well costs for the newer stuff. As I said, they're shallower, Quite a bit shallower, 3000, 4000 feet shallower.

Speaker 2

But there you don't get the exact Efficiencies of pad development too. So that's sort of what I know right now.

Speaker 3

In fact, let's we need to drill 1 first. We can give you a better answer, but it is shallower. So on a per foot, it should be a little cheaper.

Speaker 11

Got it. Thanks for that color. I guess also wanted to ask on natural gas. Gas differentials have widened out a bit First, both Henry Hub and Ship Channel over the last couple of quarters, we've also heard some concerns on Ship Channel widening out further, Given increasing Permian volumes fall into the Gulf, can you just give us your thoughts on how you expect gas differentials to trend in 'twenty four and going forward?

Speaker 3

Yes. Well, to be honest, I mean, all our gas goes to Ship Channel. We are a price taker. I still think it's the 2nd probably best hub outside of Henry Hub to deliver your gas. We're closer to market than the Permian.

Speaker 3

We have all the infrastructure we need. Is gas in general challenged? Yes.

Speaker 2

Zach, it's going to be interesting to really see how this evolves in the market. You've probably seen already some of the comments from some of the Independent producers, the gassier producers here, maybe reducing their activity a bit. And so this is a market And the operators will respond to the economics. So, it will be interesting to see that response And to the extent that things are pulled in that may over time, bring things into better balance. So we'll see.

Speaker 12

Got it. Thanks, Chris. Thanks, Brian.

Operator

The next question comes from Tim Rezvan of KeyBanc Capital Markets. Please go ahead.

Speaker 13

Good morning, guys. Thanks for squeezing me in. I'd like to start on repurchases first. Just trying to understand, if we sort of Back into like a repurchase amount based on your 1Q shares outstanding kind of information, it suggests maybe a little lower than that $50,000,000 ish range that you've run. Do you think about it as like not wanting to have a free cash flow deficit in the quarter?

Speaker 13

Just trying to understand kind of, you've been pretty methodical with the repurchases. Is anything changing or is it just because of heavy first quarter CapEx that maybe you're pulling back a bit?

Speaker 2

Well, we didn't we're not forecasting the share repurchases really. I mean, I think If I recall, I think we bought in 2,500,000 shares exactly in the Q4 and I think that was about the same, it's not exactly the same as the Q3. So sequentially the amount of shares repurchased was The same, the dollar amount might have been a little different because the shares might have been bought in a little bit less expensively, Just fine. I look at the share repurchase, I mean, just a broad comment. I look at the share repurchase program as sort of ongoing and opportunistic and there might be some shares that come available in the market.

Speaker 2

And I'm not that I know anything, but if that were to happen, we could certainly lean in. If I feel as if There's a disconnect in terms of perceived value. We could lean in. The share repurchase and the dividend are sort of symbiotic in a way. There's an integral relationship for us with that.

Speaker 2

The more shares I buy in, The more it supports our dividend payout per share capacity. So that's sort of how I think about it.

Speaker 6

Okay. We're just if you do

Speaker 13

the math on that $205,000,000 for the Q1, it seems a little light. That's why I trying to understand if there's something there, and I guess there's not. So thanks, Chris. I appreciate that. And as my follow-up, I thought it was interesting you said you should have a similar oil cut going through 2024.

Speaker 13

If we look at the Giddings asset in general, you've seen oil cuts, call it, kind of mid-30s. Is your confidence that you have enough well controlling giddings that you're confident of

Speaker 6

the oil skews you're going

Speaker 13

to be getting from the 2024 program, is that what sort of gives you confidence in sort of that oil cut staying where it is?

Speaker 2

Yes, Tim, thanks. I'm pretty confident with this year's program on the oil volumes, if you will. I think we ran in the 41%, 42% mix of oil for the Q4 right in that range. If I had to take a view, I think it'll be somewhat Similar through the year maybe a little movement, but not all that much. The oil volumes, they'll grow.

Speaker 2

As said they'll grow year on year for each quarter and they'll grow on similar basis to the overall BOE volume. So I'm pretty confident with that. That's what the program is designed to deliver. And it's just in terms of the well control and the confidence in Giddings, yes, that's how I feel.

Speaker 6

Okay. Thank you.

Operator

The next question comes from Paul Diamond of Citi. Please go ahead.

Speaker 12

Thank you. Good morning. Thanks for taking my call. Just one quick one for you. As you guys think about getting this going forward as far as just the addressable Just the total addressable acreage and kind of your progress to that, what you see is like your the right size of the level you want to be at.

Speaker 12

Is that something we should think about as like a single year effort or is that more kind of multiyear goal?

Speaker 2

I see this evolving over years. I don't see it necessarily all occurring At once or in the shorter term, it's the amount of learning that we picked up and experience has been over this 5, 6 year period, it's not all going to come at once here for us as a result. So we're still We have a large position that will where we'll continue to learn through our own activity. And as an extension of that, We could and likely will pursue some other small opportunities that makes sense.

Speaker 12

Understood. And do you think those smaller opportunities are more kind of blocking on existing acreage or are there more kind of Further flung areas that you guys are really interested in exploring up there?

Speaker 2

Mainly the former filling in.

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Key Takeaways

  • Magnolia delivered 84,800 BOE/d in Q4 2023, up 16% year-over-year, and 82,300 BOE/d for the full year, reflecting 9% annual growth.
  • The Giddings asset drove volumes with 55% production growth to 63,000 BOE/d (59% oil), accounting for 71% of Magnolia’s output and benefiting from improved drilling days and stimulation stages per day.
  • Fourth-quarter D&C capital totaled $91 million (38% of adjusted EBITDAX), and full-year D&C spending was $422 million (47% of EBITDAX), generating $413 million in free cash flow (≈10% of enterprise value), of which 74% was returned to shareholders.
  • Magnolia’s capital-efficient business model emphasizes a low reinvestment rate, high returns on capital, best-in-class operating margins, and a strong balance sheet with zero net debt and $401 million cash.
  • For 2024, Magnolia plans $450–480 million in D&C capital (<55% of EBITDAX) to achieve 7–9% production growth, with Q1 output of 84,000–85,000 BOE/d and activity focused on Giddings using 2 rigs and 1 completion crew.
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Earnings Conference Call
Magnolia Oil & Gas Q4 2023
00:00 / 00:00