Magnolia Oil & Gas Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 11 speakers on the call.

Operator

Good morning, everyone, and thank you for participating in Magnolia Oil and Gas Corporation's Second Quarter 2024 Earnings Conference Call. My name is Megan, and I will be your moderator for today's call. At this time, all participants will be placed in a listen only mode as our 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.

Speaker 1

Thank you, Megan, and good morning, everyone. Welcome to Magnolia Oil and Gas' 2nd quarter earnings conference call. Participating on the call today are Chris Stavros, 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 in 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 Q2 2024 earnings press release as well as the conference call slides from the Investors section of the company's website atwww.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Speaker 2

Thanks, Tom, and good morning, everyone. We appreciate you joining us today for a discussion of our Q2 2024 financial and operating results. I will provide some comments on our quarterly results which demonstrate the continued execution of our full year 2024 plan and consistency of our business model. I'll also briefly discuss smooth integration of our recent bolt on acquisition in Giddings and provide an update on the progress of our field level cost reduction initiatives, which have shown some positive early results. Brian will then review our 2nd quarter financial results in greater detail and provide some additional guidance before we take your questions.

Speaker 2

As a reminder, Magnolia's primary goals and objectives are to be the most efficient operator of best in class oil and gas assets, generate the highest returns on those assets, while employing the least amount of capital for drilling and completing wells. We also strive to return a substantial portion of our free cash flow to our shareholders in the form of share repurchases and a secure and growing dividend. Finally, we plan to utilize some of the excess cash generated by the business to pursue attractive bolt on oil and gas property acquisitions, where we have a competitive advantage and leveraging both our technical knowledge and experience in basin. Acquisitions are targeted not to simply replace the oil and gas that has already been produced, but importantly to improve the opportunity set of our overall business, enhance the ongoing sustainability of our high returns and increase our dividend per share payout capacity. Opportunities to provide upside optionality with a lower cost of entry that are both financially accretive and also accretive to our stock.

Speaker 2

Looking at Slide 3 of the investor presentation, Magnolia continues to execute on our business model delivering strong quarterly results. Total company production for the Q2 of approximately 90,000 barrels of oil equivalent per day, a company record came in a little better than our guidance and growing by 10% compared to the year ago quarter and by 6% sequentially. Total company oil production during the quarter was nearly 38,000 barrels per day, which represented growth of 11% from year ago levels and we anticipate our oil production should remain resilient through the remainder of the year. Production in Giddings was 69.6 1,000 barrels of oil equivalent per day in the 2nd quarter representing approximately 77% of Magnolia's total volumes. Overall production at Giddings grew 21% compared to last year's Q2 with Giddings oil production growing 28% year over year.

Speaker 2

This year's production results have continued to benefit from strong overall well performance. We were able to achieve this growth by spending approximately half of our $246,000,000 of adjusted EBITDAX generated during the Q2 on drilling and completing wells. Our free cash flow for the Q2 was $97,000,000 and we returned approximately $130,000,000 to our shareholders during the period, including $103,000,000 for the repurchase of 4,000,000 shares of Magnolia, representing 2% of our total outstanding shares. With a focused business model that allows us to consistently generate free cash flow, our plan is to continue to return a significant portion of this to our shareholders through our ongoing share repurchases and our growing base dividend. As we had previously disclosed, we completed a bolt on asset acquisition for $125,000,000 during the quarter, which is adjacent to our development area in Giddings.

Speaker 2

This transaction added 27,000 net acres, which includes both working interest in existing acreage as well as new acreage and small amount of production. These assets are next door to our current Giddings activity and in an area where we have a lot of experience and strong subsurface technical knowledge. We expect this acquisition to provide us with significant high return development opportunities that will be folded into our ongoing Giddings development plan. Over the past year, Magnolia has continued to dedicate some of its capital towards appraisal program in an effort to delineate additional opportunities within our sizable acreage position. As a result of this additional appraisal activity on our legacy Giddings acreage and the recent bolt on acquisition that I mentioned, our Giddings development area has now grown to over 200,000 net acres compared to 150,000 net acres during last year's Q4.

Speaker 2

This expanded development area represents a large portion of our total Giddings acreage footprint that offers high return multi well pad drilling opportunities. We have been regularly and systematically appraising our Giddings acreage each year and those efforts will continue. This gradual and measured process can often take years from when we first drill a well or 2 in a new area, move to evaluate the results, look for other opportunities to bolt on additional acreage or minerals if there is potential and before finally developing multi well pads. Our approach has been a successful strategy for Magnolia and we continue appraising additional areas over time, which should lead to further prospects for resource capture, improving the future opportunity set for the business. As discussed last quarter, our operations and supply chain teams initiated a field level optimization and cost reduction program earlier this year.

Speaker 2

Our expectations were that these efforts would lower our cash costs reducing our LOE per BOE by 5% to 10% during the second half of twenty twenty four compared to the Q1. Magnolia's field team successfully captured improvements well ahead of schedule, some low hanging fruit. As part of these efforts, which included the implementation of digital field software in addition to the optimization of maintenance, workovers and utilization of field equipment. These actions have already resulted in a meaningful reduction to our field level operating costs lowering LOE to $5.40 per BOE, representing a 10% sequential quarterly decline. While further actions will continue, we expect to maintain a similarly low level of field level costs through the second half of the year, which should continue to support our operating margins and free cash flow.

Speaker 2

As shown on Slide 4, our high quality and efficient assets together with our focus on containing both our cash operating expenses and P and C costs as well as our ongoing share repurchases has led to a top tier 5 year average return on capital employed of 18% and an annualized ROCE of 23% for the first half of twenty twenty four and both well ahead of our cost of capital. I'll now turn the call over to Brian for further details on our Q2 2024 financial and operating results.

Speaker 3

Thanks, Chris, and good morning, everyone. I will review some items from our Q2 results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the Q3 of 2024 and the remainder of the year before turning it over for questions. Beginning on Slide 5 and as Chris discussed, Magnolia had a strong second quarter. During the quarter, we generated total GAAP net income attributable to Class A common stock of 96 $1,000,000 with total adjusted net income of $104,000,000 or $0.52 per diluted share.

Speaker 3

Our adjusted EBITDAX for the quarter was $246,000,000 with total CapEx associated with drilling completions and associated facilities of $123,000,000 or 50% of our adjusted EBITDAX. 2nd quarter total production volumes grew 10% year over year to 90,200 barrels of oil equivalent per day, driven by our Giddings asset and our diluted share count fell by 5% year over year to 201,200,000 shares. Looking at the quarterly cash flow waterfall chart on Slide 6, we started the quarter with $399,000,000 of cash. Cash flow from operations before changes in working capital for the Q2 was $233,000,000 with working capital changes and other small items increasing cash by $27,000,000 We paid dividends of $27,000,000 allocated $106,000,000 towards share repurchases in addition to $124,000,000 of bolt on acquisitions. Total capital incurred including leasehold was $126,000,000 ending the quarter with $276,000,000 of cash.

Speaker 3

Looking at Slide 7, this chart illustrates the progress in reducing our total share total outstanding shares since we began our repurchase program in the second half of twenty nineteen. Since that time, we have repurchased 68,300,000 shares leading to a decrease in diluted shares outstanding of approximately 22%. Magnolia's weighted average fully diluted share count declined by more than 3,000,000 shares sequentially, averaging 201,200,000 shares during the Q2. We have 5,900,000 shares remaining under our current share repurchase authorization, which are specifically directed toward repurchasing Class A shares in the open market. Turning to Slide 8, our dividend has grown substantially over the past few years, including a 13% increase announced early in 2024 to $0.13 per share on a quarterly basis.

Speaker 3

Our next quarterly dividend is payable on September 3rd and provides an annualized dividend payout rate of $0.52 per share. 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 payout capacity of

Speaker 2

the company.

Speaker 3

Magnolia has the benefit of a very strong balance sheet and we ended the quarter with $276,000,000 of cash $400,000,000 of senior notes which mature in 2026. Including our Q2 ending cash balance of $276,000,000 and our undrawn $450,000,000 revolving credit facility, our total liquidity is approximately $726,000,000 Our condensed balance sheet as of June 30 is shown on Slide 9. Turning to Slide 10 and looking at our per unit cash costs and operating income margins. Total revenue per BOE increased year over year due to increase in oil prices when compared to the Q2 of 2023. Our total adjusted cash operating costs including G and A was $11.10 per BOE in the Q2 of the year, an increase of $0.77 per BOE or 7% compared to year ago levels.

Speaker 3

The year over year increase was primarily due to higher LOE from oil weighted acquisition late last year and higher production taxes. Our operating income margin for the 2nd quarter was $16.37 per BOE, a 40% of our total revenue. Turning to the guidance on Slide 11. We are reiterating our expected 2024 GNC capital spending to be in the range of $450,000,000 to $480,000,000 and total production and oil production are still expected to grow high single digits on an annual basis. For the Q3, our D and C and associated facilities capital expenditures are expected to be approximately 120,000,000 dollars with total production for the 3rd quarter estimated to be approximately 91,000 DOVs a day.

Speaker 3

Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for all its oil and natural gas production. The fully diluted share count for the Q3 of 2024 is expected to be approximately 199,000,000 shares, which is 5% lower than the Q2 of 2023 levels. We expect our effective tax rate to be approximately 21% and our cash tax rate to be approximately 9% to 10% for the year. We are now ready to take your questions.

Operator

Our first question comes from Neal Dingmann with SunTrust. Please go ahead.

Speaker 4

Hey, guys. Nice results. Guys, my first question is on the Giddings development. Simply, you sounded more confident now talking about over 200,000 net development acres. I'm just wondering, could you talk about what you see as far as is there much variability among this acreage?

Speaker 4

And is there Chris wondered if there's much white space in that area that you could still add?

Speaker 2

Yes. Thanks, Neil. The answer is that Giddings generally there is some always some variability. Giddings North is different from Giddings South, Giddings East is different from Giddings West. But within our core development area, if you will, which this is a part of, the variability tends to be far less.

Speaker 2

And I wouldn't expect to see much of that here. And yes, I think there are more things to add with time. And I think it's fair probably for me to give you or maybe expand a little bit on what I said in my remarks, but give you maybe a real life example of sort of how this has come about and how other things come about within the expanded development area. So half of the increase in the development acreage that we cited came from the bolt on acquisition, while the other half came from success out of the appraisal program. As I mentioned in my remarks, I mean simply adding to our assessment in view of the development acreage, it's a long journey and it doesn't simply happen overnight.

Speaker 2

So I'll try to give you this real life example of how sort of how it works at least for us. So in late 2021, maybe early 2022, we drilled 1 or 2 appraisal wells outside of our then development area in Giddings. Our evaluation confirmed positive results. Later in 2022, we closed on an acquisition in this area accumulating a reasonable position where we drilled a very successful pad earlier this year. And so our efforts around this are ongoing.

Speaker 2

We've accumulated significant acreage position with plenty to work on and we continue to do appraisal activity each year as part of that drilling program. But the process can take a couple of years to play out and it continues to be gradual and measured for us. So it can often lead to things that we see through appraisal and we may acquire additional acreage to expand on that. We've done that with some success and I would expect that we'll continue to follow a similar process with time.

Speaker 4

Great details. And my second question just on the reinvestment rate, I guess going forward, do you anticipate it looks like that continues to be quite low. Do you anticipate the capital return changing?

Speaker 2

Yes. So it's interesting. I mean, so we just passed our 6 year anniversary and over the 6 years, our reinvestment rate has been 47%. Our ceiling is sort of 55 percent. This is really the crux of the business model.

Speaker 2

This discipline is really the foundation of the business model for Magnolia, which delivers moderate growth and a lot of free cash flow. So I would expect to see nothing really very different as part of the plan the remainder of this year and into next year.

Speaker 4

Love the stability. Thank you.

Operator

Our next question comes from Phillips Johnson with Capital One. Please go

Speaker 5

ahead. Hey, thanks for the question. I think you guys get asked about oil mix every quarter, so I thought I'd keep the streak alive. Chris, you mentioned that your oil volume should remain pretty resilient throughout the year. And I think in the past, you've said that oil mix should continue to be a bit lumpy just from quarter to quarter.

Speaker 5

But I just wanted to check-in to see if we should be aware of any trends or nuances over the next few quarters?

Speaker 2

Not necessarily, I mean, I'm pleased that the mix has been fairly steady and the overall oil production has been pretty steady and resilient. Some acquisitions that we've done and our activity program certainly for this year has been a little bit oilier. And so that's allowed things to hold up I think pretty well. As you can see our Giddings activity is a high proportion of our overall activity. And so Giddings generally is a little less oily than the rest of the company.

Speaker 2

But it sort of depends how we drill. I wouldn't necessarily steer you in one direction, but I think for now oil should hold up. The production on oil should hold up pretty well for the remainder of the year and I think into next year as well.

Speaker 5

Okay. That's really helpful. It's early obviously on 2025, but for now should we just assume a pretty steady program at sort of 2 rig, 1 frac spread pace? And I guess is there anything to keep in mind in terms of geographic mix shift or working interest or anything that sort of might affect the pace of growth either faster or slower?

Speaker 2

No, I think it's pretty steady just in terms of the 2 operated rigs and the one frac spreads. So that I would expect that that wouldn't change. Our cycle times continue to improve. We're getting more in the way of drilling efficiencies. We'll continue as I said in the earlier question or response, we'll continue to look at some appraisal opportunities later this year and into next to see where that takes us.

Speaker 2

But I don't anticipate any significant or major changes or differences.

Speaker 5

Sounds good. Thanks for the color.

Operator

Our next question comes from Zach Parham with JPMorgan. Please go ahead.

Speaker 6

Good morning. I just wanted to ask on cash return first. EnerVest sold down some stock this past quarter and now don't have a lot left. Once they're completely out of stock, does that change your cash return methodology at all? Do you consider buying more stock in the open market?

Speaker 6

Just curious on how you think about that?

Speaker 2

Yes. I'll have to think about that a little bit just in terms of pivoting one way or another. And on the share repurchases, I mean to be quite frank, we certainly are a little sensitive to the share price to some degree. We sort of have to be prudence would dictate that. But just in terms of giving you a little sense of how I think about it, maybe I think about it a little differently.

Speaker 2

I do believe that having a consistent and ongoing share repurchase program for Magnolia is important, certainly at least for Magnolia. I have a lot of personal confidence in buying the shares because I know exactly what I'm buying. In addition, there's been a tremendous cumulative benefit to repurchasing our shares over the past 5 years. So as an example, the 60,000,000 plus shares that we repurchased since 2019 has improved our per share earnings by 30% or about $0.50 a share. So if we trade at roughly 12 times earnings that represents $6 a share of value in the stock.

Speaker 2

And that's sort of how I think about it to some extent or I can't ignore that. So as we continue to buy in the shares, the program, it's also creating greater value for all the remaining shareholders. Repurchases, it's created some scarcity in the shares, if you will. So when we were added to the S and P Small Cap 600 Index this year. And when that happened, the folks that run those index, is they probably weren't distinguishing between the stock at 25 or 26.

Speaker 2

They just added the shares and they created more demand for what's relatively a scarce share. So I've got to think about all these things and how we approach the share repurchase program. And I think that's these are a couple of the reasons why I think doing this on an ongoing basis can add value to the stock over time. But the dividend, the consistent growing base dividend grows out of the business model, the execution on the business model. So as we continue to grow our production, which we call sort of mid single digits over time and we continue to buy in the shares, call it 1% every quarter thereabouts that provides the greater ability to grow the dividend on a per share basis over time, the payout capacity if you will.

Speaker 2

So that's sort of how I think about it.

Speaker 6

Thanks, Chris. And then my follow-up just on the 24 CapEx guidance. You've got 3Q out there now. And to hit the midpoint of the guidance range, you'd have to have decent step down in spending in 4Q. Is that the plan?

Speaker 6

Is there a frac holiday or some slowdown in activity plan? Just curious on how you're thinking about activity going into the back half of the year?

Speaker 2

Yes. I wouldn't describe it as any frac holiday, not that I can see. I mean, the spending each quarter can be a little bit lumpy depending on timing of completions as well as the timing of non app activity. But I think it's fair to say that we expect to be in the upper half of the full year guidance range for capital this year. Most recently, we had some additional non op activity come into the program and some of that is expected to get folded into activity later in the year.

Speaker 2

It should, I think, positively impact production early into 2025. We also continue to experience efficiencies in drilling and completion. So as I said earlier, that's improved our cycle times. And so we're essentially going faster, all of which has created a little bit of an upward bias to our capital, but not necessarily in a bad way. It's still inside the guidance range, but I think just at the higher end.

Operator

Our next question comes from Carlos Escalante with Wolfe Research. Please go ahead.

Speaker 7

Hey, good morning, gentlemen. Thank you for taking my call. Chris, I know it's not in your DNA to talk about specific locations or inventory depth, But I like to take a stab at it because you provided some remarks in the past that in light of the recent expansion to of getting to 200,000 net acres, it's worth revisiting. So if I use your comments as a proxy where you've outlined that the 27,000 net acres that you acquired recently are equivalent to roughly a couple of years in inventory. If I reverse engineer that number to 2,000 net acres that's directionally and again I know you're reticent to provide specific locations.

Speaker 7

Would it be fair to assume or think that your giddings program has north of 700 locations?

Speaker 2

Yes. I like the way you think Carlos, but I mean you're certainly right about one thing. It's this is this whole conversation is sort of not in my bones. So directionally, you're moving in the right direction, but extrapolating that necessarily in the exact same manner, I don't know if I would do that in the precise same way. But because in different basins, I would tell you probably similarly every acre is not necessarily created equal and a lot can depend on a variety of variables and attributes.

Speaker 2

So directionally, you're right. But I'm not going to start arm wrestling you over precise numbers or anything like that.

Speaker 7

No, that I wasn't expecting you to do that either way, but I had to take my shot at it. And then my follow-up would be on you mentioned the non op, obviously, towards the end of the year, you have it built there and on capital that you will see production from that non op allocation come back come online in 2025, early 2025. Can we have a sense of what a ratable amount if any on non op magnolia plants you have going forward?

Speaker 2

Yes. This one is a hard call because we don't get a lot of forward information or on a very timely basis. I mean, sometimes we get these things 30 to 60 days out. So it's hard to say. It feels like there is a little bit of an uptick like I suggested for the back half of the year and for the latter part of the year that should influence the capital and volumes later.

Speaker 2

But right now to give you a full sense of what 2025 might look like, it's just too early. I just don't know. If I had a guess, it doesn't feel dramatically different than what we're seeing broadly for full year 2023 or 2024, which was on the lower side. That could change, but we haven't gotten any strong indication that it's changing for a longer term or into next year yet, just yet.

Speaker 7

Okay. Thank you, Chris.

Speaker 2

Okay. Thanks.

Operator

Our next question comes from Oliver Wong with Tudor, Pickering, Holt. Please go ahead.

Speaker 8

Good morning, Chris and Brian, and thanks for taking my questions.

Speaker 2

Good morning.

Speaker 8

Just wanted to start up with a follow-up to Neil's initial question on Giddings. Just with the additional acreage you all gained enough confidence to add into your core development area, just kind of given how these acres previously sat in the appraisal bucket, should we expect it to now drive a slightly higher allocation when thinking about how the drilling schedule might look going forward?

Speaker 2

If you're asking, are we going to increasingly be shifting more to Giddings, I wouldn't necessarily go there as a result of what's happening because of the appraisal program. This is all just part of how we think about the overall pool of assets and the allocation of the money. And we'll continue to sort of occasionally flip back to Karnes and drill some pads through a year. But no, I think when you're talking about allocating about roughly 80% of the money and activity towards Giddings, that feels for right now about what it will look like. Okay.

Speaker 8

And just kind of to clarify for within Giddings, just kind of given how this, I guess, incremental 25,000 net acres that's getting added to the core development bucket. Could we see a higher allocation when you're kind of looking at it from a getting standalone basis?

Speaker 2

I mean, maybe. I have we haven't laid out the exact program yet for 2025, but perhaps, I mean, it's a large couple of 100,000 acres plus is a large area. And so we there's a lot of things that we take into consideration when we look at planning and scheduling wells and where we'll drill exactly. But I would say we consider this all now a part of Giddings and we can tend to hop to different areas from time to time. And that's typically what a program does look like during the year.

Speaker 2

We hop to different areas around the 200,000 acres. We don't sort of proceed in any overly logical fashion that you might imagine. It just goes sort of back and forth forth for different reasons. And we'll continue to have some additional appraisal drilling as well that will likely bear out some additional opportunities.

Speaker 8

Okay. That makes sense. And for my second question, wanted to kind of touch on cost reductions. I know you all have done a solid job across the board on that front tackling the completion side last year, drilling side this year and even the LOE reduction program this past quarter. And I know the team is always very focused on managing costs.

Speaker 8

Don't want to get too far ahead of ourselves, but just kind of wondering what you all might be looking at next to squeeze more out of the system when we're kind of looking ahead?

Speaker 2

Sure. Yes. Look, the quick wins, if you will, that I think we achieved, remember some of the increases in LOE that we saw late last year and very early this year did come out as a result of some of the acquisitions that we had done that were a bit oilier and so that led to a little bit of higher LOE. So some of the gains that we realized now here recently came from this workover optimization, improving the utilization of some field equipments that included compressors and cooling units. In my remarks, I also mentioned this implementation of a field level data management platform.

Speaker 2

And this I can't really say enough about this, but this tool can help us reduce spending and increase actual control over field services such as contract labor, trucking as examples. And it really digitizes this procure to pay process. And so we've also implemented this platform now over water hauling in Giddings. So going forward, we plan to expand this to things like roust about crews, oil hauling and for most of the other field services that we use. So the whole initiative around cost reduction that will continue and other areas that will push on include pursuing bids for processes for certain materials and equipment.

Speaker 2

But like you said, we made some strong early progress. I don't want to get too much ahead of ourselves on forecasting further large significant gains as there's always items that can pop up and arise in the field. So I want to be mindful continually mindful on safety. This is always a first priority for us. While we're always looking to improve, I would say that at least maintaining these levels is probably fair for forecast and going forward right now.

Speaker 2

But I'm proud of the guys and progress that the field teams have made and they've really done a terrific job embracing the whole initiative. So it's going well.

Operator

Our next question comes from Noah Hogness with Bank of America. Please go ahead.

Speaker 9

Good morning all. I just wanted to first ask about the your guys' appraisal programs. Earlier this year, you all mentioned that you were planning to drill an appraisal well in Northern Giddings that was targeting an oilier formation. Could you

Speaker 6

give us any update there?

Speaker 2

Sure. Yes. I don't know if we can't recall actually pointing out an appraisal well in Northern Giddings. I mean Giddings in the north or part of Giddings in the northern area was part of an acquisition that we had done later last year. There's as part of our plan, we do have a modest amount of activity on some of these earlier acquired assets.

Speaker 2

And they've been integrated into our overall development plan and broader Giddings position. But there's I can't tell you that there's specifically a lot of appraisal work going on there right now. There may be over time, but there's nothing that I have to say exactly about that area in terms of appraisal right now.

Speaker 9

Okay, great. And then for my second question, I just wanted to ask on cash taxes. You all mentioned 9% to 10% for this year. Is that a good assumption moving forward as well into 2025 beyond?

Speaker 2

Yes. For this year, it's fine. It's so dependent Noah on product prices, very sensitive to that. So in this sort of range, if this is what you're looking at just in terms of strip prices, it's probably fair for next year going out beyond that. I don't want to get too ahead of ourselves, but for next year I think it's about right.

Speaker 5

Great. Thank you.

Operator

Our next question comes from Paul Diamond with Citi. Please go ahead.

Speaker 10

Good morning. Thanks for taking the time. Just a quick one on the kind of portending of the bolt on acquisition. Should I take across Fayette, Washington and Lee, where do you see the biggest opportunity set more blocking out down at Fayette like this recent deal did or is it more disparate and kind of all over the place?

Speaker 2

It could be in a variety of different places. I'd rather not get overly specific by county or area. But again, I kind of described the process that we go through when we do some appraisal work and oftentimes some things that we see on the land side or the acquisition opportunity side can come out of that. I'd rather not get too specific on a call just in terms of what we're focusing on or looking at. It is competitive out there, but fair to say that the areas you mentioned are all fair game for opportunities and others.

Speaker 10

Understood. Had a try. Yes, excellent lead there.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Record Q2 production of ~90,200 BOE/d (+10% YoY, +6% QoQ) including ~38,000 bbl/d of oil (+11% YoY), outperforming guidance and demonstrating resilience.
  • Strong free cash flow of $97 million in Q2, with $130 million returned to shareholders via $103 million in share repurchases and a growing dividend.
  • $125 million bolt-on acquisition added ~27,000 net acres adjacent to Giddings, bringing the development area to 200,000 acres for high-return multi-well pad drilling.
  • Field-level cost reductions delivered early, cutting LOE to $5.40/BOE (–10% sequentially) through digital field software and optimized maintenance, with similar cost levels expected in H2.
  • Robust financial metrics: Q2 adjusted EBITDAX of $246 million, capital spending at 50% of EBITDAX, adjusted net income of $104 million ($0.52/share), and a 5% YoY reduction in diluted shares outstanding.
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Earnings Conference Call
Magnolia Oil & Gas Q2 2024
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