Q2 2024 Magnolia Oil & Gas Corp Earnings Call
Megan: Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's 2nd 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. Thank you, Megan. And good morning, everyone. Welcome to Magnolia Oil & Gas's second quarter earnings conference call. Participating on the call today are Chris
Speaker Change: Good morning, everyone, and thank you for participating in Magnolia Oil and Gas Corporation's second quarter 2024 earnings conference call.
Megan: 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.
Speaker Change: I will now turn the call over to Magnolias Management for their prepared remarks, which will be followed by a brief question and answer session.
Tom: Welcome to Magnolia Oil & Gas' second quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer, and Brian Corales, 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.
Tom: Thank you, Megan. And good morning, everyone.
Speaker Change: Thank you, Megan. And good morning, everyone. Welcome to Magnolia Oil and Gas's second quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer, and Brian Corales, Senior Vice President and Chief Financial Officer.
Speaker Change: 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.
Tom: Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's second quarter 2024 earnings press release, as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.
Speaker Change: Additional information on risk factors that could cause results to differ is available in the company's annual annual report on Form 10-K 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.
Speaker Change: You can download Magnolia's second quarter 2024 earnings press release, as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.
Chris Stavros: Thanks, Tom, and good morning, everyone. We appreciate you joining us today for a discussion of our second quarter 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 the smooth integration of our recent bolt-on acquisition and growth. I will 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 second quarter financial results in greater detail and provide some additional guidance before we take your questions.
Chris Stavros: Thanks, Tommy. Good morning, everyone. We appreciate you joining us today for a discussion of our second quarter 2024 financial and operating results.
Chris Stavros: 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 the smooth integration of our recent bolt-on acquisition in Giddings
Chris Stavros: and provide an update on the progress of our field level cost reduction initiatives which have shown some positive early results.
Chris Stavros: Brian will then review our second quarter financial results in greater detail and provide some additional guidance before we take your questions.
Chris Stavros: As a reminder, Magnolia's primary goals and objectives are to be the most efficient operator of best-in-class oil and gas assets and to 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 purchases 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 can leverage both our technical knowledge and experience in the field.
Chris Stavros: 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.
Chris Stavros: We also strive to return a substantial portion of our free cash flow to our shareholders in the form of share purchases and a secure and growing dividend.
Chris Stavros: 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 in leveraging both our technical knowledge and experience in basin.
Chris Stavros: 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. We look for acquisition opportunities to provide upside optionality with a lower cost of entry that are both financially accretive and also accretive to our stock.
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.
Chris Stavros: We look for acquisition opportunities to provide upside optionality with a lower cost of entry that are both financially accretive and also accretive to our stock.
Chris Stavros: Looking at slide three of the investor presentation, Magnolia continues to execute on our business model delivering strong quarterly results, total company production for the second quarter of approximately 90,000 barrels of oil equivalent per day, a company record that 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 thousand barrels of oil equivalent per day in the second quarter, representing approximately 77% of Magnolia's total volume.
Chris Stavros: Looking at slide three of the investor presentation, Magnolia continues to execute on our business model, delivering strong quarterly results.
Chris Stavros: Total company production for the second quarter 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.
Chris Stavros: 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.
Speaker Change: Production in Giddings was 69.6 thousand barrels of oil equivalent per day in the second quarter representing approximately 77% of Magnolia's total volumes.
Chris Stavros: Overall production at Gittings grew 21% compared to last year's second quarter, with Gittings oil production growing 28% year over year. 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 million of adjusted EBIT DAX generated during the second quarter on drilling and completing wells. Our free cash flow for the second quarter was $97 million, and we returned approximately $130 million to our shareholders during the period, including $103 million for the repurchase of 4 million shares of Magnolia, representing 2% of our total outstanding shares.
Speaker Change: Overall production at Giddings grew 21% compared to last year's second quarter with Giddings oil production growing 28% year-over-year. This year's production results have continued to benefit from strong overall well performance.
Speaker Change: We were able to achieve this growth by spending approximately half of our $246 million of adjusted EBITDAX generated during the second quarter on drilling and completing wells.
Speaker Change: Our free cash flow for the second quarter was $97 million, and we returned approximately $130 million to our shareholders during the period, including $103 million for the repurchase of 4 million shares of Magnolia, representing 2% of our total outstanding shares.
Chris Stavros: 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 of purchases and our growing base dividends. As we had previously disclosed, we completed a bolt-on asset acquisition for $125 million during the quarter, which is adjacent to our development area in Giddings. This transaction added 27,000 net acres, which includes both working interests in existing acreage as well as new acreage and a small amount of production.
Chris Stavros: 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 of purchases and our growing base dividend.
Chris Stavros: As we had previously disclosed, we completed a bolt-on asset acquisition for 125 million dollars during the quarter, which is adjacent to our development area in Giddings.
Chris Stavros: These assets are next door to our current gettings 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 gettings development plan. Over the past year, Magnolia has continued to dedicate some of its capital to its appraisal program in an effort to delineate additional opportunities within our sizable acreage position.
Chris Stavros: 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.
Chris Stavros: We expect this acquisition to provide us with significant high-return development opportunities that will be folded into our ongoing Giddings Development Plan.
Chris Stavros: Over the past year, Magnolia has continued to dedicate some of its capital towards its appraisal program in an effort to delineate additional opportunities within our sizable acreage position.
Chris Stavros: 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 fourth quarter. 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 acreage each year, and those efforts will continue.
Chris Stavros: This gradual and measured process can often take years from when we first drill a well or two 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.
Chris Stavros: 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 opportunities 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. 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 2024 compared to the first quarter.
Chris Stavros: As discussed last quarter, our operations and supply chain teams initiated a field-level optimization and cost reduction program earlier this year.
Chris Stavros: 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 management software, in addition to the optimization of maintenance, workovers, and the 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 field-level cost through the second half of the year, which should continue to support our operating margins and free cash flow.
Chris Stavros: 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.
Chris Stavros: 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.
Chris Stavros: As shown on slide four, our high-quality and efficient assets, together with our focus on containing both our cash operating expenses and D&C costs, as well as our ongoing share of purchases, has led to a top-tier five-year average return on capital employed of 18% and an annualized ROCE of 23% for the first half of 2024, both well ahead of our cost of capital. I'm going to turn the call over to Brian for further details on our second quarter 2024 financial and operating results. Thanks, Chris.
Brian Corales: Thanks Chris and good morning everyone. I will review some items from our second quarter results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the third quarter of 2024 and the remainder of the year before turning it over to questions. Beginning on slide 5, and as Chris discussed, Magnolia had a strong second quarter. During the quarter, we generated total gap net income attributed to Class A common stock of $96 million, with total adjusted net income of $104 million, or $0.52 per diluted share.
Chris Stavros: Beginning on slide five, and as Chris discussed, Magnolia had a strong second quarter. During the quarter we generated total gap net income attributed to class A common stock of 96 million, with total adjusted net income of 104 million or 52 cents per diluted share.
Brian Corales: Our adjusted EBITX for the quarter was $246 million, with total CapEx associated with drilling completions and associated facilities of $123 million, or 50% of our adjusted EBIT. Second quarter total production volumes grew 10% year-over-year to 90.2 thousand barrels of oil equivalent per day, driven by our Giddings asset, and our diluted share count fell by 5% year-over-year to 201.2 million shares. Looking at the quarterly cash flow waterfall chart on slide 6, we started the quarter with $399 million in cash.
Chris Stavros: Our adjusted EBITDAX for the quarter was 246 million with total CAPEX associated with drilling completions and associated facilities of 123 million or 50% of our adjusted EBITDAX.
Chris Stavros: Second quarter total production volumes grew 10% year-over-year to 90.2 thousand barrels of oil equivalent per day driven by our Giddings asset and our diluted share count fell by 5% year-over-year to 201.2 million shares.
Brian Corales: Cash flow from operations before changes in working capital for the second quarter was $233 million, with working capital changes and other small items increasing cash by $27 million. We paid dividends of $27 million and allocated $106 million toward share repurchase, in addition to $124 million of bolt-on acquisition. Total capital incurred, including leasehold, was $126 million, ending the quarter with $276 million of cash.
Chris Stavros: We paid dividends of $27 million and allocated $106 million towards share repurchases, in addition to $124 million of bolt-on acquisitions.
Brian Corales: Looking at slide 7, this chart illustrates the progress in reducing our total outstanding shares since we began our repurchase program in the second half of 2019. Since that time, we have repurchased 68.3 million 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 million shares sequentially, averaging 201.2 million shares during the second quarter.
Speaker Change: I know his weighted average fully diluted share count declined by more than 3 million shares sequentially, averaging 201.2 million shares during the second quarter.
Brian Corales: We have 5.9 million shares remaining under our current share repurchase authorization, which is 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. Our next quarterly dividend is payable on September 3rd and provides an annualized dividend payout rate of $0.52 per share.
Chris Stavros: We have 5.9 million shares remaining under our current share repurchase authorization which are specifically directed toward repurchasing class A shares in the open market.
Chris Stavros: Our next quarterly dividend is payable on September 3rd and provides an annualized dividend payout rate of 52 cents per share.
Brian Corales: 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 the company. Magnolia has the benefit of a very strong balance sheet, and we ended the quarter with $276 million in cash and $400 million of senior notes, which mature in 2026. Including our second quarter ending cash balance of $276 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $726 million. Our condensed balance sheet as of June 30th is shown on slide 9.
Chris Stavros: 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 the company.
Brian Corales: Turn 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 an increase in oil prices when compared to the second quarter of 2023. Our total adjusted cash operating costs, including G&A, were $11.10 per BOE in the second quarter of the year, an increase of 77 cents per BOE or 7% compared to a year ago level. The year-over-year increase is primarily due to higher LOE from an oil-weighted acquisition late last year and higher production tax.
Chris Stavros: Turn to slide 10 and looking at our per unit cash costs and operating income margins.
Chris Stavros: Total revenue per BOE increased year-over-year due to increase in oil prices when compared to the second quarter of 2023. Our total adjusted cash operating costs, including G&A, was $11.10 per BOE in the second quarter of the year.
Chris Stavros: and increase of 77 cents per BOE or 7% compared to year-ago levels. The year-over-year increase was primarily due to higher LOE from oil-weighted acquisition late last year and higher production taxes.
Brian Corales: Our operating income margin for the second quarter was $16.37 per BOE, or 40% of our total revenue. Turn to the guidance on slide 11. We are reiterating our expected 2024 GNC capital spending to be in the range of $450 to $480 million, and total production and oil production are still expected to grow in high single digits on an annual basis. For the third quarter, our DNC and associated facilities capital expenditures are expected to be approximately $120 million, with total production for the third quarter estimated to be approximately 91,000 VOEs a day.
Chris Stavros: Our operating income margin for the second quarter was $16.37 per BOE of 40% of our total revenue.
Speaker Change: Turn to the guidance on slide 11. We are reiterating our expected 2024 GNC capital spending to be in the range of 450 to 480 million and total production and oil and oil production are still expected to grow high single digits on an annual basis.
Brian Corales: Oil price differentials are anticipated to be approximately a $3.00 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 third quarter of 2024 is expected to be approximately 199 million shares, which is 5% lower than the second quarter of 2023 level. 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. We will now begin.
Chris Stavros: Oil price differentials are anticipated to be approximately a three dollar per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for all its oil and natural gas production.
Chris Stavros: We expect our effective tax rate to be approximately 21% and our cash tax rate to be approximately 9 to 10% for the year
Chris Stavros: We are now ready to take your questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Neal Dingmann with SunTrust. Please go ahead.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Neil Dingman with SunTrust. Please go ahead.
Neal Dingmann: Hey guys, nice results. Guys, my first question is on the Giddings development. Specifically, you sounded more confident now talking about over 200,000 net development acres. I'm just wondering, can you talk about, you know, what you see as far as, you know, is there much variability among this acreage? And is there, you know, Chris wondered if there's much white space in that area that you could still add?
Neil Dingman: Hi guys, nice results. Guys, my first question is on the Giddings development. Specifically, you sounded more confident
Speaker Change: Now talking about over 200,000 net development acres, I'm just wondering,
Chris Stavros: Yeah, thanks, Neal. The answer is that, generally, there is always some variability. Giddings North is different from Giddings South. Giddings East is different from Giddings West.
Chris Stavros: But within our core development area, if you will, which this is a part of, the variability tends to be far less. 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, you know, it's fair.
Speaker Change: 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, and I wouldn't expect to see much of that here.
Speaker Change: and yes I think there are more things to add with time and I think you know it's fair probably for me to give you maybe expand a little bit on what I said in my remarks but give you maybe a real-life example of
Chris Stavros: 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, You know, sort of how this has come about and how other things have come about within, um, you know, 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 in the appraisal program. As I mentioned in my remarks, simply adding to our assessment and view of the development acreage, it's a long journey. It doesn't simply happen overnight.
Neil Dingman: you know sort of how this has come about and how other things come about within you know the expanded development area. So half of the increase
Chris Stavros: and the development acreage that we cited came from the bolt-on acquisition.
Chris Stavros: While the other half came from, you know, success out of the appraisal program.
Chris Stavros: As I mentioned in my remarks.
Speaker Change: I mean, simply adding to our assessment and view of the development acreage.
Speaker Change: It's a long journey, and it doesn't simply happen overnight. So I'll try to give you this real-life example of sort of how it works, at least for us.
Chris Stavros: So I'll try to give you this real-life example of how it works, at least for us. So, in late 2021, maybe early 2022, we drilled one or two appraisal wells outside of our then development area in Gidding. 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 Change: So, in late 2021, maybe early 2022, we drilled one or two appraisal wells outside of our then-development area in Giddings.
Speaker Change: Our evaluation confirmed positive results. Later in 2022, we closed on an acquisition in this area accumulating a reasonable position.
Speaker Change: where we drilled a very successful pad earlier this year.
Chris Stavros: We've accumulated a 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
Speaker Change: And so our efforts around this are ongoing. We've accumulated significant acreage position with plenty to work on and we continue to do.
Speaker Change: Appraisal Activity each year as part of that drilling program, but the process can take a couple 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.
Speaker Change: Additional acreage to expand on that. We've done that with some success and I would expect that we'll continue to, you know, follow a similar process with time.
Chris Stavros: Great details. And my second question just on the reinvestment rate, I guess going forward, do you anticipate that it looks like that continues to be quite low? Do you anticipate the capital return change?
Speaker Change: 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?
Chris Stavros: Yeah, so it's interesting. I mean, we just passed our six-year anniversary, and over the six years, our reinvestment rate has been 47%. Our ceiling is sort of 55%. This is really the crux of the business model, this discipline, really the foundation of the business model for Magnolia, which delivers, you know, moderate growth and a lot of free cash flow. So I would expect to see nothing really very different as part of the plan for the remainder of this year and into next year.
Speaker Change: Yeah, so it's interesting, I mean,
Speaker Change: So we just passed our six year anniversary and over the six years our reinvestment rate has been 47 percent. Our ceiling is sort of 55 percent. This is really the crux of the business model, this discipline.
Speaker Change: It's really the foundation of the business model for Magnolia, which delivers, you know, moderate growth and a lot of free cash flow. So I would expect to see nothing really very different as part of the plan, you know, the remainder of this year and into next year.
Neal Dingmann: I love the stability. Thank you.
Speaker Change: Love the stability. Thank you.
Operator: Our next question comes from Phillips Johnson with Capital One. Please go ahead.
Speaker Change: Our next question comes from Phillips Johnson with Capital One. Please go ahead.
Phillips Johnson: 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 stable throughout the year. And I think in the past you've said that the oil mix should, you know, should continue to be a bit lumpy, just from quarter to quarter, but I just wanted to check in to see if we should be aware of any trends or nuances over the next few quarters.
Phillips Johnson: 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.
Phillips Johnson: Chris, you mentioned that your oil volume should remain pretty resilient throughout the year.
Speaker Change: And I think in the past you've said that oil mix should continue to be a bit lumpy just from quarter to quarter, but I just wanted to check in to see if we should be aware of any trends or nuances over the next few quarters.
Chris Stavros: Not necessarily. I'm pleased that, you know, the mix has been fairly steady, and overall oil production has been pretty steady and resilient. Some acquisitions that we've done and, you know, our activity program, certainly for this year, has been a little bit more oily. And so that's allowed things to hold up, I think, pretty well. You know, as you can see, our Giddings activity is a high proportion of our overall activity.
Speaker Change: Not necessarily, I mean, I'm pleased that
Speaker Change: You know, the mix has been fairly steady and the overall oil production has been pretty steady and resilient. Some acquisitions that we've done and
Speaker Change: You know, 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.
Chris Stavros: And so Giddings generally is a little less oily than, you know, the rest of the company. Um, but, you know, it sort of depends how we drill. I wouldn't, I wouldn't necessarily steer you in one direction, but I think for now... oil should hold up, you know, the production of oil should hold up pretty well for the remainder of the year, and I think into next year as well.
Speaker Change: You know, as you can see, our, our getting activity is a high proportion of our overall activity. And so getting generally is a little less oily than, you know, the rest of the company.
Speaker Change: But, you know, it sort of depends how we drill. I wouldn't necessarily steer you in one direction, but I think for now...
Speaker Change: Oil should hold up, you know, the production on oil should hold up pretty well for the remainder of the year and I think into next year as well.
Chris Stavros: Okay, that's really helpful. You know, it's early, obviously, for 2025. But for now, should we just assume a pretty steady program? It's sort of that two-rig, one-fract spread pace? And I guess, is there anything to keep in mind in terms of, you know, the geographic next shift or working interest or anything that sort of might affect the pace of growth, either faster or slower?
Speaker Change: Okay, that's really helpful.
Speaker Change: It's early, obviously, on 2025, but for now, should we just assume a pretty steady program at sort of that two-rig, one-fract spread pace? And I guess, is there anything to keep in mind in terms of...
Speaker Change: You know geographic next shift or working interest or anything that sort of might affect the pace of growth either, you know faster or slower
Chris Stavros: No, I think it's pretty steady just in terms of the two operated rigs and the one frack spread. So I would expect that that wouldn't change. You know, our cycle times continue to improve. We're getting more in the way of drilling efficiencies. You know, 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. But I don't I don't anticipate any significant or major changes or differences.
Chris Stavros: No, I.
Speaker Change: No, I think it's pretty steady just in terms of the two operated rigs and the one frag spread, so I would expect that that wouldn't change.
Speaker Change: You know, our cycle times continue to improve.
Speaker Change: We're getting more in the way of drilling efficiencies. You know, we'll continue, as I said in the earlier question or response, you know, we'll continue to look at some appraisal opportunities.
Operator: Our next question comes from Zach Parham with J.P. Morgan. Please go ahead.
Zach Parham: Good morning. I just wanted to ask about cash return. First, InterVest sold down some stock this past quarter and now doesn't have a lot left. You know, 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? Just curious about how you think about that.
Chris Stavros: Yeah, I'll have to think about that a little bit, you know, just in terms of, you know, pivoting one way or another, and, you know, on the share of purchases. I mean, to be quite frank, you know, we're certainly a little sensitive to the share price to some degree; prudence would dictate that. But, you know, just in terms of giving you a little sense of how I think about it, maybe I think about it a little differently.
Chris Stavros: You know, I do believe that having a consistent and ongoing share purchase program for Magnolia is important. For Magnolia, I have a lot of personal confidence in buying the shares because I know exactly what I'm buying. In addition, you know, there's been a tremendous cumulative benefit to repurchasing our shares over the past five years. So, as an example, the 60 million plus shares that we repurchased since 2019 have improved our per share earnings by 30% or about 50 cents a share.
Speaker Change: You know, I do believe that having a consistent and ongoing share purchase program for Magnolia is important, you know, certainly at least for Magnolia. I have a lot of personal confidence in buying the shares because I know exactly what I'm buying.
Speaker Change: has improved our per share earnings by 30% or about 50 cents a share. So if we trade at roughly 12 times earnings, that represents $6 a share of value in the stock. And that's sort of how I think about it, you know, to some extent, or I can't ignore that.
Chris Stavros: So, if we trade at roughly 12 times earnings, that represents $6 a share of value in the stock. And that's sort of how I think about it, you know, to some extent; I can't ignore that.
Chris Stavros: So, as we continue to buy in the shares, the program, it's also creating greater value for all the remaining shareholders. This repurchase program has created some scarcity in the shares, if you will. So when you know We were added to the S&P small cap 600 index this year and, you know, when that happened, the folks that run those indexes, they probably weren't distinguishing between the stocks at 25 or 26. They just added shares, and they created more demand for what's relatively a scarce share.
Speaker Change: You know, we were added to the S&P Small Cap 600 Index this year and
Speaker Change: You know, when that happened.
Speaker Change: You know, the folks that run those indexes, they probably weren't distinguishing between the stock at 25 or 26. They just added the shares and they created more demand for what what's relatively scarce share. So I've got to think about all these things.
Chris Stavros: So I've got to think about all these things in how we approach the share purchase program. And I think 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 of the business model. So as we continue to grow our production, which we call, you know, sort of mid-single digits over time, and we continue to buy in the shares, you know, call it 1% every quarter, thereabouts, you know, that that provides a greater ability to grow the dividend on a per share basis over time, the payout capacity, if you will.
Speaker Change: and how we approach the share purchase 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.
Speaker Change: The greater ability to grow the dividends on a per share basis over time, the payout capacity, if you will.
Chris Stavros: Thanks, Chris. And then I will 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 would have to have a decent step down in spending in 4Q. You know, is that the plan? You know, is there a frac holiday or some slowdown in activity planned? Just curious about how you're thinking about activity going into the back half of the year. Yeah, there's I wouldn't describe it as any
Speaker Change: And to hit the midpoint of the guidance range, you'd have to have a decent step down in spending in 4Q. Is that the plan? Is there a frack holiday or some slowdown in activity plan? Just curious on how you're thinking about activity going into...
Speaker Change: I wouldn't describe it as any frack holiday, not that I can see, I mean the spending each quarter can be a little bit lumpy depending on timing completions.
Speaker Change: as well as the timing of non-app activity, but I think, you know, it's fair to say that we expect to be in the upper half of the full year guidance range for capital this year.
Chris Stavros: Thanks. I really appreciate the call.
Operator: Our next question comes from Carlos Escalante with Wolf Research. Please go ahead.
Carlos Escalante: Okay, good morning, gentlemen. Thank you for taking my call.
Chris Stavros: Um, Chris, I, uh, I know it's not in your DNA to talk about specific locations or inventory depth, but I'd like to take a stab at it because you've provided some remarks in the past that in light of the recent expansion to get to 200,000 net acres, it's worth visiting. 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 2000 net acres, that's
Speaker Change: to talk about specific locations or inventory theft. But I like to take a stab at it because you've provided some remarks in the past that in light of the recent...
Speaker Change: Unknown Speaker, Chris Corales, Unknown Executive, Christopher Stavros, Jim Johnson, Unknown
Speaker Change: 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.
Chris Stavros: Yeah, I like the way you think, Carlos. But I mean, you're certainly right about one thing. It's that this whole conversation is sort of not in my bones.
Chris Stavros: So, um..., directionally, you're, you know, you're moving in the right direction. But, you know, extrapolating that necessarily in the exact same manner. I don't know if I would do that in the precise same way. But, you know, because in different basins, I would probably tell you, probably similarly, every acre is not necessarily created equal, and a lot can depend on a variety of variables and attributes. So, directionally, you're right. Um, but I'm not gonna start, you know, arm wrestling you over precise numbers or anything like that.
Speaker Change: 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. So, directionally, you're right.
Chris Stavros: No, 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 still there, and on capital that you will see production from that non-op allocation come online in 2025, early 2025. Can we have a sense of what a rateable amount of a penny on non-op is? Magnolia plans to have a point forward.
Chris Stavros: Yeah, 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, 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 the latter part of the year that should influence capital and volumes later, but
Speaker Change: forward information or on a very timely basis. I mean sometimes we get these things 30 to 60 days out so it's
Speaker Change: It's hard to say. It feels like there is a little bit of an uptick, like I suggested.
Speaker Change: for the back half of the year, for the latter part of the year,
Speaker Change: strong indication that it's it's changing for you know for a longer term or or into next year yet just yet
Speaker Change: Our next question comes from Oliver Wong with Tudor Pickering Halt. Please go ahead.
Operator: Good morning, Chris and Brian, and thanks for taking my questions.
Oliver Wong: Good morning, Chris and Brian, and thanks for taking my questions.
Oliver Wong: 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?
Chris Stavros: If you're asking But no, I think, towards getting that feeling for right now about what it'll look like. Okay, and
Speaker Change: If you're asking...
Speaker Change: Are we going to increasingly be shifting more to Giddings? I wouldn't necessarily go there.
Speaker Change: As a result of what's happening, you know, because of the appraisal program, this is all just part of how we think about the overall.
Speaker Change: But no, I think, you know, when you're when you're talking about allocating about roughly 80% of the money and activity
Speaker Change: Towards getting at that feels for right now about what it what it'll look like
Speaker Change: Okay, and just kind of to clarify for within gettings, 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 Change: I mean, maybe I you know, I have we haven't laid out the exact program yet for 2025. But But perhaps, I mean, it's a large, you know, couple 100,000 acres plus is a large area. And so
Speaker Change: We, there's a lot of things that we take into consideration when we look at, you know, planning and scheduling wells and where we'll drill exactly. But I would say we consider this all now a part of Giddings.
Speaker Change: 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. We hop to different areas around the 200,000 acres. We don't sort of, you know, proceed in any...
Chris Stavros: in an overly logical fashion that you might imagine. It just goes sort of back and forth, pointing out some additional opportunities.
Speaker Change: overly logical fashion that you might imagine. It just goes sort of back and forth.
Speaker Change: for different reasons.
Speaker Change: And, you know, and we'll continue to have some additional appraisal drilling as well that will likely bear out some additional opportunities.
Speaker Change: Okay, that makes sense. And for my second question, just 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's always very focused on managing costs.
Speaker Change: 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
Chris Stavros: Sure. Yeah, look, the, you know, the...
Chris Stavros: 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 here recently came from Workover optimization. Improving the utilization of some field equipment that included compressors and cooling units. In my remarks, I also mentioned the implementation of a field-level data management platform.
Speaker Change: Sure, yeah, look, the, you know, the,
Speaker Change: 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.
Speaker Change: In my remarks I also mentioned this implementation of a field-level data management platform.
Speaker Change: And this, you know, 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
Speaker Change: digitizes this procure-to-pay process.
Speaker Change: and so we've we've also implemented this platform now over water hauling and getting so going forward
Speaker Change: We plan to expand this to things like roustabout crews, oil hauling.
Speaker Change: and for most of the other field services that we use.
Chris Stavros: So the whole initiative around cost reduction will continue, and other areas that we'll push on include pursuing bids for processes for certain materials and equipment. You know, but like you said, we've made some strong early progress. I don't want to get too much ahead of ourselves on forecasting further large, significant gains. As you know, there's always things that can pop up and arise in the field. So I want to be mindful, you know, continually mindful of safety.
Speaker Change: So, the whole initiative around cost reduction, that will continue, and other areas that we'll push on include pursuing bids for processes for certain materials and equipment. Like you said, we've made some strong early progress, I don't want to get too much ahead of ourselves on forecasting further large.
Speaker Change: significant gains as you know there's always items that can pop up and arise in the field. So I want to be mindful you know continually mindful on safety. This is always a first priority for us.
Chris Stavros: 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 forecasting going forward right now. But you know, I'm proud of the guys and the progress that the field teams have made. And they've really done a terrific job embracing the whole initiative. So it's going well.
Speaker Change: While we're always looking to improve, I would say that at least maintaining these levels is probably fair for forecasting going forward right now.
Speaker Change: But you know, I'm proud of the guys and and progress that the field teams have made and they've they've really done a terrific job Embracing the whole initiative, so it's going well
Speaker Change: Thanks for the call. I appreciate the time, Chris. Sure.
Operator: Our next question comes from Noah Hungness with Bank of America. Please go ahead.
Speaker Change: Our next question comes from Noah Hongness with Bank of America. Please go ahead.
Noah Hungness: Morning all. Um, I just wanted to first ask about 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 give us any update there? Sure. Yeah.
Noah Hongness: Morning all. I just wanted to first ask about the your guys's 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 give us any update there?
Chris Stavros: Yeah, 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. You know, as part of our plan, we do have a modest amount of activity on some of these oilier acquired assets, and they've been integrated into our overall development plan and broader acquisition position.
Speaker Change: Yeah, I don't know if we
Speaker Change: I can't recall actually pointing out an appraisal well in Northern Giddings. I mean...
Speaker Change: Giddings in the north or part of Giddings in the northern area was part of an acquisition that we had done later last year.
Speaker Change: There's, there's...
Speaker Change: You know, as part of our plan, we do have a modest amount of activity on some of these earlier acquired assets.
Speaker Change: and they've been integrated into our overall development plan and broader gettings position.
Chris Stavros: But, you know, there's I can't tell you that there's specifically a lot of appraisal work going on there right now. There may be in the future, but there's nothing that I have to say exactly about that area in terms of appraisal right now.
Speaker Change: but you know 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 right now
Noah Hungness: Okay, good. And then for my second question, I just wanted to ask about cash taxes. You all mentioned nine to 10% for this year. Is that a good assumption moving forward as well into 2025?
Speaker Change: Okay, good. And then for my second question, I just wanted to ask on cash taxes. You all mentioned nine to ten percent for this year. Is that a good, is that a good assumption moving forward as well into 25 and beyond?
Speaker Change: Yeah for this year it's it's fine it's so dependent Noah on product prices very sensitive to that so
Speaker Change: In this sort of range, if this is what you're looking at, you know, 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.
Operator: Our next question comes from Paul Diamond with Citi. Please go ahead.
Noah: Great, thank you.
Speaker Change: [inaudible]
Speaker Change: Our next question comes from Paul Diamond with Citi. Please go ahead.
Paul Diamond: Good morning. Thanks for taking my taking the time. Just a quick one on the kind of portending off the bullpen acquisition. If you guys think across your 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?
Chris Stavros: Uh, it could be in a variety of different places. I'd rather not get overly specific by county or area. But, you know, 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 for opportunity.
Speaker Change: It could be in a variety of different places. I'd rather not.
Paul Diamond: understood, had a try. Yeah, thanks, I'll leave it there.
Speaker Change: You know, get overly specific by county or area, but, you know, again, I kind of described.
Speaker Change: The process that we go through when we do some appraisal work, and oftentimes some things that we see on the on the land side or the acquisition opportunity side.
Speaker Change: can come out of that. I'd rather not get...
Speaker Change: You know, too specific on a call.
Speaker Change: just in terms of what we're focusing on or looking at.
Speaker Change: It is competitive out there, but fair to say that the areas you mentioned are all fair game for opportunities.
Speaker Change: and others.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.