MGY

LLM Evaluations

Transcript Summary

Magnolia Oil & Gas (MGY) delivered a solid Q1 2026, featuring a 6% year-over-year production increase to 102,600 BOE/d. The company's Giddings asset continues to drive growth, now representing 82% of total production. Financial performance was highlighted by $253 million in EBITDAX and $146 million in free cash flow, supported by a low reinvestment rate of 51%. Management was particularly active in M&A, spending $155 million on bolt-on acquisitions that created a 10,000-acre contiguous block in the Karnes area and expanded interests in Giddings. Magnolia returned $83 million to shareholders through its base dividend and share repurchases, further aided by the elimination of Class B shares following EnerVest's exit. The company reaffirmed its 5% annual production growth target and its $440-$480 million capital budget. Remaining completely unhedged, Magnolia is well-positioned to capitalize on rising oil prices and favorable Gulf Coast pricing. CEO Christopher Stavros reiterated a commitment to capital discipline, opting to maintain a steady two-rig program rather than accelerating activity in response to price volatility, ensuring long-term sustainability and consistent shareholder returns.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Revenue Segments

Filing Risk Scores

Magnolia Oil & Gas: High-Quality Cash Flow Protected by Mature Corporate Governance

Full Earnings Call Transcript — Q1 • 2026-05-07

Operator: Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's first quarter 2026 earnings conference call. My name is Danielle, 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 Oil & Gas Corporation's management for the prepared remarks which will be followed by a brief question and answer session.
Tom Fitter: Thank you, Danielle, and good morning, everyone. Welcome to Magnolia Oil & Gas Corporation's first quarter 2026 earnings conference call. Participating on the call today are Christopher G. Stavros, Magnolia Oil & Gas Corporation's Chairman, President and Chief Executive Officer, and Brian Michael 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. 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. The full Safe Harbor can be found on Slide 2 of the conference call slide presentation with supplemental data on our website. You can download Magnolia Oil & Gas Corporation's first quarter 2026 earnings press release as well as the conference call slides from the Investors section of the company's website at magnoliaoilgas.com. I will now turn the call over to Christopher G. Stavros.
Christopher G. Stavros: Thank you, Tom, and good morning, everyone. Thank you all for joining us today for this discussion on our first quarter 2026 financial and operating results. I plan to briefly speak on our first quarter results, which provided a strong start to the year and consistent performance across our financial and operating metrics. I will then highlight what turned out to be a busy quarter for bolt-on oil and gas property acquisitions for Magnolia Oil & Gas Corporation, adding to our working interest and royalty interest in both of our operating areas by closing several deals during the quarter. I will finish by speaking to Magnolia Oil & Gas Corporation's 2026 capital and operating plan, which is well positioned during this period of product price volatility, driving incremental free cash flow and improving our financial flexibility. Brian will then review our financial results in greater detail and provide some additional guidance before we take your questions. Starting with Slide 3 in our quarterly investor presentation, Magnolia Oil & Gas Corporation delivered another strong and consistent quarter of execution across our financial and operating metrics, centered around our disciplined business model characterized by a low reinvestment rate, high operating margins, and moderate production growth. For the first quarter 2026, total company production volumes grew by 6% year over year to 102,600 barrels of oil equivalent per day, with oil production growing by 4% and averaging 40,700 barrels per day. Production in Giddings was the primary growth driver for the company with total Giddings production increasing 9% year over year and oil production showing growth of 8% over the same period. Giddings production volumes were a record for the company in the quarter. Giddings production currently accounts for approximately 82% of Magnolia Oil & Gas Corporation's total company volumes. The quarter was equally solid around our financial metrics, supported by growth in our oil and gas production and higher oil prices, for which our production is entirely unhedged. Our first quarter net income was approximately $101 million or $0.54 per diluted share with adjusted EBITDAX of $253 million. Drilling and completion capital for the period was roughly $129 million, providing a reinvestment rate of 51% of our adjusted EBITDAX. Pretax operating margins averaged 36% for the quarter. Our low reinvestment rate and high operating margins demonstrate our capital spending discipline, proactive cost management, and further capture of operational efficiencies. Magnolia Oil & Gas Corporation generated approximately $146 million of free cash flow during the first quarter and returned $83 million to our shareholders through a combination of our base dividend and our share repurchase program, where we bought back just over 1% of Magnolia Oil & Gas Corporation's outstanding shares during the period. Additionally, EnerVest, Magnolia Oil & Gas Corporation's original private equity shareholder, completed the sale of their remaining ownership position during the quarter. This action simplifies our capital structure through the elimination of any remaining Class B shares outstanding at the end of the first quarter. As shown on Slide 4, the first quarter turned out to be a busy period for acquisitions as we completed the purchase of several small bolt-on oil and gas property acquisitions in both our Karnes area and Giddings totaling $155 million. These transactions, which closed in the latter part of the first quarter, include roughly 6,200 net acres and approximately 500 BOE per day of low-decline PDP, about 45% oil, and with significant undeveloped upside opportunities located in highly productive areas where we currently operate and understand well. In our Karnes area, the acquired acreage creates a sizable and largely contiguous 10,000 gross acre block, primarily undeveloped and highly attractive acreage in the core of the Eagle Ford trend across both Karnes and Gonzales Counties. The acquired tracts increased our working interest in the area to approximately 93% with an average NRI of around 80%. At our current development pace in the Karnes area, this acquisition adds years of development locations and blocks up a large contiguous position in both Karnes and Gonzales Counties, allowing for longer lateral development. In Giddings, our successful ground game continues to increase our working interest and royalty interest by acquiring new acreage in and around our current operated position. The Giddings transactions increased our interest in approximately 45,000 gross acres in addition to adding some new contiguous acreage, furthering our strategy of buying more of what we already own. Each of these transactions leverages deep technical knowledge we gained from our drilling and completion activities in the field, while meaningfully extending our already robust inventory of high-return drilling locations, increasing our working interest in existing assets, and adding valuable duration to our overall resource portfolio. This further demonstrates our ability to deploy a portion of Magnolia Oil & Gas Corporation's excess cash flow into high-quality targeted opportunities. Our goal in pursuing these is intended to not simply replace produced reserves, but to expand our long-term opportunity set and reinforce the sustainability of our strong financial returns. We continue to actively seek out additional asset acquisition opportunities that improve our business using our technical experience in developing the Austin Chalk and Eagle Ford formations in South Texas that provide us with a clear competitive advantage. As I often mention, Magnolia Oil & Gas Corporation's primary goal is to be the most efficient operator of our best-in-class oil and gas assets to generate the highest return on those assets while spending the least amount of capital on drilling and completing wells. Magnolia Oil & Gas Corporation's high-quality assets and the strategy of discipline around capital spending should continue to serve us well during periods of product price volatility. Our capital allocation priorities, which include a low reinvestment rate and returning a significant amount of our free cash flow to shareholders, remain unchanged. We are maintaining our original activity plan of running two rigs and one completion crew, which is expected to deliver total production growth of approximately 5% in 2026 and within the same range of drilling and completion capital we outlined earlier this year. Some of this year's activity is expected to occur on the recently acquired acreage. Oil price differentials have narrowed significantly in recent weeks, which should provide us with higher oil price realizations in the second quarter and similar to the Magellan East Houston benchmark, which is currently higher than the price of WTI. Beyond the benefit of higher oil prices, Magnolia Oil & Gas Corporation is well positioned for success through the consistent execution of our business model. The absence of commodity hedges on all our production is expected to translate into higher earnings and free cash flow in the current quarter, adding to our significant financial flexibility. I will now turn the call over to Brian to provide further details on the quarter and some additional guidance.
Brian Michael Corales: Thanks, Chris, and good morning, everyone. I will review some items from our first quarter results and refer to the presentation slides found on our website. I will also provide some additional guidance for 2026 before turning it over for questions. Beginning on Slide 6, Magnolia Oil & Gas Corporation delivered an excellent quarter as we continue to execute on our differentiated business model. During the first quarter, we generated net income of $101 million or $0.54 per diluted share. Our adjusted EBITDAX for the quarter was $253 million with total capital associated with drilling, completions, and associated facilities of $129 million, representing 51% of our adjusted EBITDAX. First quarter production volumes grew 6% year over year to 102,600 barrels of oil equivalent per day, while generating free cash flow of $146 million. Looking at the quarterly cash flow waterfall chart on Slide 7, we started the quarter with $267 million of cash. Cash flow from operations before changes in working capital was $247 million with working capital changes and other small items impacting cash by $23 million. During the quarter, we paid dividends of $31 million and allocated $53 million towards share repurchases. We incurred $128 million on drilling, completions, associated facilities, and leasehold, and added $155 million of small bolt-on acquisitions comprised of additional acreage, working interest, and royalties. We ended the quarter with $124 million of cash. Looking at Slide 8, this chart illustrates the progress in reducing our total outstanding shares since we began our repurchase program in 2019. Since that time, we have repurchased 83.7 billion shares, leading to a change in weighted average diluted shares outstanding of 28% net of issuances. Magnolia Oil & Gas Corporation's weighted average diluted share count declined by approximately 2 million shares sequentially, averaging 185.9 million shares during the first quarter. We currently have 11.6 million shares remaining under our repurchase authorization, which are specifically directed toward open market repurchases. Turning to Slide 9, our dividend has grown substantially over the past few years, including a 10% increase announced in early 2026 to $16.5 per share on a quarterly basis. Our next quarterly dividend is payable on June 1 and provides an annualized dividend payout rate of $0.66 per share. Our plan for annualized dividend growth is an important part of Magnolia Oil & Gas Corporation'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 Oil & Gas Corporation continues to have a very strong balance sheet and we ended the quarter with $124 million of cash. Our $400 million of senior notes does not mature until 2032. Including our first quarter ending cash balance of $124 million and our undrawn $450 million revolving credit facility, our total liquidity is approximately $574 million. Our condensed balance sheet as of March 31 is shown on Slide 10. Turning to Slide 11 and looking at our per-unit cash costs and operating income margin, total revenue per BOE declined approximately 4% year over year due to the decline in NGL and natural gas prices, partially offset by a small increase in oil price. Our total adjusted cash operating costs, including G&A, were $11.57 per BOE in 2026 and our operating income margin for the first quarter was $13.84 per BOE, 36% of our total revenue. Turning to guidance, second quarter D&C capital is expected to be between $120 million and $125 million, and we are reiterating our full-year budget we outlined in February of $440 million to $480 million. In addition, we are reiterating our full-year 2026 outlook for total production growth of approximately 5%. Total production for the second quarter is estimated to be approximately 105,000 BOE per day. Oil realizations have improved and we are anticipating prices for the second quarter to be similar to Magellan East Houston benchmark pricing. Magnolia Oil & Gas Corporation remains completely unhedged for all its oil and natural gas production and is benefiting from the improvements to oil prices. The fully diluted share count for 2026 is expected to be 185 million shares, which is 4% lower than second quarter 2025 levels. We expect our effective tax rate to be approximately 21% and our cash taxes for 2026 to be in the mid-single-digit range. We will now open the call for questions.
Operator: We will now open the call for questions. If at any time your question has been addressed and you would like to withdraw your question, please follow the prompts. The first question comes from Neal Dingmann from William Blair. Please go ahead.
Neal Dingmann: Good morning, guys. Nice quarter. Chris, my first question is on the very interesting recent bolt-ons that you have done. Specifically, could you talk about any color on how much you are able to add on the Karnes side and whether doing this changes upcoming activity plans specifically in that play?
Christopher G. Stavros: Good morning, Neal. Thanks. The important takeaway for me and for us on the Karnes transaction specifically is that we were able to pull this together. It was really a tactical commercial transaction that was a bit unique. We were able to create this 10,000-acre contiguous block of acreage. It is largely undeveloped, very high working interest, advantageous NRI, located in a very good area. The undeveloped contiguous nature of the acreage really provides us with multiple years of drilling. Now I could probably count it on my hand in terms of what it adds to us as far as years and beyond. It is sort of a blank canvas, the way I would describe it, and allows us to optimally develop the asset. Regarding our plans going forward, it is not going to change our overall allocation around activity or capital or proportional view, but it is going to be easily worked into our drilling program, and I would imagine sooner rather than later.
Neal Dingmann: Perfect. And then my second question on Giddings development: could you talk a bit about what the average pad size and well cost is in that play? Would you consider that you are now in full development in that play, and if so, how do the economics today compare to a couple of years ago when you were newer in the play and doing more testing and drilling more one-off wells?
Christopher G. Stavros: On the pad size, we have been pretty close to optimizing that. Occasionally some of the pads are a little higher or a little lower, but on average they are three- to four-well pads and that is over the full development of that 240,000-acre development area that we speak of. Occasionally there could be a five-well pad or a six-well pad or a three-well pad or a two-well pad, but on average, about three to four is optimal. As far as the economics, they are better than they were earlier because we have gotten more capital efficient. We know the play better, we have tightened some things up, and we are drilling and completing faster. We continue to do that, so I think the economics are broadly better.
Operator: The next question comes from Phillip Jungwirth from BMO. Please go ahead.
Phillip Jungwirth: Thanks. Good morning. Coming back to the Karnes bolt-on, having this large 10,000-acre undeveloped contiguous block, could you talk about how you see the development scheme here, whether it is wells per DSU, lateral lengths, or the zones you can target, given there is generally a lot of resource in this area?
Christopher G. Stavros: We are getting around the wells per DSU. We are still not quite there yet. The laterals will be approaching 10,000 feet in some cases and beyond. That is substantially more than what we have typically been able to do in the Karnes area generally.
Phillip Jungwirth: Okay, great. And you noted an active quarter for A&D and that you will actively seek out additional acquisition opportunities to improve the business and leverage technical expertise. Given that you have grown the company significantly over the years, is there an upper limit on transaction size, and could you remind us on balance sheet parameters if you would consider larger-sized transactions?
Christopher G. Stavros: It really depends on what is out there. We do look at everything, but the plan is not to shock and awe. It is not about that. You are not going to wake up one day and find us looking at out-of-basin deals. My objective is to run a public company prudently, building trust and faith within our shareholder base in terms of what we are doing. All of what we look at is really what we understand and within our ability to manage in and around our neighborhood. We should know it well. The size really depends on what is out there and how it fits into our art of the possible, if you will. As you would imagine, with pricing doing what it has done, there are probably more things available, but it depends on how it looks and how it fits.
Phillip Jungwirth: Makes sense. Thanks.
Operator: The next question comes from Peyton Rogers Dorne from UBS. Please go ahead.
Peyton Rogers Dorne: Hey, guys. Thanks a lot for getting me on. You are keeping the budget unchanged here. I know the preference is not to add rigs or crews writ large. I am curious about the opportunity to maybe accelerate some workovers or timing at the tails across the asset base to take advantage of the higher oil prices we have seen year to date. Thanks.
Christopher G. Stavros: We could certainly consider some of those things, whether it is a little bit more appraisal or maybe even an exploration well. The arithmetic on drilling faster or adding more activity at current oil prices is certainly not lost on me. I get it. I have been doing this for a long time. I view this more as a marathon, not a sprint. You never know what is right around the bend. With every barrel we accelerate and pull forward, it simply means I have to replace that barrel that much quicker, and it creates a little bit of added tension in terms of the higher rate of decline that we face. We are planning to grow about 5% this year, which is probably a little higher than most. We have a reasonable chance of surprising a little higher because of good well performance. I would probably take the over on that one. If we were to add anything new, as you said, it would probably be a little bit more on the appraisal work side. Maybe workovers, less incremental, or maybe even an exploration well. But I would not expect a dramatic shift or change because of the price per se. However, at current oil prices, it also would not surprise me to see a little bit more non-op activity as well.
Peyton Rogers Dorne: Okay, great. And then knowing the recent acquisition and some of the past transactions, you highlighted the pickup of some royalty interest across the leasehold. Could you quantify the total royalty acreage you have right now? And do you see acquisitions of royalties or mineral interests becoming a larger part of the acquisition strategy on a go-forward basis?
Christopher G. Stavros: If you are speaking to something where acquiring royalties is really more of an event that leads to monetization or a financial opportunity, the answer is not really. This is about enhancing our own economics.
Brian Michael Corales: If you look at it, we do have relatively high NRI, especially at Giddings. It is definitely 5-plus thousand BOE per day in terms of production that is straight from royalties, and that really enhances our margin. The ultimate goal is to control as much as you can and have the highest margins you can. Whether it is royalties or higher working interest, we want to own more of what we have. That is helpful and makes sense from an economic perspective.
Peyton Rogers Dorne: Thanks for having me on.
Operator: The next question comes from Carlos Escalante from Wolfe Research. Please go ahead.
Carlos Escalante: Hey, good morning, Brian, Chris, and Tom. I wanted to circle back on the deal. You have gotten a lot of questions this morning, but I am curious to hear your perspective on how you thought this deal cleared at this price, because you typically do not see M&A at peak oil prices if you believe this is the peak or we are close to some kind of peak. So if acreage of this quality is clearing at this price, what does that say about the broader bid-ask in Karnes and also Giddings? And how deep is the pipeline of similar opportunities relative to when we last talked to you last quarter, considering the move in commodity pricing?
Christopher G. Stavros: Good morning, Carlos. Thanks for the question. I never said that it cleared at current prices. We were in conversations around this for a period of time, and sometimes it is better to be fortunate than good. What I would tell you about the bid-ask is, as you can imagine, it is clearly easier if you are a seller to come to market now with the hope or belief that you will find willing acquirers of assets. There are lots of things out there. It is really—I would not say a seller's market so much—but in terms of availability or opportunities coming, whether they are in processes or one-off opportunities, there is a lot to be had if you want it. The way I think about it is it has to make sense. When we look at anything for Magnolia Oil & Gas Corporation, it needs to support our business model, have characteristics that look similar to what we already are, and frankly improve us. I always joke a little bit: the objective of any acquisition is to make you better, not worse. There can be unique one-off opportunities, irrespective of the price that it may clear at, that still work for some, depending.
Carlos Escalante: That is helpful on motivation and timing. As a follow-up, on realizations as a whole: I am looking for some validation that the second half of this year, when we bring so much Permian gas to market, that the sell points you use for your gas will not be affected. You have had thoughtful commentary around that before, but as we get close to those pipelines coming to market, do you have any new perspectives on what the dynamics will be on the natural gas front?
Christopher G. Stavros: The new perspective is really gained through the experience of the old perspective or the old outcome. Oftentimes we get these questions on infrastructure that comes on, that could create changes in realizations or free up supply. Specific to what you are talking about, last year when Matterhorn came on, there was concern that it would have an impact, yet it did not. You are seeing what is going on in Waha most recently, and here we are. I do not know the true answer, but my experience suggests that it may not be all that different than what occurred a year ago, irrespective of what is happening right now.
Brian Michael Corales: I would also add, for both oil and gas, we sell our products at the market, on the water, very close to where our products are sold. The tolling fees are less and the pricing is attractive. You are seeing that in the oil market today at Ship Channel. We are happy with the markets where we sell.
Carlos Escalante: Always appreciate the color. Thank you.
Operator: The next question comes from Analyst from Goldman Sachs. Please go ahead.
Analyst: Yes. Good morning, Chris and team. First question is around capital returns to shareholders, specifically the repurchase. You bought back another 2 million shares in the first quarter. Your perspective on the buyback here and how it fits into the tools you have to create shareholder value?
Christopher G. Stavros: It has been part of the model, and frankly its compounding effects are enormously beneficial in terms of helping us with dividend growth and growth per share in the dividend by reducing the actual cash outlays while you grow the dividend on a higher per-share rate. It is part of the same ABCs of what we do in our model, and I see it as part of a consistent plan for us. I do not see that going away. I think it is at a size that is appropriate for what we are and what we are capable of doing and delivering consistently. Our shareholders like it. It rewards the remaining holders, of which I am one, and I enjoy it too. I think it is a good way to create shareholder value over time.
Analyst: Got it. As a follow-up on the dividend: you talk about at least 1% of the stock getting bought back every quarter over the long term, and a 10% long-term dividend growth rate. How do you feel about that double-digit level, and is there potential for upside if we end up in a higher-for-longer environment, given the strength of the balance sheet?
Christopher G. Stavros: I try to catch myself on creating targets. The target is somewhat artificial in a way, but it is designed to speak to what the business is capable of doing. If the business grows mid-single digits, which I would define as 4%, 5%, 6%, and then you are buying back 1% of your shares per quarter, it is built into the investment proposition of what we are doing. The dividend growth is an outcome of what I just said around the volume growth and the share repurchases. It sort of just falls out of the model.
Analyst: Makes sense, Chris. Thanks.
Operator: This concludes our question and answer session, and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.