What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-05-11 compared with 2019-11-05 · 126 added, 284 removed, 103 unchanged (80% of the section changed)

7 unchanged sentences

Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, Magnolia’s assumptions about:

the length, scope and severity of the recent coronavirus disease 2019 (“COVID-19”) pandemic, and the impacts of the competition between Russia and Saudi Arabia for crude oil market share, including the effects of related public health concerns and the impact of actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices, supply and demand considerations, and storage capacity;

the market prices of oil, natural gas, natural gas liquids (“NGLs”), and other products or services;

14 unchanged sentences

All of Magnolia’s forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected.

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors

and the timing of any of those risk factors identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 27, 2019.

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 26, 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s unaudited consolidated financial statements and the related notes thereto.

Magnolia Oil & Gas Corporation (the "Company" or "Magnolia") is a Delaware corporation formed in February 2017 as a special purpose acquisition company under the name TPG Pace Energy Holdings Corp.

for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.

Magnolia’s business model was designed with a primary objective to generate stock market value over the long term.

The Company’s strategy is to establish a company whose characteristics would demonstrate a certain basic set of criteria that appeal to generalist investors and to generate growing earnings per share over time, high operating and full cycle margins, and maintain a very strong balance sheet with a low amount of leverage.

On July 31, 2018, the Company and Magnolia Oil & Gas Parent LLC (“Magnolia LLC”), as applicable, consummated the acquisition of:

(i) certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the "Karnes County Assets") pursuant to that certain Contribution and Merger Agreement (as subsequently amended, the "Karnes County Contribution Agreement"), by and among the Company, Magnolia LLC and certain affiliates (the "Karnes County Contributors") of EnerVest Ltd.

("EnerVest");

(ii) certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk (the "Giddings Assets") pursuant to that certain Purchase and Sale Agreement (the "Giddings Purchase Agreement") by and among Magnolia LLC and certain affiliates of EnerVest (the "Giddings Sellers");

and (iii) a 35% membership interest (the “Ironwood Interests”) in Ironwood Eagle Ford Midstream, LLC, a Texas limited liability company, which owns an Eagle Ford gathering system, pursuant to that certain Membership Interest Purchase Agreement, by and among Magnolia LLC and certain affiliates of EnerVest (the "Ironwood Sellers") (collectively, the “Business Combination”).

In connection with the consummation of the Business Combination, on July 31, 2018, the Karnes County Contributors received 83.9 million shares of Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”), 31.8 million shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), and approximately $911.5 million in cash;

the Giddings Sellers received approximately $282.7 million in cash;

and the Ironwood Sellers received $25.0 million in cash.

On March 29, 2019, Magnolia and EnerVest consummated the final settlement of the Business Combination, with Magnolia LLC receiving a net cash payment of $4.3 million in cash and the Karnes County Contributors forfeiting to Magnolia 0.5 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock (and forfeiting a corresponding number of Magnolia LLC Units to Magnolia LLC).

In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company has been identified as the acquirer in the Business Combination and the Karnes County Business was deemed to be the accounting “Predecessor”.

The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting based on the fair value of net assets acquired.

As a result of the application of the acquisition method of accounting, the Company’s consolidated and combined financial statements and certain presentations of information therein are separated into two distinct periods to indicate the different ownership and accounting basis between the periods presented, the period before the consummation of the Business Combination, which includes the period from January 1, 2018 to July 30, 2018 (the “Predecessor Period”), and the period after the Business Combination, which includes the period from July 31, 2018 to September 30, 2018 (the “2018 Successor Period”), and the three and nine months ended September 30, 2019 (the “2019 Successor Period”).

The Company operates in one reportable segment and is engaged in the acquisition, development, exploration, and production of oil and natural gas properties located in the United States.

Magnolia Oil & Gas Corporation (the “Company” or “Magnolia”) is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and natural gas liquid (“NGL”) reserves that operates in one reportable segment located in the United States.

The Company's oil and natural gas properties are located primarily in Karnes County and the Giddings Field in South Texas, where the Company primarily targets the Eagle Ford Shale and the Austin Chalk formations.

As of September 30, 2019 , Magnolia’s assets in South Texas included 21,946 net acres in Karnes, Gonzales, DeWitt, and Atascosa counties and 428,682 net acres in the Giddings Field.

As of September 30, 2019 , Magnolia held an interest in approximately 1,618 gross wells ( 1,128 net), with total production of 66.3 thousand barrels of oil equivalent per day (“Mboe/d”) for the nine months ended September 30, 2019 .

In the third quarter of 2019, Magnolia operated two drilling rigs across its acreage, one rig in Karnes County and one rig in the Giddings Field.

Magnolia’s production averaged 71.3 Mboe/d for the third quarter of 2019, a 9.5% increase compared to 65.1 Mboe/d in the second quarter.

Third quarter oil production averaged 53.7% of total volumes.

In July, 2019, the Company exchanged all of its warrants for an aggregate of 9.2 million shares of Class A Common Stock.

For more information, see Note 11 - Stockholders’ Equity in the Company’s unaudited consolidated financial statements included in this Quarterly Report.

Magnolia recognized net income attributable to Class A Common Stock of $7.8 million and $39.3 million , or $0.05 and $0.24 per diluted common share, for the three and nine months ended September 30, 2019, respectively.

Net income attributable to Class A Common Stock for the three and nine months ended September 30, 2019 was reduced by $2.8 million related to the non-cash deemed dividend as a result of the warrant exchange.

Magnolia also recognized net income of $17.4 million and $71.4 million , which includes noncontrolling interest of $6.8 million and $29.3 million related to the Class B Common Stock held by certain affiliates of EnerVest for the three and nine month 2019 Successor Period ended September 30, 2019, respectively.

On August 5, 2019, the Company’s Board of Directors authorized a share repurchase program of up to 10 million shares.

Magnolia’s objective is to generate stock market value over the long term through consistent organic production growth, high full cycle operating margins, an efficient capital program with short economic paybacks, significant free cash flow after capital expenditures, and effective reinvestment of free cash flow.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments such as the one the Company is currently experiencing.

COVID-19 Pandemic and Market Conditions Update

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions, and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil and natural gas.

Furthermore, in the midst of the ongoing COVID-19 pandemic, the competition between Russia and Saudi Arabia for crude oil market share caused a substantial increase in supply.

As a result, the price of oil has remained extremely depressed and available storage and transportation capacity for production is increasingly limited and may be completely unavailable in the near future.

The imbalance between the supply of and demand for oil, lack of available storage, as well as the uncertainty around the extent and timing of an economic recovery, have caused extreme market volatility and a substantial adverse effect on commodity prices.

Magnolia’s business, like many oil and natural gas producers, has been, and is expected to continue to be, negatively affected by the crisis described above, which is ongoing and evolving.

The Company has not entered into any hedging arrangements with respect to the commodity price risk to which the Company is exposed and the prices ultimately realized for oil, natural gas, and NGLs are based on a number of variables, including prevailing index prices attributable to the Company’s production and certain differentials to those index prices.

Magnolia is unable to reasonably predict when, or to what extent, commodity prices and the overall markets and global economy will stabilize, and the pace of any subsequent recovery for the oil and gas industry.

Further, the ultimate impact that these events will have on Magnolia’s business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous evolving factors that cannot be predicted, including the duration of the pandemic.

Magnolia has taken steps and continues to actively work to mitigate the evolving challenges and growing impact of both the COVID-19 pandemic and the industry downturn on its operations, financial condition, and people.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments.

The Company’s ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low leverage.

Magnolia currently expects its drilling and completion capital outlays for the remainder of the year to be less than those in the first quarter of 2020.

As a result, the Company has reduced its rig count to one rig in the Giddings assets.

If the current commodity price environment persists, Magnolia expects to cease its remaining drilling and completion activity across its asset base.

The Company is well positioned to reduce operations given the significant flexibility within its capital program, as its operated drilling rig is on a short-term contract and the Company has no long-term service obligations.

Moreover, Magnolia does not have any contractual drilling obligations and nearly all the Company’s acreage is held by production.

In response to the COVID-19 pandemic and industry downturn, Magnolia has initiated a corporate-wide cost reduction program to help decrease costs throughout every aspect of the Company.

The Company has made reductions in general and administrative expense by reducing corporate salaries by approximately ten percent, renegotiating the fees with the Services Agreement, and continues to work with many of its other vendors and suppliers to reduce the cost of their services in order to improve the Company’s margins.

Magnolia believes these measures, taken together with its significant liquidity and lack of near term debt maturities, will provide additional flexibility in navigating the current volatile environment;

however, given the tremendous uncertainty and turmoil, there is no certainty that the measures Magnolia takes will be sufficient.

As a producer of oil and natural gas, Magnolia is recognized as an essential business and has continued to operate while taking steps to protect the health and safety of its workers.

Magnolia and its contractors have implemented protocols to reduce the risk of an outbreak within its operations, and these protocols have not reduced production or efficiency in a significant manner.

Magnolia’s non-field level employees have the option to temporarily work remotely, and Magnolia has been able to maintain a consistent level of effectiveness through these arrangements, including maintaining day-to-day operations, financial reporting systems, and internal control over financial reporting.

Business Overview

As of March 31, 2020 , Magnolia’s assets in South Texas included 42,968 gross ( 23,535 net) acres in Karnes, Gonzales, DeWitt, and Atascosa Counties, Texas, and 630,787 gross ( 428,778 net) acres in the Giddings Field.

As of March 31, 2020 , Magnolia held an interest in approximately 1,792 gross ( 1,181 net) wells, with total production of 68.4 thousand barrels of oil equivalent per day (“Mboe/d”) for the three months ended March 31, 2020 .

In the first quarter of 2020, Magnolia operated a one-rig program for the Karnes County Assets and a one-rig program for the Giddings Assets.

Magnolia recognized a net loss attributable to Class A Common Stock of $1.2 billion , or $7.34 per diluted common share, for the three months ended March 31, 2020 .

Magnolia recognized a net loss of $1.9 billion , which includes noncontrolling interest of $0.7 billion related to the Magnolia LLC Units (and corresponding Class B Common Stock) held by certain affiliates of EnerVest for the three months ended March 31, 2020 .

On August 5, 2019, the Company’s board of directors authorized a share repurchase program of up to 10 million shares of Class A Common Stock.

The program does not require purchases to be made within a particular timeframe.

During the three and nine months ended September 30, 2019 , the Company repurchased 950 thousand shares at a weighted average price of $10.23 , for a total cost of approximately $9.7 million .

As of March 31, 2020 , the Company had repurchased 2.0 million shares under the plan at a cost of $16.8 million , 1.0 million of which were repurchased in the first quarter of 2020 at a cost of $6.5 million .

As a result of the sharp decline in commodity prices during the first quarter of 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties.

Proved property impairment of $1.4 billion is included in “Impairment of oil and natural gas properties” and unproved property impairment of $0.6 billion is included in “Exploration expense” on the Company’s consolidated statement of operations for the three months ended March 31, 2020.

Results of Operations

Factors Affecting the Comparability of the Historical Financial Results

The 2018 and 2019 Successor Period financial statements reflect a new basis of accounting for the assets acquired and liabilities assumed by the Company in the Business Combination that is based on their fair value.

As a result, the statement of operations subsequent to the Business Combination includes depreciation and amortization expense on Magnolia’s property, plant, and equipment balances made under the new basis of accounting.

Therefore, the Company’s financial information prior to the Business Combination may not be comparable to its financial information subsequent to the Business Combination.

Certain other items of income and expense may not be comparable as a result of the following factors:

For the periods prior to July 31, 2018, the results of operations reflect the results of solely the Predecessor, which, as described above, consists of only the results of the Karnes County Business, including, as applicable, its ownership of the Ironwood Interests, when the Predecessor was not owned by the Company, and do not include the results of the Giddings Assets;

The results of operations of the Predecessor were not previously accounted for as the results of operations of a stand-alone legal entity, and accordingly have been carved out, as appropriate, for the periods presented.

The results of operations of the Predecessor therefore include a portion of indirect costs for salaries and benefits, depreciation, rent, accounting, legal services, and other expenses.

In addition to the allocation of indirect costs, the results of operations reflect certain agreements executed by the Karnes County Contributors for the benefit of the Predecessor, including price risk management instruments.

For more information, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

These allocations may not be indicative of the cost of future operations or the amount of future allocations;

The Predecessor completed the acquisition of certain assets from GulfTex Energy III, L.P.

and GulfTex Energy IV, L.P.

on March 1, 2018 during the Predecessor Period, and accordingly the results of operations of the Predecessor reflect the impact of the assets acquired in that acquisition only from their respective acquisition date;

As a corporation, the Company is subject to U.S.

federal income taxes at a statutory rate of 21% of pretax earnings whereas the Karnes County Contributors were treated as partnerships for income tax purposes.

As a result, items of income, expense, gains and losses flowed through to the owners of the Karnes County Contributors and were taxed at the owner level.

Accordingly, no U.S.

tax provision for federal income taxes is included in the financial statements of the Predecessor;

On August 31, 2018, the Company acquired substantially all of the South Texas assets of Harvest Oil & Gas Corporation (the “Harvest Acquisition”) for approximately $133.3 million in cash and 4.2 million shares of the Company’s Class A Common Stock.

The Harvest Acquisition added an undivided working interest across a portion of the Karnes County Assets and all of the Giddings Assets;

On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC, to complete the acquisition of a 72% working interest in the Eocene-Tuscaloosa Zone, Ultra Deep Structure gas well located in St.

Martin Parish, Louisiana (the “Highlander Well”);

The financial results for the Successor Period reflect the adoption of ASU No.

2014-09, Revenue from Contracts with Customers, which the Company adopted on December 31, 2018 and applied to all periods presented in the Successor Period.

The Predecessor Period continues to be reported under the accounting standards in effect for that period.

As a result of the factors listed above, the combined historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results.

Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

Magnolia’s historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, as a result of the following factors:

The Company incurred a net loss of $1.9 billion for the quarter ended March 31, 2020 compared to net income of $22.7 million for the quarter ended March 31, 2019.

The net loss was primarily a result of impairments of $1.9 billion related to proved and unproved oil and natural gas properties for the quarter ended March 31, 2020;

On February 21, 2020, the Company completed the acquisition of certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas, for approximately $71.3 million in cash, subject to customary closing adjustments;

On May 31, 2019, the Company completed the acquisition of certain oil and natural gas assets located in the Company’s Karnes County Assets for approximately $36.3 million in cash and approximately 3.1 million shares of the Company’s Class A Common Stock;

On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC (“Highlander”), to complete the acquisition of a 72% working interest in the Eocene-Tuscaloosa Zone, Ultra Deep Structure gas well located in St.

Martin Parish, Louisiana (the “Highlander Well”), in which MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85% of the units, with the remaining 15% attributable to noncontrolling interest.

As a result of the factors listed above, the historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results.

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Oil, Natural Gas and NGL Sales Revenues.

The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes.

This table shows production on a barrels of oil equivalent (“boe”) basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six thousand cubic feet of natural gas (“Mcf”) to one barrel.

This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel.

This ratio may not be reflective of the current price ratio between the two products.

1 unchanged sentence

Three Months Ended

September 30, 2019

July 31, 2018

September 30, 2018

July 30, 2018

Natural gas (MMcf)

Average daily production:

Natural gas (Mcf/d)

NGLs (Bbls/d)

Total (boe/d)

Natural gas revenues

Natural gas liquids revenues

Total revenues

Average Price:

Oil (per barrel)

Natural gas (per Mcf)

NGLs (per barrel)

Oil revenues were 85% , 80% , and 89% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Oil revenues for the 2019 Successor Period were $3.8 million lower compared to the combined 2018 Successor Period and Predecessor Period due to a 19% decrease in average prices partially offset by 21% higher production.

The higher volumes are attributable to the inclusion of the Giddings Assets, recent acquisitions, and continued development.

Oil production was 54% , 56% , and 72% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas revenues were 9% , 8% , and 5% of the Company's total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas revenues for the 2019 Successor Period were $4.2 million higher compared to the combined 2018 Successor and Predecessor Period due to a 66% increase in natural gas production primarily attributable to the Successor’s inclusion of the Giddings Assets and the acquisition of the Highlander Well, partially offset by a 25% decrease in average

Natural gas production was 27% , 25% , and 15% of total production volume for the 2019 Successor Period, 2018 Successor Period and the Predecessor Period, respectively.

Natural gas liquids revenues were 6% , 12% , and 6% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

NGL production was 19% , 19% , and 13% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas liquids revenues for the 2019 Successor Period were $10.6 million lower compared to the combined 2018 Successor Period and Predecessor Period due to a 60% decrease in average prices, partially offset by 49% higher production.

The higher production volumes are primarily attributable to the Successor’s inclusion of the Giddings Assets, recent acquisitions, and continued development.

Operating Expenses and Other Income (Expense) .

The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

(In thousands, except per unit data)

March 31, 2020

Three Months Ended

September 30, 2019

July 31, 2018

September 30, 2018

July 30, 2018

Operating Expenses:

Lease operating expenses

Gathering, transportation and processing

Taxes other than income

Exploration expenses

Asset retirement obligations accretion

Depreciation, depletion and amortization

Amortization of intangible assets

General and administrative expenses

Transaction related costs

Total operating costs and expenses

Other Income (Expense):

Income (loss) from equity method investee

Interest expense, net

Gain on derivatives, net

Other income (expense), net

Total other income (expense)

Average Operating Costs per Boe:

Lease operating expenses

Gathering, transportation and processing

Taxes other than income

Exploration costs

Asset retirement obligation accretion

Depreciation, depletion and amortization

Amortization of intangible assets

General and administrative expenses

Transaction related costs

Lease operating expenses are the costs incurred in the operation of producing properties which include expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies.

Lease operating expenses were $24.3 million , $11.0 million , and $3.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Lease operating expenses were $3.71 per boe, $3.07 per boe, and $2.95 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Lease operating expenses for the 2019 Successor Period were $9.6 million higher than the combined 2018 Successor Period and Predecessor Period primarily due to the inclusion of the Giddings Assets, recent acquisitions, and continued development.

The higher cost per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor

Period was primarily due to the inclusion of the Giddings Assets as the Giddings Assets deliver less production per well than the Karnes County Assets, resulting in lease operating costs spread over fewer volumes.

Gathering, transportation and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market.

Cost levels of these expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing.

Gathering, transportation and processing costs were $9.3 million , $5.4 million , and $2.2 million for the 2019 Successor Period, the 2018 Successor Period and the Predecessor Period, respectively, or $1.41 , $1.49 , and $1.79 on a per boe basis.

The $1.7 million higher costs in the 2019 Successor Period, compared to the combined 2018 Successor Period and Predecessor Period, were primarily due to the inclusion of the Giddings Assets as the Giddings Assets produce more gas than the Karnes County Assets and require more gathering, transportation, and processing than the Karnes County Assets.

The lower cost per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period was primarily attributable to the adoption of the new revenue recognition requirements.

Taxes other than income include production and ad valorem taxes.

These taxes are based on rates primarily established by state and local taxing authorities.

Production taxes are based on the market value of production.

Ad valorem taxes are based on the fair market value of the mineral interests or business assets.

Taxes other than income were $13.3 million , $9.4 million , and $2.1 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The $1.9 million higher taxes other than income incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period are primarily due to higher fair market values of mineral interest and business assets.

Taxes other than income were $2.03 per boe, $2.60 per boe, and $1.67 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The lower costs per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to lower production taxes in the 2019 Successor Period.

Exploration costs are geological and geophysical costs that include seismic surveying costs, costs of unsuccessful exploratory dry holes, costs of expired or abandoned leases, and delay rentals.

Exploration expenses of $3.9 million in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were $7.3 million lower primarily as a result of a one-time purchase of a seismic license continuation in connection with the Business Combination in the 2018 Successor Period.

Asset retirement obligation accretion was $1.0 million higher during the 2019 Successor Period as compared to the combined 2018 Successor Period and Predecessor Period.

The $1.4 million asset retirement obligation accretion incurred during the 2019 Successor Period was driven by the inclusion of the Giddings Assets.

This resulted in higher accretion expense per boe in the 2019 Successor Period of $0.21 per boe.

Depreciation, depletion and amortization (“DD&A”) was $143.9 million , $65.9 million , and $23.2 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

DD&A was $21.94 per boe for the 2019 Successor Period as compared to $18.35 per boe for the 2018 Successor Period, and $18.54 per boe for the Predecessor Period.

DD&A in the 2019 Successor Period was $54.8 million higher than the combined 2018 Successor and Predecessor Period primarily attributable to the increase in property, plant, and equipment and the increased production as a result of the Successor’s inclusion of the Giddings Assets, recent acquisitions, and continued development.

The higher rate per boe for the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period is mostly due to Magnolia’s higher property, plant, and equipment balances recorded as a result of the new basis of accounting related to the Business Combination, recent acquisitions and decrease in proved reserves.

The Predecessor’s reserves are based on a five-year development plan, whereas the vast majority of the Successor’s proved undeveloped reserves are planned to be developed within one year.

The amortization of intangible assets was $3.6 million and $2.4 million for the 2019 Successor Period and the 2018 Successor Period, respectively.

In connection with the close of the Business Combination, the Company recorded an estimated cost of $44.4 million for the Non-Compete Agreement (the “Non-Compete”) entered into with EnerVest on the Closing Date as intangible assets on the Company’s consolidated balance sheet.

The $1.2 million higher amortization of intangible assets in the 2019 Successor Period as compared to the 2018 Successor Period is due to three months of amortization in the 2019 Successor Period as compared to approximately two months of amortization in the 2018 Successor Period.

These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years.

There were no intangible assets in any of the Predecessor Periods.

General and administrative (“G&A”) expenses are costs incurred for overhead, including payroll and benefits for corporate staff, costs of maintaining a headquarters, IT expenses, and audit and other fees for professional services, including legal compliance expenses.

The Company incurs G&A related to the Services Agreement (the “Services Agreement”) with EnerVest Operating L.L.C.

(“EVOC”), in which EVOC provides the Company’s day-to-day field level and back office operations and support for the operation and development of the assets, subject to certain exceptions.

As consideration for the services to be provided under the Services Agreement, EVOC is paid an annual fee of $23.6 million .

In addition, the Company pays industry standard per well overhead payments to EVOC that are adjusted

in accordance with industry standard inflationary measures and reimburses EVOC for certain costs incurred by EVOC in performing the services.

G&A expenses were $ 17.3 million , $10.3 million , and $ 1.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The $5.3 million higher G&A expenses incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the Successor incurring certain additional G&A expenses related to fees payable to EVOC under the Services Agreement as well as increased salaries and wages and stock-based compensation costs.

Interest expense, net was $6.9 million for the 2019 Successor Period and $5.0 million for the 2018 Successor Period.

Interest expense incurred in the 2019 Successor Period and the 2018 Successor Period is due to interest as well as amortization of debt issuance costs related to the Company’s 6.0% senior notes due 2026 (the “2026 Senior Notes”) and the senior secured reserve-based revolving credit facility (the “RBL Facility”).

Loss on derivatives, net was $3.9 million for the Predecessor Period.

Magnolia has not engaged in any hedging activities with respect to the market risk to which the Company is exposed.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

Oil, Natural Gas and NGL Sales Revenues.

The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes.

This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel.

This ratio may not be reflective of the current price ratio between the two products.

(In thousands, except per unit data)

Nine Months Ended

September 30, 2019

July 31, 2018

September 30, 2018

January 1, 2018

July 30, 2018

March 31, 2019

Natural gas (MMcf)

10 unchanged sentences

NGLs (per barrel)

Oil revenues were 83% , 80% , and 89% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Oil revenues for the 2019 Successor Period were $41.7 million higher compared to the combined 2018 Successor Period and Predecessor Period due to 24% higher production partially offset by a 13% decrease in average prices.

The higher volumes in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period are

attributable to the inclusion of the Giddings Assets, recent acquisitions and continued development.

Oil production was 53% , 56% , and 71% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas revenues were 10% , 8% , and 5% of the Company's total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas revenues for the 2019 Successor Period were $35.7 million higher compared to the combined 2018 Successor Period and Predecessor Period due to 136% more natural gas production primarily attributable to the Successor’s inclusion of the Giddings Assets and the acquisition of the Highlander Well partially offset by a 15% decrease in average prices.

Natural gas production was 28% , 25% , and 16% of total production volume for the 2019 Successor Period, the 2018 Successor Period and the Predecessor Period, respectively.

Natural gas liquids revenues were 7% , 12% , and 6% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

NGL production was 19% , 19% , and 14% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas liquids revenues for the 2019 Successor Period were $1.7 million higher in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period due to 91% higher production partially offset by a 46% decrease in average prices.

The higher production volumes are primarily attributable to the Successor’s inclusion of the Giddings Assets, recent acquisitions and continued development.

Oil revenues were 85% and 78% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

Oil production was 55% and 52% of total production volume for the three months ended March 31, 2020 and 2019, respectively.

The oil revenues for the three months ended March 31, 2020 were $17.0 million lower than the three months ended March 31, 2019 due to a 23% decrease in average prices partially offset by 17% higher production.

Natural gas revenues were 9% and 13% of the Company's total revenues for the three months ended March 31, 2020 and 2019, respectively.

Natural gas production was 27% and 29% of total production volume for the three months ended March 31, 2020 and 2019, respectively.

Natural gas revenues for the three months ended March 31, 2020 were $11.2 million lower than the three months ended March 31, 2019 due to 43% lower average prices partially offset by 3% higher natural gas production.

The higher production volumes are primarily attributable to the Highlander Well being included for all of the quarter ended March 31, 2020.

NGL revenues were 6% and 9% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively.

NGL production was 19% of total production volume for both the three months ended March 31, 2020 and March 31, 2019.

NGL revenues for the three months ended were March 31, 2020 $9.1 million lower than the three months ended March 31, 2019 due to 50% lower average prices partially offset by 7% higher production.

The higher production volumes are primarily attributable to recent acquisitions and continued development.

Operating Expenses and Other Income (Expense) .

1 unchanged sentence

(In thousands, except per unit data)

Nine Months Ended

September 30, 2019

July 31, 2018

September 30, 2018

January 1, 2018

July 30, 2018

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Operating Expenses:

3 unchanged sentences

Exploration expenses

Impairment of oil and natural gas properties

Asset retirement obligations accretion

7 unchanged sentences

Interest expense, net

Loss on derivatives, net

Other expense, net

4 unchanged sentences

Taxes other than income

Exploration costs

Exploration expense

Impairment of oil and natural gas properties

Asset retirement obligation accretion

3 unchanged sentences

Transaction related costs

Lease operating expenses are the costs incurred in the operation of producing properties including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies.

Lease operating expenses were $70.8 million , $11.0 million , and $23.5 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Lease operating expenses were $3.91 per boe, $3.07 per boe, and $2.90 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Lease operating expenses were $36.2 million higher in the 2019 Successor Period as compared to the combined 2018 Successor Period and Predecessor Period primarily due to the inclusion of the Giddings Assets, recent acquisitions, and continued development.

The higher per boe cost in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor period was primarily due to the inclusion of the Giddings Assets as the Giddings Assets deliver less production per well than the Karnes County Assets, resulting in lease operating costs spread over fewer volumes.

Lease operating expenses are costs incurred in the operation of producing properties, including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies.

Lease operating expenses for the three months ended March 31, 2020 were $2.6 million higher than the three months ended March 31, 2019 primarily due to recent acquisitions and continued development bringing new wells online.

The per boe cost for the three months ended March 31, 2020 remained consistent with the three months ended March 31, 2019.

Gathering, transportation, and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market.

Cost levels of these expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing.

Gathering, transportation and processing costs were $26.0 million , $5.4 million , and $12.9 million for the 2019 Successor Period, the 2018 Successor Period and the Predecessor Period, respectively, or $1.44 , $1.49 , and $1.59 on a per boe basis.

The $7.7 million higher costs in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the inclusion of the Giddings Assets as the Giddings Assets produce more gas than the Karnes County Assets and require more gathering, transportation, and processing than the Karnes County Assets.

The lower cost per boe in the 2019 Successor Period compared to Combined 2018 Successor and Predecessor Period was primarily attributable to the adoption of the new revenue recognition requirements that were not retroactively applied to the Predecessor Period.

These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing.

The gathering, transportation, and processing costs for the three months ended March 31, 2020 were $1.3 million lower than the three months ended March 31, 2019 primarily due to lower gas production from the Karnes County Assets and Giddings Assets.

The decrease d cost per boe in the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily attributable to recent acquisitions that have a lower cost per boe.

Taxes other than income include production and ad valorem taxes.

2 unchanged sentences

Ad valorem taxes are based on the fair market value of the mineral interests or business assets.

Taxes other than income were $40.8 million , $9.4 million , and $23.8 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The $7.7 million higher taxes other than income incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period are primarily due to an increase in revenues.

Taxes other than income were $2.26 per boe, $2.60 per boe, and $2.93 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The lower costs per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the inclusion of the Giddings Assets as the Giddings Assets incur lower production taxes.

Exploration costs are geological and geophysical costs that include seismic surveying costs, costs of unsuccessful exploratory dry holes, costs of expired or abandoned leases, and delay rentals.

Exploration expenses of $10.0 million in the 2019 Successor Period were $1.7 million lower compared to the combined 2018 Successor Period and Predecessor Period as a result of a one-time purchase of a seismic license continuation in connection with the Business Combination in the 2018 Successor Period.

Asset retirement obligation accretion was higher during the 2019 Successor Period as compared to the combined 2018 Successor and Predecessor Period.

The $4.1 million asset retirement obligation accretion incurred during the 2019 Successor Period was driven by the inclusion of the Giddings Assets.

This resulted in higher accretion expense per boe in the 2019 Successor Period of $0.23 per boe.

DD&A was $385.9 million , $65.9 million , and $137.9 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

DD&A was $21.32 per boe for the 2019 Successor Period.

DD&A was $182.2 million higher in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period.

The higher DD&A and the higher DD&A rate per boe for the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period is mostly due to Magnolia’s higher property, plant, and equipment balances recorded as a result of the new basis of accounting related to the Business Combination, recent acquisitions and decrease in proved reserves.

The Predecessor’s reserves are based on a five-year development plan, whereas the vast majority of the Successor’s proved undeveloped reserves are planned to be developed within one year.

The amortization of intangible assets was $10.9 million and $2.4 million for the 2019 Successor Period and the 2018 Successor Period, respectively.

In connection with the close of the Business Combination, the Company recorded an estimated cost of $44.4 million for the Non-Compete Agreement as intangible assets on the Company’s consolidated balance sheet.

The $8.5 million higher amortization of intangible assets in the 2019 Successor Period as compared to the 2018 Successor Period is due to nine months of amortization in the 2019 Successor Period as compared to approximately two months of amortization in the 2018 Successor Period.

These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years.

There was no amortization of intangible assets in the Predecessor Period.

G&A expenses were $52.6 million , $10.3 million , and $12.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

The $29.6 million higher G&A expenses and higher G&A expenses per boe incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the Successor

incurring certain additional G&A expenses related to fees payable to EVOC under the Services Agreement as well as increased salaries and wages and stock-based compensation costs.

Interest expense, net was $21.6 million for the 2019 Successor Period, and $5.0 million for the 2018 Successor Period.

Interest expense incurred in the 2019 Successor Period and 2018 Successor Period is due to interest and amortization of debt issuance costs related to the 2026 Senior Notes and the RBL Facility.

Loss on derivatives, net was $18.1 million for the Predecessor Period.

During the 2019 Successor Period and the 2018 Successor Period, Magnolia has not engaged in any hedging activities with respect to the market risk to which the Company is exposed.

Taxes other than income and related cost per boe were lower for the three months ended

March 31, 2020 compared to the three months ended March 31, 2019 primarily due to a decrease in revenues following the recent decline in commodity prices.

Exploration expenses are geological and geophysical costs that include unproved property impairments, seismic surveying costs, costs of unsuccessful exploratory dry wells, costs of expired or abandoned leases, and delay rentals.

The exploration costs for the three months ended March 31, 2020 were $554.0 million higher than the three months ended March 31, 2019 and $88.99 higher on a boe basis as a result of a $555.2 million impairment related to Magnolia’s unproved oil and natural gas properties due to the sharp decline in commodity prices primarily driven by the COVID-19 pandemic and oversupply by producers relating to oil price and production controls.

For more information, please see Note 5 “ Fair Value Measurements ” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

For the three months ended March 31, 2020, Magnolia recognized $1.4 billion of impairment included in “Impairment of oil and natural gas properties” in the consolidated statement of operations related to its proved oil and natural gas properties.

The impairment was primarily driven by the sharp decline in commodity prices.

For more information, please see Note 5 “ Fair Value Measurements ” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

Depreciation, depletion and amortization (“DD&A”) during the three months ended March 31, 2020 was $26.7 million higher than the three months ended March 31, 2019.

The DD&A and DD&A rate per boe for the three months ended March 31, 2020 were higher than the three months ended March 31, 2019 due to a higher cost basis and fewer reserves.

As a result of the non-cash impairment in the first quarter of 2020, Magnolia expects the DD&A rate to be lower for the remainder of the year.

General and administrative (“G&A”) expenses during the three months ended March 31, 2020 were $1.9 million higher than the three months ended March 31, 2019 primarily as a result of increased corporate payroll expenses related to increased employee headcount.

Interest expense, net, incurred for the three months ended March 31, 2020 and 2019 is due to interest and amortization of debt issuance costs related to the Company’s 6.0% Senior Notes due 2026 (the “2026 Senior Notes”) and the Company’s secured reserve-based revolving credit facility (the “RBL Facility”).

The interest expense, net, incurred during the first quarter of 2020 was lower than the first quarter of 2019 due to higher interest income.

Liquidity and Capital Resources

Magnolia’s primary sources of liquidity and capital have been cash flows from operations and, at the close of the Business Combination, issuances of equity and debt securities.

The Company’s primary uses of cash have been acquisitions of oil and natural gas properties and related assets, development of the Company’s oil and natural gas properties, and general working capital needs.

Magnolia believes that cash on hand, cash flows generated from operations, and the borrowings available under the RBL Facility will be adequate to fund Magnolia’s capital budget and satisfy the Company’s short-term liquidity needs.

The Company may also utilize borrowings under other various financing sources available to Magnolia, including the issuance of equity or debt securities through public offerings or private placements, to fund Magnolia’s acquisitions and long-term liquidity needs.

Magnolia’s primary source of liquidity and capital has been its cash flows from operations.

The Company’s primary uses of cash have been for acquisitions of oil and natural gas properties and related assets, development of the Company’s oil and natural gas properties, and general working capital needs.

The Company may also utilize borrowings under other various financing sources available to Magnolia, including its RBL Facility and the issuance of equity or debt securities through public offerings or private placements, to fund Magnolia’s acquisitions and long-term liquidity needs.

Magnolia’s ability to complete future offerings of equity or debt securities and the timing of these offerings will depend upon various factors, including prevailing market conditions and the Company’s financial condition.

As of September 30, 2019 , the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of September 30, 2019 , the Company has $714.5 million of liquidity comprised of the $550.0 million of borrowing base capacity of the RBL Facility and $164.5 million of cash and cash equivalents.

A decrease in commodity prices may adversely affect proved reserves values which would likely result in a proved property impairment.

Negative revisions of estimated reserves quantities, increases in future cost estimates or divestiture of a significant component of the asset group could also lead to a reduction in expected future cash flows and possibly an impairment of long-lived assets in future periods.

The Company anticipates its current cash balance, cash flows from operations, and its available sources of liquidity to be sufficient to meet the Company’s cash requirements.

However, as the impact of recent declines in worldwide crude oil and natural gas prices and the impact of COVID-19 on the economy evolves, the Company will continue to assess its liquidity needs.

In the event of a sustained market deterioration, Magnolia may need additional liquidity, which would require the Company to evaluate available alternatives and take appropriate actions.

As of March 31, 2020 , the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of March 31, 2020 , the Company had $696.5 million of liquidity comprised of the $550.0 million of borrowing base capacity of the RBL Facility and $146.5 million of cash and cash equivalents.

In April 2020, the borrowing base capacity of the RBL facility was reduced to $450.0 million .

Cash and Cash Equivalents

At September 30, 2019 , Magnolia had $164.5 million of cash and cash equivalents.

At March 31, 2020 , Magnolia had $146.5 million of cash and cash equivalents.

The Company’s cash and cash equivalents are maintained with various financial institutions in the United States.

Deposits with these institutions may exceed the amount of insurance provided on such deposits, however, the Company regularly monitors the financial stability of its financial institutions and believes that the Company is not exposed to any significant default risk.

Deposits with these institutions may exceed the amount of insurance provided on such deposits.

However, the Company regularly monitors the financial stability of its financial institutions and believes that the Company is not exposed to any significant default risk.

Sources and Uses of Cash and Cash Equivalents

1 unchanged sentence

(In thousands)

Nine Months Ended

September 30, 2019

July 31, 2018

September 30, 2018

January 1, 2018 Through

July 30, 2018

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Sources of cash and cash equivalents

Net cash provided by operating activities

Issuance of common stock

Proceeds from issuance of debt

Proceeds withdrawn from Trust Account

Uses of cash and cash equivalents:

Acquisition of EnerVest properties

Acquisitions, other

Additions to oil and natural gas properties

Payment of Contingent Consideration

Repayments of deferred underwriting compensation

Cash paid for debt issuance costs

Repurchase of common stock

Increase in cash and cash equivalents

Class A Common Stock repurchase

Increase (decrease) in cash and cash equivalents

Sources of Cash and Cash Equivalents

Business Combination

The primary source of cash for the Business Combination in the 2018 Successor Period were proceeds from the issuance of common stock of $355 million , proceeds from issuance of debt of $400 million , and proceeds withdrawn from Trust account of $656.1 million related to the Company’s May 2017 initial public offering.

See Overview of this Item 2 for more information on the Business Combination.

Net Cash Provided by Operating Activities

Operating cash flows are the Company’s primary source of liquidity and are impacted, in the short term and long term, by oil and natural gas prices.

The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of certain non-cash expenses such as DD&A, asset retirement obligation accretion, and deferred income tax expense.

Net cash provided by operating activities totaled $488.6 million , $87.3 million , and $284.8 million for the 2019 Successor Period, 2018 Successor Period, and Predecessor Period, respectively.

Cash provided by operating activities was positively impacted by the inclusion of the Giddings Assets in the Successor Period but was partially offset by interest expense payments, EnerVest service fee payments, and higher production tax payments.

The 2018 Successor Period includes $22.4 million one-time transaction costs associated with the Business Combination, exploration expenses of $11.2 million primarily related to a one-time purchase of a seismic license continuation.

The factors that determine operating cash flows are largely the same as those that affect net earnings or net losses, with the exception of certain non-cash expenses such as DD&A, the non-cash portion of exploration expense, impairment of oil and natural gas properties, asset retirement obligation accretion, and deferred income tax expense.

Net cash provided by operating activities totaled $134.9 million and $116.6 million for the three months ended March 31, 2020 and 2019, respectively.

Cash provided by operating activities was positively impacted in the first quarter of 2020 by the timing of collections, payment of liabilities, and lower production tax payments, partially offset by decreased revenues from reduced oil and natural gas prices.

Uses of Cash and Cash Equivalents

Business Combination

The primary use of cash in the 2018 Successor Period was the acquisition of EnerVest properties which included an aggregate of approximately $1.2 billion in cash, cash paid for debt issuance costs of $23.3 million , and the payment of a deferred underwriting compensation liability of approximately $22.8 million .

Other acquisitions

During the 2019 Successor Period, the Company completed leasehold and property acquisitions for a total cash purchase price of $93.2 million , comprised of the Highlander acquisition, and other acquisitions of additional oil and gas assets primarily located in Karnes County.

The 2018 Successor Period activity of $135.7 million is primarily comprised of the Harvest Acquisition.

The Predecessor Period activity of $150.1 million is comprised of the Subsequent GulfTex Acquisition.

During the three months ended March 31, 2020 , the Company completed various leasehold and property acquisitions, primarily comprised of a $71.3 million acquisition of certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas.

During the three months ended March 31, 2019, the Company incurred $53.3 million primarily comprised of the formation of the Highlander joint venture.

Additions to Oil and Natural Gas Properties

The following table sets forth the Company’s capital expenditures for the 2019 Successor Period:

The following table sets forth the Company’s capital expenditures for the three months ended March 31, 2020 and 2019:

(In thousands)

Nine Months Ended

September 30, 2019

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Drilling and completion

1 unchanged sentence

Total capital expenditures

In the third quarter of 2019, Magnolia operated two drilling rigs across its acreage, one rig in Karnes County and one rig in the Giddings Field.

The activity in the 2019 Successor Period was largely driven by the number of operated drilling rigs.

The number of operating drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending within 60% of adjusted EBITDAX.

Payment of Contingent Consideration

Pursuant to the Giddings Purchase Agreement, during the 2018 Successor Period, the Company paid the Giddings Sellers a cash payment of $26.0 million to fully settle the earnout obligation.

As of March 31, 2020 , Magnolia was running a one-rig program for the Karnes County Assets and a one-rig program for the Giddings Assets.

The activity during the three months ended March 31, 2020 was largely driven by the number of operated and non-operated drilling rigs.

The number of operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending to accommodate the Company’s business model.

Capital Requirements

Repurchase of common stock

On August 5, 2019, the Company’s Board of Directors authorized a share repurchase program of up to 10 million shares.

The program does not require purchases to be made within a particular timeframe.

During the 2019 Successor Period, the Company repurchased 950 thousand shares at a weighted average price of $10.23 , for a total cost of approximately $9.7 million .

Repurchase of Class A Common Stock

On August 5, 2019, the Company’s board of directors authorized a share repurchase program of up to 10 million shares of Class A Common Stock.

The program does not require purchases to be made within a particular timeframe and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors.

During the first quarter of 2020, the Company repurchased 1.0 million shares for a total cost of approximately $6.5 million .

Off-Balance Sheet Arrangements

As of September 30, 2019 , there were no off-balance sheet arrangements.

As of March 31, 2020 , there were no off-balance sheet arrangements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis