What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-11 · 169 added, 109 removed, 331 unchanged (46% of the section changed)

3 unchanged sentences

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

ASSETS (Unaudited) (Audited)

CURRENT ASSETS

Cash and cash equivalents

$ 116,850 $ 182,633

Accounts receivable

60,525 105,775

Drilling advances

3 unchanged sentences

Oil and natural gas properties 2,073,009 3,815,221

Other 3,547 3,087

Accumulated depreciation, depletion and amortization ( 895,136 ) ( 701,551 )

4 unchanged sentences

Other long-term assets 4,552 4,460

TOTAL ASSETS $ 1,413,079 $ 3,466,406

LIABILITIES AND STOCKHOLDERS’ EQUITY

2 unchanged sentences

Other current liabilities ( Note 7 )

55,779 95,780

Total current liabilities 120,313 175,208

11 unchanged sentences

Treasury Stock, at cost, 2,000 shares and 1,000 shares in 2020 and 2019, respectively

( 16,760 ) ( 10,277 )

Retained earnings (Accumulated deficit) ( 1,162,342 ) 82,940

5 unchanged sentences

(In thousands, except per share data)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Three Months Ended Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Oil revenues $ 60,790 $ 204,513 $ 215,476 $ 376,167

Natural gas revenues 13,168 22,590 29,343 49,965

25 unchanged sentences

NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK

Basic $ ( 0.11 ) $ 0.12 $ ( 7.46 ) $ 0.20

Diluted $ ( 0.11 ) $ 0.12 $ ( 7.46 ) $ 0.20

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic 166,572 156,844 166,860 156,584

Diluted 166,572 159,057 166,860 158,587

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands)

Class A Common Stock

Class B Common Stock

Additional Paid In Capital

Retained Earnings

Total Stockholders’ Equity

Noncontrolling Interest

Common Stock Class B

Common Stock Additional Paid In Capital Retained Earnings Total Stockholders’ Equity Noncontrolling Interest Total

Shares Value Shares Value

Balance, December 31, 2018 156,333 $ 16 93,346 $ 9 $ 1,641,237 $ 35,507 $ 1,676,769 $ 1,031,186 $ 2,707,955

3 unchanged sentences

Contributions from noncontrolling interest owner — — — — — — — 8,809 8,809

Net income — — — — — 13,026 13,026 9,687 22,713

Balance, March 31, 2019 155,837 $ 16 91,790 $ 9 $ 1,636,655 $ 48,533 $ 1,685,213 $ 1,031,364 $ 2,716,577

Class A Common Stock

Class B Common Stock

Additional Paid In Capital

Treasury Stock

Retained Earnings/ Accumulated Deficit

Total Stockholders’ Equity

Noncontrolling Interest

Stock based compensation expense — — — — 3,115 — 3,115 — 3,115

Changes in ownership interest adjustment — — — — 108 — 108 634 742

Common stock issued in connection with acquisition 3,055 — — — 33,693 — 33,693 — 33,693

Offering expenses incurred in connection with warrants exchange — — — — ( 1,055 ) — ( 1,055 ) — ( 1,055 )

Distributions to noncontrolling interest owners — — — — — — — ( 227 ) ( 227 )

Net income — — — — — 18,506 18,506 12,797 31,303

Balance, June 30, 2019 158,892 $ 16 91,790 $ 9 $ 1,672,516 $ 67,039 $ 1,739,580 $ 1,044,568 $ 2,784,148

The accompanying notes are an integral part to these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

Common Stock Class B

Common Stock Additional Paid In Capital Treasury

Stock Retained Earnings/ Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interest Total

Shares Value Shares Value Shares Value

Balance, December 31, 2019 168,319 $ 17 85,790 $ 9 $ 1,703,362 1,000 $ ( 10,277 ) $ 82,940 $ 1,776,051 $ 952,478 $ 2,728,529

Stock based compensation expense, net of forfeitures

Changes in ownership interest adjustment and in deferred tax liability

Stock based compensation expense — — — — 2,879 — — — 2,879 — 2,879

Changes in ownership interest adjustment — — — — ( 1,793 ) — — — ( 1,793 ) 1,793 —

Common stock issued related to stock based compensation, net 154 — — — ( 452 ) — — — ( 452 ) — ( 452 )

1 unchanged sentence

Distributions to noncontrolling interest owners — — — — — — — — — ( 284 ) ( 284 )

Net loss — — — — — — — ( 1,227,010 ) ( 1,227,010 ) ( 668,289 ) ( 1,895,299 )

Balance, March 31, 2020 168,473 $ 17 85,790 $ 9 $ 1,703,996 2,000 $ ( 16,760 ) $ ( 1,144,070 ) $ 543,192 $ 285,698 $ 828,890

Stock based compensation expense — — — — 3,065 — — — 3,065 — 3,065

Changes in ownership interest adjustment — — — — ( 907 ) — — — ( 907 ) 907 —

Common stock issued related to stock based compensation and other, net 114 — — — ( 33 ) — — — ( 33 ) — ( 33 )

Distributions to noncontrolling interest owners — — — — — — — — — ( 207 ) ( 207 )

Net loss — — — — — — — ( 18,272 ) ( 18,272 ) ( 11,119 ) ( 29,391 )

Balance, June 30, 2020 168,587 $ 17 85,790 $ 9 $ 1,706,121 2,000 $ ( 16,760 ) $ ( 1,162,342 ) $ 527,045 $ 275,279 $ 802,324

The accompanying notes are an integral part to these consolidated financial statements.

2 unchanged sentences

( In thousands)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Six Months Ended

June 30, 2020 June 30, 2019

CASH FLOWS FROM OPERATING ACTIVITIES

9 unchanged sentences

Stock based compensation 5,944 5,547

Other ( 1,052 ) ( 424 )

Changes in operating assets and liabilities:

Accounts receivable 45,249 ( 14,541 )

Accrued liabilities

Accounts payable ( 14,894 ) 5,575

Accrued liabilities ( 13,958 ) ( 14,454 )

Drilling advances ( 343 ) 11,073

5 unchanged sentences

Additions to oil and natural gas properties ( 129,651 ) ( 263,064 )

Changes in working capital associated with additions to oil and natural gas properties ( 24,381 ) ( 4,245 )

Other investing ( 345 ) ( 248 )

11 unchanged sentences

Supplemental non-cash operating activity:

Cash paid for income taxes $ — $ 390

Cash paid for interest 12,540 13,063

1 unchanged sentence

Accruals or liabilities for capital expenditures $ 16,341 $ 46,524

Equity issuances in connection with acquisitions — 33,693

Supplemental non-cash lease operating activity:

5 unchanged sentences

Organization and Nature of Operations

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.

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.

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

14 unchanged sentences

Summary of Significant Accounting Policies

As of March 31, 2020 , the Company’s significant accounting policies are consistent with those discussed in Note 2 - Summary of Significant Accounting Policies of its consolidated and combined financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, with the exception of Accounts Receivable and Allowance for Expected Credit Losses .

As of June 30, 2020, the Company’s significant accounting policies are consistent with those discussed in Note 2 - Summary of Significant Accounting Policies of its consolidated and combined financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, with the exception of Accounts Receivable and Allowance for Expected Credit Losses and as noted below.

Accounts Receivable and Allowance for Expected Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326):

“Measurement of Credit Losses on Financial Instruments.” For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period.

6 unchanged sentences

As expected, there was no material impact on the Company’s unaudited consolidated financial statements or disclosures upon adoption of this ASU.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

“Simplifying the Accounting for Income Taxes,” which reduces the complexity of accounting for income taxes by removing certain exceptions to the general principles and also simplifying areas such as separate entity financial statements and interim recognition of enactment of tax laws or rate changes.

This standard is effective for interim and annual periods beginning after December 15, 2020 and shall be applied on either a prospective basis, a retrospective basis for all periods presented, or a modified retrospective basis through a cumulative-effect adjustment to retained earnings depending on which aspects of the new standard are applicable to an entity.

The Company is currently evaluating the effect of this standard, but does not expect the adoption of this guidance to have a material impact on its financial position, cash flows, or result of operations.

Revenue Recognition

1 unchanged sentence

Oil, natural gas, and NGL sales are recognized as revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts.

Performance obligations primarily comprise delivery of oil, natural gas, or NGLs at a delivery point, as negotiated within each contract.

Performance obligations are primarily comprised of delivery of oil, natural gas, or NGLs at a delivery point, as negotiated within each contract.

Each barrel of oil, million Btu of natural gas, gallon of NGLs, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated.

10 unchanged sentences

The Company’s receivables consist mainly of trade receivables from commodity sales and joint interest billings due from owners on properties the Company operates.

Receivables from contracts with customers totaled $ 68.7 million as of March 31, 2020 and $ 100.4 million as of December 31, 2019.

See Note 2 - Summary of Significant Accounting Policies for more information on the Company’s allowance for expected credit losses policy.

Receivables from contracts with customers totaled $ 51.3 million as of June 30, 2020 and $ 100.4 million as of December 31, 2019.

The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated statements of operations for all periods presented.

16 unchanged sentences

Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or nonrecurring basis.

The Company’s fair value measurements are based either on actual market data or assumptions that other market participants would use in pricing an asset or liability in an orderly transaction, using the valuation hierarchy prescribed by GAAP under ASC 820.

The three levels of the fair value hierarchy under ASC 820 are as follows:

6 unchanged sentences

Debt Obligations

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheet at March 31, 2020 and December 31, 2019 is as follows:

March 31, 2020

December 31, 2019

(In thousands)

Carrying Value

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheet at June 30, 2020 and December 31, 2019 is as follows:

June 30, 2020 December 31, 2019

(In thousands) Carrying Value Fair Value Carrying Value Fair Value

Long-term debt $ 390,464 $ 383,444 $ 389,835 $ 412,000

The fair value of the 2026 Senior Notes at March 31, 2020 and December 31, 2019 was based on unadjusted quoted prices in an active market, which are considered a Level 1 input in the fair value hierarchy.

The fair value of the 2026 Senior Notes at June 30, 2020 and December 31, 2019 was based on unadjusted quoted prices in an active market, which are considered a Level 1 input in the fair value hierarchy.

The Company has other financial instruments consisting primarily of receivables, payables, and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities.

3 unchanged sentences

These assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments when facts and circumstances arise that indicate a need for remeasurement.

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

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.

Proved and unproved properties that were impaired had aggregate fair values as of the most recent date of impairment for the three months ended March 31, 2020, of $ 0.8 billion and $ 0.3 billion , respectively.

The fair values of oil and natural gas properties were measured using the income approach based on inputs that are not observable in the market, and therefore, represent Level 3 inputs.

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

Proved and unproved properties that were impaired had aggregate fair values of $ 0.8 billion and $ 0.3 billion, respectively.

The fair values of these oil and natural gas properties were measured using the income approach based on inputs that are not observable in the market, and therefore, represent Level 3 inputs.

The Company calculated the estimated fair values of its oil and natural gas properties using a discounted future cash flow model.

7 unchanged sentences

The Company includes the amortization in “Amortization of intangible assets” on the Company’s consolidated statements of operations.

(In thousands)

March 31, 2020

December 31, 2019

(In thousands) June 30, 2020 December 31, 2019

Non-compete intangible assets $ 44,400 $ 44,400

4 unchanged sentences

The following table provides detail of the Company’s other current liabilities for the periods presented:

(In thousands)

March 31, 2020

December 31, 2019

(In thousands) June 30, 2020 December 31, 2019

Accrued capital expenditures $ 16,341 $ 40,722

Accrued general and administrative expenditures 6,292 9,753

Accrued interest 10,000 10,000

Other 23,146 35,305

Total other current liabilities $ 55,779 $ 95,780

1 unchanged sentence

The Company’s debt is comprised of the following:

(In thousands)

March 31, 2020

December 31, 2019

(In thousands) June 30, 2020 December 31, 2019

Revolving credit facility $ — $ —

Senior Notes due 2026

400,000 400,000

Total long-term debt 400,000 400,000

3 unchanged sentences

In connection with the consummation of the Business Combination, Magnolia Operating entered into the RBL Facility among Magnolia Operating, as borrower, Magnolia Intermediate, as its holding company, the banks, financial institutions, and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto and Citibank, N.A., as administrative agent, collateral agent, issuing bank, and swingline lender, providing for maximum commitments in an aggregate principal amount of $ 1.0 billion with a letter of credit facility with a $ 100.0 million sublimit.

The borrowing base as of March 31, 2020 was $ 550.0 million .

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

The borrowing base as of June 30, 2020 was $ 450.0 million.

The RBL Facility is guaranteed by certain parent companies and subsidiaries of Magnolia LLC and is collateralized by certain of Magnolia Operating’s oil and natural gas properties and has a borrowing base subject to semi-annual redetermination.

3 unchanged sentences

The RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 4.00 to 1.00 and, if the leverage ratio is in excess of 3.00 to 1.00, a current ratio of greater than 1.00 to 1.00.

As of March 31, 2020 , the Company was in compliance with all covenants under the RBL Facility.

As of June 30, 2020, the Company was in compliance with all covenants under the RBL Facility.

Deferred financing costs incurred in connection with securing the RBL Facility were $ 11.7 million, which are amortized on a straight-line basis over a period of five years and included in “Interest expense, net” in the Company’s consolidated statements of operations.

The Company recognized interest expense of $ 1.1 million during the three months ended March 31, 2020 and 2019 related to the RBL Facility.

The unamortized portion of the deferred financing costs are included in “Deferred financing costs, net” on the accompanying consolidated balance sheet as of March 31, 2020 .

The Company did no t have any outstanding borrowings under its RBL Facility as of March 31, 2020 .

The Company recognized interest expense related to the RBL Facility of $ 1.0 million and $ 1.1 million for the three months ended June 30, 2020 and 2019, respectively, and $ 2.2 million for each of the six months ended June 30, 2020 and 2019.

The unamortized portion of the deferred financing costs are included in “Deferred financing costs, net” on the accompanying consolidated balance sheet as of June 30, 2020.

The Company did no t have any outstanding borrowings under its RBL Facility as of June 30, 2020.

2026 Senior Notes

7 unchanged sentences

These costs are amortized using the effective interest method over the term of the 2026 Senior Notes and are included in “Interest expense, net” in the Company’s consolidated statements of operations.

The unamortized portion of the deferred financing costs is included as a reduction to the carrying value of the 2026 Senior Notes, which have been recorded as “Long-term debt, net” on the consolidated balance sheet as of March 31, 2020 .

The Company recognized interest expense of $ 6.3 million for the three months ended March 31, 2020 and 2019 related to the 2026 Senior Notes.

The unamortized portion of the deferred financing costs is included as a reduction to the carrying value of the 2026 Senior Notes, which have been recorded as “Long-term debt, net” on

the consolidated balance sheet as of June 30, 2020.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.3 million for each of the three months ended June 30, 2020 and 2019, and $ 12.6 million for each of the six months ended June 30, 2020 and 2019.

Affiliate Guarantors

The Company, Magnolia LLC (together with the Company, the “Parent Guarantors”), and the direct parent company of Magnolia Operating and certain subsidiaries of Magnolia Operating are guarantors under the terms of its 2026 Senior Notes and RBL Facility.

The Company, Magnolia LLC and Magnolia Intermediate (together with the Company, the “Parent Guarantors”), and certain subsidiaries of Magnolia Operating are guarantors under the terms of its 2026 Senior Notes and RBL Facility.

The Parent Guarantors may be released upon the request of Magnolia Operating.

10 unchanged sentences

The Karnes County Contributors retained all such liability in connection with the Business Combination.

At March 31, 2020 , the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statements of operations, balance sheet, or cash flows.

No amounts were accrued with respect to outstanding litigation at March 31, 2020 or March 31, 2019 .

At June 30, 2020, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statements of operations, balance sheet, or cash flows.

No amounts were accrued with respect to outstanding litigation at June 30, 2020 or June 30, 2019.

Environmental Matters

8 unchanged sentences

Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus.

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.

The implications of these unprecedented events continue to unfold and may have further negative effects to the Company’s business, such as production curtailment, reduced storage capacity, and reductions to its operating plans.

The implications of the decrease in global demand for oil, coupled with the general oversupply, may have further negative effects on the Company’s business, such as production curtailment, reduced storage capacity, and reductions to its operating plans.

During the second quarter of 2020, and thus far during the third quarter of 2020, there have been continued and, in certain cases, increasing outbreaks of COVID-19 in the United States, particularly in Texas, where Magnolia conducts substantially all of its operations.

Demand and pricing may again decline due to the resurgence of the outbreak across the U.S.

and other locations across the world and the related social distancing guidelines, travel restrictions, and stay-at-home orders.

The extent of the additional impact on the Company’s industry and its business cannot be reasonably predicted at this time.

The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates.

1 unchanged sentence

The CARES Act includes several significant business tax provisions that, among other things, allow businesses to carry back net operating losses (“NOL”) arising in 2018, 2019, and 2020 to the five prior tax years.

Applying the NOL carryback provision results in an income tax benefit of $ 1.2 million in the first quarter of 2020 and the difference in the U.S.

federal rate of 35% in 2017 compared to 21% in 2018 and thereafter results in a discrete benefit to the tax provision of approximately $ 0.5 million for the period ended March 31, 2020.

The income tax expense or benefit recorded for the period is based on applying an estimated annual effective income tax rate to the net income or loss for the quarters ended March 31, 2020 and March 31, 2019.

Applying the NOL carryback provision resulted in an income tax benefit of $ 1.2 million during the six months ended June 30, 2020.

The difference in the U.S.

federal statutory tax rate of 34% in 2017 compared to 21% in 2018 and thereafter results in a discrete benefit to the tax provision of approximately $ 0.4 million for the six months ended June 30, 2020.

The income tax expense or benefit recorded for the period is based on applying an estimated annual effective income tax rate to the net income or loss for the three and six months ended June 30, 2020 and 2019.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the Company’s expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, the effect of noncontrolling interest, permanent and temporary differences, and the likelihood of recovering deferred tax assets in the current year.

The accounting estimates used to compute the income tax expense or benefit may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes.

The Company’s annual effective tax rate for the three months ended March 31, 2020 and 2019 was 3.8 % and 14.2 % , respectively.

The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest, the recognition of a valuation allowance on federal and state deferred tax assets, and state taxes.

During the first quarter of 2020, Magnolia’s effective tax rate was primarily impacted by the recognition of valuation allowances for its deferred tax assets from non-cash impairments of the carrying value of the Company’s oil and natural gas properties and the net deferred tax assets generated in this period.

During the first quarter of 2020, the Company moved from a net deferred tax liability position to an estimated net deferred tax asset position of $ 208.8 million resulting primarily from oil and natural gas impairments.

The Company’s effective tax rate for the three months ended June 30, 2020 and 2019 was 9.8 % and 14.1 %, respectively.

The Company’s effective tax rate for the six months ended June 30, 2020 and 2019 was 3.9 % and 14.2 %, respectively.

The primary differences between the effective tax rate and the federal statutory tax rate of 21.0% are income attributable to noncontrolling interest, the recognition of a valuation allowance on federal and state deferred tax assets, and state taxes.

During the six months ended June 30, 2020, Magnolia’s effective tax rate was primarily impacted by the reversal of its deferred tax liability, the recognition of valuation allowances for its deferred tax assets from non-cash impairments of the carrying value of the Company’s oil and natural gas properties, and the net deferred tax assets generated in this period.

During the first quarter of 2020, the Company moved from a net deferred tax liability position to an estimated net deferred tax asset position resulting primarily from oil and natural gas impairments.

As of June 30, 2020, the Company’s net deferred tax asset was $ 206.3 million.

Management assessed whether it is more-likely-than-not that it will generate sufficient taxable income to realize its deferred income tax assets, including the investment in partnership and net operating loss carryforwards.

In making this determination, the Company considered all available positive and negative evidence and made certain assumptions.

The Company considered, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years.

As of March 31, 2020, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 208.8 million .

The Company considered, among other things, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years.

As of June 30, 2020, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 206.3 million.

The Company’s income tax provision consists of the following components:

(In thousands)

Three Months Ended

March 31, 2020

Three Months Ended March 31, 2019

Three Months Ended Six Months Ended

(In thousands) June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Federal $ 5 $ ( 176 ) $ ( 1,167 ) $ —

State — 386 — 569

5 210 ( 1,167 ) 569

Federal ( 2,916 ) 5,092 ( 71,792 ) 8,454

State ( 265 ) ( 157 ) ( 6,042 ) ( 103 )

( 3,181 ) 4,935 ( 77,834 ) 8,351

Total provision $ ( 3,176 ) $ 5,145 $ ( 79,001 ) $ 8,920

1 unchanged sentence

federal income tax, the margin tax in the state of Texas, and Louisiana corporate income tax.

No amounts have been accrued for income tax uncertainties or interest and penalties as of March 31, 2020 .

No amounts have been accrued for income tax uncertainties or interest and penalties as of June 30, 2020.

The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position.

2 unchanged sentences

Class A Common Stock

At March 31, 2020 , there were 168.5 million shares of Class A Common Stock issued and 166.5 million shares of Class A Common Stock outstanding.

At June 30, 2020, there were 168.6 million shares of Class A Common Stock issued and 166.6 million shares of Class A Common Stock outstanding.

The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters and are entitled one vote for each share held.

There is no cumulative voting with respect to the election of directors, which results in the holders of more than 50% of the shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement (defined herein).

In the event of a liquidation, dissolution, or winding up of the Company, the common stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock.

In the event of a liquidation, dissolution, or winding up of Magnolia Oil & Gas Corporation, the holders of the Class A Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of

liabilities and after provision is made for each class of stock, if any, having preference over the common stock.

The holders of the Class A Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

Class B Common Stock

At March 31, 2020 , there were 85.8 million shares of Class B Common Stock issued and outstanding.

At June 30, 2020, there were 85.8 million shares of Class B Common Stock issued and outstanding.

Holders of Class B Common Stock vote together as a single class with holders of Class A Common Stock on all matters properly submitted to a vote of the stockholders.

1 unchanged sentence

Upon the future redemption or exchange of Magnolia LLC Units held by any holder of Class B Common Stock, a corresponding number of shares of Class B Common Stock held by such holder of Class B Common Stock will be canceled.

In the event of a liquidation, dissolution, or winding up of Magnolia LLC, the holders of the Class B Common Stock, through their ownership of Magnolia LLC Units, are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of units of Magnolia LLC, if any, having preference over the common units.

The holders of the Class B Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

2 unchanged sentences

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

As of March 31, 2020 , the Company had repurchased 2.0 million shares under the plan at a cost of $ 16.8 million .

As of June 30, 2020, the Company had repurchased 2.0 million shares under the plan at a cost of $ 16.8 million.

No shares were repurchased in the second quarter of 2020.

Noncontrolling Interest

Noncontrolling interest in Magnolia’s consolidated subsidiaries include amounts attributable to Magnolia LLC Units that were issued to the Karnes County Contributors in connection with the Business Combination.

The noncontrolling interest percentage is affected by various equity transactions such as issuances of Class A Common Stock, the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) for Class A Common Stock, or cancellation of Class B Common Stock (and corresponding Magnolia LLC Units).

As of March 31, 2020 , Magnolia owned approximately 66 % of the interest in Magnolia LLC and the noncontrolling interest was 34 % .

The noncontrolling interest percentage is affected by various equity transactions such as issuances of Class A Common Stock, the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) for Class A Common Stock, or the cancellation of Class B Common Stock (and corresponding Magnolia LLC Units).

As of June 30, 2020, Magnolia owned approximately 66 % of the interest in Magnolia LLC and the noncontrolling interest was 34 %.

In the first quarter of 2019, Magnolia Operating formed Highlander as a joint venture where MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85 % of the units in Highlander, with the remaining 15 % attributable to noncontrolling interest.

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Shares issued as a result of awards granted under the Plan are generally new shares of Class A Common Stock.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” on the consolidated statements of operations and was $ 2.9 million and $ 2.4 million for the three months ended March 31, 2020 and 2019, respectively.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” on the consolidated statements of operations and was $ 3.1 million for each of the three months ended June 30, 2020 and 2019, and $ 5.9 million and $ 5.5 million for the six months ended June 30, 2020 and 2019, respectively.

The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.

4 unchanged sentences

Compensation expense for the service-based RSU awards is based upon the grant date market value of the award and such costs are recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in-substance, multiple awards.

Unrecognized compensation expense related to unvested RSUs at March 31, 2020 was $ 13.6 million , which the Company expects to recognize over a weighted average period of 2.2 years.

The table below summarizes RSU activity for the three months ended March 31, 2020 :

Restricted Stock Units

Weighted Average Grant Date Fair Value

Unrecognized compensation expense related to unvested RSUs as of June 30, 2020 was $ 12.6 million, which the Company expects to recognize over a weighted average period of 1.9 years.

The table below summarizes RSU activity for the three and six months ended June 30, 2020:

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2020

Restricted Stock Units Weighted Average Grant Date Fair Value Restricted Stock Units Weighted Average Grant Date Fair Value

Unvested RSUs, beginning of period 1,572,400 $ 10.60 1,099,901 $ 12.97

Granted 167,022 5.95 853,367 7.16

Vested ( 101,977 ) 12.25 ( 315,823 ) 12.54

Forfeited — — — —

Unvested RSUs, end of period 1,637,445 $ 10.02 1,637,445 $ 10.02

Performance Stock Units

During the three months ended March 31, 2020 , the Company granted PSUs to certain employees.

During the six months ended June 30, 2020, the Company granted PSUs to certain employees.

Each PSU, to the extent earned, represents the contingent right to receive one share of Class A Common Stock and the awardee may earn between zero and 150 % of the target number of PSUs granted based on the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group over a three-year performance period, the last day of which is also the vesting date.

In addition to the TSR conditions, vesting of the PSUs is subject to the awardee’s continued employment through the date of settlement of the PSUs, which will occur within 60 days following the end of the performance period.

Unrecognized compensation expense related to unvested PSUs at March 31, 2020 was $ 7.5 million , which the Company expects to recognize over a weighted average period of 2.0 years.

The table below summarizes PSU activity for the three months ended March 31, 2020 :

Performance Stock Units

Weighted Average Grant Date Fair Value

Unrecognized compensation expense related to unvested PSUs as of June 30, 2020 was $ 6.4 million, which the Company expects to recognize over a weighted average period of 1.8 years.

The table below summarizes PSU activity for the three and six months ended June 30, 2020:

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2020

Performance Stock Units Weighted Average Grant Date Fair Value Performance Stock Units Weighted Average Grant Date Fair Value

Unvested PSUs, beginning of period 1,094,752 $ 11.31 701,128 $ 14.31

Granted — — 401,958 6.14

Vested ( 8,333 ) 14.58 ( 16,667 ) 14.58

Forfeited — — — —

Unvested PSUs, end of period 1,086,419 $ 11.28 1,086,419 $ 11.28

The grant date fair value of the PSUs granted during the three months ended March 31, 2020 and 2019 was $ 2.5 million and $ 3.6 million , respectively, calculated using a Monte Carlo simulation.

The grant date fair values of the PSUs granted were $ 2.5 million and $ 3.7 million during the six months ended June 30, 2020 and 2019, respectively, calculated using a Monte Carlo simulation.

The following table summarizes the assumptions used to calculate the grant date fair value of these PSUs.

Grant Date Fair Value Assumptions

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Six Months Ended

Grant Date Fair Value Assumptions June 30, 2020

June 30, 2019

Expected term (in years)

2.85 2.67 - 2.85

Expected volatility 33.50 % 31.58 % - 33.61 %

2 unchanged sentences

A reconciliation of the numerators and denominators of the basic and diluted per share computations follows:

(In thousands, except per share data)

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Three Months Ended Six Months Ended

(In thousands, except per share data) June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Net income (loss) attributable to Class A Common Stock $ ( 18,272 ) $ 18,506 $ ( 1,245,282 ) $ 31,531

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Net income (loss) per share of Class A Common Stock - basic

$ ( 0.11 ) $ 0.12 $ ( 7.46 ) $ 0.20

Net income (loss) attributable to Class A Common Stock $ ( 18,272 ) $ 18,506 $ ( 1,245,282 ) $ 31,531

3 unchanged sentences

Net income (loss) per share of Class A Common Stock - diluted

The calculation for weighted average shares reflects shares outstanding over the reporting period based on the actual number of days the shares were outstanding.

The Company excluded the following from the computation of diluted earnings or loss per share because the effect was anti-dilutive as a result of the net loss for the quarter ended March 31, 2020:

(i) 85.8 million weighted average shares of Class A Common Stock issuable upon exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units), (ii) 4.0 million contingent shares of Class A Common Stock issuable to EnerVest, provided EnerVest does not compete in the Market Area, and (iii) 0.3 million RSUs and PSUs.

For the quarter ended March 31, 2019, the Company excluded 93.3 million weighted average shares of Class A Common Stock issuable upon the exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units) as the effect was anti-dilutive.

$ ( 0.11 ) $ 0.12 $ ( 7.46 ) $ 0.20

The Company excluded the following from the computation of diluted earnings or loss per share because the effect was anti-dilutive for the three and six months ended June 30, 2020:

(i) 85.8 million weighted average shares of Class A Common Stock issuable upon exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units), (ii) 4.0 million contingent shares of Class A Common Stock issuable to an affiliate of EnerVest, provided EnerVest does not compete in the Market Area, and (iii) 0.1 million RSUs and PSUs.

For the three months ended June 30, 2019, the Company excluded 91.8 million weighted average shares of Class A Common Stock issuable upon the exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units) as the effect was anti-dilutive.

For the six months ended June 30, 2019, the Company excluded 92.5 million weighted average shares of Class A Common Stock issuable upon the exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units) as the effect was anti-dilutive.

Related Party Transactions

As of March 31, 2020 , EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, both of which are part of the Karnes County Contributors, each held more than 10% of the Company’s common stock and qualified as principal owners of the Company, as defined in ASC 850, “Related Party Disclosures.”

As of June 30, 2020, EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, both of which are part of the Karnes County Contributors, each held more than 10% of the Company’s common stock and qualified as principal owners of the Company, as defined in ASC 850, “Related Party Disclosures.”

Subsequent Event

On August 1, 2020, the Company provided written notice of its intent to terminate the Services Agreement, dated as of July 31, 2018, by and between the Company, Magnolia LLC, and EVOC.

The termination will be effective on November 1, 2020, unless earlier withdrawn by the Company at its discretion.

Pursuant to the Services Agreement, EVOC will continue to provide services during the transition through August 1, 2021.

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 1. Financial Statements