What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-11 · 173 added, 80 removed, 149 unchanged (63% 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 length, scope and severity of the recent coronavirus disease 2019 (“COVID-19”) pandemic, 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;

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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.

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 the Company 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 industry and Magnolia’s business cannot be reasonably predicted at this time.

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’s revenues have significantly declined as a result of the sharp decline in commodity prices.

As of June 30, 2020, the Company has not entered into any hedging arrangements with respect to the commodity price risk to which the Company is exposed.

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.

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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.

Magnolia did not bring any operated wells online during the second quarter and reduced its rig count to one rig in the Giddings Assets.

However, given the trajectory in commodity prices, management continues to assess the possibility of bringing wells online during the remainder of 2020.

The Company is well positioned to reduce or increase 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.

The Company has made reductions in general and administrative expense by reducing corporate salaries, renegotiating the fee under the Services Agreement, and working with many of its other vendors and suppliers to reduce the cost of their services.

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;

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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.

The Company has implemented remote working procedures for a significant portion of its workforce for health and safety reasons and/or to comply with applicable national, state, and/or local government requirements.

As a result, the Company relies on such persons having sufficient access to its information technology systems, including through telecommunication hardware, software, and networks.

Magnolia's board of directors is monitoring the unfolding COVID-19 pandemic very closely as well as the effect of working

remotely on internal controls over financial reporting and IT security.

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 .

As of June 30, 2020, Magnolia’s assets in South Texas included 43,031 gross (23,559 net) acres in Karnes, Gonzales, DeWitt, and Atascosa Counties, Texas, and 630,422 gross (428,531 net) acres in the Giddings Field.

As of June 30, 2020, Magnolia held an interest in approximately 1,800 gross (1,172 net) wells, with total production of 66.3 thousand barrels of oil equivalent per day (“Mboe/d”) for the six months ended June 30, 2020.

In the second quarter of 2020, Magnolia operated a one-rig program for the Giddings Assets.

Magnolia recognized a net loss attributable to Class A Common Stock of $1.2 billion, or $7.46 per diluted common share, for the six months ended June 30, 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 six months ended June 30, 2020.

As a result of the sharp decline in commodity prices during the six months ended June 30, 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 six months ended June 30, 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.

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.

As of June 30, 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.

No shares were repurchased in the second quarter of 2020.

Results of Operations

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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;

• During the first quarter of 2020, the Company incurred impairments of $1.9 billion related to proved and unproved oil and natural gas properties as a result of the sharp decline in commodity prices;

• 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 $72.0 million in cash, subject to customary closing adjustments;

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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

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Oil, Natural Gas and NGL Sales Revenues.

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

(In thousands, except per unit data)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

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

June 30, 2019

Oil (MBbls) 3,089 3,189

Natural gas (MMcf) 9,763 10,057

NGLs (MBbls) 1,122 1,060

Total (Mboe) 5,838 5,925

Average daily production:

Oil (Bbls/d) 33,940 35,044

Natural gas (Mcf/d) 107,289 110,516

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Total (boe/d) 64,146 65,111

Oil revenues $ 60,790 $ 204,513

Natural gas revenues 13,168 22,590

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NGLs (per barrel) 7.92 14.96

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.

Oil revenues were 73% and 84% of the Company’s total revenues for the three months ended June 30, 2020 and 2019, respectively.

Oil production was 53% and 54% of total production volume for the three months ended June 30, 2020 and 2019, respectively.

The oil revenues for the three months ended June 30, 2020 were $143.7 million lower than the three months ended June 30, 2019.

A 69% decrease in average prices reduced second quarter 2020 revenues by $141.7 million compared to the same period in the prior year, while a 3% decrease in oil production reduced revenues by $2.0 million.

Natural gas revenues were 16% and 9% of the Company's total revenues for the three months ended June 30, 2020 and 2019, respectively.

Natural gas production was 28% of total production volume for each of the three months ended June 30, 2020 and 2019.

Natural gas revenues for the three months ended June 30, 2020 were $9.4 million lower than the three months ended June 30, 2019.

A 40% decrease in average prices reduced second quarter 2020 revenues by $9.0 million compared to the same period in the prior year, while a 3% decrease in natural gas production reduced revenues by $0.4 million.

NGL revenues were 11% and 7% of the Company’s total revenues for the three months ended June 30, 2020 and 2019, respectively.

NGL production was 19% and 18% of total production volume for the three months ended June 30, 2020 and June 30, 2019, respectively.

NGL revenues for the three months ended June 30, 2020 were $7.0 million lower than the three months ended June 30, 2019.

A 47% decrease in average prices reduced second quarter 2020 revenues by $7.5 million compared to the same period in the prior year, while a 6% increase in NGL production increased revenues by $0.5 million.

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)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

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

June 30, 2019

Operating Expenses:

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Exploration expenses 6,462 3,617

Asset retirement obligations accretion 1,464 1,373

Depreciation, depletion and amortization 50,870 126,102

Amortization of intangible assets 3,626 3,626

General and administrative expenses 15,729 19,106

Transaction related costs — 85

Total operating costs and expenses $ 108,774 $ 199,326

Other Income (Expense):

Income from equity method investee $ 611 $ 128

Interest expense, net (7,256) (7,299)

Other expense, net 13 (13)

Total other expense $ (6,632) $ (7,184)

Average Operating Costs per boe:

Lease operating expenses $ 3.14 $ 4.20

Gathering, transportation, and processing 1.16 1.25

Taxes other than income 0.95 2.21

Exploration expense 1.11 0.61

Impairment of oil and natural gas properties — —

Asset retirement obligation accretion 0.25 0.23

Depreciation, depletion and amortization 8.71 21.28

Amortization of intangible assets 0.62 0.61

General and administrative expenses 2.69 3.22

Transaction related costs — 0.01

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 June 30, 2020 were $6.6 million, or $1.06 per boe, lower than the three months ended June 30, 2019 primarily due to the suspension of completion activity and reduction of operating expenses associated with bringing new wells online.

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

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 June 30, 2020 were $0.6 million, or $0.09 per boe, lower than the three months ended June 30, 2019 primarily due to lower gas prices and production from the Giddings Assets.

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 $7.6 million, or $1.26 per boe, lower for the three months ended June 30, 2020 compared to the three months ended June 30, 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 expired or abandoned leases, and delay rentals.

The exploration costs for the three months ended June 30, 2020 were $2.8 million higher than the three months ended June 30, 2019 and $0.50 higher on a boe basis.

This increase is primarily due to

higher leasehold abandonment expenses related to the Company’s unproved natural gas properties offset by lower seismic surveying costs.

Depreciation, depletion and amortization (“DD&A”) during the three months ended June 30, 2020 was $75.2 million lower than the three months ended June 30, 2019.

The DD&A rate per boe for the three months ended June 30, 2020 was $12.57 lower than the three months ended June 30, 2019.

The decrease is primarily the result of lower asset property balances associated with proved property impairments recorded in the first quarter of 2020.

General and administrative (“G&A”) expenses during the three months ended June 30, 2020 were $3.4 million lower than the three months ended June 30, 2019 primarily as a result of lower employee compensation and other corporate cost cutting initiatives.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 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 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.

Six Months Ended

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

June 30, 2019

Oil (MBbls) 6,479 6,095

Natural gas (MMcf) 19,817 19,820

NGLs (MBbls) 2,276 2,144

Total (Mboe) 12,058 11,542

Average daily production:

Oil (Bbls/d) 35,600 33,674

Natural gas (Mcf/d) 108,882 109,503

NGLs (Bbls/d) 12,506 11,845

Total (boe/d) 66,253 63,770

Oil revenues $ 215,476 $ 376,167

Natural gas revenues 29,343 49,965

Natural gas liquids revenues 19,385 35,499

Total revenues $ 264,204 $ 461,631

Average Price:

Oil (per barrel) $ 33.26 $ 61.72

Natural gas (per Mcf) 1.48 2.52

NGLs (per barrel) 8.52 16.56

Oil revenues were 82% and 81% of the Company’s total revenues for the six months ended June 30, 2020 and 2019, respectively.

Oil production was 54% and 53% of total production volume for the six months ended June 30, 2020 and 2019, respectively.

Oil revenues for the six months ended June 30, 2020 were $160.7 million lower than the six months ended June 30, 2019.

A 46% decrease in average prices reduced revenues for the six months ended June 30, 2020 by $173.5 million compared to the same period in the prior year, while a 6% increase in oil production increased revenue $12.8 million.

Natural gas revenues were 11% of the Company's total revenues for each of the six months ended June 30, 2020 and 2019.

Natural gas production was 27% and 29% of total production volume for the six months ended June 30, 2020 and 2019, respectively.

Natural gas revenues for the six months ended June 30, 2020 were $20.6 million lower than the six months ended June 30, 2019 which resulted from a 41% decrease in average prices for the six months ended June 30, 2020 compared to the same period in the prior year.

NGL revenues were 7% and 8% of the Company’s total revenues for the six months ended June 30, 2020 and 2019, respectively.

NGL production was 19% of total production volume for each of the six months ended June 30, 2020 and June 30, 2019.

NGL revenues for the six months ended were June 30, 2020 $16.1 million lower than the six months ended June 30, 2019.

A 49% decrease in average prices reduced revenues for the six months ended June 30, 2020 by $17.2 million as compared to the same period in the prior year, while a 6% increase in NGL production increased revenue $1.1 million.

Operating Expenses and Other Income (Expense) .

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

Six Months Ended

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

June 30, 2019

Operating Expenses:

Lease operating expenses $ 42,473 $ 46,413

Gathering, transportation, and processing 14,807 16,746

Taxes other than income 15,543 27,492

Exploration expenses 562,888 6,093

Impairment of oil and natural gas properties 1,381,258 —

Asset retirement obligations accretion 2,902 2,701

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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.

Lease operating expenses for the six months ended June 30, 2020 were $3.9 million, or $0.50 per boe, lower than the six months ended June 30, 2019 primarily due to the suspension of completion activity and reduction of operating expenses associated with bringing new wells online.

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

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.

The gathering, transportation, and processing costs for the six months ended June 30, 2020 were $1.9 million, or $0.22 per boe, lower than the six months ended June 30, 2019 primarily due to lower gas production and prices from the Karnes County Assets and Giddings Assets.

Taxes other than income include production and ad valorem taxes.

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

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.

Taxes other than income and related cost per boe were $11.9 million, or $1.09 per boe, lower for the six months ended June 30, 2020 compared to the six months ended June 30, 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 expired or abandoned leases, and delay rentals.

The exploration costs for the six months ended June 30, 2020 were $556.8 million higher than the six months ended June 30, 2019 and $46.15 higher on a boe basis primarily as a result of an 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 the six months ended June 30, 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 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.

DD&A during the six months ended June 30, 2020 was $48.5 million lower than the six months ended June 30, 2019.

The DD&A rate per boe for the six months ended June 30, 2020 was $4.92 lower than the six months ended June 30, 2019.

The decrease is primarily the result of lower asset property balances associated with proved property impairments recorded in the first quarter of 2020.

G&A expenses during the six months ended June 30, 2020 were $1.5 million lower than the six months ended June 30, 2019 primarily as a result of lower employee compensation and other corporate cost cutting initiatives.

Interest expense, net, incurred for the six months ended June 30, 2020 and 2019 is due to interest and amortization of debt issuance costs related to the Company’s 2026 Senior Notes and the RBL Facility.

The interest expense, net, incurred during the six months ended June 30, 2020 was $0.7 million lower than the six months ended June 30, 2019 due to higher interest income.

Liquidity and Capital Resources

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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 .

As of June 30, 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 June 30, 2020, the Company had $566.9 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility and $116.9 million of cash and cash equivalents.

Cash and Cash Equivalents

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

At June 30, 2020, Magnolia had $116.9 million of cash and cash equivalents.

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

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The following table presents the sources and uses of the Company’s cash for the periods presented:

(In thousands)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Six Months Ended

(In thousands) June 30, 2020

June 30, 2019

Sources of cash and cash equivalents

Net cash provided by operating activities $ 165,842 $ 309,391

Other — 11,551

$ 165,842 $ 320,942

Uses of cash and cash equivalents

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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)

Class A Common Stock repurchase (6,483) —

Increase (decrease) in cash and cash equivalents

Other (1,328) (779)

(231,625) (359,991)

Decrease in cash and cash equivalents $ (65,783) $ (39,049)

Sources of Cash and Cash Equivalents

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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.

Net cash provided by operating activities totaled $165.8 million and $309.4 million for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2020, cash provided by operating activities was negatively impacted by the sharp decline of oil and natural gas prices and payment of liabilities, partially offset by positive impacts from the timing of collections, and lower production tax payments.

Uses of Cash and Cash Equivalents

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.

During the six months ended June 30, 2020, the Company completed various leasehold and property acquisitions, primarily comprised of a $72.0 million acquisition of certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas.

During the six months ended June 30, 2019, the Company incurred $91.9 million of acquisition costs, primarily related to 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 three months ended March 31, 2020 and 2019:

(In thousands)

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

The following table sets forth the Company’s capital expenditures for the three and six months ended June 30, 2020 and 2019:

Three Months Ended Six Months Ended

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

June 30, 2019

Drilling and completion $ 27,272 $ 116,031 $ 127,883 $ 255,794

1 unchanged sentence

Total capital expenditures $ 28,260 $ 117,372 $ 129,651 $ 263,064

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.

As of June 30, 2020, Magnolia was running a one-rig program for the Giddings Assets.

The activity during the six months ended June 30, 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.

4 unchanged sentences

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

No shares were repurchased during the second quarter of 2020.

Off-Balance Sheet Arrangements

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

As of June 30, 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